Re:Is college worth the cost?
by imgabe on Thursday August 30, 2007 @09:11AM
(#48214)
Here's some interesting numbers. Let's say you go to a college for four years and it costs $25,000/year, $100,000 total. To pay for it, you take out some college loans at 7% interest that have to paid back in 10 years. So, your loan payment is $1161.08/month. In total you'll pay $139,329 by the time the loan is paid off. So, you earn 1.2 million more over your life time than the non-college grad, but after the cost of college you're only ahead by about $1,060,000. I'm supposing here that by "over your lifetime" means until you retire, that is say from age 22 to age 65.
Now, suppose you don't go to college but instead you start working at 18. You apply yourself to your job, learn what you can on your own time, and by age 22 you've got four years experience and you've been promoted the point that you can sock away $1161.08 per month in savings. Say you do this for 10 years and keep the money in a conservative mutual fund that earns an average return of 7% per year. After the 10 years are over you've got $200,965 in savings. At this point, you stop investing. Even with no additional money, by the time you're 65 (33 years later) you'll have $2,011,064.27 or roughly $1 million more than the guy who invested his money in college.
Of course these are just some made up numbers. A lot of people who aren't motivated to go to college are probably also not motivated to save that much money and live that frugally. If college costs you less than $25,000 per year it might be worth it, or you might go into a profession that allows you to earn way more than $1.2 million more than the average high school grad. On the other hand, lots of colleges cost a good deal more than $25k/year. Also, the high school grad might invest his money more aggressively and earn more than 7% interest. It would be interesting to see where the crossover point is in terms of college cost, loan interest rate, investment interest rate, and so on. The point remains that a return of 1.2 million over 43 years on a $100,000 investment is pretty crappy (around 5.8% compounded monthly, slightly better than an online savings account)
Now, suppose you don't go to college but instead you start working at 18. You apply yourself to your job, learn what you can on your own time, and by age 22 you've got four years experience and you've been promoted the point that you can sock away $1161.08 per month in savings. Say you do this for 10 years and keep the money in a conservative mutual fund that earns an average return of 7% per year. After the 10 years are over you've got $200,965 in savings. At this point, you stop investing. Even with no additional money, by the time you're 65 (33 years later) you'll have $2,011,064.27 or roughly $1 million more than the guy who invested his money in college.
Of course these are just some made up numbers. A lot of people who aren't motivated to go to college are probably also not motivated to save that much money and live that frugally. If college costs you less than $25,000 per year it might be worth it, or you might go into a profession that allows you to earn way more than $1.2 million more than the average high school grad. On the other hand, lots of colleges cost a good deal more than $25k/year. Also, the high school grad might invest his money more aggressively and earn more than 7% interest. It would be interesting to see where the crossover point is in terms of college cost, loan interest rate, investment interest rate, and so on. The point remains that a return of 1.2 million over 43 years on a $100,000 investment is pretty crappy (around 5.8% compounded monthly, slightly better than an online savings account)