How much does income have to benefit to make the extra cost of a college worth it?

College Search & Selection
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<p>Setting aside the wonderful intangible benefits of college for the moment, let’s talk about money. How much does attending one college instead of another college have to increase your income to make the investment at least break even during your working lifetime?</p>

<p>Say you spend $20,000 more to attend College A rather than college B, $5,000 more per year. If your parents just gave you $20K, you could invest it until you are 65 at 8% interest per year. On the other hand, College A might ultimately land you a better job with higher income. Furthermore, let’s say you invested that hypothetical additional income each year at 8% interest until you are 65. How much does that additional income have to be to break even?</p>

<p>Then there is the additional complication that the extra $20K cost for college A could be taken as a loan, say 10 years at 8% interest.</p>

<p>Let me say at the outset that collegehelp knows almost nothing about finance. Here are some scenarios that I came up with. Maybe somebody can check my work.</p>

<p>The $20,000 cash added cost, if invested instead, would have a future value after 40 years at 8% interest of $435,000. However, a $2,000 increase in annual income invested at 8% interest over 40 years would yield $560,000…a net gain.</p>

<p>On the other hand, if you took out a 10-year loan for $20,000 at 8% interest, the loan would actually cost you $40,000. $40,000 invested for 35 years at 8% interest would have had a future value of about $600,000 (don’t ask me how I arrived at <em>35</em> years…I only dimly grasped this part). You would have to make and invest $3000 more per year ($840,000) to make the loan worth it.</p>

<p>$12,000 additional cash cost ($3,000 per year) would only require a $1,000 increase in income and investment to make it worth the cost. (break even=about $270,000) .</p>

<p>A $12,000 10-year loan would actually cost about $25,000 which you could turn into about $530,000 over 35 years. You would have to increase your income $2,000 per year ($570,000 if invested) to break even plus.</p>

<p>Now, let’s say you spent an additional $40,000 cash ($10,000 per year) on college A. If you had invested that $40K instead, you would have $870,000 after 40 years. To break even, you would have to increase and invest your income by a little over $3000 per year ($840,000).</p>

<p>If you took the $40,000 as a 10-year loan, it will actually cost you $80,000 which would have accumulated $1,200,000 over 35 years. If your income increased $5,000 per year by attending college A, and you invested it, you would surpass the cost ($1,400,000).</p>

<p>I am not sure any of this is correct but I am going to put it out there anyway.</p>

<p>My basic conclusion is that even small benefits to your income justify college costs in the long run. Again, ignoring the intangibles for the time being.</p>

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<p>Looks about right to me. I think it goes to show that being in debt is fine as long as you’re not starving in the 10 years it may take to pay it back.</p>

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<p>Personally, I would only go to an expensive school if my parents were paying for it. </p>

<p>I see no reason to start your adult life in debt if you can get the same degree at a cheaper institution.</p>

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<p>But that’s the thing - it’s not the same degree. With one degree, employers may look at you as a truly intelligent person, whereas with the other degree, employers may regard you as just another job applicant. Some expensive schools also have amazing alumni networks that can help you get a good job.</p>

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<p>That’s what the prestige whores want you to think. </p>

<p>Employers don’t care. I read an article that interviewed the heads of major Fortune 500 companies, and they even say that they’re just as likely to hire a grad from State U as they are to hire a grad from Yale. A big name might intrigue the interviewer to ask questions about your time in school, but it isn’t going to propel you ahead of the other qualified applicants. If you want a job, you have to earn it. Unless your uncle owns the company, there are no short cuts. The fact of the matter is that there are far more important things to employers than where you went to school.</p>

<p>And if your employer does happen to be superficial - well, there actually instances where the less academically challenging school may be better recognized anyway (example: I bet more employers have heard of the University of Kansas than Swarthmore or Williams).</p>

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<p>“Employers don’t care. I read an article that interviewed the heads of major Fortune 500 companies, and they even say that they’re just as likely to hire a grad from State U as they are to hire a grad from Yale. A big name might intrigue the interviewer to ask questions about your time in school, but it isn’t going to propel you ahead of the other qualified applicants. If you want a job, you have to earn it.”</p>

<p>I am always intrigued by comments that you have to earn a job. What can possibly transpire in the course of a one hour interview that would say more about you than what you did during your 4 years at college and where you attended? Most 21 year olds don’t have the experience, by definition, to impress any employer. As far as name recognition as a benchmark for quality I don’t think you can count on that. The fact is we live in a world where the average IQ is 100 and a person with that level of intelligence is not too bright. I don’t think hoping you run into an idiot in the hiring office is a good strategy. By the time you get to your 3rd job people won’t care much where you went to school until then they don’t have much else to go on. I wonder why so many people want to go to Yale if nobody cares that you went there reminds me of this classic line…That restaurant is so crowded, nobody goes there anymore.</p>

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<p>It’s true that, all things being equal, a CEO might be just as willing to hire a state college grad as a grad from an elite private college–but there are a lot of factors that might make it easier for the elite grad to get the interview in the first place. I’ll bet that opportunities and resources are superior at the elite private than at the less well-known regional public, so the grad from the latter school is going to have to do a lot more hustling. Whether its good internships, or well-placed alumni, or who comes to campus to recruit, one could argue that the elite private school student may have an easier time getting his or her resume in front of the right person. </p>

<p>I’m not actually a huge supporter of the “elite is always better” mentality that we sometimes see here, but the idea that there is NO difference whatsoever when it comes to hiring just doesn’t seem like it could be true.</p>

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<p>OP,</p>

<p>Why don’t you take this question over to the parents’ forum and ask those who have been in the position of hiring people what they think?</p>

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<p>According to what I read, previous work experience (such as in part time jobs), good references who can vouch for character, and GPA are all supposed to matter more than than the school itself. </p>

<p>Real life example: one of my sisters went to a 3rd tier state school - she also worked several part time jobs and got something like a 3.8 GPA. Despite the fact that she went to a “no name” school, because of her apparent work ethic, she beat out people coming from top schools for a major job, and started her adult life making over $100k a year. </p>

<p>My dad does hiring for a major company, actually. I’ll see if he can prepare a statement on his thoughts on the matter (I’ve actually never asked him before, so it should be interesting).</p>

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<p>GPA will always be more important than name brand except in one important case. Let’s say you get a 4.0 somewhere. If that’s the case, you really have no way to show your full potential because you already have a perfect GPA. If you had gone to a tougher school, you would either be able to show your full potential by getting the highest GPA you could or you would still get a 4.0 except getting a 4.0 there would have you set for life.</p>

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<p>It isn’t quite fair to ignore the intangibles. Sure, the people who think a degree from better or more elite school will have a financial payoff need to do some number crunching and examine their assumptions. But, while it is fair to examine some of the other perceived benefits of an elite education, it is not fair to ignore them.</p>

<p>I don’t think the money is the only thing, but I struggle with putting value on some of the other factors. (I hope that my daughter assigns similar values. Naturally, I don’t want her to try to spend a bunch of my money on things I don’t value. The other side of it is I want her to chose from schools I think are good, even if cost might be a little higher though still affordable.) </p>

<p>Some of the things I struggle with measuring and weighting:</p>

<p>Quality of education-- what is this anyway? I think there is more to it than financial success or grad/ professional school admission. How do you measure the impact a school has on a person’s ability to think critically and to appreciate (understand, enjoy) the word around her? I want to put a lot of weight on this, but I suspect I over-estimate the differences in this regard.</p>

<p>Fit-- I think too much is made of fit, as if some magical destiny is involved. That said, I want my D to be at a school where she can be comfortable and even enjoy the four years.</p>

<p>Bragging rights-- how often would I have to drop the school name in conversation to make it worth $200,000, or even the $135,000 extra it would cost over the cost of a degree from a public university in state. And could I do it with any class? Oh well, I guess I’ll have to set this factor aside.</p>

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<p>I don’t think its a coincidence that many, many successful scientists, writers, philosophers, engineers, etc. went to elite schools. Their success, in my opinion, is a product of their innate ability, work ethic, education, and upbringing. The atmosphere of the college plays a huge role in upbrining. That can’t be denied. Since I’ve got to Bard, I’ve begun to enjoy academics and intellctual discussion much more, and that will definitely help me along the road, because it strikes interest in what I’m doing and gets me more involved, even outside of class.</p>

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<p>This question comes up a lot. Fact is, there is no definitive answer because there are too many variables and assumptions you have to apply. Even elite schools are often unevenly recognized or valued geographically. If hiring managers displayed any preference based on where one attended college in my state, the kids from State U would have the greatest advantage since that’s where most of the hiring managers also attended. </p>

<p>Moreover, you really can’t assign a value to prospective income based solely on the school you attend unless there’s something you know you will accomplish more greatly at one school over another (i.e. special internship, sponsored programs, opportunity to be published, etc.), and even then, it’s mostly conjecture. </p>

<p>You have to look realistically at all the variables before you make costly assumptions.</p>

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<p>FLVADAD-
Yes, there are lots of factors to consider for an individual case but, if everything else is held constant, a $1K-$5K boost to your salary will offset almost any incremental outlay of funds for college in the long term.</p>

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<p>Mmmm, not so fast. First off, assuming that your analysis is correct (I am lazy and am not going to go confirm your numbers), that $5k boost to your salary would cover a outlay of funds of up to $40k. If you need to borrow more, then you’d need a correspondingly larger salary boost. </p>

<p>One big assumption in your analysis is that our hypothetical student is fiscally disciplined enough to take an additional $1-5k a year and invest it. It sounds easy, and it should be a no-brainer, but you only have to look at our national savings rate to realize that this is tougher for a lot of people than you’d think. </p>

<p>I also think that tax policy is going to play a big part in the comparison. If you could bank that $10k or more at the start of college, you should be able to find clever ways to do so tax-free, or in a retirement account where taxes are deferred. That extra $1-5k you are theoretically earning and investing each year, on the other hand, is going to be taxed. Even if you’re putting it all in an IRA or 401k, there’s still social security tax to be paid. If you took out a loan, keep in mind that you’re paying back that loan money with after-tax dollars. </p>

<p>The biggest assumption here is that attending the more expensive college will position you to earn a larger salary. If CC was visited by a genie who would grant us the answer to one question, I suspect this is one that we’d want answered. It says something that we don’t have a definitive answer!</p>

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<p>slithytove-
My numbers are about the DIFFERENCE in cost between two schools, not the total expense.</p>

<p>Whether the student actually invests the salary increase is irrelevant. The point is that they could invest it, and if they did, how much could they accrue?</p>

<p>It isn’t possible to say for sure whether a particular individual’s salary will be higher by attending a particular university. The gains in salary are hypothetical gains. I think better schools bring higher salaries.</p>

<p>But, an in state Berkeley student has a clear financial advantage.</p>

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<p>^^^But that in-state Berkeley student could be looking at a $100k difference between Cal and another school. A $5k a year salary increase is not going to cover that differential. Anyway, we really have no idea if that salary increase would really be there; even though you think that better schools bring higher salaries, you don’t know if that is really true.</p>

<p>As you mention Cal, I’ve got one anecdote: one student goes (in-state) to Berkeley, another classmate goes to Stanford. The students have similar high school records and test scores. They continue on through grad school in the same area of study, with the Cal student attending a public school and the Stanford student attending a private in the same geographic area. Both students then end up at the same (highly regarded) place of employment, in similar jobs, earning very similar salaries. </p>

<p>20-some years go by. The Cal alum (CA) recently asked the Stanford alum (SA) if SA would pay that $100k differential for SA’s own child. SA thought it over, said that the experience at Stanford was not something they’d trade away, but didn’t see any difference in the endpoint of where someone could end up attending the more expensive school. </p>

<p>As always, your mileage may vary, and past performance is no guarantee of future returns :)</p>

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<p>Cost is a tricky issue. A % of parents pay 20k a year to send their kids to private k-12 so $240k for an education most get for free. If you pay that for k-12 paying for the right college is a no brainer.</p>