Is Higher Education Worth it?
I am a financial advisor and I meet with people from all walks of life. I have clients that just got out of Dental/Medical school with 200 to 300k of debt. I meet with nursing students with 65k of debt, and regular MBA's with no debt but have spent 200k on their education.
My daughter is about to be 4 years old in May and I have been putting $300 per month away for her as a college fund. As I meet with more and more people especially the people that do post graduate/medical/law school education. The more I question the validity of the current costs associated with higher education.
I first want to say that I do believe in being educated. I believe that we need to have many more math and engineering graduates in order to compete around the world. My focus is on when does the degree become less valuable to the student than investing the money and getting a job or starting a business.
I ran some numbers from my software systems at work that I use for financial planning and the costs for schools across the country differ greatly. Whether you live in-state or out of state has a huge impact as well. For the sake of our analysis today we are not going to use one of the outrageously expensive schools like Harvard. Nor are we going to look at the incredibly inexpensive. I chose a common school that I feel is middle of the road... Ohio State University.
Here are the basic fundamental costs for a person today to attend for one year if they are out of state.
Out of State Tuition: $24,630
Average Cost of Room and Board: $9,180 (remember this is only while school is in session)
Books and Supplies: $1,554
Total Years that the Student attends: 4 (if your lucky... Many change majors and end up 5 years)
Total Cost (not including alcohol): $35,364
Total Cost over 4 years: $141,456
Total Cost by the time my Daughter finishes school @ 6% (education inflation rate): $393,002
Age my daughter will be upon completion: 23
$393,002 invested at 7% at age 23 turns into:
Age 45 = $1,741,156.75
Age 50 = $2,442,062.41
Age 55 = $3,425,118.85
Age 60 = $4,803,906.38
Age 65 = $6,737,727.20
These assumptions are contingent upon my daughter not touching the money... But she wouldn't be able to touch her tuition once it was spent anyway. It also assumes she can get over her life a 7% return on her money. That is a different argument and I don't think it has any bearing here. Run your own numbers if you want to use a higher or lower rate of return.
Personally I think education is great but I will be advocating for community college the first two years and then an inexpensive university for the final two. The cost for college is becoming stupid. As I meet with clients I see very few that approach a networth of $2,000,000. The vast majority of college students totally waste this money and end up working in jobs that don't pay near the amount you would need to replace this money. Couple that with the fact that many people have debt costs on top of the normal costs of university and you can't imagine the numbers. They easily can approach an opportunity cost of $10,000,000.
I think you can take an accounting course, a basic personal finance and investing course, a few business classes from your local community college and do very well for yourself in many occupations. I know that certain professions require advanced schooling. So if you want to be a doctor you may not have a choice. Most people are not doctors though... they end up at a liberal arts college somewhere with 200k of loans and no ability to get a job to pay for it.
There needs to be a way to get the costs down otherwise whats the point? Go to the library and check out a book on any topic and you can get what you need. My little cousin can program software already and he is 14 years old. If your going to learn a craft like automotive, a chef, building etc. they have apprenticeship programs available. Don't spend 250k. Right now its not worth it.