New York Post has published an interesting article a couple of month ago on the actual value of a college degree. The authors argue that there is really not much value in college education. They also throw in a couple of calculations to make there case.
Now, college is fun. Life-long friendships and many families are formed on campus. It also gives you an opportunity to postpone real life. If that all there is, we should definitely consider it along the same lines as camp, but not necessarily a way to get ahead in life.
While we agree with the main premise of the aforementioned article, some numbers did not quite make sense for us, so we put together our own simulation.
Our base assumptions are: our college-bound friend will get a tuition bill of $25,000 (somewhat conservative) for the first four years of his adult life, after graduation he will get a job paying $50,000 per annum (aggressive), he will receive 10% pay increase ever year (very aggressive), he will save 20% of his before tax pay (very aggressive) to pay down his college debt and save for the future, his net worth will grow by 10% (both net positive and negative - fairway); our out-of-high-school fellow will get a job paying $10 an hour (conservative), will work full time and save 20% of his before-tax earnings, he will get only 5% increase every year (fairway) and his net worth will grow at the same 10%.
By this measure after Year 1, our subject A’s net worth will be negative $25,000, subject B’s will be positive $4,000.
After Year 5, subject A will make his first $50,000, make his first $10,000 payment toward his college debt, bringing the total net worth to negative $117,628;
Our subject B will be making only $12.16 an hour and contributing $4,862 bringing his net worth to positive $26,738.
Our two fellows will only converge in terms of net worth after 25 years of hard work, at which point A will be making over $336,000 (unrealistically high), and B will $32.25 an hour (very realistic).
As you can see from this example based on very skewed assumptions, no-college is a pretty viable existing alternative (from the financial benefits standpoint).
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