|
Recently College Board presented to congress a report which concluded
that college is a "high yield" financial investment for all attendees.
My preliminary
analysis raised several questions about the
methodology used to arrive at that conclusion. I subsequently exchanged
emails with the primary author and after a few inquiries they provided
the actual worksheet and formula used in that report. Although it's
puzzling why the data backing their conclusion is not published for all
to read on their web site if it's so convincingly advocates college
attendance.
Is college really a good financial choice for everyone
regardless
of
sex or race? I want to know what the data says. I question
the
College Board's objectivity and you should too. It's called "College
Board" not
"Student Board" and College Board is a big profitable business serving
colleges and providing the popular SAT tests. I don't run a college. I
don't make money from college applicants and attendees. I have no
direct financial benefit whether young people attend college or not.
But you don't have to trust my opinion. There's ample accurate
financial information which can shed light on the situation and remove
opinions and bias.
To perform a deeper financial analysis I decided to use the same
worksheet and formulas used in the College Board report, but apply
assumptions that more closely matched what the average student
experiences attending a US college. This dramatically changed the
results. Additionally, since the report claimed college was highly
beneficial to both sexes and all races, but offered no data to back
that claim, I applied data from the same source the College Board cited
(US Census Report) by sex and race to look at that question closer.
Here the results were absolutely shocking.
Before I get to the results I want to comment on the changes I made to
the College Board formulas because the results are only as sound as the
assumptions. My results differed dramatically from the College Board
report. I have outlined in a table (see below) the changes I made with
the logic and reason for the alteration. I encourage you to critically
examine them to verify the validity of the conclusions I reach.
Using the College Board formulas, the data shows that the financial
benefit of college is on average a modest 4% for those attending and
completing a public college and under 2% for all graduates of private
colleges. These results are arrived at by comparing a 45 year time
period with 5 years of college attendance and a 40 year career versus
the same 45 year time period for high school graduates.
The data reveals some surprises when looking closely at sex and race.
Males experience a slightly superior return for all races except Black
in which females edge out males. Asian males receive the highest
financial benefit from both public and private college followed by
Black females. Overall Hispanics have on average the lowest financial
benefit of all races (men and women combined). Most surprising was
White females which ranked at the bottom for financial gain at all
colleges. At private colleges the average White woman has a negative
return indicating that after a 40 year work career they will have less
money than their high school counterpart after deducting college
expenses and financing costs.
Male
Race
of College Graduate
|
Public
College Return On Investment (ROI)
|
Private
College Return On Investment (ROI)
|
Asian
|
4.73%
|
2.16%
|
White
|
4.17
|
1.40
|
Black
|
3.94
|
1.07
|
Hispanic
|
3.57
|
0.50
|
Female
Race
of College Graduate
|
Public
College Return On Investment (ROI)
|
Private
College Return On Investment (ROI)
|
Black
|
4.39%
|
1.71%
|
Asian
|
3.69
|
0.69
|
Hispanic
|
3.45
|
0.31
|
White
|
3.20
|
-0.14
|
The original College Board report claims a "high yield" for all
attendees, but when using realistic assumptions students attending
college beginning in 2007-2008 can expect a
return on investment (ROI) of 0 to 4.73%. This is not a high yield. It
is a low yield. The
data suggests that attending a private college is essentially a break
even financial prospect after a 40 year career which calls into
question the merits of anyone recommending private college to a young
person if they are required to take loans to pay for it. Public college
(assuming in state tuition rates) sees a slightly better return since
tax payers are picking up a portion of the tab. It should be noted that
the ROI ranges more than 30% between certain sex and race
segments in public college so simply overlooking race and gender would
be a misguided strategy.
It bears repeating that these calculations are meant to measure the
mythical average student. Of course there's no such student, but this
does provide a general indicator of the monetary outcome of a college
experience. Many will do better, but many will do worse
than the averages listed below. When one includes the
substantial 20% drop-out rate and these low average returns it should
be clear that college is most definitely not for everyone. For an
increasing population - especially those financing their University
expenses via debt - college is a financial losing experience. Helpful
guidance prior to making the enormous economic investment is warranted.
Many choices can greatly reduce the cost of college such as work/study,
online courses, AP classes, and community college. Parents, counselors
and elders should look to these paths to insure that college is a
financially benefit experience for all.
Assumption
Changes To College Board Report
Inaccurate
College Board Assumption
|
More
Realistic Assumption
|
Logic
and Reason
|
4 year graduation
for everyone.
|
5
year average
time to graduation.
|
Even after the
6th year only 80% of students
have completed college. While it is technically possible to graduate in
4 years it is not the average but best case scenario. Since the goal is
to examine the financial outcome of the average college experience 5
years is more realistic. Admittedly this assumption is inaccurate
because it ignores the 20% of young people who incur some college cost
but never attain a degree. Measuring only the graduates ignores the
reality that a large percentage of people will not graduate.
|
Zero days of
unemployment over 40 year career.
|
Actual employment
experience.
|
It would be a
rarity for someone to get hired
the first day out of college and never experience a day of unemployment
for 40 years. Today's fluid society means college grads can expect
several job changes. The US Census data provides salary income
factoring in periods or low or no employment and they should be used to
create a more accurate analysis.
|
Tuition as the
only cost for college.
|
Full cost for
attending college including
tuition, fees, books, room and board.
|
Whether a dollar
goes to pay for a book, meal
plan, tuition, parking, housing or some other fee it is all part of the
cost of attending college and should be included in the financial
analysis of a college investment. When loans are taken out, which is
increasingly how young people are financing college, they are used to
cover all expenses not just tuition.
|
All loans at low
government rate of 6.8%.
|
6.8% interest
rate only for the first 28,000
which is the maximum allowed and then a 12% private loan rate.
|
Private college
loans are a rapidly growing
funding source for college costs and interest rates range from
12-17%
(with horror stories of even higher rates). The new assumption probably
still understates interest rates for college loans since it assumes all
are at 12% but it is closer to reality than assuming all loans are
government subsidized when they are clearly not.
|
--MR
To
discuss this topic with others, click
here!
The Michael's Minute Meter
 |
|
|
|
|
|
|
| | AGREE |
| DISAGREE |
| MIXED |
| | | Total Votes: 226 | |
| | |
View the Michael's Minute Meter Report
|
