Comments on: Thoughts on college ROI http://nostradoofus.com/2009/10/08/college-makes-you-poorer/ armchair futurology and stuff. Sat, 26 Jun 2010 04:35:18 +0000 http://wordpress.org/?v=2.8.4 hourly 1 By: Nostradoofus» Blog Archive » College makes you poorer – part 2 http://nostradoofus.com/2009/10/08/college-makes-you-poorer/comment-page-1/#comment-55 Nostradoofus» Blog Archive » College makes you poorer – part 2 Thu, 15 Oct 2009 05:16:53 +0000 http://nostradoofus.com/?p=493#comment-55 [...] follows up on last week’s assertion that many private colleges are a bad investment, viewed from a purely financial [...] [...] follows up on last week’s assertion that many private colleges are a bad investment, viewed from a purely financial [...]

]]> By: William Mitchell http://nostradoofus.com/2009/10/08/college-makes-you-poorer/comment-page-1/#comment-54 William Mitchell Sun, 11 Oct 2009 17:50:08 +0000 http://nostradoofus.com/?p=493#comment-54 Pretty good point, it might all come down to unfunded pension liabilities. Pretty good point, it might all come down to unfunded pension liabilities.

]]> By: Eric http://nostradoofus.com/2009/10/08/college-makes-you-poorer/comment-page-1/#comment-53 Eric Sun, 11 Oct 2009 01:25:34 +0000 http://nostradoofus.com/?p=493#comment-53 An alternative explanation would be that private universities are burdened with some of the same problems as GM: employee and retiree health care and pension costs. Public schools may have the same costs, but diffuse them among all the taxpayers via general state budget problems. Do we know the "all-in" costs per student are really lower for public schools, or do they just charge less? If true, this would be good motivation for Ivy-league Republicans to get behind Obamacare :-) An alternative explanation would be that private universities are burdened with some of the same problems as GM: employee and retiree health care and pension costs. Public schools may have the same costs, but diffuse them among all the taxpayers via general state budget problems. Do we know the “all-in” costs per student are really lower for public schools, or do they just charge less?

If true, this would be good motivation for Ivy-league Republicans to get behind Obamacare :-)

]]> By: admin http://nostradoofus.com/2009/10/08/college-makes-you-poorer/comment-page-1/#comment-52 admin Sat, 10 Oct 2009 23:58:48 +0000 http://nostradoofus.com/?p=493#comment-52 I think it supports the assertion that Ivy Leagues are the only good value in private college. But I still need to think about all the considerations in an ROI calculation. College may turn out to be yet another area in which too-cheap credit has led to overinvestment. That would be the most logical situation. I think it supports the assertion that Ivy Leagues are the only good value in private college. But I still need to think about all the considerations in an ROI calculation.

College may turn out to be yet another area in which too-cheap credit has led to overinvestment. That would be the most logical situation.

]]> By: Eric http://nostradoofus.com/2009/10/08/college-makes-you-poorer/comment-page-1/#comment-51 Eric Sat, 10 Oct 2009 23:09:53 +0000 http://nostradoofus.com/?p=493#comment-51 "Princeton led the starting-level median income pack with $66,500, followed by Harvard with $63,400. The Ivy with the highest mid-career median salary, at $134,000, was Dartmouth College, followed by Princeton, Yale, Harvard and Penn. The statistics confirm a broader trend showing that where students go to college impacts how much money they eventually make. Both the starting and mid-level paychecks of Ivy League alumni are a third higher than those of liberal-arts college graduates." http://www.thedp.com/node/57044 Does this provide positive ROI? “Princeton led the starting-level median income pack with $66,500, followed by Harvard with $63,400. The Ivy with the highest mid-career median salary, at $134,000, was Dartmouth College, followed by Princeton, Yale, Harvard and Penn.

The statistics confirm a broader trend showing that where students go to college impacts how much money they eventually make. Both the starting and mid-level paychecks of Ivy League alumni are a third higher than those of liberal-arts college graduates.”

http://www.thedp.com/node/57044

Does this provide positive ROI?

]]> By: Eric http://nostradoofus.com/2009/10/08/college-makes-you-poorer/comment-page-1/#comment-50 Eric Sat, 10 Oct 2009 19:03:17 +0000 http://nostradoofus.com/?p=493#comment-50 Unsecured, non-govt backed quarter-million dollar loans for 22 year olds? Stupid, but not surprising. They may still be available: http://www.salliemae.com/get_student_loan/find_student_loan/smart-option-student-loan.htm Another symptom of a massive credit bubble. Your ROI calculation is similar to price-to-rent for houses. But I think comparing median incomes is too simple. Imagine Harvard raised its tuition to $1B/year, but only Bill Gates children paid it in full. ROI for medians wouldn't tell you much. You need to look at correlation between parents and children's income, and how that is affected by reversing the private college choice. I expect parents and children's income is highly correlated. For the medium wealthy skipping private college won't improve declining incomes, and for the wealthiest college probably doesn't matter. If your take-away is "private college prices, like houses and other things bought with credit, got inflated by the credit bubble", I agree. If your take-away is "children without wealthy parents shouldn't pay full price for private college", I also agree. I know one huge positive ROI grad school case: Folks with Indian and Chinese undergraduate degrees, getting one-year EE masters in the US, and then Oracle jobs. Unsecured, non-govt backed quarter-million dollar loans for 22 year olds? Stupid, but not surprising. They may still be available:

http://www.salliemae.com/get_student_loan/find_student_loan/smart-option-student-loan.htm

Another symptom of a massive credit bubble. Your ROI calculation is similar to price-to-rent for houses.

But I think comparing median incomes is too simple. Imagine Harvard raised its tuition to $1B/year, but only Bill Gates children paid it in full. ROI for medians wouldn’t tell you much.

You need to look at correlation between parents and children’s income, and how that is affected by reversing the private college choice. I expect parents and children’s income is highly correlated. For the medium wealthy skipping private college won’t improve declining incomes, and for the wealthiest college probably doesn’t matter.

If your take-away is “private college prices, like houses and other things bought with credit, got inflated by the credit bubble”, I agree.

If your take-away is “children without wealthy parents shouldn’t pay full price for private college”, I also agree.

I know one huge positive ROI grad school case: Folks with Indian and Chinese undergraduate degrees, getting one-year EE masters in the US, and then Oracle jobs.

]]> By: William Mitchell http://nostradoofus.com/2009/10/08/college-makes-you-poorer/comment-page-1/#comment-49 William Mitchell Sat, 10 Oct 2009 17:22:43 +0000 http://nostradoofus.com/?p=493#comment-49 That's only the maximum for federally subsidized loans. Obviously it leaves a huge gap. Families commonly then fill that gap either with unsubsidized private loans, or by tapping home equity. Both of these have the capacity to dig a very deep hole, because both are generally variable-rate loans. But both those sources dried up last year. Would be interesting to know what people in that situation do now. By coincidence, this morning NakedCapitalism posted a related anecdote, citing a woman who incurred $26,000 in loans (approximately the maximum per your comment) for a 2-year junior college degree. Yves suggests this was simply a bad investment. http://www.nakedcapitalism.com/2009/10/the-democratization-of-credit-is-over.html And that was supposed to be my point. Seems like my mention of debt was distracting. The core point is that I suspect most private colleges are now negative ROI for most students, regardless of how it is financed. I will post again soon to try to make that point more succinctly. That’s only the maximum for federally subsidized loans. Obviously it leaves a huge gap. Families commonly then fill that gap either with unsubsidized private loans, or by tapping home equity. Both of these have the capacity to dig a very deep hole, because both are generally variable-rate loans.

But both those sources dried up last year. Would be interesting to know what people in that situation do now.

By coincidence, this morning NakedCapitalism posted a related anecdote, citing a woman who incurred $26,000 in loans (approximately the maximum per your comment) for a 2-year junior college degree. Yves suggests this was simply a bad investment.

http://www.nakedcapitalism.com/2009/10/the-democratization-of-credit-is-over.html

And that was supposed to be my point. Seems like my mention of debt was distracting. The core point is that I suspect most private colleges are now negative ROI for most students, regardless of how it is financed. I will post again soon to try to make that point more succinctly.

]]> By: Eric http://nostradoofus.com/2009/10/08/college-makes-you-poorer/comment-page-1/#comment-48 Eric Sat, 10 Oct 2009 15:41:02 +0000 http://nostradoofus.com/?p=493#comment-48 According to http://studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp Undergraduates can't borrow more than $12,500 per year. So unless they are career students they can't dig themselves into the hole you describe. Graduate students are limited to $20,500 per year, with a total debt cap of $138,500 (except med students at $224,000). But that's a different topic. According to
http://studentaid.ed.gov/PORTALSWebApp/students/english/studentloans.jsp

Undergraduates can’t borrow more than $12,500 per year. So unless they are career students they can’t dig themselves into the hole you describe.

Graduate students are limited to $20,500 per year, with a total debt cap of $138,500 (except med students at $224,000). But that’s a different topic.

]]> By: admin http://nostradoofus.com/2009/10/08/college-makes-you-poorer/comment-page-1/#comment-47 admin Fri, 09 Oct 2009 16:26:26 +0000 http://nostradoofus.com/?p=493#comment-47 The Georgetown cost was an actual data point, a parent complaining about what it cost him last year. I think the College Board estimates are low: in 1996-98, Stanford GSB was costing me $40k/yr, significantly higher than published estimates, despite no unusual or extravagant expenses. Classmates reported similar. How common is a parent with high income but no net worth? I suspect it recently became extremely common: everyone's net worth was in houses and stocks. Further, I suspect a huge generational divide in net worth. In the 1970s, thirtysomethings had higher income and net worth than sixtysomethings. Today it's the opposite. This looks likely to continue, as high inflation and rising interest rates (both nearly certain) put a lid on asset appreciation. The Georgetown cost was an actual data point, a parent complaining about what it cost him last year. I think the College Board estimates are low: in 1996-98, Stanford GSB was costing me $40k/yr, significantly higher than published estimates, despite no unusual or extravagant expenses. Classmates reported similar.

How common is a parent with high income but no net worth? I suspect it recently became extremely common: everyone’s net worth was in houses and stocks.

Further, I suspect a huge generational divide in net worth. In the 1970s, thirtysomethings had higher income and net worth than sixtysomethings. Today it’s the opposite. This looks likely to continue, as high inflation and rising interest rates (both nearly certain) put a lid on asset appreciation.

]]> By: Eric http://nostradoofus.com/2009/10/08/college-makes-you-poorer/comment-page-1/#comment-46 Eric Fri, 09 Oct 2009 07:34:12 +0000 http://nostradoofus.com/?p=493#comment-46 From http://collegesearch.collegeboard.com/search/CollegeDetail.jsp?collegeId=3736&profileId=2 Your total cost yearly for Georgetown looks $10K high. They don't provide financial aid info. Looking at Caltech, total yearly cost is $48.5K Full-time freshman enrollment: 236 Number who applied for need-based aid: 166 Number who were judged to have need: 116 Number who were offered aid: 116 Number who had full need met: 116 Average percent of need met: 100% Average financial aid package: $31,069 Average need-based loan: $2,261 Average need-based scholarship or grant award: $28,846 Average non-need based aid: $30,190 Average indebtedness at graduation: $9,871 Your hypothetical student has parents with no savings, no extra income available to contribute toward yearly college costs, but earn too much for their child to qualify for any sort of aid. How common is this? I suspect the sticker price is a prestige thing, and nobody actually pays retail... From

http://collegesearch.collegeboard.com/search/CollegeDetail.jsp?collegeId=3736&profileId=2

Your total cost yearly for Georgetown looks $10K high. They don’t provide financial aid info.

Looking at Caltech, total yearly cost is $48.5K

Full-time freshman enrollment: 236
Number who applied for need-based aid: 166
Number who were judged to have need: 116
Number who were offered aid: 116
Number who had full need met: 116
Average percent of need met: 100%
Average financial aid package: $31,069
Average need-based loan: $2,261
Average need-based scholarship or grant award: $28,846
Average non-need based aid: $30,190
Average indebtedness at graduation: $9,871

Your hypothetical student has parents with no savings, no extra income available to contribute toward yearly college costs, but earn too much for their child to qualify for any sort of aid. How common is this?

I suspect the sticker price is a prestige thing, and nobody actually pays retail…

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