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Get an ROI in College

August 17, 2015 by Lazy Man 1 Comment

Over the last year, I’ve been collecting little snippets from the web on colleges and getting your money’s worth. I may have collected too much information, because my brain is swirling trying to figure out how to organize it all.

Let’s start with student debt

Most of this is a summary of the insights I heard from Mark Cuban on student debt, but it makes sense. Americans have 1.2 trillion dollars in student debt. That’s a number so large that it drags on the economy. This debt causes young adults to delay buying houses, cars, and investing in their retirement.

In short, instead of creating jobs by consuming or securing their future, they are funneling money back to schools. That wouldn’t be a problem if schools are spending it well. As Mark Cuban points out, they aren’t. They build new buildings when they don’t need because they have to compete with other schools. In fact, it turns out that research says, colleges are likely to gain applicants by spending more on amenities than academics.

This might be why we are seeing lazy rivers, steakhouses, and ski reports at colleges. Yes, it’s true.

For-Profit Colleges

It occurred to me that maybe John Oliver did a bit on student debt on his HBO show Last Week Tonight. It felt like the huge topic that he’d cover in depth. I was half-right. He did cover student debt, but most of his rant was at the particular evils of for-profit colleges:

That was quite a learning experience, right? Rather than beat that dead horse, let’s just assume that we’re going to eliminate any for-profit colleges from any discussion of getting an ROI on college. I realize it is a blanket statement, and maybe there’s a good one out there, but for the sake of narrowing down this long list, we’ll have to concede any potential one as collateral damage.

My Take on Student Debt

Access to money has gotten too easy for colleges. It seems to be a never-ending cycle. Raise tuition to build awesome stuff to recruit students. Students get bigger loans to cover tuition. Student debt grows and grows.

It seems like the housing bubble to me. Let’s create a way to allow people to borrow more and more money, even if they can’t afford it. Let’s push people to interest-only loans and 50-year fixed loans so that they can buy even more house. We’ll all show off our nice homes to our friends the way colleges show off their lazy rivers.

The whole thing is bananas and it isn’t going to end well, but that should be obvious by now.

So what can we do about it?

Get Value for Your College Dollar

When I was choosing a college in 1993, there seemed to be one or two lists. They were the top 25 schools in the country. They were only helpful if you were in the position of trying to decide between MIT, Harvard, Princeton, Yale, and Stanford. Then you could decide to put Berkeley, Brown, or Dartmouth as your safety schools. It was ridiculous.

I’ve noticed that the lists are not as much about the top schools as they are about the top values. Perhaps that’s in direct response to the aforementioned mounting student debt problem.

I’ve bookmarked 4 lists over the last few months:

  • Princeton Review’s Colleges That Pay You Back
  • Kiplinger’s Best College Values
  • Money Magazine’s Best College Values
  • PayScale’s College ROI Report

Kiplinger’s and Money magazine seem to list a good mix of top schools (Princeton, Harvard), while mixing in some lesser known schools as values (Babson, Haverford). Princeton Review’s seem to focus on how awesome Massachusetts schools are, which is something I won’t argue (Boston Strong!). You have to be careful with Princeton Review’s list as the top few colleges are “Featured”, which I think is a way of saying that the position was paid for and not part of the natural ranking (I could be wrong). I think I like PayScale’s list the best, it fits with what I would have imagined if someone asked me.

Each list processes a bunch of statistics to help them come up with value. You can read their methodology and use tools to tailor it to your situation.

I can’t tell you which school is the best value for you. I ended up going to a school that was top 15 on at least one list. If I had to do it again, I’d probably shoot for Stanford and MIT, but have Babson and a few of the under-the-radar ones as back-ups. I know these lists have made me curious to see what’s so great about Harvey Mudd. I know nothing about the school except that it turns up time and again.

I wouldn’t use these lists as a definitive source of where to go college, but as a way to generate some ideas and narrow down the field.

It’s Not the School. It’s the Study

As I’ve been writing this article, my wife has been on my mind. I know that’s nothing unusual, but it’s actually relevant to college ROI. She went to a state school to get her Pharm. D. That’s the champion of all college ROI moves. Pharmacy pays very well and state school is generally a lot cheaper than private school. The end result was a small student loan debt that melted away quickly.

With that in mind, I want to present you another set of lists. This is also from PayScale. It allows you to find the best school based on your major. See PayScale’s ROI by Major.

You might not know what your major is when you choose college. Even if you don’t, this data is useful. If you click on the art majors you’ll see that the 20-year ROI is less than $450,000 for the top school. It quickly drops under $400,000. In computer science and math, the same 20-year ROI is $1.6M and drops down to under $1,200,000. The ROI over 20 years is roughly 3x more for computer science than for art.

That might not be a surprise, but it is worth emphasizing. If you are art major outside of top 105 schools, college has a negative 20-year ROI. After the the top 105 schools for computer science, you’d still handily do better than the very best art school.

These are extremes and there are clearly many majors in the middle. The point is that going to Harvard might not necessary be the best college ROI choice even though it at the top of several lists.

You have to know how to get the most of the school you are choosing.

Filed Under: College Tagged With: college ROI, student debt

Dispelling Common College PF Myths

January 27, 2011 by Lazy Man 8 Comments

studenomics_logoToday’s guest post comes from Studenomics, a blog that tries to help younger people reach financial independence. It’s actually part one of a two part series, so when your done, you’ll want to click through to Studenomics to read the rest. If you enjoy reading this guest post then please consider subscribing to RSS Feed.

There are certain assumptions that have been made over the years in regards to a young persons financial situation while attending college. Today I will go as far as to say that these assumptions are nothing more than myths. As a result of this I will go one step further and dispel common college personal finance myths. I feel it’s about time someone showed the young people of today that certain assumptions are simply false and that there are more choices than ever.

Myth #1: You must pay for school with student loans.

Sure there are some programs that are extremely expensive (life sciences, engineering, and a few others) and student minimum wage isn’t exactly ideal, BUT this does not mean that your education you should be 100% student loan funded. You have the whole summer to work and save up your money to cover the costs of a college education. If that is not enough then you may still work a full time or a part time evening job while in college. If all of the above options are not feasible for you then try an internship in your field of study or even better enroll in a program that has paid work terms. The point that I’m trying to get across is that while some students may have to use a loan to fund their education, most students choose to accept this thinking as a fact instead of getting on their feet and working hard to earn money.

Myth #2:You will earn more money when you complete college, so there’s no point to save now.

That is like saying an out of shape person asking, I will be fit one day so what’s the point of working out today? The answer is simple, every little bit helps. Yes the money you save from a part time or summer job will not make you rich but it will definitely give you a head start over your friends that will be struggling to pay off their student debt. If you get used to saving a set amount of your income & budgeting at an early age then when you’re older you will have instilled in yourself strong fundamental habits. Also as you grow older your income will hopefully increase as will your savings. I have seen so many people my age complete a college program that substantially increases their income and guess what? their savings remained stagnant or non existent.

Let me give you a simple calculation to demonstrate how every dollar matters. A couple of years ago when I started my job I decided to automate my finances. A set amount of my paycheck went to retirement, savings, and into a regular checking account. One little thing that I did was I set up an emergency fund (since I had never read a personal blog in my life at that point I called it “secret money”) where I figured I would put $50 every paycheck (biweekly) into a government savings bond. Granted, the interest earned with savings bond is nothing spectacular but there is virtually no risk. Here are my savings without calculating the interest:

$50 x 26 pay checks= 1300$ x 4 years= $5,200

I know that $5,200 won’t buy you that dream car or the newest Giorgio Armani suit but I would rather have $5,200 than owe $5,200. This is also not my main savings account, it is simply an emergency/ “Secret money” account which you could use for whatever purpose you desire when you complete college. What will I use the money for? I already made a down payment on a new condo development so who knows? Maybe I will take a month long vacation across Europe before starting my career.

Myth #3: Retirement savings do not start until you complete college.

Actually you should begin saving for your retirement as soon as you start working or earning any form of an income. While I personally wouldn’t advise allocating a high amount of your yearly income into retirement savings, I still recommend that you put anywhere from $500-$1000 a year into retirement savings before you even begin your career. I set up a joint retirement savings account with my mom when I was 17 because I wanted to get a head start before I began making real money in my career. Once you begin your career then yes retirement savings will begin to get serious because you will have many different options and benefits, however, this is a topic that Lazy Man has covered extensively with his retirement plan series.

A common question that I receive from people in their 20s is, how are you suppose to motivate a 20 year old to worry about saving for a retirement that won’t happen for at least another 40 years? I actually have two answers to this question;

  • Look around you, every time you see a senior citizen well past the age of 60-65 still working (assuming they are not Warren Buffet) a job that they do not particular enjoy just to meet ends meet should make you strive to want to avoid a similar fate. Yes as mentioned above there will be people like Warren Buffet who will probably work forever but that’s because they truly live and breathe their job and it’s not a simple 9-5 for them. For the rest of us we will work a 9-5 for at least over 35 years of our lives, don’t you want to live comfortably in your golden years?
  • Look around you again. You notice all of those supposed “rich people” that are barely over 60 but spend most of their time traveling the world or spending time on activities that they truly enjoy? These people are not luckier than us, they are simply just people that planned for their retirement well in advance.

There you go. I have dispelled the most common myths circulated by young people while attending college. I am living proof that you do not need to be the smartest person to be financially independent. You just need to be the type of person that plans well in advance and goes against the curb in terms of not following common assumptions.

You tired of hearing advice from people that are always pessimistic? You looking for a common sense approach to personal finance issues that confuse many? If so then Studenomics.com is the place for you. Studenomics is one of the fastest growing personal finance blogs out there these days. Come check out the site and find out what all the buzz is about. Do not fear you will not be judged at Studenomics nor will you ever be treated with even the slightest bit of disrespect.

Check out Part 2 of Dispelling Common College PF Myths

[Editor’s Note: I’ve actually been thinking about adding a University of Phoenix (UoP) degree to my resume since I can complete it while I run my businesses from home. The UoP website featuresAll University of Phoenix campus locations and the college degree programs offered in each.]

Filed Under: College, Guest Writer Tagged With: college education, financial independence, myths, personal finance, student debt, student loans

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