Does college pay?

Does college pay? A new web site called College Risk Report asks the collegebound to enter their prospective college or university and their major, then estimates how long it would take a graduate to pay for a bachelor’s degree and graphs lifetime earnings for a bachelor’s, associate degree and a high school diploma.

A proposed New University of California would award credits and degrees to people who prove their mastery of subject matter by passing exams, regardless of whether they attended a class, studied online, learned on the job or read a bunch of books.

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Comments

  1. Mark Roulo says:

    The model and/or data used by the “College Risk Report” site appear to be very suspect.

     

    I plugged in electrical engineer from 3 colleges:
      * * *) MIT
     * * * *) UCLA (in state tuition)
     * * * *) University of Arkansas at Pine Bluff (in state tuition)

     

    The degree with the highest “net present value” was Pine Bluff, which suggests that a kid from Arkansas who could go to Pine Bluff or MIT and major in EE would be richer (on average) at retirement if he went to Pine Bluff ($1.4M at Pine Bluff vs $1.25M at MIT).

     

    I doubt it. I think that the model/data assume that (a) all Electrical Engineers make the same money and (b) that the college that awarded the degree doesn’t matter. But the model *does* (c) take into account that MIT is more expensive. I’m pretty sure that this is wrong :-)

     

    In addition, the model makes very simple assumption about discount rate (5% … the current rate on 30-year US treasuries is less than 3%) and annualized raises (2.5% … I assume after inflation). These both seem questionable, but one also cannot modify them (or I can’t see how).

     

    Then we have the assumption about typical 2-year college salary: $35K. This might be correct, but is it also correct to assume that these folks get raises at the same rate (2.5% per year) as EVERY MAJOR????

     

    In short, this appears to be a case of Garbage In/Garbage Out. The math is probably correct, but I don’t think the assumptions are …

    • Mark Roulo says:

      Hey, a day later and Yahoo has an article that has some relevance to this!

       

      “25 College Diplomas With the Highest Pay” reports that: “Students who recently graduated from Carnegie Mellon University’s School of Computer Science are making an average salary of $84,400. Engineering grads from Stanford are earning a bit less, $74,700. The third-highest salary for grads is for nursing school alumni from New York University, at $70,200.” The web site in question uses $58,400 as the starting salary for a CMU computer science grad instead of $84,400. $25K/year adds up :-)

       

      This opens the entire question of: Does attending the *school* in question increase one’s expected earnings, or is it that the kids who are going to make a lot of money (because they are smart and thus will, on average, be paid better) attend the better schools?

       

      http://finance.yahoo.com/news/25-college-diplomas-highest-pay-161915563.html

      • Lets inject some reality here, any new employee fresh out of college is going to require at least 3-6 months of hand holding before they’re actually up to speed on the procedures the company employing them is using.

        That being said, all of the salary info can’t predict the ‘soft skills’ side of the equation, where many people just don’t have the required skills to get along in the workplace. Additionally, does it factor in persons who don’t remain with the company past the probationary period for new hires (12-24 weeks in most cases)?

        Things that make you go hmmmm…

    • It’s clear you didn’t read the report. In Section 8: Sensitivity to Key Parameters it describes how the results change if you vary the different parameters including discount rate and earnings, and even states in Section 8.3 that ivy league schools typically can command a 30% pay increase.

      Also, if you look at the original Forbes article, it state that the author is trying to get more specific salary data based on region and school, but that it is not readily available.

      • Mark Roulo says:

        The long version of his report can be read as a detailed explanation for why and how his calculated numbers are meaningless. I read enough to find the examples that I mentioned. Then I stopped. What good are the generated numbers given the size of the error bars?

    • Peace Corps says:

      The funny thing is you can’t get an Electrical Engineering Degree from the University of Arkansas at Pine Bluff.

      • Mark Roulo says:

        Because the web application is simply a list of college names and prices that are not linked to actual majors or earnings :-)

         

        It would have been more accurate to present a range of prices for colleges (with some examples) and let the users select from a menu. This would avoid the implication that the app treated the schools as if they mattered.

        • I’m not sure why you are saying it is meaningless. Maybe your report is considerably different than mine, but I did a liberal arts degree at a state school with in-state tuition. When I looked at the sensitivity section, it showed that even if I went to school for free (-100% expenses) the NPV of college was still less than the 2-year average. Also, even if I received 30% more in earnings, this barely put me at the same level of NPV as the average (0% change in earnings) of the 2-year. Also, throughout the range of discount rates presented, the NPV of the 2-year was always higher. I realize that projections based on averages over 40+ years have a lot of uncertainty, but based on how varying the parameters still generally leaves the NPV of the 2-year higher says to me that I really need to consider that decision carefully. I guess it could vary multiple parameters at once, but that would mean a 3D graph or more. I still say if I were considering college again I would find a tool like this nice for putting things in perspective as a rough guide, and the disclaimer seems to admit as much.

          Also, if I recall, the second page of the submission process said something like that it didn’t check to see if the degree offered was available at the college you chose, and that it was up to you to verify. Choosing a degree not available from the school you chose is kind of like someone telling you the burner is on, but you putting your hand on it anyways. Personal responsibility and all that. But whatever floats your boat.