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Everyone Shouldn't Go To College

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

earning lifetime All Races
earning lifetime All Races Male
earning lifetime All Races Male - Asian
earning lifetime All Races Male - Black
earning lifetime All Races Male - Hispanic
earning lifetime All Races Male - White
earning lifetime All Races Female
earning lifetime All Races Female - Asian
earning lifetime All Races Female - Black
earning lifetime All Races Female - Hispanic
earning lifetime All Races Female - White
earning lifetime Earnings By Race & Gender

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