In my first installment on this topic, I introduced three methods for comparing the financial paybacks of college education…. payback of a specific degree from a specific college, average payback of college for typical professions, and average payback of all students based upon the college attended. Virtually no one considers these factors in deciding whether or not to do college, which profession to pursue, or which college to attend.
Face it. The vast majority of people make college decisions based upon non-financial factors. In this post, I want to offer you one additional financial consideration that is normally not considered and then touch on some non-financial factors.
One education financial payback factor that most people fail to consider is their time. If I ask if your time is worth anything, you probably would say “Yes”. Yet, few people consider their time in a college financial analysis. Here’s a simple example: Joe is making $90,000 a year and decides to go back to school for two years to get an M.B.A.. So, we need to add $180,000 of lost income to the cost of his degree. If he increases his income $30,000 a year after getting his M.B.A., then we need to add six years (without considering the time value of money) to Joe’s payback time.
So, what about those non-financial factors I mentioned earlier? Here are seven that come to mind….
- Prestige – Yes, Virginia, the human ego is alive and well.
- Tradition – If dad is storming woodchuck, perhaps you should be one, too.
- Social life – College is not just about academics, right?
- Friends – This is related to social life, but is more specific. Many people choose schools based upon where their friends are going.
- Location – Do you want to be a commuter student, be within reasonable driving distance of home, be as far away from your parents as possible, etc.?
- Academic quality – Some people actually choose a school based upon the high quality of education! Or, you could opt for low academics so you can enjoy the social life and minimize your studying.
- Financial aid – I am classifying this as a non-financial factor, which is something of an oxymoron, because the paybacks discussed previously do not consider whether your are paying up-front or are financing it. Aid could entice you to spend more money because you can defer your costs.
It is more important than ever that you make a reasoned decision when considering your educational options. In the interest of you making the best decision possible for your future, I hope my first post and this one will provide you a better perspective when considering the future consumption of college education.
Also, I want to leave you with one caution, in case you haven’t noticed…. We live in a different environment than in the past. Most universities and their direct competitors have discovered the world of marketing, with many making unrealistic promises or painting psychological pictures drawn directly from Madison Avenue. Buyer beware!