A friend sent me this to read last night. I thought it was interesting, although i do not necessary agree with all of it. I think sometimes, our careers are more than just about making money.
“Consider two childhood friends, Ernie and Bill. Hard workers with helpful families, each saves exactly $16,594 for college. Ernie doesn’t get accepted to a school he likes. Instead, he starts work at 18 and invests his college savings in a mutual fund that tracks the broad stock market.
“Throughout his life,” Hough continues, “Ernie makes average yearly pay for a high school graduate with no college, starting at $15,901 after taxes and peaking at $32,538. Each month, he adds to his stock fund 5% of his after-tax income, close to the nation’s current savings rate. It returns 8% a year, typical for stock investors.
“Bill has a typical college experience. He gets into a public college and after two years transfers to a private one. He spends $49,286 on tuition and required fees, the average for such a track. I’m not counting room and board, since Bill must pay for his keep whether he goes to college or not. Bill gets average-size grants, adjusted for average probabilities of receiving them, and so pays $34,044 for college.
“He leaves school with an average-size student loan and a good interest rate: $17,450 at 5%. The $16,594 he has saved for college, you see, is precisely enough to pay what his loans don’t cover.
“Bill will have higher pay than Ernie his whole life,” Hough relates, “starting at $23,505 after taxes and peaking at $56,808. Like Ernie, he sets aside 5%. At that rate, it will take him 12 years to pay off his loan. Debt-free at 34, he starts adding to the same index fund as Ernie, making bigger monthly contributions with his higher pay. But when the two reunite at 65 for a retirement party, Ernie will have grown his savings to nearly $1.3 million. Bill will have less than a third of that.
“How can that be?” Hough asks rhetorically. “College degrees bring higher income, but at today’s cost they can’t make up the savings they consume and the debt they add early in the life of a typical student. While Ernie was busy earning, Bill got stuck under his bill.”
“The great enemy of the truth,” John F. Kennedy declared in a 1962 commencement address at Yale University, “is very often not the lie – deliberate, contrived and dishonest – but the myth – persistent, persuasive and unrealistic.”
Fifty years later, a Yale education, itself, may be one small part of a vast American myth. Send your kids to Yale if you want; but don’t be surprised if the grads over at New Haven High are faring better financially a few years from now.
Read more: A College Education of Diminishing Returns (The Daily Reckoning)