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ITT Educational Services Inc. Message Board

  • oxledge oxledge May 21, 2012 4:30 PM Flag

    Value of an education...the numbers

    There has been much discussion about the "value" and the "cost" of an education in recently, particularly with the job market so poor. Were it not for the weak job market, I do not think that anyone would be talking about this. The problem is simple. If it costs alot to get an education and you don't get a job right after you graduated, you (and others, eg the politicians, friends and parents that you complain to) have to ask "was all that time and money spent worth it?" For the person who does not get a job, it is easy to say that it was not worth it. I bet that right after that same person gets a job, they would probably change their tune. Nonetheless, I believe the primary problem is the job market. People can get all sorts of different educations in the US. Not everyone can go to Harvard, but there are plenty of places to get a decent education. I also believe that you get out of something what you put into it. Even if one goes to a school of lesser caliber than Harvard, you can get educated at a level at or superior to Harvard as long as you are reasonably intelligent and have the work ethic to go the extra mile in your studies. Having said that, I am sure that some would disagree with this statement.

    In any event, what is the "value" of an education. There is absolute value and there is comparative value.

    From the Dept. of Education....

    median wage:

    PhD $129,700

    Masters $ 99,516

    Bachelor's $82,197

    High School Graduate $43,165

    Did not graduate High School $33,435

    The median wage difference between high school and college graduates is roughly $40,000/year, or 100%. Over a 40 year working career that equals $1.6 million. And that is the median number, so for some, the difference is even larger. There is no question that a college education has very significant value relative to only getting a high school diploma. Furthermore, unemployment statistics show a huge difference between the two. In 2011 unemployment levels for those only with high school degrees was 9.4% versus 4.9% for those with college educations (double the rate). Unemployment levels are heavily skewed towards those with lower levels of education. As such, lack of education means for your whole span of life a lower level of wages and higher unemployment.

    So how much is education worth? Using my HP finance calculator, the net present value of the $40,000 difference in lifetime wages results in a net present value benefit on the order of $750,000. This figure does not assume any wage differential inflation. That is, if the wages (and the wage differential) rise by 4% annually over the next 6 years, the differential goes to $50,000 (up from $40,000), and the next present value benefit of education rises to over $1 million. So, over time, the difference in value between the levels of education rises steadily. This analysis also does not include consideration of healthcare costs, unemployment, other benefits from having a higher paying job (vacation time, 401K, etc). I have to figure that with modest wage inflation over time, the total wage benefit differential is enormous. Furthermore, the "cost" of education is fixed once one graduates. You in effect have a fixed "mortgage" on your education "house" and any increase in the value of that education house (which comes through higher wages and wage increases) is 100% to your benefit.

    The math is clear. Education pays and pays big. No education and you are almost automatically relegated to a life that is grossly subpar on economic terms.

    I believe that the US government has allowed too many entry level job positions to be moved overseas. There should be massive incentives to keep these entry level positions here in this country. It has been a huge failing of our government for the past 20 years.

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