Thursday, May 29, 2014

Do the Math: How Opportunity Costs Multiply Tuition

Derek* attended a Christian liberal arts college. He majored in Youth Ministry and graduated with roughly $80,000 in debt. After graduation, he was hired to work about three hours a week as one of two youth group leaders at his church, where I met him. The other group leader had a day job as a salesman for a small business, for which he had no schooling whatsoever.

Crippled by his debt, Derek was forced to move back in with his parents after he graduated. He supplemented his tiny youth leader income by taking a job at a mental health facility.

Derek went on like this for years, using the latter job to support the job he wanted, and went to school for. Eventually, he decided to attend nursing school because a nursing degree would allow him to be promoted at the mental health facility. "Going to college helped me with youth ministry, but I did not need to go to college to do this," he said. "If I could go back, I would've gone to nursing school instead."

Derek deserves credit for fighting through his loss aversion, and for speaking so frankly about it; it's a valuable lesson. But it's even more valuable to learn these lessons from others and avoid these situations altogether.

*Name changed to protect privacy.

Lost Earnings

We've spent a lot of time talking about the obvious costs of college: tuition, housing, food, etc. We've also looked at a few less obvious costs, like interest on student loans. But there are indirect costs, as well: opportunity costs.

"Opportunity cost" is an economic phrase. Simply put, it's the cost you incur by doing one thing rather than another. Because our time and money are finite, everything we buy or do prevents us from buying or doing something else. If you take a year off to backpack across Europe, you're not just losing the money you spend on food or travel; you're also losing the money you would have earned if you'd worked instead. The benefit of a decision is not just the result, but the result relative to what else you could have done. Needless to say, this concept has huge implications for higher education.

The average full-time college student misses out on a little over $9,000 in earnings for each year they spend in school. That rises to $15,500 for the 25% of students who don't work at all. And that qualifier-"for each year"-matters more than you might think, as nearly 60% of students take six years or more to graduate.  This means that the diligent students who both work and graduate in four years still miss out on over $36,000, and the ones that take their time and don't work at all can forego over $93,000 in income. And when you combine this with student loan debt, even those who manage to find a substantially better job will be playing "catch up" for a while.

How long, exactly? Laurence Kotlikoff, professor of economics at Boston University, decided to find out. In his article, Study This to See Whether Harvard Pays Off, Professor Kotlikoff created four fictional 18-year-olds: Joe, Sue, Matt, and Jill, and had each of them make difference choices about education and profession:

Joe decides to become a plumber, and doesn't attend college.

Sue gets a bachelor's in education.

Matt also gets his bachelor's in education, but spends an additional 2 years to get his masters.

Jill decides to become a doctor, attends a private college for 4 years, then a medical school for 4 years, works as an intern for 2 years, works in a low-paying residency position for 1 year, and finally gets a job as a general practitioner.

Professor Kotlikoff placed his four creations in Ohio and simulated their professional lives using earnings data based on their age, state, and occupation to determine their likely salary before taxes, and in today's dollars. He assumes they retire at 62 and die at 100. Here's how they look at age 50, the peak earning year for each:

Joe the plumber makes $71,685.

Sue the teacher makes $89,584.

Matt, the teacher with the master's degree, makes $103,250.

Jill the doctor makes $185,895.

Professor Kotlikoff then used financial planning software to calculate the sustainable spending for each of them, taking into account the host of their education, lost earnings, taxes, Social Security benefits, and Medicare Part B premiums. The idea was to get past their advertised income (which doesn't take any of these things into account) and compare their actual spending power. I'll let him summarize the results:

"Jill, the doctor, has the highest living standard. She gets to spend $33,666 year in and year out from age 19 through 100. This is after paying all her taxes and Medicare Part B premiums. Age 100 is the maximum age to which the kids might live and, thus, must plan.

Come again? Only $33,666? That's a far cry from Jill's peak earnings of $185,895. Yes, but remember, Jill has only about 31 years of significant earnings to cover some 81 years of living. And when Jill works, she gets nailed by the taxman. At age 50, for example, Jill pays 36 percent of her earnings in federal and state income taxes and payroll taxes.

Finally, Jill has a bucket load of student loans to repay at an assumed 5 percent real interest rate, which exceeds the assumed 3 percent real return she can safely earn on her savings.

To add insult to Jill's injury, Joe the plumber's sustainable spending is almost as high - $33,243. All those grueling years of study, exams, late-night emergency calls, and Jill gets to spend a measly $423 more per year than a plumber.

What about Sue, the teacher? Sue has less spending power - $27,608 - than Joe.

And Matt, with his masters? His spending power is even lower than Sue's, at $26,503. Too bad he didn't run the numbers before sending in his graduate-school application."

This neatly illustrates the problem with most college wage comparisons: they arrive at their results by simply ignoring this complexity. Most don't go beyond subtracting tuition costs. If you're really lucky, they'll be thoughtful enough to account for loan interest. But that appears to be the upper bounds of due diligence on the topic.

You wouldn't buy a house without considering the difference in property taxes, the costs of moving, or the relative benefit over your current living situation. But that's exactly what these comparisons are asking prospective students to do: to ignore the things that don't show up in the purchase price, even if they do show up on the bottom line.

And this is assuming that college graduates find jobs commensurate with their education level, and do so in a reasonably timely fashion. But that isn't always the case


Phil Robertson Honored at Alma Mater; Faculty Walk Out

Three faculty members walked out of the Louisiana Tech University commencement ceremony Saturday to show their disdain for alumnus Phil Robertson.

Students in the Louisiana Tech's LGBTQ organization, Prism, sparked the idea via social media.

 Students, faculty, and people across the state posted Facebook statuses and tweeted at Louisiana Tech using the hashtag #NoHonorInBigotry to send a message to the university.
Hannah Ellsworth, President of Prism, said, "We wanted to make a statement displaying our disapproval of the honoring, and for several reasons, including the minimal time we were given to react, a social media campaign was the best way to do this. Faculty, staff, and students didn't have any time to give input since no one [knew] until the day before."

The Alumni Association and its members, not the university, selected the "Duck Dynasty" patriarch, Louisiana Tech noted in an official statement. In alignment with the First Amendment of the United States Constitution, the school expressed its support of Free Speech:

The right to express and debate differences in opinions, ideologies, and values is at the core of a university community, and Louisiana Tech certainly supports its faculty in this exercise of free expression. It's important to note that the annual Tower Medallion recipient is selected by the Louisiana Tech Alumni Association and it's member representatives, and not the university. It recognizes those alumni who have achieved in their professions while remaining loyal to their university.

On the bright side, let's be thankful Louisiana Tech didn't follow the lead of Rutgers University or Smith College and rescind the award entirely.


The University of South Carolina is dumping its Gender Studies center  which became notorious for holding an event titled "How to Be a Lesbian in 10 Days or Less" and is going to teach the US Constitution instead.

The horror. The humanity.

The heterocisgenderpatriarchal privilege.
The Center for Women's and Gender Studies (CWGS) at the University of South Carolina Upstate (USCU) will close on July 1 and the funding, previously allocated for CWGS, will be used to teach the Constitution, Declaration of Independence, and Federalist Papers.

The South Carolina House of Representatives wanted further cuts at both USCU and the College of Charleston, which had already seen budget cuts over mandated gay literature for freshmen students. However, the Senate was hesitant to cut funds for fear of academic censorship.

The chambers compromised by allotting the discussed funds toward teaching the provisions and principles of the Constitution, Declaration of Independence, and Federalist Papers, as well as "the study of and devotion to American institutions and ideals.

The move puts South Carolina colleges back in compliance with a 90-year-old state law which requires colleges to teach students a year's worth of courses on the nation's founding documents.

The left is outraged and revolting. As usual.

The Morning News, owned by Warren Buffett, editorialized that this was “A chilling act of retribution” and “Required reading programs serve several purposes. Most importantly, though, the programs are intended to prepare students for the expectations of college-level discourse and open them up for the diversity they'll find both on campus and in the real world. We're not sure reciting the Bill of Rights, no doubt important to know, qualifies in that regard.”

Just so you understand, the Morning News’ official editorial is insisting that knowing the Bill of Rights is irrelevant to “college level discourse” and the real world. Unlike, “How to be a Lesbian in Ten Days.”

This is America. This is America on the left’s version of educational crack cocaine.

Meanwhile the petition signatures are even crazier.
Thomas Davies WOODRUFF, SC
As an alumni, a non-traditional student, and a straight, white, older man, I can’t say enough about how my participation in WGS courses and the Center, changed my life for the better. Because enlightenment comes slowly to some outside academia, students, faculty, and staff need this resource. We cannot let an american Taliban rule our institutions of learning.

You’re probably likelier to find the Taliban, both the metaphorical kind, and the Islamic kind, being supported by a Gender Studies center, than a Constitutional law center.

Just ask Professor Judith Butler.
Kurt Metzmeier LOUISVILLE, KY
That is un-American and recalls not only the McCarthy blacklist era but also the totalitarian regimes of the Cold War. They have come first for USC Upstate. I cannot say nothing.

Except he does. Also McCarthyism. And a fake poem about defending Communists by a Nazi sympathizer who never actually wrote it that the left quotes incessantly.

When leftist activists get people fired for their views, that’s freedom. But when taxpayers refuse to fund “How to be a Lesbian”, it’s McCarthyism.

Can someone explain this to me.
Pamela Jennings BELLVUE, CO
Because many people will no longer feel as welcome or accepted at USC Upstate if the Center for Women’s and Gender Studies is not reinstated.

On the other hand, people who don’t want to be denounced for their gender or race will feel more welcome.
Alexandra Chua EL CERRITO, CA
Because the dominant culture is essentially an unsolicited study of white, male cis-gendered heterosexuals

And comments like these show why gender studies centers are nothing but outlets for leftist bigotry.
The fight against sexism, homophobia and racism means that we have to keep vigilant against the political elite who are always out to destroy everything that is not to their selfish interests. Closing down the CWGS will be a crippling blow to people who, without it, never belonged to the larger USC community!

I think the Democratic Party just got its 2016 nominee.
Without the ongoing work of women’s and gender studies departments there’s no question my place in the academy would be less secure.

But is that a bad thing?
Liz Richardson SPARTANBURG, SC
Taking away this program is like stepping back in time when women and minorities could not vote.

Yes it’s exactly like that.  But since there’s no Center for Eskimo Studies does that mean that it’s like Eskimos can’t vote?


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