Just How Hard is University to Overcome
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@Dashrender said in Just How Hard is University to Overcome:
@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
See most people will look at your top chart and go - gee, if only I wasn't stupid and gone to college, I'd have 4.8 Million in the back at retirement - but the reality is that isn't true.
that's where I disagree. they would if they treated the money purely as investments instead of as free money to spend. I'm saying that they WOULD have that much (on average.)
Again, only the cash paying people could say that !!!!! I'm not talking about them any more. They are not a factor.
No, never once am I referring solely to people paying cash. I'm only referring to them as the conservative case, never referring to them alone.
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@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
Without loans, my wife wouldn't have gone to college, and wouldn't be in the "no college" optionless career she's in.
Yes, and she'd likely have more lifetime earnings even so. But that's not important.
Not likely - my wife did work full time all the way from HS through college - but even if she didn't, I'm not sure she would be making more than $35-40K at this point. While it's possible she could be, but I look around and it really seems unlikely. Until her sister graduated from nursing school (at 37), my wife was probably close to double what any of her siblings were making. Now the nurse sister is probably on par.
But is double enough to offset the cost? Double per year, with fewer years, and the cost of college is a loss. Go back and look at the chart... making double what you would make without college is assumed in the numbers already and is a loss.
making double is assumed? The lifetime income from HS+ to CS was only $600K, that's nothing. that's not double! $1.8 mil vs $2.4 mil != double income for college people, not even close to double with a Masters.
Double PER WEEK. Yes, lifetime college makes less. So not double in the end.
What gets people about college is that they forget the difference between the ends and the means. The "ends" say that skipping college earns more over the lifetime. The misdirection is getting students to focus on weekly or annual earnings after graduation and to ignore total earnings.
How can you have double per week, and not double lifetime? you either have to compare pre or post, but you can't flip flop.
If my take home is $1000/wk and yours is $2000/wk, your lifetime will be double mine, and taxes are much higher for you, making a pre tax number look even better for you than for me. So you've lost me on the whole double per week thing.
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@Dashrender said in Just How Hard is University to Overcome:
@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
See most people will look at your top chart and go - gee, if only I wasn't stupid and gone to college, I'd have 4.8 Million in the back at retirement - but the reality is that isn't true.
that's where I disagree. they would if they treated the money purely as investments instead of as free money to spend. I'm saying that they WOULD have that much (on average.)
Again, only the cash paying people could say that !!!!! I'm not talking about them any more. They are not a factor.
Please explain to me how someone who has to take a loan for college gets their hands on $146K by the time they are 22'ish so they can play in the game you've laid out here.
This would be the only way you could be counting everyone and not just the cash paying super minority.
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@Dashrender said in Just How Hard is University to Overcome:
How can you have double per week, and not double lifetime? you either have to compare pre or post, but you can't flip flop.
Because going to college DRAMATICALLY shortens your working lifetime. You cut off the first 4 or more years of your career. Normally a lot more than that.
You CANNOT double your weekly AND double your lifetime. that couldnt' possible happen. Since the doubling cannot happen unless you went to college.
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@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
How can you have double per week, and not double lifetime? you either have to compare pre or post, but you can't flip flop.
Because going to college DRAMATICALLY shortens your working lifetime. You cut off the first 4 or more years of your career. Normally a lot more than that.
You CANNOT double your weekly AND double your lifetime. that couldnt' possible happen. Since the doubling cannot happen unless you went to college.
OK I see your point there. and since we both hope that the non college people will be making more at the time the college person gets a job, then only after a few years the college person will catch up and eventually pass the non college person.
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@Dashrender said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
See most people will look at your top chart and go - gee, if only I wasn't stupid and gone to college, I'd have 4.8 Million in the back at retirement - but the reality is that isn't true.
that's where I disagree. they would if they treated the money purely as investments instead of as free money to spend. I'm saying that they WOULD have that much (on average.)
Again, only the cash paying people could say that !!!!! I'm not talking about them any more. They are not a factor.
Please explain to me how someone who has to take a loan for college gets their hands on $146K by the time they are 22'ish so they can play in the game you've laid out here.
This would be the only way you could be counting everyone and not just the cash paying super minority.
You continue to totally miss the math. That's the best case scenario. Anything short of that is worse, not better. If they CAN'T pay it off by 22, then my point is MORE valid, not less. The damage of college increases, not decreases.
If they went to college, then they had the ability to pay for it. Period. No matter what you state about how unlikely you feel it is, this is simple fact. It has been bought.
If they paid for it with loans, which is the most common option, this just makes everything that much worse. They acquired the money, but did something bad with it... instead of putting it somewhere that will make money, they spent it on something that doesn't earn enough to overcome the cost of itself.
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@scottalanmiller said in Just How Hard is University to Overcome:
People with higher per year incomes pay much, much higher tax rates.
From $50K to $100K, my effective tax rate went down from ~18% to ~17%. In 2014, where I had tons of W2-G income I was able to knock it down to an effective 15%. My nominal tax bracket is currently at 25% and won't go higher until I make $300K+.
So unless you literally have no deductions, no, it's not "much, much higher". And since you speak about student loans, the interest is deductible even if you don't itemize. So $2500 off your AGI, not bad when you are making $40K.
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So, let's assume you only pay $10K up front for college. And you take out $136K in loans. Let's assume that the government gives you a student loan at the best possible rate.
Now let's assume that somehow you can pay this off at $500/month starting on day one. That's much higher than you are assuming was possible before.
Average pay off time: 85 years.
Now do you see how much worse it gets?
At that rate, the total cost of college would hit a full half a million for a BS degree.
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No Scott - you're missing my point. The person who has $10 doesn't go to college, he could get loans, but realizes it's stupid, so he goes to work for walgreens, making $10/hr and is able to pay for life and save $50/wk. This is joe average.
He did the smart thing and DIDN'T take a loan, instead he just decided to make a go of it with no college. So we know that income wise, he's only $600K behind the college graduate, and during that 4 years that the college person was in college, he was able to save $10K, that's all! He didn't save $146K, he only saved $10K, because that's all he could afford. So he invested that, and over 40 years at 8.8% he turned that $10K into $303K, so now his deficit is only $300K compared to the college life time earner.
Now one has to ask themselves - maybe, even with the interest rate of Student Loans, the screw off time of 4 years would have been worth it and hell, financially he might be in the exact same place, $300K below the cash paying college grad (when you consider paying off the loan and interest).
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@Dashrender said in Just How Hard is University to Overcome:
No Scott - you're missing my point. The person who has $10 doesn't go to college, he could get loans, but realizes it's stupid, so he goes to work for walgreens, making $10/hr and is able to pay for life and save $50/wk. This is joe average.
He did the smart thing and DIDN'T take a loan, instead he just decided to make a go of it with no college. So we know that income wise, he's only $600K behind the college graduate, and during that 4 years that the college person was in college, he was able to save $10K, that's all! He didn't save $146K, he only saved $10K, because that's all he could afford. So he invested that, and over 40 years at 8.8% he turned that $10K into $303K, so now his deficit is only $300K compared to the college life time earner.
Now one has to ask themselves - maybe, even with the interest rate of Student Loans, the screw off time of 4 years would have been worth it and hell, financially he might be in the exact same place, $300K below the cash paying college grad (when you consider paying off the loan and interest).
Ah, you are comparing someone from the "can't go to college" pool to someone in the "can go to college" pool. That's the mistake. The point is about making a decision, not about showing that the rich remain rich and the poor remain poor.
Sure, there are cases where someone can get a loan that couldn't not afford college to begin with, but to use that you are cherry picking and ignoring the "average" costs and earnings. The point being that "averages" tell us the "average" value. It is not to say that there are not special cases, but that, on average, college is a bad bet.
For every case where you can show value of the degree (when there is a decision to be made) you can show nine that are big losses. That's why the average numbers are nice... we know the average investment amount spent and the average return received. We don't need to cherry pick or look for cases like this, because they don't matter. They are red herrings. We know that averages allow for outliers, no one disputes that.
The problem with your example case is that that person has to pay of bigger loans. The more that they have to borrow, the harder it is to pay back. So that's why I showed how devastating a student loan would be on average. In the case of $500/mo paying down on a average cost loan with the lowest rates, zero penalties, with $10K paid up front, it's a literally impossible number to sustain.
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@scottalanmiller said in Just How Hard is University to Overcome:
Ah, you are comparing someone from the "can't go to college" pool to someone in the "can go to college" pool. That's the mistake. The point is about making a decision, not about showing that the rich remain rich and the poor remain poor.
Wait a min, what makes someone a can't go to college person? I said they chose not to get a loan. That's not the same at all.
I'm betting that 90% of people who go to college when they go to college can't afford it, so that again means this whole discussion is about the 10% or less ( I was saying 5% earlier) and that number is so small, who cares?
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@Dashrender said in Just How Hard is University to Overcome:
So he invested that, and over 40 years at 8.8% he turned that $10K into $303K, so now his deficit is only $300K compared to the college life time earner.
Remember that the comparison is always to himself, not to other people. It's not comparing a poor kid going to college vs. a rich kid not or vice versa. It's to compare the opportunities for an individual choosing one path or the other.
So in any situation, the amount that you have to invest in college is the same amount that you have to invest in a fund. If you can't afford college, you can't afford the fund. The amount that you can afford is equal.
In the college case you have the additional, and even more dangerous, option of taking out loans which increases your risk and lowers your resultant earning potential. So is a third, even worse, case compared to the other two.
But the comparison is between the options available to an individual, not to compare how a poor person could stay more or less on par with a rich one. If you are rich starting out in life, you will end richer 99% of the time.
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@Dashrender said in Just How Hard is University to Overcome:
Wait a min, what makes someone a can't go to college person? I said they chose not to get a loan. That's not the same at all.
If they either can't afford it or cannot get in or cannot finish. You are correct, if they only choose to not get a loan. But if they couldn't afford it with cash, then as we showed with the interest calculation, taking out a loan is even worse.
So IF they CAN take out a loan, they would have the option, but are in the worst situation for making that decision rather than the best.
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@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
So he invested that, and over 40 years at 8.8% he turned that $10K into $303K, so now his deficit is only $300K compared to the college life time earner.
Remember that the comparison is always to himself, not to other people. It's not comparing a poor kid going to college vs. a rich kid not or vice versa. It's to compare the opportunities for an individual choosing one path or the other.
OK, that's a good point. But this really requires you to make another chart, a loan based chart for college.
So rich Johnny who can pay cash vs rich Susie who invests her cash - those numbers above make sense.
Now what does that look like when you compare a loan taker vs a non loan taker (remember the non loan taker will NOT have the $146K to invest at the end of the 4 years).
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@scottalanmiller said in Just How Hard is University to Overcome:
The more that they have to borrow, the harder it is to pay back. So that's why I showed how devastating a student loan would be on average.
Then use the average, not some DeVry jizz fest number.
$135K is insane. $35K is nuts, but that's the cost of a new car now, not impossible to pay off. Repayment would be on 30 years, not 85, making the note somewhere around $1400 a month if the rate was good. Even if someone racked up a huge number, it would most certainly fall under the rule of allowing someone to discharge it in Chapter 7.
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@scottalanmiller said in Just How Hard is University to Overcome:
@Dashrender said in Just How Hard is University to Overcome:
Wait a min, what makes someone a can't go to college person? I said they chose not to get a loan. That's not the same at all.
If they either can't afford it or cannot get in or cannot finish. You are correct, if they only choose to not get a loan. But if they couldn't afford it with cash, then as we showed with the interest calculation, taking out a loan is even worse.
So IF they CAN take out a loan, they would have the option, but are in the worst situation for making that decision rather than the best.
Yes, worse when compared to the cash people, the loan people will always be worse off. But what about loan vs non loan people - could their earning potential actually be many times higher than and actually make sense for the loan people?
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@PSX_Defector said in Just How Hard is University to Overcome:
@scottalanmiller said in Just How Hard is University to Overcome:
The more that they have to borrow, the harder it is to pay back. So that's why I showed how devastating a student loan would be on average.
Then use the average, not some DeVry jizz fest number.
$135K is insane. $35K is nuts, but that's the cost of a new car now, not impossible to pay off. Repayment would be on 30 years, not 85, making the note somewhere around $1400 a month if the rate was good. Even if someone racked up a huge number, it would most certainly fall under the rule of allowing someone to discharge it in Chapter 7.
No matter how insane it feels, those are the average numbers. The average amount of additional income depends on the average spent on college. If you modify down the cost of attending college in any way you can no longer use the amount of additional weekly earnings.
I agree that we can cherry pick cases that make way more sense. Good state university, very low debt, well picked program, student put in tons of effort... you can minimize the damage and in rare cases even show value. Absolutely. That's not the point.
The point is... on average it's a massive loss. We don't have a way to show what specific cases are. But we know that on average, they lose... a lot.
Most people make the case that college is a good investment. But it isn't. Just like bonds... 99% of the time bonds lose compared to other securities. But 1% of the time they win. Likewise, college loses 90% of the time. But 10% it wins. No dispute there. There are smart ways to do college and dumb ways. There is getting lucky and not getting lucky.
But when we step back and look at averages on cost and returns... the average ROI is dramatically negative.
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@Dashrender said in Just How Hard is University to Overcome:
Yes, worse when compared to the cash people, the loan people will always be worse off. But what about loan vs non loan people - could their earning potential actually be many times higher than and actually make sense for the loan people?
This goes against what you said was obvious before... that college might make sense if you have cash but definitely does not if you need loans. But now you are wondering if taking on debt might not somehow fix the college value proposition?
There is literally no means of knowing this. But logic says absolutely not (on average, as always.) Debt makes ROI harder, not easier. So if the situation wasn't a clear win for the cash people, it's a less clear win for the debt people.
How do you propose that debt fixes a problem that cash does not?
John has cash for college, but does better by not going to college and just putting that money in a fund.
Susie doesn't have cash for college so takes out loans and never gets to invest for retirement.
How does Susie win in that case but John not, by going to college? If the cost of college doesn't provide a lifetime ROI, how does adding debt onto that ROI challenge improve the odds rather than hurting them?
The problem that we have in running numbers is that we have no averages with which to work. In the case of case payments, we have rock solid numbers from the government that are as conservative as they can get and those show a bad ROI average.
For loans, we have no such numbers. We don't know the average pay off rate, the average interest rate, the average payoff start time, etc. We leave the world of simple math and go into all kinds of curves and 3D charts which we could do... if those numbers existed for us.
Unless you know of some source of those numbers I think that we have to agree with your earlier assertion that it makes no sense that debt would be a better way to go versus skipping college than spending cash would be. That goes against all common sense. While there might be some loophole on that, I don't see where it is. How does debt make the gamble less of a risk on average?
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@PSX_Defector said in Just How Hard is University to Overcome:
$35K is nuts, but that's the cost of a new car now, not impossible to pay off. Repayment would be on 30 years, not 85, making the note somewhere around $1400 a month if the rate was good.
Absolutely, but keep in mind that those are payments that people not having gone to college can, on average, make as well. So would have the equal option, or nearly equal, to be making those payments into investments during the same time frame. Basically anything that you can afford to pay for having gone to college you can invest having not gone. It's not always exact, but it is close.
The person not going to college has more ability to earn and invest during the earlier years when their other self is attending college and spending money rather than investing. Even if the amount is lower, it is still there. Time value of money is on their side in this case, dramatically. And then while the college grad might be able to make payments more rapidly later, they both can pay into investments along the way (one paying into debt as an investment, the other into retirement.)
At the end of the college loan payoff, in theory, one has, in your example, about $30K of investments earning interest while the other has zero, but earns more per week. Starting at that point, which might be ten or thirty years later, only then can the college grad starting putting money towards retirement. Even putting it in faster, the disadvantage is severe because time tends to have much higher value than rate in an investment situation.
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@scottalanmiller said in Just How Hard is University to Overcome:
@PSX_Defector said in Just How Hard is University to Overcome:
@scottalanmiller said in Just How Hard is University to Overcome:
The more that they have to borrow, the harder it is to pay back. So that's why I showed how devastating a student loan would be on average.
Then use the average, not some DeVry jizz fest number.
$135K is insane. $35K is nuts, but that's the cost of a new car now, not impossible to pay off. Repayment would be on 30 years, not 85, making the note somewhere around $1400 a month if the rate was good. Even if someone racked up a huge number, it would most certainly fall under the rule of allowing someone to discharge it in Chapter 7.
No matter how insane it feels, those are the average numbers.
Did you not read the WSJ article?
Average for 2015 is $35K. $135K is insanity, cherry picked bullshit numbers to make your argument.
@scottalanmiller said in Just How Hard is University to Overcome:
@PSX_Defector said in Just How Hard is University to Overcome:
$35K is nuts, but that's the cost of a new car now, not impossible to pay off. Repayment would be on 30 years, not 85, making the note somewhere around $1400 a month if the rate was good.
Absolutely, but keep in mind that those are payments that people not having gone to college can, on average, make as well.
Guess I wasn't clear.
$1400 a month would be for the $135K number you are throwing around with a nutso 30 year note at usury rates of 8%. $35K would be somewhere around $250 a month on a 30 year repayment plan. $35K would most likely be on a 10 year plan, making the payment $425. Same $135K would be $1600. Using the average, the real average, is much more realistic. Crazy, but not insurmountable. And certainly more possible with a BS from Texas A&M in your hand than a BA from the school of hard knocks.
Not getting into this magic saving of huge sums of money when you are starting to work. That's utter bullshit. The only way one could do that at 18 to 22 would be to either slang rock out on the streets or you came out of the golden crotch of someone already rich. Someone would have to be clearing $27K a year NET before that could even start to make sense. Assuming the standard deduction for federal plus a low tax state you would need to not have a single expense and make $16/hr from the get-go just to get to that number. And since we live in the real world, we need a place to live and eat, tack on ~$1500 a month for bare expenses.
Using all these numbers, you expect a person fresh out of high school, without a golden crotch to lean back on, to make $60K out the fucking gate?
No, only through nepotism would that happen. Which leads to the real crux of the argument. It doesn't matter how hard you work, or how good you are at what you do. Your fate is decided well before you even attempt it. Sure, some people can somehow break loose and become richer than astronauts. But the only surefire way to make lots of money is to come from money to begin with. Hence why I will probably never have millions.
