With college educations steadily increasing year by year, it is only time before we wonder if it is worth the expense. The following is an opinion under certain circumstances and merely theoretical. I am going to present a hypothetical model but with real numbers from my college expenses in 2007.
Let’s start with the basics. Per semester, tuition is $1500, housing $890, books $200, food $1650, and spending is roughly $500. These costs are also rounded down so as to make for as little discrepancy as possible (just ask any student who lives on $500 a semester). We’ll say that the student has a scholarship for half of his tuition, so $750. After scholarship, the total comes to $3,990 or roughly $4000, x2 for a full year equals $8000. While many maps predict much more spending than this, I want to keep it as realistic as possible.
Now let’s say the student does not go to school and instead invest the money instead.
Over any 10 year period the stock market usually averages an annual return of 10%, so we will invest our student’s tuition into the market instead of his academics. He deposits $8,000 each year, resulting in the following
Year 1: 8,000 + 10 percent = 8,800
Year 2: (Year 1 = 8,800) + 8000 = 16,800 +.1(16,800) = 18,480
Year 3: (Year 2) + 8,000 = 26,480 + .1(26,480) = 29,128
Year 4: (Year 3) + 8,000 = 37,128 + .1(37,128) = $40,840
Since said student is not working, he maintains a full time job while he was working and managed to put away a mere $5,000 each year, but did so into savings and not an account which received compound interest (unfortunately as many do). This adds $20,000 for a total of $60,840.
It is now time to move out of dads and buy a house for himself. He buys a house for $100,000 in an area that follows the national average in price growth per year (13.4%). He puts down $50,000 (of the $60,840) and gets a 30 year 7% loan for the other 50,000. Paying $332 a month. He has a job, but enjoys the good life and works just enough to make the minimum bills and cover living expenses every month. After 5 years of living in this house, he stumbles across a random mail appraisal of his house for $187,527.63.
After 9 years he has attained as much as many do in their entire lives. Most students graduate high school around age 18, so this would be age 27. He continues to invest, and lets his money work for him as he enjoys entrepreneur money with part-time hours. The key to these situations is letting your money work for you and this average student has done just that, and found himself with a six figure bank account.
It’s not that a college education is too expensive, it is just that there could be alternative ways to acquire the same, if not more money.
On a last note and downside of this proposal, the investor would might miss out on some higher education. This is a valid point, but maybe for another day.
Thanks for following,