Saw this on linkedin and thought i'd bring it over here for discussion. As a banker, when someone came to me for a loan, i'd evaluate the ability for the business to generate cash to repay the loan. I imagine the college landscape would look completely different if that was the case.

The "red" degree programs all have merit...but an 19 year old should understand that $100k+ in college debt will do more harm than good if that's the path they take.

Okay I have the dumbs.

I'm a Psychology major.

What does it mean -$19k. I see the ROI on the top, but I don't understand it.


Does it mean had I not gotten a degree, I would be making $19k more?

That's my understanding- but it assumes you took out loans to pay for that degree.

I see it more like this, but I dunno their assumptions to back into the -16k number

"Compared to working after high school..." Is the tricky part for me. I assume they are just using some generic job with annual earnings of, let's just say, 65k.

So option 1 - highschool then job (no college debt, lower earnings)

65k x 47 working years = 3,055,000

option 2 - college, debt, higher earnings

-300k (college debt) + 85k x 42 working years (psyc majors usually take a year to backpack in europe ) = 3,270,000

I'd be showing positive ROI using these numbers where they show negative...but I think my method makes based on how I'm interpreting their chart.

ETA: I missed CollegeNPV at the bottom. They're doing the net present value of future cashflows if that's to be taken at face value. That throws in a discount rate that would be another assumption to make.

I Am A Critic said:

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JMac03 said:

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Okay I have the dumbs.

I'm a Psychology major.

What does it mean -$19k. I see the ROI on the top, but I don't understand it.


Does it mean had I not gotten a degree, I would be making $19k more?

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The graphic clearly shows -$16k. There's your first sign.

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Touche

It's a good thing I don't follow that statistic.

Sims said:

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ETA: I missed CollegeNPV at the bottom. They're doing the net present value of future cashflows if that's to be taken at face value. That throws in a discount rate that would be another assumption to make.

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How can a NPV of future cash flows be negative if you had no outflow at the beginning? I bet some computer science major created this.

Just glad to be a part of the biggest circle on there

Social sciences number is very inflated by the insider trading of our elected officials on Capitol Hill.

engineering seems massively undervalued to me

sts7049 said:

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engineering seems massively undervalued to me

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same here.
call it $100k for degree.
that's $670k more in earnings over a career, say 40 years, so only $15k more a year compared to non degree?

They must be using some other assumptions/formulas.

An engineer will make several million more than a typical HS grad over a career.

Pinochet said:

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Sims said:

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ETA: I missed CollegeNPV at the bottom. They're doing the net present value of future cashflows if that's to be taken at face value. That throws in a discount rate that would be another assumption to make.

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How can a NPV of future cash flows be negative if you had no outflow at the beginning? I bet some computer science major created this.

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$100k to get the degree and you earn a $25k vs $20k when not having a degree would give a negative net present value

Would vary based on discount rate and time horizon

The further away from today the less valuable future dollars are

JMac03 said:

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Okay I have the dumbs.

I'm a Psychology major.

What does it mean -$19k. I see the ROI on the top, but I don't understand it.


Does it mean had I not gotten a degree, I would be making $19k more?

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Not that you would be making $19k more/less per yr. It's more like the difference between what the average psychology major makes and what the average non college educated high school grad makes over their lifetime, put into a discounted cash flow model would be $19k difference in net present value. Over a 40 yr career they are almost identical.

Whereas the avg engineering major does significantly better over their career than an average non-college educated HS grad.

Not sure if that's exactly right, but that's how I'm interpreting it.

Obviously that is the averages. Some psychology majors will do much better and some worse and same for non-college educated.

Also remember the HS grad has 4 more earning years - more or less.

Life is more complex than a simple graphic. The degree is the starting point, there is much more that plays into it afterwards.

However, never forget it is who you know, not what you know.

I have a Psychology degree, minor in business, and an MBA.

I've never worked in the Psych field.
I've always been in the customer service/information technology fields, even though I am not technical.

I guess I use my business degree in my IT job and also my travel agency. But not really sure how much of it I do.

62strat said:

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sts7049 said:

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engineering seems massively undervalued to me

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same here.
call it $100k for degree.
that's $670k more in earnings over a career, say 40 years, so only $15k more a year compared to non degree?

They must be using some other assumptions/formulas.

An engineer will make several million more than a typical HS grad over a career.

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It's net present value, so the time value of money is considered.

$15k more per year over 40 years with a discount rate of 5% would have a net present value of around $250k. So even by their numbers, it is in fact more than you state.

Here is their stated methodology:

https://www.collegenpv.com/methodology

I totally agree, student debt can be crippling, especially if the degree doesn't lead to solid income. That's why trades are looking more appealing now. I went through a contractors license school https://www.contractorsischool.com/ and got licensed without the massive debt. Now I run my own business and make more than I would've with some degrees.

cgh1999 said:

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As a banker, when someone came to me for a loan, i'd evaluate the ability for the business to generate cash to repay the loan. I imagine the college landscape would look completely different if that was the case.

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My daughter is headed to DBU in the fall. I talked to a financial aid counselor last week to discuss options. He mentioned one loan program that he recommended avoiding because they are doing exactly what you mentioned. So students on it show up for the first day of their junior year only to find out they have no more loans available because the bank has determined they are at the max of what will be paid back given the degree.

I was actually glad to hear this.

So instead, the bank refuses to extend money to continue/complete degree and what, the student has to drop out? That sounds so FUBAR as to be illegal, besides the unethical aspect of it. PLEASE share the name of the institution that engages in this activity so everyone knows about this kind of scam.