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The Million Dollar Decision
As I was researching information for a paper I discovered a study published by Florida International University in 2007 on the difference in lifetime after-tax incomes for high school graduates and college graduates. Below is a snippet from the abstract that absolutely floored me:
To provide the high-school graduate with equal lifetime probable savings and consumption…he/she must be compensated with approximately $930,000 upon their graduation date. Similarly, the government must be awarded approximately $117,000 to compensate it for future loss of tax revenue.
The model uses the following assumptions:
The lump sum is invested in US short term securities earning 5.30%
Inflation is fixed at 4.0%
The college student receives no wages for the four years he is in college.
The college student accrues $18k per year of inflation adjusted student loan debt and pays 5.30% interest on the balance.
The college student repays the student loan in his first four years of earning wages after college.
The high school student withdraws principal and interest until the balance is zero at the end of his “working life” at age 75.
Both parties pay tax at current tax rates, and tax rates are indexed to inflation.
We all know the decision to go to college is monumental, but did you realize the net present value is almost $1 million?
Source:
Gary A. Anderson and James D. Keys. 2007. Building Human Capital Through Education. Journal of Legal Economics 14(1):pp. 49-74.
Does this you’ll agree with me now that our government should help those who can not afford college; as it ends up lowering taxes in the long run?
Or vote for Obama, who said last night: “And we will keep our promise to every young American – if you commit to serving your community or your country, we will make sure you can afford a college education.”