Friday, 01 March 2013 11:41

Value Your Bachelors/Masters/PhD Degree Now, Completely Personalized, Uber Realistic & Likely Disheartening! Featured

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Friday, the Wall Street Journal ran a piece that essentially channeled BoomBustBlog. It was quite controversial, Why spend six figures on a business degree? Students would do better to train and network on their own.

Imagine that you have been accepted to Harvard Business School. The ivy-covered buildings and high-powered faculty whisper that all you need to do is listen to your teachers, get good grades and work well with your peers. After two years, you'll emerge ready to take the business world by storm. Once you have that degree, you'll have it made.

But don't kid yourself. What matters exponentially more than that M.B.A. is the set of skills and accomplishments that got you into business school in the first place. What if those same students, instead of spending two years and $174,400 at Harvard Business School, took the same amount of money and invested it in themselves? How would they compare after two years?

If you want a business education, the odds aren't with you, unfortunately, in business school. Professors are rewarded for publishing journal articles, not for being good teachers. The other students are trying to get ahead of you. The development office is already assessing you for future donations. Administrators care about the metrics that will improve your school's national ranking. None of these things actually helps you learn about business.

Consider what you could do instead with that $174,400. The first step should be to move to a part of the country that supports your interests. If that's film, move to Los Angeles. Technology, San Francisco. Oil, Houston. You could live decently in these cities for $3,000 per month. Over the course of two years, that still leaves you $100,000 to invest in yourself.

Needless to say, I have addressed this in detail through many interviews, videos and articles over the last few months. Well, now, I offer the means to funamentally, arithmetically and convincingly prove the idealogy behind the assertion...

The Education Bubble Deflator & Valuation Software is now out of beta and available for purchase, download and use. See the end of this article for instructions on accessing the model. Here I will offer a brief overview of the model and the key findings from a hypothetical student funding his undergrad, grad and PhD studies with a 6% Sallie Mae loan. The application is designed to help individuals value their college/university education by calculating and valuing the real cash flows generated by diplomas/academic studies in addition to calculating the real world costs of obtaining said assets. 

We capture, quantify and illustrate the value of a diploma from higher education institutions across different disparate majors and give each a distinct eROI (Economic return on investment) figure for students pursuing these courses.  The app uses inputs of (1) expected salary of a student after completing a major, (2) the tuition payable for pursuing the major, (3) any loans that would be taken to finance the course fee, (4) a blended tax rate to compute disposable income, (4) interest rate for the loan, (5) household expenses that a person is likely to incur, (6) growth rates in salary, (7) Opportunity cost for pursuing a major full time, (8) and an adjustment for the unemployment rate to factor in the impact of unemployment.

The app also computes cash flows that a student is likely to earn over the life of his career after considering his installments for the loan repayment, household expenses, taxes and the opportunity cost for pursuing a course.



Key Findings

The current weak economic environment has seriously dented the economic viability of pursuing a degree (Bachelors, Masters or a PhD) from some of the top universities in the US. The persistent decline in salaries being offered to graduates from these universities coupled with continued rise in cost of courses has resulted in a fall in economic return to students from these majors.

In the US, the trend of increasing duration of student loans and higher aggregate student loans outstanding are a matter of immediate attention. These trends have increased concern over higher student loan default in the near future, resultantly seriously raising the need for evaluation of value of securitized assets based on such loans. In essence, it’s the mortgage bubble all over again.

Return from Undergraduate Courses

Almost all universities (listed below) offer very low returns over a student’s career life if aggregated as an “all majors” category. The high cost of courses and lowering of salary being offered upon completion of courses are major drivers for lower returns.

NPV @6% p.a is negative for all schools on an aggregated basis and even on a specific, major by major basis.

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Even when looked at on a more granular basis, we get the following...

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As can be seen, the returns are middling at best, particularly when compared with other forms of investment over time. Resultantly the break-even year impractically far in most cases - after the year 2040 (assuming a start year of 2013).

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As a matter of fact, we have actually marked the cash flows from this person's education to market, benchmarking it against several other risk assets. From an undergraduate perspective, it's a dismal comparison for the most part. The returns are far lower compared with the 30-year average return on equities (5-6%) and 20-year return on commercial real estate (>7%) and 30-year return on Gold (4.5%). When taking individual majors into consideration, the numbers get even more interesting for diversity comes into play. The accompanying app shows the divergence in value not only between different majors within a school, but also the same majors between different schools, thereby actually valuing both the majors and the schools themselves!

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The model conveniently allows one to actually compare returns on a specific major between schools. This is invaluable in choosing schools. Most students and their parents select schools based on nominal affordabilty and/or repuation.

Now you can compare schools based on actual economic performance upon graduation - the way it should have been done from the beginning!!!



Things Generally Look Much Better For Graduate Degrees, But..... The Catch 22!!!

Return from Postgraduate Courses

Postgraduate degrees offer a much better return compared with other asset classes than do undergraduate degrees. The break-even year is achieved much earlier, in most cases within 12-16 years. NPV @6% is positive in all the cases. The problem is that in order to pursue a master's degree you first must obtain an undergraduate degree which has a very high probability of putting you in the hole!

Return from PhD Courses

Similar to undergraduate courses, return from PhD courses is lower compared to postgraduate courses. The returns are also lower compared to 30-year average return on equities (5-6%) and 20-year return on commercial real estate (>7%) and 30-year return on Gold (4.5%). The break-even year is achieved after a very long time, after almost 26-28 years.

Download Your Copy of the Education Bubble Deflator and Valuation Software Now! 

The cost is 29.99 for 30 days of use, but the first 100 users will get a 1 year subscription.

  1. Subscribe to BoomBustBlog
  2. Pay for the software here - $29.99.
  3. Download the software model here - File Icon College & University Education Valuation Model.
  4. Optionally, download the instructions if you're not comfortable with income and cash flows: File Icon Education Bubble Deflator & Valuation Model Instructions

This file must be opened in Libre Office Portable, a free lighteweight office suite that does not leave traces or changes on the client computer. You can download Libre Office Portable for free here: PortableApps 97 MB. A portable version of LibreOffice packaged in Format, so you can take all your documents and everything you need to work from a USB, cloud or local drive. See for more information.

Discuss this software, its findings and collaborate with othes on Facebook.


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