Page 70 - Crisis in Higher Education

44 • Crisis in Higher Education

four-year period, the $855,700 advantage is down to $755,700. Also, high
school graduates have a four-year head start on earnings. Assuming they
earn $30,000 per year for four years, high school graduates earn an extra
$120,000. Now, the advantage is down to a still sizable $635,700. In the
following list, there are a number of caveats regarding this simplified
analysis.

1. Feelings: Some decision makers come from families where attend-
ing college is expected; it is the natural step after high school. For
others, the career they want requires a college degree, and return
on investment is not a consideration. Parents or other family mem-
bers, who did not have the opportunity to earn a bachelor’s degree,
may strongly encourage their high school graduates to pursue an
advanced degree, regardless of economics.
2. Time value of money: The prior calculation does not consider the
fact that a dollar earned today is worth more than a dollar earned in
the future because the dollar earned today can be invested and earn
over time a return, making it more valuable. University graduates
forgo earnings from the ages of 18–22 and must pay for their educa-
tion. When the time value of money is applied, these lost wages and
education costs reduce the benefit from a university degree further;
that is, the benefit is less than $635,700, but it does not eliminate
the benefit.
3. Greater savings: On the other hand, university graduates have an
opportunity to save more because they have higher earnings. In
addition to more savings, they receive a return on investment each
year, which can grow their savings dramatically.
4. Other assumptions: There are many other explicit and implicit
assumptions. For example, students may take more than four years
to graduate, shortening their earning lives. As they progress in their
jobs, the salaries of university graduates may increase faster than the
salaries of high school graduates. If this happens, the advantage for
university graduates is understated.
5. Scholarship: Many students earn scholarships, which reduces the
cost of their education and increases their return on investment for a
university degree.
6. Reducing the cost of a university education: If the United States is
able to reduce the cost of higher education, the return on investment
from a university degree improves.