How do you skip college and invest the tuition in the S&P 500?
Ah, you can't: Of course, lenders won't give out large loans for an individual to skip college and dump tuition into the stock market, this is just a hypothetical scenario.
But the hypothetical breaks down once you consider it as a proposal, which makes for a dubious social commentary. Hypothesis testing is far more valuable than pure hypothetical!
Governments are willing to subsidize loans for education but not investing for at least two entirely rational reasons.
First, an educated populous -- especially college educated, and especially in STEM fields -- is in the public interest. We need doctors, lawyers, engineers, and, yes, even well-rounded marketing/sales teams. Could we get all of those things without subsidizing education? Probably not in the quantities needed by American firms.
Second, consider the sheer mass of each college-aged adult reliably pouring six figures into investment vehicles on their 18th birthday. It would take on a force of its own. In small quantities, this works out well for the non-student. In large quantities, the tail wags the dog. And anyways, where are all these lucrative investments that pay out decade after decade and that require nothing but cash money, quality of labor market be damned? I mean, they exist, but surely not in large enough quantities to sustain an entire society of passive income earners...
> ...again, that's why you don't do that with hypotheticals intended to be social commentary.
Good social commentary helps us identify and solve problems.
I don't think this particular commentary puts us in a good mindset for understanding or solving the problems with higher education funding in the united states.
> The article is saying "wow, college is sure overpriced for the amount of money you invest."
The article suggests thinking about the cost of college in terms of payouts to single individuals without any systems-level analysis. On the basis of this perspective, we conclude college is absurdly overpriced.
Perhaps college is overpriced. But not nearly as overpriced as this mindset would have us believe.
That 7% ROI from the S&P 500 isn't powered by pixie dust. It'd powered by mostly degreed people using their degrees.
Social commentary that distracts from the need for an educated populace and instead focuses solely on ROI to individual students is not good social commentary, IMO.
So even if we consider this as pure social commentary, my critique is the same: it identifies a problem, but does so in a way that doesn't emphasize the most important root causes of that problem.
(edit: also, I stand by my previous statement: IMO unreasonable hypotheses are almost always not useful hypotheticals.)
I don't know how to convey to you any more that this is a hypothetical rather than a real thing worth considering as much as you are doing.
Like your entire argument is "the S&P is pushed forward by people who go to college." Not to be rude, but that has no relevance whatsoever to the article. The article could have said to invest in real estate or god forbid bitcoin. The specifics don't matter.
Again not to be rude but I often feel like people on here have this disease that doesn't allow them to generalize from specifics. ;-)
Ok. And it's a bad hypothetical because it emphasizes individual roi instead of systems-level effects when discussing a problem where all the interesting action is in the systems-level effects.
I understand it's a hypothetical. I think it's a distracting hypothetical.
> Not to be rude, but that has no relevance whatsoever to the article
It has every bit of relevance to the article because college is more than just an individual investment opportunity. The benefits of a large college educated population are enjoyed by an entire society.
The real take-away from the article is that we apparently don't tax capital well enough because there's an absurd arbitrage opportunity for lazy people who have 200k in the bank. Or that the benefits of a college educated populace are high enough, and the cost also high enough, that we should be subsidizing college more than we currently are. Not that college is over-priced. The fact that your jump to the latter conclusion instead of the former is exactly the problem with this hypothetical.
> The specifics don't matter.. Again not to be rude but I often feel like people on here have this disease that doesn't allow them to generalize from specifics. ;-)
Look. Either I'm not supposed to generalize from this specific case, or else your entire complaint is really confusing. Generalizing from this specific leads to all the wrong conclusions.
That's assuming that these degrees are actually necessary for these people to do their jobs, which isn't the case the majority of the time in my opinion
Almost none of those companies could exist -- especially at their current scale -- without a huge pool of college-educated engineers/scientists/doctors.
There may be a lot of employees there not using their degrees. But the true value creators at S&P 500 companies are certainly not those people.
I just don't think scientists and engineers necessarily need a college education to be scientists and engineers. Some of them, maybe, but now we're talking about a fraction of a fraction of the output of these institutions. We can do better than just making all college education free.
This is the kicker. Similarly, the stock market outperforms property on the regular, but banks won't lend you hundreds of thousands of beans to get involved in the stock market, when they'll fall over themselves to give you a mortgage.
Because repossessing property is (statistically speaking) more likely to work out for the bank than repossessing whatever random stocks an investor decided were a sure thing. That's why margin accounts aren't available to everyone, and margin calls kick in to protect the investment firm before total loss.
Housing is volatile, but stocks are significantly more so, and with significantly more near-total losses over time.
In addition to that, the bank knows what they get back if you default on your loan: your house. If you want to invest in the market, the bank has no idea what stocks or funds you'll be investing in, and can't even remotely guess at what they'll get back if you default.
When you borrow money to invest in stocks the stocks are in an account that the bank can seize when the net value is low enough. It's much much easier to repossess than an illiquid house.
Stocks are much easier to repossess and liquidate during a margin call which results in margin interest being lower than mortgage interest. You can't get as much leverage as you can with real estate but that's because of government regulation not because banks are unwilling.
From most brokers, margin rates are higher rate than mortgage financing. Etrade, Fidelity, Schwab, Merrill, Scottrade, Ameritrade, Vanguard are all (much) higher than mortgage rates right now.
Some deep discount houses (IB and TradingDirect among likely some others) are lower than mortgage rates.
No it's not, because it's directed at our society as a whole. We can collectively change how we recommend people to allocate their time and money. And as a thought experiment, this is an important critique of the value of modern post-secondary education.
I did about a month of college before I realized I could make a lot more money jumping right into web dev. Sure I missed out on some things, but I'm doing pretty damn well right now.
I don't understand what you mean by this. Say a grandparent left a grandchild 50k for college. It's the grandchild's money. The grandchild could choose to invest in college or the market. This may not be a common scenario but that's what I meant.
> Say a grandparent left a grandchild 50k for college. It's the grandchild's money.
Well if somebody gives you money for X it's not really your money since you are not at liberty to spend it however you want. Only X is technically yours.
Right but if someone (say a living grandparent) doesn't "leave money for college" but "pays for college", then it's not the grandchild's money. The grandchild isn't paying for college at all. And getting 50k for other purposes was never an option.
Even if this is a hypothetical scenario, the larger point the author is trying to make is education is way too expensive and overrated on an apples to apples investment basis. There will certainly be outliers who end up making millions but the majority ends up in debt trying to pay student loans over time.
Now I have to ask: to lenders of college tuition consider the subject the borrower chooses? I am just curious - or is it generally the government that does the lending? Otherwise I would be curious to know how lenders see the earning prospects of different majors.
"Probably the most
dangerous thing about college education, at least in my own case, is that it
enables my tendency to over-intellectualize stuff, to get lost in abstract
arguments inside my head instead of simply paying attention to what's
going on right in front of me. Paying attention to what's going on inside
me. As I'm sure you guys know by now, it is extremely difficult to stay alert
and attentive instead of getting hypnotized by the constant monologue
inside your own head. Twenty years after my own graduation, I have come
2
gradually to understand that the liberal-arts cliché about “teaching you how
to think” is actually shorthand for a much deeper, more serious idea:
“Learning how to think” really means learning how to exercise some control
over how and what you think. It means being conscious and aware enough
to choose what you pay attention to and to choose how you construct
meaning from experience. Because if you cannot exercise this kind of
choice in adult life, you will be totally hosed. Think of the old cliché about
“the mind being an excellent servant but a terrible master.” This, like many
clichés, so lame and unexciting on the surface, actually expresses a great
and terrible truth. It is not the least bit coincidental that adults who
commit suicide with firearms almost always shoot themselves in the head.
And the truth is that most of these suicides are actually dead long before
they pull the trigger. And I submit that this is what the real, no-bull- value
of your liberal-arts education is supposed to be about: How to keep from
going through your comfortable, prosperous, respectable adult life dead,
unconscious, a slave to your head and to your natural default-setting of
being uniquely, completely, imperially alone, day in and day out."
Tuition at a California State University is only $5,472 a year. That is pretty darn close to free. Many other state schools have low tuition. Nearly 500,000 students in California attend a CSU. Almost twice as many students as attend a UC school. Yet, in these kind of analyses, these low cost state schools always seem to get the shaft when in fact they educate a tremendous number of students at very low cost.
There's still opportunity costs to consider. For example, in the Netherlands tuition is about 2k a year (the rest is subsidised). Education is top-notch (pretty much all of our universities are top 5% worldwide), although we don't have any of the top 0.1% institutions that educate a relative handful of students. (e.g. Harvard with 2k students per year)
But despite cheap tuition fees, the average person would spend 5 years on a 4 year degree. Spending 7 years for a Masters' is not uncommon, i.e. starting at age 18 and completing your education at age 25.
The real cost then isn't tuition, it's opportunity costs. When you can make 15x your tuition-fees a year, but you can't because you're studying full-time, that's the real cost.
And 7 years at a Dutch GDP of around 45k is an economic production that's nothing to be scoffed at, exceeding 300k. Of course, a high-school graduate's income isn't average, but on the other hand considering 'only' 13% of the kids in our educational system end up doing a Master's degree, examining the kids who'd otherwise go to university are likely to have above-average earning potential. All in all, it's not crazy to assume we're looking at a minimum cost of 100k.
In the US, an 18 year old kid fresh out of high school is going to get about $8 an hour. You also won't likely be able to find full time employment right off.
After taxes, you'd be lucky if you took home $40k in 4 years. Considering that virtual no 18 year old is saving their wages, you'd likely just work 4 years with almost nothing to show for it.
On top of that, parents and other family are more likely to help out a kid who's in college vs one who is working.
That's not to say there aren't many viable alternatives to college like trade schools and apprenticeships. Electricians, plumbers and elevator technicians make decent money.
Also were are you gettting $45k? Everything I can find says average income in the Netherlands is about $30k.
I made that up, so feel free to take it with a huge grain of salt. But I've worked in higher education, wrote my thesis on it and follow it still with a lot of interest, so the ballpark figure is probably roughly accurate.
I'd like to send you sources but honestly ranking education objectively is tremendously difficult. There are lots of different rankings that measure things you may not, at all, consider to be indicative.
For example, most rankings are heavily weighed towards citations and proxies thereof. e.g. Chomsky is one of the most rated academics ever, so if he moves from MIT to your university, your rankings blow up. Despite the fact he doesn't teach any classes, and the number of typical students that actually benefit from his (previous) research being associated with your university is close to zero. Particularly the type of students we're talking about: those who do a 3 or 4 year bachelor, then go to work. Lots of universities have high rankings because a handful of academic experts in their field are associated to the institution and put out innovative research, which usually means very little to the undergrads's education or development. Look into the methodology, it's usually a bit of a joke. It's the reason universities can rank from 40 to 140 to 40 within a a span of 3 years, despite no student having noticed any difference in the quality of their education. In short, university rankings are more about research than about education, which is fine, but the problem is they're often used by would-be students when choosing where they can get the best education. (or rather, which institution looks best on their resume, I guess). And I'm primarily talking about students who get a degree and then go back to work, those pursuing academic/research careers is another story, but it's a minority the article doesn't really focus on.
But that's just rankings. Even if you had good rankings, just counting the number of universities worldwide is tricky and runs into different ideas of what constitutes a university.
But to give you a sense: if you look at the QS or THE rankings which are quite popular, all universities in the Netherlands rank in the top 300. The US alone has more than 3000 universities, worldwide there are over 25000.
So in short and all honesty: made up the figure, I do think it's roughly accurate, I don't think there's great sources/metrics which reliable rank educational quality worldwide, and the metrics I don't really put much faith in would at least rank the 13 universities we have within the top 5%.
I wouldn't call $22,000 plus whatever interest you have to pay on those loans "pretty darn close to free". Though yes, it's lower than many other options in the U.S.
I do think California is one of the better places to make this work, though. The community college system really is almost free, and California has mandated that 4-year colleges must structure their degree programs in a way that makes it possible to do in-state transfers from an Associate's degree. Therefore you can do the first two years at a community college (~free) and pay "only" $11,000 to finish the last two years at a CSU.
This reminds me of Robin Hanson's criticism of medical spending - exercise and diet are much better predictors of health than money spent on healthcare, meaning that there's a large amount of waste in the system. I suspect something similar here, the amount of money people spend on education is uncorrelated from what they get out of it. The other factors, like whether you went to a top school and what you did in college dominate the ROI. There is a tendency to treat education as an insurance policy, where all you have to do is buy in, and you are somehow protected from falling through the cracks in society. It seems that college as an insurance policy has stopped working if it ever did work, and it exposes a fact that's somewhat uncomfortable, you can't just pay these colleges money to have your career set, you have to figure out what to do yourself.
I wonder if it's reasonable to go even further and say there's a negative correlation between spending and what someone gets out of college. I'd say that's certainly the case when restricted to certain fields. In this case I definitely do not think correlation has anything to do with causation though.
Just like the stock market, college is also an investment. There is risk involved.
One of the main problems is that this is NOT communicated well. (If it all.)
Too many people take on huge long-shot risks that are unlikely to pay off.
Yes, if you get an English degree and become a professional writer selling books and screenplays at $1MM a pop -- that's an awesome and incredible gig. But not many people can get it. The $30k - $150k for that degree is a very risky investment.
On the other hand, spending $30k for a degree in engineering, CS, physics, math, etc... is much less risky. And it's a better investment. However--even in this case--maybe it's not worth the extra $100k for a private college. Maybe Big State U is good enough, and a safer bet with similar outcomes.
When I first went to college, everyone around me said: "it doesn't matter what you major in, just get a degree and you'll be fine." They were wrong. It doesn't work that way anymore (if it ever did).
Communicating this risk/reward tradeoff, and what it means for one's future, is the source of most college-related money problems.
---
Personal anecdote: I have a CS degree, but started out in a liberal arts discipline. So those experiences form my opinions.
You can't discharge college loans if taken from a federal program. Unlike other ventures where you can pay pennies on the dollar when you bet and lose, such loans are pursued by the full force of the United States.
They also come with income based repayment plans that mean you'll never have to pay more than 10% of your discretionary income (income above 10% of the poverty line), and they are cancelled after 20 years of payment.
That is still a reasonable period of time to make them low risk. So we get a market flooded by cash. And now due the ubiquity of degrees, many are worthless but necessary. They are becoming the high school degree.
The risk doesn't really have anything to do with "a market flooded by cash".
The government distributes loans because legislation forces them to--not because they are low risk--and the money comes directly from the department of education not private investments. Private loans are only about 7% of the loan disbursements.
If that's the case, then I don't understand why the student loans are said to be such a big burden. It's just another tax, I wish more taxes were voluntary like that.
It's definitely the case. Part of the problem is that not everyone knows about income based repayment plans.
You mostly get a few groups complaining about the burden. People who don't know about income based repayment, people who make too much to qualify (basically what they'd pay if they paid 10% of their discretionary income is higher than the standard 10 year repayment plan), and people who took out private loans to go to for profit universities, or expensive private schools that weren't top tier (private loans are only 7% of total disbursements).
Add to that the arm chair analysts who see news stories about student loan debt and complain for them.
That's not to say that some of these grievances aren't legitimate. There really are people with $100k loans with useless degrees from for profit universities, but they are a small subset of loan borrowers.
Is that current or always? I went to college 2007-2011 and the first two years everyone I knew got 5.5k and 6.5k loans from the government and then private loans for the rest. After the great recession no one could get private loans anymore and the government filled in the rest
Looking at the statistics, it looks like its been around that level for a while. Private loans make up a bit less than 10% of the overall outstanding student loan debt, not just new debt.
This ignores selection effects. The kinds of people that go to college would probably earn more even if they didn't go to college. It's confusing correlation and causation.
Even if college does increase earnings some, there's societal effects. If we eliminated all college education, employers wouldn't be able to rely on that as certification. And so you wouldn't have to compete against that if you chose not to go to college.
This article doesn't explain why we should believe that stockmarket performance, going forward, will be anything like the S&P's performance from 1993 to now.
It's also not clear why we should believe the Payscale College ROI figures. I clicked around a bunch and couldn't find any description of their actual methodology for computing it. In particular, before we can take it seriously we need to know how well they've done at estimating the true counterfactual earnings of people who could have gone to University X but did not. And that's really hard to do! (Without multiple universes handy)
> This article doesn't explain why we should believe that stockmarket performance, going forward, will be anything like the S&P's performance from 1993 to now.
Nor why we should believe that a college degree's wage premium will be anything like its performance from 1993 to now.
> As automation replaces low-skill jobs, the wage premium may actually skyrocket for those who are able to get a job.
There was an article recently about automation actually lower the cost.
I had a debate about this with my libertarian friend.
Buddy: "Automation is a great!"
I know he's libertarian I was curious if he would support government program for the job that's being displaced. I'm for automation too.
Me: "So what about the people who are displace?"
Buddy: Well for the job that left over from automation will go up. So if waiters got displace, the rest of the worker who sill wait table will have their wages rises.
I didn't have a response to this because I have no idea if it's true or not. Then on reddit and hacknews there was an article talking about automation will cause wages to go down for the job automation is taken over. As for your comment of either job wages going up or not.
Anyway, it goes on and on until his solution was: family, church, community, and he very very reluctantly states government assistance. Also throughout said talk, he never thought about these people or flesh out a real plan for this.
Your comment reminded me of this conversation.
I'm not entirely sure if you're talking about the people who's getting replace or the other job. Either way unskilled workers still need a skill/trade to even get a job that's not automated.
If we're going to automate away all or most of the low skill job then what happen to these unskilled people?
For the people that are able to land a job, I think it's your speculation, in term of wages will go up.
I think education either college or vocational school or online or whatever is going to help unskilled labor pool. And how are they even going to even do that given that the job pool for unskilled or low skill labors are going away? How do they train for skill while having no money?
Well, you could repeat it for all the 24-year periods from 1917 through now. I wouldn't expect very different results, though accounting for college deferments will be fun.
that's effectively only ~4 observations then (100/24). i wouldn't want to make a very important life decision based on data from only 4 observations.
with only 4 observations, "common sense" and other forms of first-principles reasoning are much more important than the 4 data points. also one should consider data from other countries and other historical eras.
It's not though. There are ~75 24-year windows you can use between 1913 and today. I suspect you will find similar results with almost all of those windows. Obviously past performance is not an indicator of the future, but 75 data points is a pretty decent amount of data.
-there are 122 24-year windows in the dataset
-not a single 24-year period had a negative return
-the lowest average return for a 24-year window was 0.15% in the window from 1874-1897
-there have been only two 24-year windows since 1876 with average annualized returns less than 2%
-every window since 1912 has been at least 3%
-every window since 1968 has been at least 7.1% (the author's assumption)
-every window since 1971 has been at least 8%
Note that this doesn't take inflation into account, but also does not factor in the returns from reinvested dividends. Those effects would probably approximately cancel each other out, but hard to say.
Those 75 data points are not independent observations, because the windows overlap so much. Remember that using "year" as the granularity is arbitrary anyway; if we had daily, hourly or by-the-minute data going back to 1913, then we could have more "data points" but we would not have any better insight or statistical significance into the original question.
My point is that having 100 years of investment data is much more like having 4 data points than it is like having 75 or 75 *12 (if you cut the years into months). Even though you literally have 75 data points, they are pretty close to a copy-paste of each other; not statistically independent.
There is a massive body of existing literature (the kind that's published in peer reviewed journals) examining the returns to education. A lot of that research, maybe most of it, suggests that going to college is a very, very good idea financially.
PLEASE, before you let a blog post dictate your position on this issue--and certainly before you recommend to an impressionable 17-18 year old that they not go to college--take the time to properly educate yourself.
TL;DR; Didn't go to college, at first people thought it was a liability, but after working my way up people are blown away.
Here is my experience:
Dad got a masters in Math, couldn't get a job, became a Taxi driver and then took 6mo of community college and got a job writing BASIC in the mid 1980s.
Dad didn't encourage me to go to college, I was a bad student, but taught myself coding and really liked it. Had a C average in high school.
Got a job at the small company my dad worked at, got paid $7 an hour, then $14 an hour the next year.
Decided I needed to go to college to really make it, put my resume out for fun. Got an offer for $65k to work at Microsoft via a recruiter. This was in 1998.
Been working since, learning, making contacts. I make $180k with bonuses now at a Fortune 100 company, I could work into upper management as many have, but I like coding, hate email, hate meetings. I have a Director title.
When people hear that I don't have a college education they are blown away.
That's a great story - you obviously have a natural talent for coding. But it's still difficult to assess the counterfactual: Perhaps if you had gone to college you would now be earning $250k with bonuses at Google?
Shit, maybe if would make more as a country singer. I play a little guitar too.
In seriousness, maybe; but unless I'm a real genius, not likely. The route for me to make a lot more money is in management or startig my own business, both I've never had interest in. College is unlikely to change that.
Doesn't work in Medicine, Law and host of other fields which require hard core "physical assets" (tangible) things to teach for which includes dissecting stuff, attending patients, arguing cases etc.,
In coding all you need to learn is a PC and some connectivity. That;s all.
The only conclusion we can draw from your experience is that in coding/ software self-taught path can take you to places. But, cannot be generalised for all college going.
Without a degree the job market is a desert, since the hr filters ignore your resume. I have met many people with degrees who have less understanding and ability. But that paper always buys them an in, I don't have.
Only an educated man with a high wage job would come up with this crap. It fit the old template of, "Only suckers do what's expected. I'm too smart for that. Here's my plan that conveniently ignores all practicalities."
Putting aside the gatekeeping that prevents non-college educated people into high wage jobs. Putting aside the unskilled jobs have seen real earnings decline over the past decades. Putting aside that skilled non-college jobs actually require post-high-school education. One huge reason why people who don't go to college don't do this is... (Wait for it...) They don't have the money to invest.
The reason why people graduate from college with a load of debt, is because they didn't have the money to pay for college. If they had the money to pay for college, they wouldn't have the debt. This is obvious.
So where are these people going to get the money to invest? A bank? No one is going to entrust money to a high school grad to invest. For gatekeeping reasons, if no other. Second, why would a bank make such a loan, since they have their own investment arm? This makes no sense, and has no public benefit.
We know this doesn't work, because you can simply ask your older fry cook at McDonald's if they're raking in the dough with their investments.
This article, and the one it cites, have two serious flaws:
(1) Their "ROI" for college is based on some average of high-school earnings. But average high-school only earnings is the wrong number. We don't care about what 50-65 year-old union employees with a high-school education are getting today, we care about earnings over the next 20 years for today's high-achool, non-college, graduate. That number is dropping, as the number of good paying high-school only jobs decreases. Jobs that a generation ago only required a high-school education now want college (deservedly or not).
(2) The distribution of ROI is based on numbers of institutions, not numbers of graduates. There are far more students graduating from large, cheaper, public schools than Harvard or Princeton, but there are many more small private schools in the distribution of costs. But ROI is not based on a distribution of graduates, it is based on a distribution of schools.
While it does not make sense to take out large loans to finance poor-paying occupations, and it certainly makes more sense to spend less money on college, these articles are very misleading.
This is a provocative but deeply misleading calculation. It assumes that our no-college-S&P-investor is a stoic enough soul to live on truck drivers' wages for 24 years, so that the stock market can do its magic, before collecting what genuinely would be a giant windfall.
That's really hard to imagine. Missing out on the more robust income of a college graduate in your late-20s and early-30s means making sacrifices in terms of the clothes you wear, the vacations you take, the car you drive, the type of person who's likely to marry you; your dental care; your children's schooling, etc., etc.
The temptation to start plucking out money from the S&P honeypot -- in the name of having a better life -- would be fierce. Nothing wrong with that. But if that big knot of savings is used to help pay for a better standard of living at age 25, or 29, or 34, then that means settling for a zero or negative return for that segment of money going forward. Goodbye to the fabled 7.1%.
Bear in mind, too, that the stock market doesn't deliver 7.1%, year after year, with the happy predictability of a government bond. If your start year was 1999 ... and you waited 10 years to see how you were doing, you'd be looking at about a 30% drop in your portfolio. (You would have caught both the dot-com mess and the bankster mess.) http://www.multpl.com/s-p-500-historical-prices/table/by-yea...
It's easy, with hindsight, to say: "Just wait it out." But at the time, the pressure to get out of stocks is intense. And the anxiety about having bet your lifelong well-being on a market index going haywire would be excruciating.
> ...is a stoic enough soul to live on truck drivers' wages for 24 years
Truck drivers make decent money. $40k, usually closer to $50k+ if you're experienced without accidents. Much more importantly, you don't need to be in an office building in a high rent area every morning. If your spouse also works, those salaries buy a REALLY nice house in Nowhere, MS/WI/KS!
"Has the nerve and patience" might be a better way of saying it for truck drivers, at least. The job's downsides are the stress, risk of death/injury, and the crap hours.
> The temptation to start plucking out money from the S&P honeypot -- in the name of having a better life
And "temptation for a better life" isn't the only source of risk.
A lot of low-skill but decent-paying jobs are extremely vulnerable to economic cycles.
"Making the mortgage that was comfortable before the market crash / paying for medical bills that accrued while my insurance lapsed" can make a life time's worth of savings disappear in a matter of months.
> but I cannot think of a worse occupation to get into right now, with self-driving trucks on the horizon
I don't think this is necessarily true. Fully self-driving trucks are at least a generation out. I wouldn't seek a huge multi-decade capital investment into trucking for sure, but individual drivers aren't terribly exposed to such long-term risks.
And even if SDF gets here sooner than expected, if you work for a company it's kinda whatever. Getting a CDL is a pretty small up-front investment compared to most jobs that both pay well and are in demand. As long as you're not an independent operator (=capital investment), you're not really making a huge investment aside from your time (for which you're well-compensated after the first year or so).
> (Also, I have a trucker in the family, and the financials are harder than they look.)
Certainly for OTR and especially for independent operators. And like I mentioned, injury/accident/economic downturn are huge threats. Trucking with a second family income remains a viable path to a middle class lifestyle, but you're right -- there's a good reason a lot of people choose other paths.
Skipping all of school has even higher returns. If you just invested all the money that would normally go to pay for your K-12 school and college each year, then by age 25 or so you'd have enough money to retire.
The problem is that even if your parents home school you, they're generally not allowed to just not pay millage.
The core problem is that K-12 schooling largely isn't for the benefit of children, but for the state. That's why the state pays for it and not private tutoring in child-lead learning. It's awfully convenient to have a populace indoctrinated into a shared set of cultural norms.
My tuition costs in 1995 were $2500/year for an engineering degree. So given the numbers the OP used, he would be wrong.
In today's environment, however, I might be inclined to agree. When I went to school, I could get a minimum wage job for the summer, and pay for tuition and dorm fees for the year. Education costs are wildly out of whack and something needs to be done to cut down these costs, because at this rate, I will NOT send my two kids to college. I'll tell them to open up a business or something, because it's simply not worth it.
Financial aid, scholarships, or community college followed by 2 years at a known school is still pretty worth it.
Example: You can go to the University of Alabama on an automatic full tuition scholarship if you have high enough standardized test scores. It's not the only one with a similar program.
I do notice that this doesn't take into account race and gender. The premium White and Asian men get from a college degree are higher than for any other group (citation: http://images.dailykos.com/images/125386/large/wage_gap_race...) This could be true for some people but not others, in predictable ways.
Definitely an interesting thought experiment. This article assumes 7.1% annually, and gets that by choosing an arbitrary start and end date of stock returns. In reality, it seems to be more like ~4%, which makes this conclusion much different.
An enormous missing part of this seems to be that you are comparing the "return" of something that pays annually and a lump sum result at the end of the 20 years.
You'd need to compare it to an investment where you're also withdrawing the difference with the higher salary per year. Or, equivalently for this, have the extra money earned paid into investments each year.
Really, part of what this is doing is comparing invested money to non-invested money.
Edit - for a quick figure, let's assume you're getting the equivalent of a 4% annualised return on a $100k investment. That means you're earning $219k over the 20 years more, for simplicity I'm going to assume that's an even $11k each year. Our 7% example would be $507k over 24 years, invested all up front.
Instead of $219k, we're actually at $480k.
The two line up once you hit roughly 22 years in the workforce, at 23 you're slightly ahead. By 40 years of working, investing upfront is $400k behind, at a little over $2.3M vs ~$1.9M
A way of phrasing the question to ignore working / etc, is which works out better
$X invested at $Y as a lump sum.
$Z invested each year at $Y.
The question the article appears to ask is the better of
First of all, instead of going all the way to free higher education in one go, try a better loan system.
Basically since educated youth is a national interest, set up an authority that lends money to students with very reasonable interest rates and repayment.
Interest rate can be set at the inflation level plus a small margin, repayment is set as a fraction of annual income, and the loans should not count against future credit. Remaining debt at 65 is written off and absorbed by the public.
This is how I funded my education (or rather, the rent/food/books as there was no tuition).
The analysis has a huge gap in that it looks only a pay differences and not at employment differences. The pay gap is large (37K vs 71K) [1] and the unemployment gap is over 2 percentage points [2]. Being unemployed for 6 months wipes out most of the nominal 'gain' by investing your tuition in equities. (and of course it depends on when you invest etc etc).
Some jobs are only accessible with a college degree (dental hygenist, etc.) If you didn't have a college degree you couldn't get access to those jobs and you then may have a more competitive job market for those jobs that do not require a college degree. Thus without college there would be more people in the bottom pool of job seekers thus increasing competition and likely lowering wages in that bottom pool, and it will likely raise the wages of those who do have college education when they are seeking jobs that require that degree.
It sort of seems like we have too many educated people and not enough good jobs that require that education. That seems like the fundamental problem.
I wonder how different the ROI is between college degrees. I could see a large number of degrees having practically no ROI, compared to just entering the labor market, while others will be more substantial.
If that isn't evidence for capitalism being a joke I don't know what is. By all means go to college, get an education, all so vultures can use your brain to enrich themselves while paying the minimum.
To say nothing of the finance industry which has made an art of skimming off the top.
When looking beyond US borders it turns out you can have it both ways: Get a degree from a very good university without paying tuition fees (or at least not much).
For example in Germany international students can study basically for free. It's similar in other EU countries and the universities are typically much better than US state universities. I truly wonder why not more Americans are taking advantage of this.
I found that investing in bitcoin has outperformed the average post college job. (I conducted my research by comparing 20,000 invested in a college in 2010 vs 20,000 invested into bitcoin in 2010.)
I would not risk this though, the failure rate of most new crypto is close to 80% to 90%. Litecoin and Ethereum are the outliers, not the most common cases.
I wonder how much of this is just a result of US tuition costs being out of control.
Does this analysis hold for coding bootcamps? What about Canadian colleges (say, Waterloo, Queens or Toronto)? What about community college? Restricted to only CS/EE degrees? Becoming a doctor? Does it account for the probability of dropping out of various college progams?
In Canada, no meaningful rise in income due to university attainment has occurred[1]. For young men in particular, increasing rates of university attainment has shown lower real wages[2]. No need for 7% stock market returns to try and make up for lost wages as seen in the article. You could technically put your equivalent student costs into a low-interest savings account and come out further ahead.
As someone who is attending a CC for 3 of 4 years for my degree I'm sure it doesn't. Now you can't do this at most community colleges but you can at mine.
The cornerstone of this statistical conclusion is that you will invest the money you will use for college, however the fact is if you try and loan out the money that you need to go to college for any other purpose, that loan will be a lot more expensive that what you would get from a student loan. Also, the chances of you getting that loan is slim.
If you already have that kind of money with you and you are going to invest you own money for college then these arguments have a little more statistical weight. However, if you have that kind of money, you are probably already rich and wealthy at which point, you already have a good business/income and this delta that you would invest into that business will not yield you significantly more income than what you already have. At this point, its still better to go get a college degree.
Not saying anyone going to college isn't good (I have a son going to college now). But frankly is this really surprising?
I have known this for years. I have a college education but NEVER advertise it because it has absolutely ZERO to do with my career. And I rarely have told anyone that I graduated. Even straight out of school I relied on my capability not an education and that capability got me a better job offer at a higher salary then I could have reasonably expected if I claimed a new grad.
Not saying school is bad or not worthwhile, there are things I wish I would've taken the time to learn earlier but the reality is at some point it becomes useless compared to if you can do the job. When I hire, I absolutely never care about the education except that if you have one I expect certain answers that if you have experience I wouldn't expect.
- the S&P is possibly driven by people who went to college and started companies; if nobody did that, where would it be?
- average results tell the individual nothing about his/her best choice, so the headline is a bit detrimental. There are successful UHNW entrepreneurs both with and without college degrees and plenty of unsuccessful people with college degrees
- note that Payscale uses median pay to calculate ROI from colleges; all extremely successful people with very high incomes are not reflected in the data.
Does it seem reasonable to you to ignore every $ of income which is over median? Perhaps capping the income instead and taking the average could be more informative.
Our economic system is currently over-delivering on solutions to simple problems and not delivering enough when it comes to solutions to difficult problems.
Instead of shifting their efforts towards solving difficult problems (to add value), companies today prefer to focus on already-solved simple problems and to focus on optimizing existing solutions (to capture value from competitors); what that means is that humans collectively spend more effort merely competing against each other (zero-sum games) instead of collaborating to create new value.
If companies don't invest more money into finding solutions to difficult problems, the skills required to solve those problems will lose value on the marketplace - And by association, the education required to attain those skills will also lose value.
Unfortunately he might have a good point; but the path he took doesn't really show it.
It would be more difficult because you should be looking at the cost of education; the average income of the person who has graduated.
Unfortunately you will need to do something for each skin color because they discriminate against minorities and other different variations. (Not being straight; too flamboyant, etc)
discrimination is a very big thing in America; lots of false sense of entitlement.
No need to call it racism; it's much bigger than that.
> Footnote; I have a form of Autism that makes lenders not want to work with me.
Happens in all shapes and forms. If you are a woman or if you are black; if you go to a Chinese banker you will have better luck as a asian or white person.
Something we need to work on; it's going to take hundreds of years and we need to keep at it.
The problem is I don't have that money to invest. I'm going to take a loan, which is only available for college. So the choice becomes "don't go to college and earn zero" or "go to college with bank's $ and earn a nice salary later".
> Only ~10% of the ~1250 colleges listed on Payscale generate an average ROI higher than the 7.1% generated by foregoing college and investing that money
Most of anything is not great by definition :)
It's all really funny when schools like 42 are free (42 is a private university in France)
One obvious issue with this post is that it uses historical S&P500 returns from a period of high performance. To be predictive, it would have been helpful to also examine expected future returns for the next 10-20 years, which are generally considered to be lower (based on valuation metrics such as mkt cap to GDP, P/B, CAPE10, etc). To put a number on that, perhaps 4-6% nominal, instead of 7%+ from 1993-2017.
It would have been helpful to model tax effects as well. Those generally do favor investment over labor, but with a positive first derivative (the top US cap gains tax rates are rising much faster than labor rates, e.g. from 15% to 23.8% from 2012 to 2017).
There is something seriously wrong with society when accountants run the world. Money is a tool, education provides long term wealth and stability. Providing fuel for people considering skipping collage is very short sighted.
It's saddening, yet unsurprising, that the whole discussion here on HN is around wealth and few people mentioned learning minor skills like time management and writing or partying and making friends.
In other countries, universities are/were usually seen as a way to cultivate your mind.
Quoting wikipedia on "culture":
The modern term "culture" is based on a term used by the Ancient Roman orator Cicero in his Tusculanae Disputationes, where he wrote of a cultivation of the soul or "cultura animi,"[2] using an agricultural metaphor for the development of a philosophical soul, understood teleologically as the highest possible ideal for human development.
So... I know the author put a note about it being hypothetical, but I think it bears repeating: I don't believe that most of us who go/went to college would have anywhere near the means to invest what tuition costs if we chose not to attend. Which makes the premise seem only applicable to the wealthy.
I'm far from sold on the necessity of attending college, but befrickenbejeezus, if somebody can study engineering or computer science, get decent grades, and come out with a little debt, it's got to beat working multiple minimum wages jobs for the rest of their life.
On average, US is the happiest country in the world. /s
Use proper statistics that are geared towards heavy tailed distributions which income adheres to.
A good start would be a median.
Not too mention pure ROI ignores the fact that on the stock market you lose everything, investing in education is supposed to result in intangibles like gasp better education and adaptability to the market. In other words, lower risk.
2% gain for risk of losing everything in one bad go is a bad deal.
Of course just like bad investments in the market there are also bad investments in education.
Totally different data point: I've studied in Germany (Computer Science) and it was basically free (had to pay a few bucks for a few semesters, let's say below 3000 EUR in total) - and I still sometimes wonder if it was worth it.
Why? I've never worked for a company that had the slightest interest in my CS degree (it's a german diploma, roughly equivalent to a MSc). Maybe at some point in the future I'll try to work for one where they prefer to tick this box off - but right now in terms of money it's been useless. All my coworkers in these companies are paid roughly the same amount, or if not, it's different factors, but not the degree. I am also not a recent graduate (2010) but interviews in different companies than the ones I worked on showed a general lack of interest in formal education, but I guess getting an intro by someone working there or knowing you from conferences/meetups already helps.
But why am I debating? I lost time studying and working part-time where I could've worked full-time already. I don't want to question the validity of this CS degree, but I was working as a programmer already before I started.
We don't have a system to give everyone free food, shelter, and clothes. Those are still paid for and you need to work at some level to get those things.
Our dark world looks dark because none of us have lived through millennia
People love to chart out how great it is to invest in the stock market and how historically it generates great returns. Nobody seems to remember everyone around them losing enormous amounts of money whenever the economy tanks.
Where were all those 7.1% earnings going when the banks were getting bailed out and people were camping on wall street because their houses were foreclosed? Who pays that 7.1% that everybody wins every year? It must come from tax dollars if nobody is losing any money in the market. Or maybe so much money is being generated from all that business that everything is just dandy and there's more money than there used to be. Or maybe the big investment firms are just handing it out to everybody who participates in the market.
I don't know and I guess it doesn't matter. I should tell my kids to forget college and invest instead. They can learn about how it works as they go. Heck, high school is definitely more advanced than when I went. Maybe they teach kids how to invest now. It's so easy to make 7.1% every year that I'm sure the old shop teacher can cover it since they killed the shop program due to lack of funding. I guess the state didn't know that you just had to put your money in the market to have it grow 7.1% every year. Someone should let them know.
> Anyone that didn't panic sell during the crash has recovered.
What does 500 shares of Pets.com sell for these days?
All the people who had pensions heavily invested in Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund came out OK after a bit of time?
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Investment carries risk at all levels. The longer you play the market, the more likely it is that you'll get burned at some point. Professional investors can come up with plans to hedge their risk and avoid calamity. Some of those plans might even work. People who go straight to work out of high school are not professional investors.
"Panic selling" is not always a choice, and it's not always even possible. And no, not everybody who lost a boatload of money during any particular crash ended up OK because they decided to let their investments coast.
You are building strawmen. The suggestion was to "invest into the stock market", not to "gamble on the single riskiest stock you can find".
If an amateur invests their money into a passive index fund or even a diversified equity fund like, say, Fidelity Magellan, they would have done well over any 20-year span. Nuff said.
Both of the investments I referenced were solid until they weren't.
My adult life has seen 3 major market crashes and a terrible recession. I've watched neighborhoods go into foreclosures on 80% of their homes. I've had friends go unemployed for over a year.
When I see people spread investment advice as if there's no downside, I have to shake my head. There's money to be made in the market, but it's not without risk.
The Nasdaq Composite lost 78% of its value as it fell from 5046.86 to 1114.11 in the dotcom crash.
The S&P 500 declined 57% from its high in the housing crash.
The Dow lost more than 5% in a single day at least 5 times in 2008. The next time one of the major indexes drops 700 points in a day look around and tell people "you'll be fine if you don't panic sell. Think about it in 20 year increments. It'll all average out. You're money is all in an index fund, right? Those are totally safe. You didn't want to spend anything during this presidential cycle anyways."
Where was the index fund advice in '98? Where were all the people who had well balanced / well hedged portfolios in '07-'09? I'll tell you where they weren't. Every house with brown grass that the banks had foreclosed on and decided not to keep up.
There was an army of day-traders once upon a time not all that long ago that blew all kinds of sunshine up people's asses about investments. There's no reason to. People who have the money to can invest if they want and if they do they should learn about the risks and ask the people who are giving them advice how they fared during the crashes. If those advisors don't admit it was hairy and ridiculously stressful, they are lying through their teeth.
Index fund advice became widespread after '08. Now Black Rock, State Street, and Vanguard own majority stock in 440 S&P companies. You aren't invested in the S&P500 anymore. You are invested in BR/SS/VG management. Who aren't incentivized towards the interest of any particular firm. What happens as these funds grow? If investors herd to passively managed funds, what's the outcome? Faster cycles. The indexes do more securities lending, which makes them less liquid come crash time. Do investors know that these funds will have liquidity problems if the market goes belly up? A whole shitload of people are going to learn the term "halting redemptions" really quickly. Do investors realize that the growth of passive investment increases anti-competitive behavior? Which isn't good for the economy and sure as shit isn't good for small investors.
But by all means, keep shilling the passive investment advice as if you've been doing it for 40 years. Then complain with the rest of the country that the funds should have been regulated more and how people should have known not to give that much power to so few companies in the financial sector.
> Both of the investments I referenced were solid until they weren't.
No they weren't, not even close. Investing all your money in one company (whether Pets.com, McDonald's, or any other) is not, and has never been, "solid". Also, the words "leveragedhedge fund" should tip you off that that wasn't a low-risk investment.
> When I see people spread investment advice as if there's no downside...
Seriously? No true scotsman... err investor... would imply that the stock market is risk-free. Of course there's risk! It's literally the second-most risky/lucrative investment you can make (next to options trading). But the argument is that investing passively in a well-diversified index shifts most of that risk away from total loss--as in your examples--and into more manageable risks, e.g. waiting for the market to recover.
> The S&P 500 declined 57% from its high in the housing crash.
Sure, and then it grew 232% in five years to restore itself.
> You didn't want to spend anything during this presidential cycle anyways.
That's right, we're talking specifically about long-term savings; money that you're not planning to use in the next 5, maybe 10 years. If you're buying pets.com stock with next month's rent money, that's on you. Stock market isn't for everyone; buy T-bills if you want a safer investment.
And by the way, in the context of this thread, money spent on tuition is also money that you can't spend in this presidential cycle, or the next! The break-even on something like med-school could easily take three presidencies or more.
> The Dow lost more than 5% in a single day at least 5 times in 2008. The next time one of the major indexes drops 700 points in a day look around and tell people "you'll be fine if you don't panic sell.
This literally happened a few weeks ago. I "lost" 9% in a day on news of a possible Trump impeachment, proceeded to not panic, and then watched my funds restore themselves.
You can't use people doing the exact opposite of what they're advised to do as an example of the advice not working.
> Where was the index fund advice in '98? Where were all the people who had well balanced / well hedged portfolios in '07-'09?
I guess it was with all the people that still had green grass on their lawns? The ones that actually followed the advice?
> There was an army of day-traders once upon a time not all that long ago that blew all kinds of sunshine up people's asses about investments.
They're still there, and they're still blowing, but that's not the advice we're talking about in this thread. We're literally talking about sitting on a passive index for 24 years.
> But by all means, keep shilling the passive investment advice...
Who are we shilling for? Big Passive Investment? Am I getting commissions off your money?
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By the way, I'm interested to know what you propose I do with, say, an unexpected year-end bonus. Put it in a bank account earning -2% real interest?
> Seriously? No true scotsman... err investor... would imply that the stock market is risk-free.
...
> But the argument is that investing passively in a well-diversified index shifts most of that risk away from total loss--as in your examples--and into more manageable risks, e.g. waiting for the market to recover.
So you're saying that the only risk is that you might have to wait a few years to see your money again. That's plain and simply not true. The risk is that you can lose all of your money. It's spelled out in every prospectus, just like it spells out that things like turnover costs are not accounted for in any marketing you've received.
> By the way, I'm interested to know what you propose I do with, say, an unexpected year-end bonus. Put it in a bank account earning -2% real interest?
My advice is don't put money in places you don't understand. When people give you the impression that there's no downside to a particular investment they don't understand it either. If all you understand is that a savings account won't lose money, then put it in a savings account, but remember that FDIC is limited insurance.
> The risk is that you can lose all of your money. It's spelled out in every prospectus...
If you buy equity in a single company, you could lose all of your money if they go bankrupt. Likewise, if you buy stock in 500 companies, they could all go bankrupt and you could lose all of your money, but the chances of that kind of "total loss" happening become astronomically low as your portfolio becomes more and more diversified.
So yes, there's technically a chance of losing all of your money even when buying well-diversified index funds, and therefore this risk is listed in all the relevant legal documents. But I'm not losing any sleep over this particular category of risk.
> When people give you the impression that there's no downside to a particular investment they don't understand it either.
Of course there's a downside; the fundamental property of all investments is that risk is intrinsically proportional to reward. As a somewhat-rewarding investment strategy, it's therefore somewhat-risky. Being "locked out" of your money for a presidential cycle is one of the major downsides that we've both identified in this strategy.
If you are heavily invested in a single stock, whether it's Pets.com, Bear Stearns, or Tesla, then you aren't aiming for average returns. Index funds are a low effort way to spread risk and are simple to use.
The real problem is that most people lack the discipline to avoid panic selling or to avoid chasing bigger wins.
"The Fed had assets worth $858 billion on its book in the week ended on Aug 1, 2007 just before the start of the financial crisis"
From http://www.investopedia.com/insights/how-will-fed-reduce-bal..., the Fed now has $4.5 TRILLION in assets. IOW, they have injected $3.6T into the economy by pushing buttons on computers to buy shit from banks so banks wouldn't have to keep them on their books and take risks.
Have created infaltion IMO? Have you looked at the rate of inflation in the US since 2007? For the most part, well under 2%, which is the Fed's mandate and a healthy level of inflation.
I think the key phrase is "on average". If everyone invested in index funds instead researching and investing in individual companies, there would be no market to index. Likewise if everyone did the "average" thing with college - perhaps skipping it and banking the funds (in an index fund), there would be no higher education, and no new companies to bring to market.
The only thing worse than anecdotes when making a decision is averages.
The real problem here is the culture of telling people how amazing they are without them actually having achieved anything, which is really the basis for the negative views people have about millenials.
For example, the hordes of people who chase their dreams of becoming famous by acting, singing or, worst of all, just for being famous (aka the Kardashians). The dark side of all this pops up as many of these people get spit out. Some turn to drugs (I saw a show about meth usage in Hollywood and there were an awful lot of addicts of people who moved to LA to pursue their dream).
Not weighing up the cost of college is a big one. It's not that college has to have a positive ROI. There's something to be said for quality of life and the actual experience but still, we're asking 18 year olds to be realistic of how they'll pay for this eventually and that's a lot to ask of an 18 year old who has been told their entire life to follow their dreams and how amazing they are.
It's fair enough for something like this post to try and quantify the true cost of college but don't that having more money and working as a truck driver is not necessarily a better outcome for that person.
>The real problem here is the culture of telling people how amazing they are without them actually having achieved anything, which is really the basis for the negative views people have about millenials.
But at what point can you laud someone for something? When have you really "achieved" something? There is (most likely) always someone smarter, faster, better, or more well-accomplished than you.
Its making some assumptions that don't seem right, accounting for people having safety nets, minimum livable standards, and (for ages 16-66) more sweat-equity to invest tomorrow. If all that money's going into the stock market, compounding, how do you eat? Don't you put some of your higher salary on graduating into the market too?
How long will the no-college person spend unemployed, and will they bounce off bankruptcy?
This is what I did. It worked well (for me). I would recommend it to someone like me. If you are smart and hard working, University or no University you will eventually be reasonably successful in the right circumstances. If you want to do something abstract, like invent or do business, it probably makes more sense to skip University. If you want to do something more professional or conventional, like engineering or medicine, you probably have to do University. For the most part, the implicated disparity is actually priced into jobs. Part of doctors income implicates paying off tons of debt and opportunity cost. Likewise, through compounding, hard work and networking, you can end up with the same net worth by other means. The key is to approach it in a self aware way. People rarely make any decisions on a purely rational basis, why start with University? University is easily reversible. Spend less time worrying about what major you take or college you attend. Spend more time worrying about being self aware, choosing a life partner and taking care of your physical and mental health.
Today this is true more than ever with easy access to tutorials, training videos, etc. What people really need post-high school is a mentor who either is willing to take them under their wing or give them guidance on how to pursue their career.
For me, I feel if I had discovered the many mailing lists and irc channels that learned through in high school instead of college I could have saved five years of my time.
There's a cost of opportunity that you're not taking into consideration. Also, that money doesn't usually include food and rent, meaning you definitely lose money in the short term.
Well, many danish students live completely of this grant, including rent and food.
But you are right about the cost of opportunity. But I think, in general, that it is much more important to optimize personal well-being than income. My impression is that most Danish students rather want to be at uni than the alternatives.
Are you saying graduate students don't get paid in the US? If so, you're wrong. I got a stipend of $1400 per month and it increased each year. Not much, but enough to live on as a student.
Consider an undergraduate program where ~150 people each contributed say $50,000 each to collectively buy a large parcel of land and create their own eco-regenerative village. That would be $7.5 MM dollars.
Over the course of a few years they would build micro-homes, permaculture farms, invent, build, hack, create art, take free online courses, host traveling scholars, incubate start-up ideas, etc. They'd be a self-sustaining techno-tribal commune.
After 4 years, they'd have the skills to live sustainably, work together, and would have basic food, shelter and community needs taken care of for the rest of their lives, and they would be free to invent, create art, do activist work, help other students boot up similar learning communities, travel among other similar villages the world over, etc.
So, how do these people learn the skills to build houses, physics and math skills that are required to 'invent', basic electrical and computer science skills to know how to program and so on?
We have a group of mentors that will work with the initial group and then the graduates will help the others.
Self-directed learning is nothing new, sudsval.org has been doing it for decades with k-12 students and many people are self-taught to expert level at any number of things.
The community will determine what they need to learn and will be empowered with support in those efforts.
There will also be a collective wiki knowledge base that students can add too, including their own courses and projects so others can benefit from them.
Everything is open source and available to anyone who'd like to contribute or learn.
The problem is that the solution is extremely fragile at the beginning. See, nobody is a specialist since birth and learning even mildly basic repair is getting harder each year, while the hardware gets more complex.
So such a society becomes fragile when important members who mentor a trade fall out (age, obligations etc.).
You can buffer those problems sometimes via shared funds, sometimes not.
I paid 35EUR for first year of CS here in Spain. Next ones will cost me ~1500EUR (no scholarship assumed). Pretty good deal even then though, to what adds up low cost of living.
Maybe get out of the US: Germany, Italy, France, Poland, Spain. Sometimes, the grass may be greener and costs/ROI better.
Good; it will result in only the people who are actually likely to make some benefit from the education to get one, not everyone who has money or wishes to get deeply in debt.
College education is not for everyone, it doesn't pay for the simple and stupid reason that you can't buy yourself better brains, or better personality traits. If lower fraction of people go to college, ROI will increase as these will be people better suited to benefit from education, it will also make prices fall due to natural law of supply and demand.
It is sad to see a ton of young people wasting best years of their lives for something which is of no benefit for them anyway. I did it too.
"On average". That includes a bunch of degrees that, while perfectly fine, aren't going to generate a lot of money for most people. An english degree, in the hands of the right person, could make boatloads. For most people, it won't. The ROI for $200K+ english degree is awful.
On the other hand, a CS degree, robotics, genetics, biology (medical), any of those, again, in the hands of the right person, will far outpace the S&P, it has for me.
But I can't say it enough, the person needs to be
a) motivated
b) reasonably intelligent
c) lucky
If that sort of person gets a degree and a masters or a PhD, I think the ROI can be better.
One of the other things that will start entering the social consciousness is that a lot of the information (lectures, books) is available online for free.
This is especially true for computer science / programming.
Unless you need hands on access to equipment or to physically interact with people for your chosen field of study, the college format is a very inefficient means learning.
The "Cone of Learning" states the best way to learn is (in order):
Seems he gently skipped over the fact that getting a job is supposed to be easier if you have college. Thus he would have to take into consideration all those people who can't get a job without it, or who would have to accept sub-par employment with low pay.
Suppose also that you will only do well in College, and thus be elligible for those well-paying jobs afterwards, if you already did very good at primary school. If we suppose that only pupils with high grades from primary school can "make it" with College, then that would also be another point that I think the article explored only weakly.
As someone who grew up from a poor background, I don't believe I was ever given the option of "investing" tuition costs. I did however get both academic and need-based scholarships to go to college. There really wasn't much cost-benefit analysis involved there.
Also, there's the larger question of whether good entry level jobs and investment opportunities are available at the same level if everyone were to start to put money into stocks, or whatever, at the same level they do for higher education. There is undoubtedly a ceiling on investment just as there is one for increased income for higher education.
College and academia as a whole is meant for higher learning and knowledge - not necessarily to allow people to make more money. That many higher paying jobs require skills associated with a college education is a side effect.
Sadly you need at least $5k/yr to be able to participate in your higher learning and knowledge, and this excludes a majority of people from broken backgrounds.
One of my nephews graduated from one of the Top-5 US universities with a B.S Degree in Computer science, last week. It costed him ~250K USD for the entire course (living expenses, all included). He got an offer from one of the Top-3 tech companies in the Valley and the salary he will be making, makes it possible for him to pay back the entire university expenses in 2-3 years.
This is just a small sliver, and I understand this is no way representative of university education. But in this small sliver, it seems like University education is amazing in the value it offers, purely in a dollar sense.
We should have a system more like what Thomas Paine advocated. The system he described sounds like Social Security, except it's not limited to retirees. He suggested that everyone 21 years old was due a "natural inheritance" for having been dispossessed of land and property which would offer a chance to succeed. Likewise, America should have scholarships available for anyone willing to work hard and learn. If college were free, ROI would be very high indeed.
There is something seriously wrong with society when accountants run the world. Money is a tool, education provides long term wealth and stability. Providing fuel for people considering skipping collage is short sighted.
Maybe college is too expensive -- maybe it's expensive because there is a very high demand for well educated people. In other words, in my field, computer science, you will meet very few immigrants without a hard won master's degree or better. They are paying premium prices for these degrees, and they are getting the jobs that come with them. You can't simultaneously argue that the job market is being divided by STEM knowledge and that learning about STEM is a waste of time.
This is a huge, spirited discussion. There was a very similar discussion with many of the same points when child labor was outlawed and education was made mandatory a bit over 100 years ago.
All the points against college education made here...they just as easily apply to that case as well. So we should stop funding public schools, invest it in the S&P 500 and start letting 12 year olds maximize lifetime income by beginning professional life early?
Except that college is more about becoming an adult, making friends, some partying, meeting co-eds, and learning how to learn. The social benefits should not be downplayed.
if the subtext here is that university tuition is much higher than it should be, i agree. but the point of going to college isn't merely to achieve a monetary ROI.
These calculations seem fishy, for reasons stated above and others (e.g. why 20-year ROI? why exclude graduate degree holders?).
However, it is true that rising education costs are eating much of the ROI of attendance and lack of transparency has made it harder to see where that crossover point is.
But in a world in which the equity and college wage premiums are headed in the directions that they're headed, I would not give this advice to an intelligent 18-year-old.
Another entry in the already-saturated genre of people who went to college but squandered the educational opportunity telling the rest of us that college is a waste.
> On average, skipping college and investing tuition costs nets a higher return
Yeah, but you can't get grants or subsidized loans to invest, and, anyhow, people go to college because of what it does for their choice of kind of work, not just for financial returns (well, and for non-career reasons, but that is a whole different issue.)
The post make a good observation but shouldn't be taken as advice.
For one, the majority of people will take out a loan to fund their studies. They do not have cash laying around to invest.
Second, a very minority of the population, especially when young, has the patience and rigor it takes to be invested through the tantrums of the market over a long period.
Third, past performance is not a guarantee of future returns.
Education should be free to begin with. An educated population ensures productivity and progress. Money is just a means to allocate resources. If the productivity is down because the workforce is not skilled enough to compete, that money is going to be as valuable as the paper it is printed on.
Purely financially I can see how this applies to many people. There are other ways going to college benefits one's life "financially"that aren't directly visible, like improved health care and possibly a job that doesn't wear down your body so quickly (to save on medical expenses later).
Isn't it possible to create ultra low-cost, bootcamp-style, world-class degree programs in STEM fields?
Self-study on your own an outline provided, then take a highly competitive entrance exam to get into the bootcamp. Finish and get your world class degree.
It sounds like the type of non-profit I should invest in if I were a 1%'er.
For a few years now I've been thinking as a high school graduate you'd learn far more by taking your college money and starting a business or two. Assuming, of course, you didn't want to do something highly technical like medicine, law, or, you know, advanced materials construction.
I have always assumed that going to college is not necessarily the ideal financial path for any particular individual, but rather that an educated populace is better for everyone. In other words, it is a collective good that "we" have a "liberal" education.
Unfortunately I suspect this ends up being similar to the "paradox of thrift" [1]. It might make sense for one person to do this, but if people did it en masse, it would be catastrophic for our economy and therefore for each of us individually.
[1] I learned about the paradox of thrift in college.
Yes. College teaches learning skills, social skills, and time management. Sometimes it teaches skepticism, open-mindedness, and intellectual humility.
Also, societal knowledge is underrated. People need to know how dictatorships start, how to vet facts, etc. Populist dictators rely on both ignorance of history and economic desperation.
If you don't want to invest a lot of money in tuition and want to learn programation, I went to the 42 school which is free and it made me an excellent programmer : https://www.42.us.org/
Funny, as I have sometimes thought of going to college as a kind of counterargument to the efficient market hypothesis. Since going to college or not is an investment decision, it seemed that going to college is obviously the better decision. Except, apparently it isn't.
Solution: universal, free or heavily subsidized access to quality higher education.
So, Americans, number 1 war economy and slaughterous rulers over our blood and minds, what exactly is your major political malfunction preventing this?
Or http://slatestarcodex.com/2014/05/23/ssc-gives-a-graduation-... where Scott points out that the same question applies to lower education as well: we spend something like $100,000 on lower education per pupil (pre-school, kindergarten, 5 grades elementary, 3 grades middle, 4 grades high school = 14 years at ~$7k/year/pupil on the low end), which would be even higher if invested and compounded for ~18 years, but when you compare to unschooled or homeschooled kids the benefit of making six figures of expenses plus stealing everyone's childhoods is... hard to see.
The problem is that keeping this investment and not spending it on useless things like new car, fancy apartment, designer clothing, etc, requires very large willpower. So, psychologically, it makes sense to get an education, and find some job.
I went to grad school in the middle of a startup. Probably cost me a million dollars. I learned so much, met great people, and met my future wife. I wouldn't have made a different decision any day of the week.
I would suggest to US citizens to come in EU, study in the best colleges (there are some that are just great and cheap) and come back. I expect the exepence to be half. At that point the ROI should be greater
If this was actually true, there would be no private college loan lenders -- they would all prefer to invest their money in the S&P 500 than in college students.
I think the risk/return profiles are very different between those two types of financial instruments. And the goals and incentives for lenders [generally] aren't the same for young, individual investors, anyhow.
If you're in the workforce and making enough to save for college at a decent clip, why go back to college?
It's even worse after joining the workforce, since the opportunity cost of not working is higher. Plus you're older, so there's less time to make back the investment.
I'm a Junior in college and I initially thought college wasn't worth it by the numbers. I was going here because.. well... I had no idea what to do. I've now come around.
College is absolutely useless unless you find every possible way to waste every other student's money on things you want to do. The education you'll get is going to be sub-par (unless you're going to a big-5), the professors are short tempered and provide poor service, and you're going to have to learn a hole bunch of things you honestly don't give a crap about.
At my college you need to take Calculus 2 to be able to take Linear Algebra..... If you follow the standard course layout you'll probably be taking Lin on your Senior year. This is after 2 courses in discrete math where you apply Lin!
It's a joke. It's a fares. We all know it's BS. But it's worth it if you take advantage of every single service.
1. Use your college email to get software
2. Use your college email to get hardware (starving artist discount)
3. Take advantage of internal funding to do research you want to do.
4. Start clubs in your subject area. (My college provides $700/semester for each club!)
5. Talk to, and get to know, all of your good profs
6. Talk to, and get to know, researchers
7. Take advantage of student discounts (Amazon Prime, etc).
8. Your school will likely give you a laptop discount
9. Find the IT gift shop (trash room). Free hardware!
10. Find a job on campus if you otherwise have nothing to do.
So far, in my 2 full years of school, I've presented research findings at an international conference, funded my own research from an internal grant solicitation, obtained piles and piles of cheap software and hardware, I'm attempting to upgrade my Thinkpad to one of the new x260/x270s via a school program, and my next project is to start a Retro-Computer Club at NJIT.
I'm starting this club because I don't have $700/semester to spend on old hardware nor do I have the space to store old hardware in my shoebox apartment. You know who does? My school! Hopefully by my senior year I'll have created a mini-museum for the rest of the students. I'll have to brush off my old OS kernel I started and re-read my copy of Operating Systems Implementation and Design.
Unfortunately not every student can do all of these things. With my school's tuition being 20k/year I'm easily milking 5 to 10k/year back out of the university. If everyone did this then the money pot would run dry.
If you're not going to use everything you're paying for, you're getting ripped off. Classes aren't worth 5k/year, let alone whatever you're being charged.
Obvious epiphany to be had here is that you cannot use the government to subsidize your investment in S&P. At least not legally, and to my knowledge.
At college, you can live a pretty comfortable life. You get a place to live, food to eat, work to do, material to learn, friends to talk to, supervisory staff to help you with hard problems, etc.
I hate to say it, because I think US higher education costs are absolutely ridiculous, but I still think that higher education is more rewarding than working a salaried job for a couple years to dump some money into S&P. I'd even go so far as to argue that people who have graduated a college or university are more likely to be prepared to safely, responsibly handle problems that occur in the real world moreso than someone who just happens to have a lot of money from S&P. I know that's a bit vague, but I think my point is clear enough that having wealth is not a replacement for having a satisfactory, stimulating wealth of knowledge and a sense of purpose for one's life. Not to knock people in finance, I love finance, but it's not for everybody and if the whole next generation of college students just decided to structure their whole lives based on how much money they're LIKELY (ie, not necessarily guaranteed) to make, then it'll be a boring generation that the next one has to learn from.
Student loan debt regulations need a rethink. How can we:
a) not lose money from paying for kids' school
b) not fuck kids over, incurring hundreds of thousands of dollars of debt for admittedly mediocre education (compared to some euro schools, or asian schools)
c) keep new system automated enough to reduce politician's potential for corruption by manipulating the money
and d) provide some sort of transition schedule to move current students (paying traditional loans off) to new system, without fucking over agencies/firms that are rightfully owed
Yes, if you invest your tuition and never touch it for a quarter of a century, you'll have mildly more money than if you went to college. In the meantime you'll be doing... what... to put food in your mouth and improve your lifestyle? Civil engineering interests you? Oh well, here are some schlub jobs for you to do to wait out your quarter-century maturation.
And as we can't help but hear, so many students are complaining about their student loans. For these people, what is the P&L statement going to look like after not touching their tuition for 24 years? It's not usually a winning strategy to borrow money for long-term investment...
Ah, you can't: Of course, lenders won't give out large loans for an individual to skip college and dump tuition into the stock market, this is just a hypothetical scenario.
So this article is unrealistic.