From tiny private colleges to gargantuan urban universities, there are enormous implications to your choice of a school and a major. This video will help you develop a perspective and a framework for making these.
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Hey! Did you pick a school yet?
Well, why not???
True, there is a ton to consider. What are the academic programs like? How’d you like the campus when you visited? Is it far enough from (or close enough to) home? How much does it cost? What kinds of scholarships are available? What kind of a job can you get when you’re done?
Much as you might not like to hear it, you’re going to need to look at some numbers to figure this one out.
What kind of numbers? Well, how about numbers comparing school costs with projected future income.
A good starting point is to compare the cost of four years at all of the schools you’re considering.
Ok, so let’s look at an example using Mt. IvySchmivey, and Towney State University.
Mt. IvySchmivey’s tuition, room and board is about $31,000 per year–which comes out to just about $125,000 for all 4 years. In other words, about the cost of a small house.
On the other hand, Towney State University will cost about $13,750 a year for tuition, room and board–which comes out to something like $55,000 for four years, which is still a big chunk of change.
But, we’re not talking about comparing just the price of tuition, so let’s talk about the other side of this equation. What are you planning to study?
Let’s suppose you’ve got it narrowed down to computer science, social work or art.
OK, let’s take it back to the numbers. It just so happens that the Bureau of Labor Statistics publishes all kinds of useful information about how much money various occupations earn. (http://www.bls.gov/bls/blswage.htm)
So, according to the good folks over at the BLS, your chosen occupations, respectively, would fetch average incomes of $80,000, $45,000 and $50,000.
Not too shabby, huh?
Now, you can see where I’m heading with all these numbers, right?
No? Hmm…OK–We’re going to need a chart!
So, let’s just set this up like so:
||15% of projected salary as monthly loan payment
||Mt. IveySchmivey – $125,000 for 4 years tuition
||Towney State University – $55,000 for 4 years tuition
||Payoff period: 14 yrs., 9 mos.
Interest paid: $51,937
|Payoff period: 5 yrs., 3 mos.
Interest paid: $7,598
||Payoff period: 52 yrs., 5 mos.
Interest paid: $228,293
|Payoff period: 10 yrs., 6 mos.
Interest paid: $15,805
|Art & Design
||Payoff period: 35 yrs., 11 mos.
Interest paid: $144,324
|Payoff period: 9 yrs., 2 mos.
Interest paid: $13,657
So what goes in the middle of this chart?
I’m glad you asked! We’re going to use some example numbers. They’re a little arbitrary, but bear with me and this will all come together.
We’re going to assume that interest on a student loan is about 5%. Some are more than that, and some are less, but for our purposes, we’re going with 5%. We’re also going to assume that you will devote 15% of your estimated income to student loan repayment. This will let us use an online calculator (like this one) to figure out how long it’ll take to repay the loan and how much interest you’ll wind up paying in the long haul.
Ok, so you can see here what the numbers look like. But, not really!
You see, just because Mt. IvySchmivey’s listed rate for tuition, room and board is $125,000 doesn’t mean that’s what you’ll pay out of pocket. Private schools often have lots more money to offer students in the form of grants and scholarships. Most colleges have something called a Net Price Calculator on their web site that will help you to estimate what it will cost you, based on your particular information, to attend that school. The U.S. Department of Education has a terrific web site called the College Scorecard that can help you figure out how much the average student pays at a given school, their graduation rate and the average rate at which their students are able to repay their student loans. Definitely check that one out!
So, what’s all this mean? It means you have a little better understanding of how to evaluate your options when you get your financial-aid package from your schools. Instead of plugging in the numbers we used for tuition, room and board, you’ll want to use the amount of money you’ll actually take out in loans after finding out what sorts of grants, scholarships and work-study you might be eligible for.
And, now that you know how to do that math, you might want to use some of the great online calculators that are available. They’re super handy and will provide similar information to what we figured out here.
Just one more thing, you’ll also have to take into account how good the programs at each school are and how much competition there is for jobs in whichever field you choose. In a highly competitive field like law or astronomy, the school you choose might have a lot more to do with whether or not you’re able to find a job after graduation.
So there you have it, a somewhat more systematic way to approach the college decision. A pretty campus and awesome intramurals are nice, but when it comes to the bottom line, you’ll need to know what college is going to cost, and what you’re likely to see as a return on that investment.
Stay tuned for our next video on different types of college loans and grants.