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Comment by Mistletoe | Hacker News Reader

80k invested at 18 and getting 10% returns like in the stock market is $1 million at age 45. At 65 it’s $7 million dollars. The math on college doesn’t even beat the stock market. I’m not anti-college because I think you find yourself there and learn a lot, but the math doesn’t make sense compared to just investing the money in my opinion. And 104k is the average.

>The average cost of attendance for a student living on campus at a public 4-year in-state institution is $26,027 per year or $104,108 over 4 years.

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> 80k invested at 18 and getting 10% returns like in the stock market is $1 million at age 45. At 65 it’s $7 million dollars. The math on college doesn’t even beat the stock market.

This isn't the alternative for most people. There isn't an option to get a mix of 80k in federal and non-federal students loans to throw into the stock market. The real question is, for most people, does it make sense to take on ~80k in student loans and go to school for 4-5 years, or should you try to immediately enter the job market.

Plus, expecting 10% real returns, year after year, in some chosen passive fund is unrealistic modeling.

No one said 10% real returns. It’s 10% counting inflation, which is the number I provided.

> The average stock market return is about 10% per year for nearly the last century, as measured by the S&P 500 index.

I don’t know why people are getting hung up on this 10%, it’s just the historic returns everyone in Boglehead and FI/RE communities uses. If you wanted to use the 6-7% real returns after inflation that is fine too. The numbers still are the same, you’ll just get an inflation adjusted number. You’ll need inflation adjusted numbers on your college earnings too though, I don’t think the “extra 1 million earned by a college grad” is inflation adjusted.

I get hung up because the last century was by far the best economic century for humans ever, and it seems reasonably likely that the next will not be as good growth wise.

That affects the value of a college degree as well, of course.

I believe there have been studies that show that graduates who are unlucky enough to be job searching during a one or two-year recession have a lifelong income deficit compared to those who don't

Do high school grads not face the same issue?

Not sure, but they won't have traded 4 years and $200k for a high salary future

"...getting 10% returns like in the stock market..."

You should start a fund!!

You usually don't have 80k lying around at 18, and nobody is going to loan you 80k to invest them (and even if they would, the interest would fundamentally change your calculation). And 10% returns is rather optimistic, though the number I've seen most often in these kinds of calculations is 6-7%, so it's not that far off.

So this comparison doesn't really make much sense as those students simply don't have the money to invest in stocks instead. The opportunity costs here are the wages they could earn in the meantime.

> And 10% returns is rather optimistic, though the number I've seen most often in these kinds of calculations is 6-7%, so it's not that far off.

When we talk about compound interest it is way off. Also sustained growth of that magnitude - especially if we want it above inflation is very hard and has occurred in very rare circumstances.

It’s not optimistic it’s just the historic returns.

>The average stock market return is about 10% per year for nearly the last century, as measured by the S&P 500 index.

10% is the total return, but you see 6-7% because that's the real growth after inflation, which assumes average inflation of around 2-4%.

So you're getting 10%, but in terms of actual, real, concrete gains it's more like 7%. Also remember that's the average so it's possible to see years of 5% and then a few of 14%.

The 7% number also looms large because at 7% a year you double your money in ~10.3 years; makes it easy to plan for 30+ year investment horizons.

No one has 80k laying around when he/she's 18, your calculation doesn't make any sense.

Then no one can pay for college anyway

But that is, again, a US problem, isn't it?

No.

Look, the cost comes from somewhere. You earn it later and pay it later, in taxes or in loan service payments. Either way, you pay it. At least with a loan you have a shot at being done paying one day. And this sort of thing only makes sense as a nation managing a treasury if the people go on to make significantly more from their degrees. With the way education is going, credentials no longer guarantee good pay, and if everyone can go "for free" then every job will require a degree, you wind up in a scenario where a nation wastes 4 years per generation only to wind up with the same economic landscape later. They'll cut these programs well before that happens. There's no such thing as a free lunch.

>Look, the cost comes from somewhere.

yeah, the government let a private corporation manage it, and they lobbied for laws to make sure their loans are un-defaultable. It's just free, guaranteed money for them.

And college isn't getting more expensive because of higher costs, it's getting more expensive because they can add a bunch of fancy amenties that are used as advertisement, even if it doesn't directly help with the education aspect. Even 10 years ago there were thousands of dollars of costs per semester on misc. fees that I couldn't opt out of. it was basically a tax from my school.

So yeah, the cost comes from somewhere, and both the funders and the beneficiaries have every incentive to bloat it.

> Look, the cost comes from somewhere. You earn it later and pay it later, in taxes or in loan service payments. Either way, you pay it. At least with a loan you have a shot at being done paying one day. And this sort of thing only makes sense as a nation managing a treasury if the people go on to make significantly more from their degrees.

Society benefits from having a highly educated population, even if wealth generated by that is squandered by a class of people, a society needs people to be educated to be able to innovate and generate new wealth.

If you are only thinking in financial terms there's no way for higher education to ever make sense in the long term, given that over time it slowly becomes the new status quo (as it's happening), and salaries won't ever continue to increase with higher education when there's a larger and larger share of the labour pool highly educated. It is still a net benefit to society to have highly educated people, there's more specialised labourers to draw from to transform ideas into wealth generation.

I don't think we should ever think of education in purely individual's finance terms, I gladly pay my taxes (in parts to fund education) in a country where I wasn't educated in because I know it benefits me in the end, more educated people helps to avoid economical stagnation.

It's not free lunch but giving everyone in a society an equal opportunity to achieve specialised education is a net positive in the long term, even if it costs a lot. The same with healthcare.

> With the way education is going, credentials no longer guarantee good pay, and if everyone can go "for free" then every job will require a degree

That already happens in the USA even with education being as expensive it is, I don't believe it's a sound argument...

You don't believe that the scenario I'm describing as it is happening before your eyes is a sound argument?

Given that the USA does not provide universally free education and still suffers from degree inflation requirements, no, I don't believe it's a sound argument that free education would make it worse. It will happen anyway, as it is happening in the USA, even if it costs a lot.

At least with free education everyone has the opportunity to attend it no matter your level of wealth or your financial outcomes from it.

That's not the argument I made though. The argument I made is that it isn't any better, isn't free, and as a further point, they'll do away with the free university programs when they cease to provide economic return because it's a mirage.

"Society benefits from having a highly educated population, "

Show your work here. Society also benefits from having electricians, plumbers, and garbage men.

Be sure to include how you would prove that graduating with a bachelor's degree indicates that the graduate is educated. From what I have seen, that ain't necessarily so.

And there I am, with my double degrees from a German Unibersity and not a single Euro in student debt... Instead of the average of student debt in the US, we have a mortgage on hous, and a house obviously. All that despite paying taxes, which also cover stuff like higher education.

Because do not forget, you pay taxes in the US as well. On top of your student loans and whatnot.

And no, Germany tried to cut tuition fees already. Those were abolished after, if memory serves well, a year or two.

Were there any restrictions on who could enter a German University? Because the requirements to get into a United States college or university are pretty lax.

you can get a loan for college, not for the stock market.

what do you think buying on margin is?

I mean, if you are 18 and come into $80k, by all means invest? That hardly invalidates the value of college education, which is an option for most high school graduates.

One, those 80k need to come from somewhere. Also, if you manage to get 10% per year, consistently over 27 / 47 years, you should run your own investment fund. There, you gonna make your 7 million per year...

It's a shame that nobody seems to have understood the comparison you were making.

You can directly compare the value of investing money in education and the stock market. If you had $80,000 to invest at 18 you often would be better simply investing in the stock market.

Most people of course borrow the sums required which means the interest increases the monies owed as opposed to gains from investment earnings. And the monies borrowed are owed come what may, not even bankruptcy allows escape from the debt and accumulating interest.

even if I gave you the BOTD and assumed that the govt. simply gave every 18YO 80k to use as they see fit:

investing is an awful first thing to do unless you already have a job and stable life setup. Pretty much any sane financial planner will say

1. get your base costs covered 2. get an emergency savings 3. get a long term (3 months) savings 4. THEN you can invest

an 18YO trying to get their home situation put together will probably burn through a good portion just by renting out an apartment and getting the bare necessities. And ofc they need a few months to find what is probably a minimum wage job, which will probably not cover rent by itself.

If they can get over that huge hump, there won't be much left to invest (definitely not a 3 months savings).

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