Return On Investment?

OperaDad
Fri, 03 Jul 2009 09:10:38 +0000

In order to do a proper ROI on education, you need to introduce the idea of a utility function. You could go to vocational school and be a plumber for a fraction of the cost of a 4 year college and become an accountant. What is the utility of a life being a plumber vs. being an office worker? Some people would enjoy the hands on nature of being a plumber. Others would rather die than be a plumber.

Sometimes it comes down to: What do you enjoy doing most, and how do you get there. Where ROI becomes more relevant is: For the same potential job, should you pay more to go to a more prestigious school, and possibly result in a higher position/income in the future.

The basic numbers are: What are your out of pocket costs (pays as you ago, and loans) vs. increased income in the future.

There is also a factor for foregone income (could have worked while in school). And the related: If I start a job today, I will be 4 years into raises vs. a college grad starting a new job in 4 years.

Finally, don’t forget tax effects to reduce the value of future income. Uncle Sam takes at least 7.65% for FICA plus the income taxes.