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Is College Worth It?

John Stossel Is College Worth It? 20/20 ABC News

Watch last night’s segment from 20/20 exposing the scam that higher education has become in America. 

The following is a very insightful scenario described by a recent law school grad commenting on this very situation on one of the more popular law boards.  It just proves how poisonous debt can be to one’s financial future and how the magic of compound interest can propel one’s wealth over the course of time.

“I think this is a more interesting financial lesson:

If on my 18th birthday, my parents had stuck my college tutition (say $120k) in a trust earning 8%, it would be worth ~ $760k on my 40th birthday.

And if on my 22nd birthday, I had put the cost of law school (say $140k) in a trust earning 8%, it would be worth ~$480K on my 40th birthday.

Bottom line, if I avoided school and real work my entire life (and instead worked ski patrol in the winters and worked in a surf shop during the summers – i.e. an awesome life), I’d have $1.24 million in the bank at age 40.

Instead I went to an expensive college and law school, neither of which were top 10 schools. Now I work at a V50 firm in manhattan and, according to the surveys cited by Okamoto, earn an income in the top 10% for lawyers. After 3 years of practicing, I’m 29 and have about $150K in the bank and save ~50K a year. I have two to three more years of biglaw in me, before I’ll have to go in house or switch to a smaller firm that pays a lot less. I won’t make a bonus this year and expect bonuses in 2009 to be pretty shitty. Anyway, asuming I can keep making the same salary for the next 11 years doing a job I hate, when I turn 40 I’ll have saved a grand total of $1.25 million in the bank (assuming my savings compound at 8%).

So if I’d skipped college and law school completely and spent the first 22 years of my adult life chilling and never saved a dime, I’d only be worth $100K less.

It makes the investment in education pretty hard to justify.”

Categories: Uncategorized
  1. whiner
    January 19, 2009 at 10:48 pm

    His parents saved up $120,000 for his college education and he has to work 80-100 hours a week for a pittance of $150,000 a year. How many college students have parents who don’t contribute a dime AND don’t get financial aid? How many people work 80 hours a week for a quarter of his salary? Quit your bitching, you pussy manchild.

  2. medicinesux
    January 21, 2009 at 10:26 pm

    Perhaps some people may consider the above individual to be “ungrateful” but I think you are missing the point on this one. I think it is an interesting mental exercise on how avoiding snowballing debt and embracing compounding interest over the course of time can have a profound impact on one’s quality of life and financial well being. My purpose is to stop the carousel for just a second and make people think.

  3. Anonymous
    March 11, 2009 at 1:48 am

    his assumptions of consistent 8% returns over 20 years in the trust fund are a bit overly optimistic, as recent events show. for instance, the S&P have been negative over the last twelve years while the nikkei has been negative over the last twenty. in fact, 8% returns are the kinds of results that Sir Allen Stanford was claiming before it was revealed he ran a Ponzi.

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