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Cost Benefit Project Outline: Topic Area #3
· Introduction
· Only 31 % of students from low-income backgrounds go on to attend some form of postsecondary education as compared to 56% of middle-income and 75% of high-income students (The Pell Institute 2005).
· Among the highest academically qualified, only 47% of low income student went on to attend a four-year institution as compare to 67% of high performing, high income students (ACSFA 2002).
· Benefits and Costs of College education
· Attend college if Benefits>Costs
· Method of calculation
-Calculate the “present value” of education
-Calculate the “rate of return to education”
· Private Cost
· Tuition
· Forgone earning and work experience
· Upon attending college, the potential earnings as a high-school graduate worker during the school years will be lost.
· For a full-time college student, one-year college education incurs one-year forgone earnings (i.e. one-year salary of semi-skilled workers with high school diploma)
· For a part-time college student, the forgone earnings equals the one-year forgone earnings for full-time students minus the part-time earnings.
· Private Benefits
· Monetary benefit
· “College wage premium”:
· Wage difference between college and high school
· Lower the probability of unemployment
· Higher the probability to be promoted as a section leader/manager
· More likely to engaged in jobs with better fringe benefits and working conditions than high school graduates
· Non monetary benefits
· (social acceptance)
· Improve ability to communicate, collect information, and make wise decisions;
· Yield benefits in capital and marriage markets
· Bearing and education of children
· Health management of the family
· Culture and values
· Adoption of new technologies
· Criteria for funding
· Academic Qualification
· Household Income
· Participation
· Retention
· Graduation
· Analysis
· Cost-benefit Ratio
A. Net Present Value (NPV)
B. Internal Rate of Return (IRR)
The positive net present value of college education suggests that the investment is worthwhile; my analysis is sensitive to the choice of the discount rate and productivity rate. Higher discount rate and lower productivity rate would decrease earnings differential and net present value. An IRR method yields a favorable rate of return of college education in comparison to those of financial and physical assets. And the inclusion of fringe benefits and non-market effects into the earnings data would adjust the results upward.
Study done by FAFSA:
A Simple Benefit-Cost Analysis Model:
.
Generated by CamScannerCost Benefit Project Outline.docx
1. Generated by CamScanner
Cost Benefit Project Outline: Topic Area #3
· Introduction
· Only 31 % of students from low-income backgrounds go on to
attend some form of postsecondary education as compared to
56% of middle-income and 75% of high-income students (The
Pell Institute 2005).
· Among the highest academically qualified, only 47% of low
income student went on to attend a four-year institution as
compare to 67% of high performing, high income students
(ACSFA 2002).
· Benefits and Costs of College education
· Attend college if Benefits>Costs
· Method of calculation
-Calculate the “present value” of education
-Calculate the “rate of return to education”
· Private Cost
· Tuition
· Forgone earning and work experience
· Upon attending college, the potential earnings as a high-
school graduate worker during the school years will be lost.
· For a full-time college student, one-year college education
incurs one-year forgone earnings (i.e. one-year salary of semi-
skilled workers with high school diploma)
· For a part-time college student, the forgone earnings equals
2. the one-year forgone earnings for full-time students minus the
part-time earnings.
· Private Benefits
· Monetary benefit
· “College wage premium”:
· Wage difference between college and high school
· Lower the probability of unemployment
· Higher the probability to be promoted as a section
leader/manager
· More likely to engaged in jobs with better fringe benefits and
working conditions than high school graduates
· Non monetary benefits
· (social acceptance)
· Improve ability to communicate, collect information, and
make wise decisions;
· Yield benefits in capital and marriage markets
· Bearing and education of children
· Health management of the family
· Culture and values
· Adoption of new technologies
· Criteria for funding
· Academic Qualification
· Household Income
· Participation
· Retention
· Graduation
· Analysis
· Cost-benefit Ratio
A. Net Present Value (NPV)
B. Internal Rate of Return (IRR)
3. The positive net present value of college education suggests that
the investment is worthwhile; my analysis is sensitive to the
choice of the discount rate and productivity rate. Higher
discount rate and lower productivity rate would decrease
earnings differential and net present value. An IRR method
yields a favorable rate of return of college education in
comparison to those of financial and physical assets. And the
inclusion of fringe benefits and non-market effects into the
earnings data would adjust the results upward.
Study done by FAFSA:
A Simple Benefit-Cost Analysis Model:
