The Payback Period for Individual Investments in Higher Education
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Publication date: 2006-06-30
GNPJE 2006;208(5-6):21-34
The author calculates the value of potential paychecks lost by those who enroll for college studies instead of starting a professional career directly after graduation from high school. The author also determines the total cost of university-level education depending on individual types of studies and economic sectors. He estimates the period after which the incomes of people with a secondary education and those with a university-level education will level out. The analysis applies to the years 2000-2004. The amount of potential pay lost by college students was calculated by summing up the real remuneration of people with a secondary education in 2000-2004, considering the unemployment rate among people with a secondary education in the 15-24 age group. Total costs were determined by adding direct costs to pay lost. The payback period was calculated on the basis of the average 2004 pay of people with both a secondary and university-level education, considering the relevant unemployment rates and assuming steady geometric wage growth. It turns out that the average payback period for investments in higher education is five years. The period tends to be longer for graduates of technological studies and shorter for economists, administration graduates and teachers. The payback period is usually longer for studies with greater importance to the development of the economy (such as engineering) and the functioning of society (medicine and education). A short payback period is noted for investments in economic studies, which confirms the rationality of the choices made by many high-school graduates.
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