The Rising Cost of College

 

Recently, I was browsing the website of my alma mater, and chanced upon the cost of attendance for a 4 year undergraduate degree. Every so often, I have heard people complain about the rising cost of college, but this was the moment the gargantuan scale of the problem hit me.

I have very fond memories of my undergraduate experience – It is where I met some of my best friends and had some of the best times of my life. It is also where I learned to be independent and deal with my problems, to think and make decisions for myself, to build a professional career…I can go on and on. Suffice it to say that my undergrad experience helped shape and make me the person I am today.

At the time, the average annual cost of attendance for a 4 year undergraduate public college as an out-of-state/international student was expensive, by any measure. But it was worth it. The idea was that spending this large sum of money on education would give you the ability to be self-sufficient in the future. That’s a great investment on any day! However, I decided to dig a little deeper, and what I found was truly shocking.

But before I go into that I’d like to lay the groundwork by explaining the difference between in-state and out-of-state students. In-state students are typically students from State A who choose to attend college in State A. For the purpose of these calculations, we assume that they decide to not live with their parents, presumably because they want the “complete” college experience. An out-of-state student is one that lives in State B, or another country, and chooses to attend college in State A.

The typical arrangement is that the in-state student pays significantly lower tuition & fees because that student and his/her family live and pay taxes in that state, part of which presumably goes towards funding public universities. So an out-of-state (or international) student pays significantly more to attend the same university as in-state student. An analysis of the data from my alma mater during the 2000-2015 period reveals out-of-state students pay between 1.9x to 2.4x more than in-state students.

Additionally, there are tons of scholarships and financial aid options available. In-state students have access to the most scholarships and funding, then out-of-state students. Very few such options exist for international students. No wonder then that most universities are doing whatever they can to attract increasing number of international students. International students are the proverbial golden hens that pay full price, receive minimum financial aid, and as a kicker, even help with “diversity” related statistics. Which university wouldn’t like to use buzz words like global and diverse and talk about the number of countries their student body represents in their information brochure?

Cost Chart

The annual cost of attendance for out-of-state students has increased close to 150% since the year 2000. This represents a 6.2% annual increase every year since 2000 (CAGR). As can be seen in the graph above, that number today stands at close to US$ 50,000. Assuming a continued annual increase of 6.2%, that means someone entering a 4 year undergraduate program at a public university as an out-of-state student today (in 2015) can expect to have paid close to have paid US$ 221,000 for their degree on graduation.

In-state students have seen an increase of close to 125% during the same period, which represents an annual increase of 5.5% (CAGR). Extrapolating the data, someone entering a 4 year undergraduate program at a public university as an in-state student today (in 2015) can expect to have paid close to have paid US$ 106,000 for their degree on graduation.

Forget students, most average families can’t afford these prices. Hence they turn to loans. Close to 70% of graduating students in 2015 had education related debt. According to a recent Wall Street Journal article on student debt, the average 2015 graduating student will have a little over US$ 35,000 of student loan debt. The author goes on to write “…adjusted for inflation, that’s still more than twice the amount borrowers had to pay back two decades earlier.” As is the case for of a number of students, parents also take out loans to help pay for college. According to the article, that average number has reached close to US$ 31,000 this year.

 “All together, total education debt–including federal and private education loans–will tally nearly $68 billion this year for graduates with a bachelor’s degree and their parents.” 

-Wall Street Journal article

A Forbes article on the subject best explains why this is Ed Dharmful for young students: “Debt costs you time in savings, pushes back when and whether you can buy a home, start a family, open a small business or access capital…not to mention the opportunity cost of the education itself….” Additionally, a large portion of student loans are backed by the U.S. government through banks like Sallie Mae, or since 2010, the Department of Education. With current student default rates at close to 12% and expected to rise, and more debt forgiveness programs, it is the tax payer who will end up on the hook for these loans.

Like I mentioned at the beginning of this post, investing in a good education is always a good investment, but the question that now arises is: For how much longer will this stand true? For how much longer are these increases sustainable?

Not to beat a dead horse, but to drive the point further I continued the cost of attendance extrapolations. An out-of-state student graduating in 2040 from a standard 4 year public college will have paid a total cost of attendance of US$ 824,000, versus US$ 344,000 for an in-state student.

The solution is NOT temporary Band-Aid fixes like lower interest rates, higher taxes to subsidize education, or higher availability of loans. The answer lies in a fundamental restructuring of the way the educational system works and is funded, without losing the high quality education that most American colleges represent.

 

 

 

 

 

 

Notes:

  1. My alma mater is a well-known public university. After having compared its costs to other public colleges, I feel confident using its numbers as a benchmark for public colleges.
  2. The cost of attendance analysis focuses exclusively on 4 year undergraduate programs at public universities. Private schools, community colleges, etc. are excluded.
  3. In the graph, the year 2000 represents the 2000-2001 academic year, and so on.

 

 

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More than just a feast…

 

(Preface)
I started this blog post trying to write a short 101 words style entry. However, I soon realized that the depth of this experience was impossible to capture in so few words. So here is a longer, but much more satisfying piece on the Christmas weekend feast. I hope you enjoy reading it as much as we did living it.

Last weekend, locals here celebrated la Fiesta de San Esteban. These lunches are typically a family affair, and involve spending time with those you consider near and dear. Knowing that we were here alone, far away from family, a close colleague from the office invited us to join her family for lunch.

This particular event was hosted at her parents’ house, who we have met on past occasions. They welcomed us into their home, and made us feel like we were part of the family. All in all, we lunched  for more than 6 hours feasting on local homemade delicacies. Starters included one of the most delectable Tortilla de Patatas (Spanish Omlette) I’ve ever eaten, scrumptious Jamon Iberico, a mouth-watering variety of marmalades, and heavenly local cheeses including The Honey Bee’s favorite – queso con piña (cheese with pineapple). Main course included a local traditional delicacy – Cannelloni with mushroom sauce. Desserts included a fresh homemade lemon mousse, made from lemons grown in their own backyard, and a mind-boggling variety of Turrones (image on the right), a local nougat based delicacy, among other things. It goes without saying, but all these delicious dishes were served with excellent wines. As you may have also noticed, they went out-of-the-way to ensure we had enough delicious vegetarian options to enjoy.

Later, they even gifted us a bag of choice lemons from their lemon tree, the same ones used to make the delicious mousse. Having now tasted those lemons, I can tell you they were unbeatably delicious – much better than anything you can buy at the local market.

I mentioned earlier that they made us feel like part of the family. I wasn’t kidding. Her father was once an avid and extremely gifted painter. However, he chose to never sell his art, and he has not shared it with anyone, apart from gifting a painting to each of his children. We not only had the pleasure of browsing his entire collection, but he also gifted us a painting of The Honey Bee’s choosing, complete with a personalized message on the back. A very emotional moment for everyone present.

TMThe family also shared their nostalgia from their trip to India with us. We went through photo albums from their family vacation close to 15 years ago. They visited the so-called Golden Triangle in the north of India, which consists of Delhi, Agra, Jaipur and the surrounding areas. They talked to us about their spiritual experiences in Benares, on the banks of the Ganges river, and the beauty of the Taj Mahal. I grudgingly have to admit I haven’t visited the Taj Mahal yet. However, I am eager, and hope to visit it someday.

All too often, people mistakenly associate Christmas as a time to go shopping for gifts, big screen TVs, etc. and attend crazy parties. When in fact, it is much simpler than that. It is about the endearment that comes from the heartwarming experiences of spending time with people, and building relationships.

Corporate Christmas Lunch

As mentioned in my previous post, I attended the office Christmas lunch. After going back and forth on the subject a couple of times, I finally decided to attend.

Out of concern for traffic and the environment I was offered to join a carpool and attend the event with 2 colleagues. The drive there was uneventful except for a one-sided competition to see whether we arrived at the location before the CEO (because he left at the same time as we did, and took a route that was different from what Google Maps recommended we take).

Upon arrival at this beautiful out-of-the-way location, we walked through a well-manicured lawn, passing by a man-made waterfall, to reach the rustic main building. The ground floor of this building was designed like (or probably used to be) some kind of stable with long wooden beams running across the roof and old stone walls adorned with agrarian tools. Conspicuously absent from this year’s event was pre-lunch alcohol while people mingled and caught up. I should clarify that we were later served a variety of wines and cavas during the meal.

DnceUnlike previous years when I sat wherever the person I was last conversing with sat, this year I strategically decided to accompany the marketing team. A wise decision that made the luncheon more bearable. It was an interesting affair to say the least. Every course of the meal was introduced by synchronized servers making a grand entry to loud music and disco lights. The kind of music that makes that made you want to jump up onto the table, and dance to your heart’s delight, not sit down somberly at a table and have a work lunch with coworkers.

Due to some confusion, my request for vegetarian food went unheeded. This is a complex issue that necessitates an explanation. I like to describe myself as a flexible vegetarian. While I do eat all kinds of foods, being brought up mostly vegetarian I tend to default to that if given the option. Especially for certain things that I have always eaten vegetarian- like pizza, or Indian food, for example. By not requesting vegetarian food Vegin advance at such events, I run the risk of being served my least favorite (or I should say most hated) non vegetarian foods (basically meat in its original form- think a complete fish, a shrimp, lobster, pig with eyes staring at you, etc.). I’m not very fond of sea food in any case. Other worries include being served exotic meats like bird and rabbit. The point is I’m okay with trying new and exotic foods. Heck, I’ve tried some really exotic stuff myself. But being surprised by such meats during the annual Christmas lunch is not really my idea of a fun afternoon.

Back to the lunch, most of the appetizers fortunately were vegetarian with a light sprinkling of acceptable meats. The main course, as luck would have it, was fish, which as you may have guessed, I avoided. Desserts made up for my lack of a main course. To top off the meal the waiters brought a white ball, about the size of a medium bowling ball, to each table. To our surprise, they then proceeded to toss the white ball into the air, which then came crashing down on the table and smashed into a hundred pieces scattering white chocolate and candy across the table. A+ for creativity, D- for consideration of safety for paying customers. Those shards of white chocolate could easily have flown into someone’s eye effectively blinding them.

As expected, this was followed by mind numbing activities and games. The newbies were asked to make some kind of fun presentation. While this looked very interesting, parts of it went over my head as they inexplicably chose to carry out most of these activities in Catalan (the regional language) instead of Spanish. The event came to a crescendo with the lights being dimmed for a brief but beautiful display of pyrotechnics over the green lawns that we took in through large glass windows that covered an entire wall, with Feliz Navidad playing in the background.

The drive home was excruciatingly painful with heavy Christmas traffic resulting in a thirty minute journey taking over an hour and a half.

Next on the agenda, we have a Christmas dinner and a Sant Esteban lunch with friends to look forward to later this week. All the more reason to try to get in some exercise while I can.

CusAlso, we spent this last weekend on a much-anticipated visit from a very close cousin and her husband. We had a splendid time sharing perspectives, re-living old memories, and creating lot of happy new ones. I can honestly say that the Honey Bee and I haven’t had such a good time and laughed so hard in a while.  A welcome respite from the grind of the daily routine.

In case we don’t see each other again this week, a very Merry Christmas to all my readers!

Oh, and in case you were wondering, we did reach the lunch event before the CEO. Go Google Maps!

 

The Office Christmas Concert

Christmas season is here. And apart from everything else, it is the time for the annual office Christmas parties.

For the first time in many years, the company organized a company wide event. It was a concert played by Event Locationsome of the most well-known orchestras, and choirs in the country. It was hosted at a beautiful and grand theater in Barcelona. What makes it even more interesting, is this event was not just for employees; family and friends were also invited.  The inside of the theater was breathtaking, constructed entirely of wood and with a seating capacity of close to 2,500. The performances themselves were marvelous and went off without a hitch.

What was even more interesting was everything else around it. There were employees from all office locations in the general area, giving you a chance to meet a lot of unknown coworkers. Some people were completely decked out in their best and dressed to impress. Others were more modestly dressed. There were even people dressed simply in jeans.

This is another thing I can add to the list of things that grind my gears: I personally believe people should dress based on the location. If the event is being held in a fancy theater, it is expected you be dressed up, and no matter who paid for the tickets, whether it was you, or your employer, or your great-aunt Edith, there is no excuse to not follow protocol. We’re starting to see the same problem in a lot of other places. For example, think about flying. There used to be a time when flying used to be a grand romantic affair, and people dressed up to board a flight. Shamefully, these days it not uncommon to see flyers dressed in shorts and t-shirts. Although a slight digression, it is also worth mentioning that the increasing prevalence of internet connections on flights is also taking away from the peacefulness of flying. I’d rather not have the lady next to me chatting away on her phone while I try to enjoy my in-flight meal or movie or take a nap. No, thank you!

Back to the topic at hand, I have blogged in the past about the importance of meeting coworkers outside of the workplace.  It was great getting to know some of my coworkers outside of the office. In addition, it was a pleasant experience seeing them in the context of their families. Getting to know someone’s family gives you a lot of background about that person and helps you not only understand them better, but also how they think. It’s also nice to be able to put a face to names you hear in the office. This also stands true the other way around. The Honey Bee really enjoyed meeting some of my colleagues, especially after hearing me talk about them so often.

Additionally, making small talk and mingling while nibbling on delicious appetizers and sipping on cava Building(more or less the Spanish equivalent of champagne) made it all the more delightful. Heck, a little bit of cava can even make the most unbearable coworkers somewhat bearable. 😉

In any case, we had a good time. We decided to walk the beautiful streets of Barcelona at night, enjoying the lights and decorations. What stood out was the spectacular light show on the canvas that is the Torre Agbar, one of Barcelona’s many iconic landmarks.

Coming up soon, I have the Office Christmas lunch to look forward to. My forecast: a 4-6 hour event that involves stuffing yourself with rich, delicious food and drink in an out-of-the-way, bt beautiful location while putting up with mildly droll speeches and brain numbing games and activities.

Creating Multiple Income Streams (Part 2)

 

-Continued from Part 1…

Apart from the vast array of savings and deposits offered, one of the best and most impactful long-term investments you can make is in the equities market. A well-diversified portfolio (in terms of both geographies and industries) can do wonders for you over the long-term. Warren Buffet, and a number of long-term studies point to long-term annual returns of 7% on the US markets alone. Given the growth in emerging markets, a smart investor could potentially make more.

But all of this centers on the assumption that you EIhave the courage to ride out the dips, and not make stupid investment decisions based on emotions. Most normal investors panic when they see their portfolio down 10-15%. In their pain stricken state of mind, they decide to sell, take the loss and “salvage” whatever they have left. But this is the worst thing you can do for your portfolio. In fact, with stock prices so low, this may be the best time to invest further and buy more. An easy way to remember this is to memorize the famous investment adage: Buy low, Sell high. Not the other way around!

If you’re not sure about investing in individual stocks or bonds, you might consider mutual funds, or ETFs. As with most things in life, it’s always best to stick with ETFs from well-known or firmly establish brands to avoid other kinds of risks. I personally like ETFs because they:

  • Are relatively cheaper: Mutual funds typically come with all types of fees: management fees, administrative fees, ongoing fees, loads, etc. Depending on the type of mutual fund, these fees can even cross 3% and some even reach 10%. ETFs on the other hand tend to have lower expense ratios. Higher fees reduce returns. Just to give you an idea of the numbers, a 1% fee, compared to a 0.25% fee on a US$ 10,000 portfolio over 20 years reduces returns by US$ 30,000! How ‘bout them apples?
  • Trade like stocks: The price of mutual funds is typically determined at the end of the day. However, ETFs trade like stocks, and the price is always current. Also, since they trade like stocks they tend to have much higher liquidity, meaning they might be easier to sell when you want to.
  • Offer diversification: Buying a single region/country or sector focused ETF can give you exposure to a range of companies, thus protecting you from the risk of investing in any single company. Thousands of ETFs available offer a multitude of diversification options.
  • Offer tax benefits-This may or may not apply depending on your situation.

On a personal note, I think there is a lot of money to be made from event based investing and strategies like it. But let’s leave that for another time.

All said and done, everyone needs to decide for themselves the amount of risk PPFRthey are willing to take based on their personal situation. The only thing that stands true today, as it did 100 years ago is the little line that reads: past performance is not indicative of future results.

Creating Multiple Income Streams (Part 1)

 

Going off on a tangent from recent posts, anyone that has even a very basic idea of personal finance will tell you the importance of creating multiple streams of income for yourself. Nothing riles me more than when I try to talk to someone about investments and they tell me “I just have a savings account” or worse “Oh, I don’t understand finance.”

Multiple income streams will not only help you during hard times, they Pantswill also help your bank account, by layering it with extra money! And everyone knows there is nothing better than extra money! Think about how good you feel when you find money that you forgot about in your pocket. If finding such a small amount can make you so happy, just imagine how ecstatic you’d be if you checked your bank account in a few years and found that the money you had in there had doubled!

While there are lots of ways to generate additional income streams, this blog post focuses on the basic financial ones.

One of the easiest ways is to simply open a high yield savings account. A number of banks (such as ING) offer online accounts, generally with limited features, which can be attractive because they tend to offer higher interest rates than most traditional banks. While typical interest rates in emerging markets are relatively high (6-8%), the high inflation ensures this is not enough to have as the only additional source of income. Conversely, the low inflation in the developed world ensures that even the best known online banks only offer APRs of around 1%. Good enough to hold your emergency fund, but definitely not good enough to consider it an additional income stream. In any case, with things going the way they are and customers being charged for keeping money in the bank, perhaps we should look further for more options.

If you are an expatriate from a developing country working abroad, you might consider opening a non-resident savings deposit in your home country. This allows you to take advantage of the much higher SPL160138_010interest rates at home, while living in a place with little to no inflation. The biggest caveat with these accounts is not to lose the high interest earned in these accounts to badly timed transfer decisions when exchange rates are not in your favor. As long as you have a basic idea of exchange rates and no urgent need for that money, you can benefit greatly from the close to 8% annual yields offered. Add to that the magic of compounding over the medium-long term, you can make off with a boatload of additional money by taking advantage of international finance. You might even venture to call yourself an international man of finance.

For those that aren´t savvy with exchange rates and don’t want to take that risk, there are also non-resident deposits that allow you to deposit your savings in their original currency (USD, EUR, GBP, etc). Of course, in exchange for mitigating the exchange rate risk, you end up sacrificing a couple of points in the interest rate. No such thing as a free lunch.

—continued in Part 2…

After work traditions

 

From what I’ve been told, it is traditional in Spain to go out for after work for drinks once a week-typically on Thursdays. It’s a great way for people to get to know each other outside the office environment. I remember learning in a career session during the MBA that in order to reach a certain level of comfort and to convert an acquaintanceship into a relationship, you need to meet people in at least 3 different places. My interpretation is that it’s okay if apart from the office, you meet them in bars, as long as they are 2 different bars. On a serious note, it really is a great way to know what your colleagues are like outside of the office-for better or for worse. 😉

Unfortunately, this Spanish tradition doesn’t apply where I work. In thinking about it, I’ve come up with a few possible explanations. One is that everyone is straight-out anti-social, but that seems too extreme. Another is that very few people actually live where they work, and hence prefer not to be drunk before undertaking their journey home, which seems plausible. The last, and most likely, is that no one ever took the initiative.

Last week, a new employee joined our team, and he was equally surprised at the lack of this weekly opportunity to imbibe this concoction of yeast fermented grain water. Like me, he has also been struggling to draw up enough inspiration to go running in this cold weather. To push each other, we decided to become running buddies. Last Thursday, we came to the office ready to go running right after. However, as luck would have it, it was cold…and we weren’t really feeling up to it. Determined to get some exercise, I came up with the ideal solution. “Porque no tomamos una cerveza?” I said hopefully.  “Sure” came his response. And off we went to the bar across the street.

Ever since, we’ve been trying to make this an office tradition. Getting more and more people involved. And I’m glad to report that a lot of people have shown interest. With even the slightest bit of luck, I know we are going to succeed in bringing this Spanish tradition to our not-so-Spanish company. Cheers!