This is about common law again with lesson number 12 more ROI models. Remember our scenario, your starting salary in your first job after college was $41,000. You earn a 5% raise for the rest of your career, and you will pay your college loan off in 15 years at $700 a month. Your high school friend starts earning four years earlier than you are $26,000 a year with 3% annual raises. In other words, the starting salary difference between the two of you is $15,000 a year. How will our model change if the starting salary differences smaller suppose the high school friends starts off at $30,000 a year and still maintains his 3% raise what happens then?
Let's look at this chart. You can see here that the inputs have changed, and the outputs have changed as well. The higher starting salary is now in column B at $30,000. All other values are identical. Over a 30 year career, you as the college grad will still earn more than your high school grad, but the auto AI has dropped to 19%. But this shows a vote in favor of college because it beats the Federal Reserve Bank standard of 15% ROI.
Let us tweak our model some more. Everyone talks about how important graduation rates are. But what does our model say? To do this, we will go back to our original model from the previous section and delay the college grads graduation date by two years. Remember the starting salary in the first job after college is 41,000. The high school friend goes back to $26,000 a year.
How does delaying graduating from college changed the ROI? Look at this table. We clearly have higher borrowing costs because of the two year delay, you need to borrow more money to stay in college for those two years. And the two year delay in graduation also means that there is no income, but expenses will continue to accrue. The college grad will still earn more money than the high school friend but the ROI now falls to only 9% much lower than the Fed standard of 15%. Also note that you will keep paying off your loan until year 26 the inflection bar the low bar is now in year 22.
That is the first time that the college grad does better than the high school grad. These calculations show how impactful delayed graduation can be so impactful that in some cases it may not be worth going to college at all. The Department of Education says that graduation rates are the highest at colleges that are the most selective. On a gut level. This makes sense when students around you were motivated enough in high school to study hard and get into top schools. They will likely continue that work ethic in college too.
This is why a four year institutions where the acceptance rate was less than 25%. That is the school was elite. The six year graduation rate was 89%. But add institutions with loose admissions policies. Only 34% of students completed a bachelor Duty within six years. The UCLA is higher education research institute has published an online graduation rate calculator which can be used to predict expected degree completion figures.
For a single student based upon several factors, it is a good tool to estimate how likely you are to graduate from college in four years. If a student must graduate late by two years, what should be his starting compensation at which you will have an ROI of 15% so let's try this exercise. You can see in this table that our six year graduate needs to negotiate a $43,000 starting salary to get to a 15% ROI goal. But think about it. negotiating a higher salary when you didn't graduate on time is a hard thing to do unless you can explain why you graduated late. Let's apply the model to studying abroad studying in Germany.
Recall that we said in an earlier lesson that in Germany tuition is largely free. There is model studying in Nuremberg using cost of attendance on the DOD website. The course duration is seven semesters, not four years, and the total cost of attendance is about $47,000. If you plug in these numbers into ROI table, you will see that the ROI jumps up and amazing eight percentage points. summary of all these models has been that we've been able to simulate real life situations and draw important conclusions. The delayed valuation model was probably eye opening to demonstrate that a two year delay could bring the ROI so much down that it may not even be worth going to college may surprise me Sadly, many students take even longer than six years to graduate from a four year college and are enslaved to banks for decades.
It is little wonder that the nation's debt burden is so high and college is such a frightening proposition for millions of students. If you have any questions, please let us know. Thank you