Cost-Benefit Project Outline: Topic Area #3 Introduction Only 31 % of students from low-income...

Question

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)

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David · Accepted Answer

The below figure indicates the expected NPV of the lifetime earnings in United States
Discount rate = 3% 
Table 1: Estimated NPV of Lifetime Earnings for Bachelor's Degrees of 
Women and Men 
Women  Men 
Field of Study Average 
Annual 
Graduates 
Lifetime 
Earnings (in 
Thousands) 
Field of Study Average 
Annual 
Graduates 
Lifetime 
Earnings (in 
Thousands) 
1 Education (except 
Administration) 
2,381 $964 1 Business 
Administration, 
Sales and 
Marketing 
2,483 $1,910 
2 Business 
Administration, 
Sales and 
Marketing 
1,824 $1,355 2 Arts and 
Humanities 
(except Music, 
Visual and 
Performing Arts) 
1,271 $1,553 
3 Arts and 
Humanities 
(except Music, 
Visual and 
Performing Arts) 
1,617 $1,303 3 Engineering 1,073 $2,036 
4 Social Sciences 1,578 $1,216 4 Social Sciences 1,016 $1,845 
5 Communications 
and Journalism 
972 $1,425 5 Education (except 
Administration) 
852 $1,261 
6 Nursing 667 $1,368 6 Technology/ 
Technical Fields 
(Includes 
Computer 
Programming) 
825 $1,731 
7 Allied Health 
Fields (except 
Nursing) 
660 $1,370 7 Computer and 
Information 
Science (not 
626 $1,965 
programming) 
8 Biological, 
Agricultural and 
Environmental 
Sciences 
626 $1,253 8 Communications 
and Journalism 
552 $1,575 
9 Music/Fine, Visual 
and Performing 
Arts 
601 $1,210 9 Biological,

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...

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