Graduate School: Loan vs. Save

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Graduate School Loan vs. Save

• Team 06
• Joseph Ling
• Majd Abdoul-Hosn

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Scenario 1

• Non-school related costs ignored
• Scope 42 years
• Work and save for Graduate school
• Assumptions
• Work for 2 years at 60,000 per year
• 4 raise (Prior to grad. school)
• Enroll for 2 years
• 70,000 per year after Grad. School
• 6 raise (After grad. school)
• Save 10 of salary every year

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Scenario 2

• Take out a loan for graduate school
• Assumptions
• Loan
• Amount 12,000 a year
• Interest
• 4.7 in school
• 5.3 during repayment
• Compounded quarterly
• No repayment during school
• Enroll for 2 years
• 70,000 per year after grad. school
• 6 raise (After grad. school)
• Save 10 of salary every year

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Results

• Scenarios match at 25 years
• Loan scenario will make more after this point

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Analysis

• Goal Maximize Future Worth.
• Future Worth of Loan Scenario
• 1,048,618.28
• Future Worth of Save Scenario
• 963,569.44
• Future Worth of Loan is greater than Future Worth
  of Save
• Therefore, the Loan Scenario is a better choice.

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Sensitivity Analysis

• Low cost 12000/yr.
• Match at 25 years.
• Mid. cost 23000/yr.
• Match at 30 years.
• High cost 40000/yr.
• Match at 26 years.

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Sensitivity Analysis

• Future worth of loan scenario decreases slower
  than future worth of save scenario.

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Sensitivity Analysis

• Starting salary before graduate School.
• Effect is minimal.

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Sensitivity Analysis

• Raise after graduate school between 5 and 7.
• Save scenario splits farther from loan scenario
  as this increases.

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Sensitivity Analysis

• Effect on Loan scenario is large.
• Every extra year spent in school increases the
  breakeven point by 8 to 10 years.

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Summary

• Which should you choose?
• Loan is more favorable even with
• Lower percent raise.
• Higher school cost.
• Longer time spent in school
• Increased interest rate.

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Resources

• For school costs
• Low cost http//www.csupomona.edu
• Mid cost http//www.ucla.edu
• High cost http//www.columbia.edu
• Salaries
• http//www.payscale.com
• Literary Resources
• Cal Poly Pomona University Catalog 2003 2005
• Essential of Engineering Economic Analysis