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Financial Planning / Paying For College


Subject:  Fund your retirement by avoiding college Date:  11/8/2001  4:28 PM
Author:  boatgod2001 Number:  4502 of 8484

Forbes is great at telling the truth about the
costs of college, The Tyranny of the Diploma was
an excellent article.

It is so damn frustrating that Libertarians and
Republicans alike haven't figured out the
strategy which best attacks the progressive
income tax. Both Democrats and Republicans spew the
propoganda that secondary education is the
panacea which makes all things "fair". But it's
the policy of the "progressive income tax" that
the DEMOCRATS promote, which takes away much of
the financial benefit of secondary education. It
in essence punishes those who are rewarded with
extra compensation for their education efforts.
When will the Libertarians and Republicans inform
the public that the "progressive income tax" is
really a huge "tax on education?" It is an
argument that would probably actually bring about
a flat tax.

Forbes failed to calculate their assessment correctly,
had they, the evidence against going to college would be more
compelling. That's because Forbes failed to

1. The effects of the progressive income tax.
This tax penalizes the benefit of education
(supposedly higher income) to redistribute money
to those who don't seek education (call it the
Democratic "ignorance is bliss benefit program").
None of your articles have ever taken this
calculation into consideration. If you invest
money into tax deferred instruments that you
would have spent on college, you get compounding
of the investment until you sell at retirement.
Whereas, if you achieve a higher salary there is
no compounding of the investment tax deferred
because you are taxed every payday for the
investment (the tyranny of the progressive income tax).
Avoiding college then, is a sound way to provide for
retirement through tax deferment.
2. Calculate the lost wage that those who are
smart enough to go to college, can earn in the
workforce. An hour in class or spent studying
is an hour not spent in the workforce. Your
article titled The Tyranny of the Diploma did not
calculate this effect, but your article
concerning the MBA does. For argument sake,
we'll consider 4 years in college spent studying
and in class, to have a 1 to 1 ratio for time
lost that one could have worked (when in reality
that is a favorable ratio tilted in favor of
college. The time spent in class and studying
for four years may be equivalent to the time
spent working full time 5.5 years).
I'd estimate going to college four years
sacrifices about $80,000 lost income (what a
high school grad with skills enough to get into
college, can earn immediately from graduation
from high school. Let's presume at
18 a kid leaves high school to make $20,000 a
year. His parents invest the $120,000 (the cost
for room and board, tuition, meals, and other
expenses-the average cost for a college education
according to the Forbes article) into government
bonds paying 5% instead. By age 62 the value of
that benefit will be in excess of $1 million
($1,078,062.90 to be exact).

Let's presume the AVERAGE working wage for those
42 years for the high school grad, was $25,000.
The non college graduate will have earned $1
million in their working career, most of which
will be under the effective tax rate of 15%
($1,050,000 less the .15% tax paid on income).
His total working career benefit then is:
In savings bonds at age 62 $1,078,062.90
>Earned income $1,050,000/15%
>tax consequence (-$157,500) $ 892,500.00
Without consideration of taxes, to compensate
for the $2 million above, a person would have to
start making $5,975.50 a month salary
immediately upon graduation from college at age
22 (taking from age 18-22 to get their bachelors
degree), to EQUAL the benefit described above by
age 62 (I used 2.5% continuing return on the $1.9
million, because wages were not saved and would
not be compounded, while the bond values were,
which were roughly half of the derived benefit).

However, most of the $5,975.50 will be taxed at
the effective progressive rate of about 30%.
So, to become equivalent benefit, you have to
really earn:
>$5,975.50 x 30% (to overcome the progressive
education tax) or an additional $1,792.65 per
What this means, put simply, is that the break
even wage for a college graduate, relative to
that of a high school graduate who goes to work
making $20,000 a year, and whose parents invest
money they'd otherwise have spent on college in a
governmentretirement bond fund, is $7,768.15 per
month which MUST begin at age 22.
In that article titled The Tyranny of the
Diploma, Forbes calculates that 30% of all
college graduates are earning equivalent to high
school wages. It would be interesting to know
what percentage of college graduates by age 22
are making less than $93,217 per year.
My guess would be that 99% of college graduates
makes less than that entering the workforce, most
probably never make that in their working career.
Be honest, be bold, just come to the conclusion
that college has become so expensive, and the
taxes so high for the few degree plans that pay
adequately to compensate for the time, effort and
expense of going, that for almost everyone
college is a terrible investment.
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