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What’s the Hurry? Thinking Finances Before Going to Career College

there are certainly many reasons why someone decides to go back to school. a sense of pride, financial gain, and more stability all factor into this decision. to suggest that the decision is purely a “dollar and cents” decision is just not being realistic. but to ignore completely the financial aspect of the decision is not very wise. as with everything in life, decisions come with a cost. to ignore the impact to your wallet in the situation is how so many people got into trouble with their mortgages and had to face the prospects of bankruptcy and/or foreclosures.

so we put some numbers together to help you. we took a look at two common health care programs, Medical Assistant and Vocational Nursing and provided some analysis to help you. these will not give you a specific answer for your decision, but it will give you some ideas to think about as you make the decision.

Here is what we did:

assumptions

1. let’s call the person in this example chris. we started assuming that the current situation for chris a job $10/hr. and chris is using every dollar so there are no savings at the end of the year.
2. we then assumed that chris will work for the next seven years and will receive modest increases of 2% each year and will get a promotion or change jobs for 20% more salary after year 2 and year 5.
3. for comparison, we assumed that chris decided to go back to school and borrowed either $10K (MA) or $20K (LVN) to pay for it.
4. we gave chris average california incomes of $33K (LVN) and $40K (LVN) to start and an increase of 2% each year. we left out the promotions and job changes because salaries are fairly consistent across the field. One would need to get a new skill to command significantly more money (You will see that this doesn’t really impact the analysis significantly anyway).

analysis

we analyzed three scenarios for comparison.

1. the first assumed that chris got a job right away at the average salary and added the cost of a 10 year student loan to the expenses from before.
2. we analyzed the impact if chris did NOT get a job and went back to the previous employer with the same assumptions as before
3. we used a 70% placement rate projects the “expected outcome”. this estimates the average outcome for any student who engages in this decision (this is the scenario that many businesses would use to make a decision)

what we found

as you would expect, the best case scenario where the student gets a job right away shows great positive impact on the projected savings – creating over $100K (LVN) and $75K (MA) over the 7 year time (approximately $10K each year) period that could be used to pay for a new car, house, or planning for the future. this result also will continue for years to come – a very positive outcome.

the other cases are not so good. of course, the worst case scenario where chris goes back to the original job has chris behind not going back to school by $50K (LVN) and $40K (MA) SEVEN YEARS LATER! This is because chris did not work for a year while going to school while still taking on expenses (-$20K) plus the loan ($20K or $10K). at this rate, chris will never get back to the beginning unless someone gives chris gets a higher paying job, receives the money from someone else or defaults on the loans.

the “expected” case is telling as well. it says that at 70% placement rates, the average student will be worse off by $1K-$11K at the end of the seven year period. in short is says that any student enrolling should expect to be no better off than they are today after seven years.

depressing, eh?

for more details on the analysis, click here for a PDF version.

how to improve the outlook

so, are we advocating not going back to school? absolutely NOT. we are suggesting that you take your time and think about it. here are some ways that you can make the education work for you and not end up high and dry.

1. Slow Down – as shown in the analysis, this is a decision that will impact at least the next 2-3 years if not the rest of your life. don’t listen to the TV commercials and the admissions reps pushing you to “get off your butt” and start today. if you do not think it through correctly, it is very possible that you could be WORSE OFF than better after school. trust us, they have more start dates and you have the rest of your life to consider.

2. Focus on Placement Rates – the #1 influence on this analysis is whether chris gets a job in the new field or not. if the placement was 90%, the conclusions would be drastically different. ask and get placement rates from the reps and verify it by talking to recently graduated students using facebook/twitter/allnurses.com/indeed.com. also contact potential places of employment and ask them for an opinion on the school and the alumni from that school. this is more important homework than you will ever get at school, so make sure you do it. remember, getting a job is the main reason you are spending the money.

3. Limit Borrowing – find out what it will take to get into community college or less expensive programs than the for-profit route. the second largest impact on the analysis is the size of the loan chris had to take out. consider waiting a year and saving money while you study and determine the process to get into community college. Had chris not borrowed $20K and happened to not get a job after school was done, chris’ only losses would be the expense during his time at school. chris would cut his negative impact by at least 50% and would be creating savings immediately after his first year.

4. Don’t get ahead of yourself – the for-profit schools want to play on your desire for a change and so they press you to start right now. they will tell you that your new job will give you enough money to do what ever you want. This is simply not true in a vast majority of the cases. you need to plan your future – especially if you are under 25. you have time on your side – bankruptcy or defaulting on your loans will last with you for the rest of your life.

note about tv commercials: even a broken clock is right twice a day

consider the TV testimonials – each school has a former student come up and tell you how much better things are after school and why you HAVE to start today. consider this. most for-profit school systems have thousands of alumni to choose – for them to find 3 or 4 who tell you how great it is less than 1/2 of 1% of the total student population in a given year. You should be much more interested in what the other 99.5% have to say. also consider that most of the time, these people are many years removed from the school. as you get farther from your graduation, your success will be less and less dependent on your schooling and more on your work ethic, experience and networking. for a vocational school to claim it was the key to your success 4 or 5 years after the fact is simply not being respectful to the talents of the student.

look at the placement rates over numerous years and the internet reviews and social sites. do your own research. ignore the tv.

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