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Graduate School: Loan vs. Save. Team 06 Joseph Ling Majd Abdoul-Hosn. 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

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graduate school loan vs save

Graduate School: Loan vs. Save

Team 06

Joseph Ling

Majd Abdoul-Hosn

scenario 1
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
scenario 2
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
results
Results
  • Scenario’s match at 25 years
  • Loan scenario will make more after this point
analysis
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.
sensitivity analysis
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.
sensitivity analysis7
Sensitivity Analysis
  • Future worth of loan scenario decreases slower than future worth of save scenario.
sensitivity analysis8
Sensitivity Analysis
  • Starting salary before graduate School.
  • Effect is minimal.
sensitivity analysis9
Sensitivity Analysis
  • Raise after graduate school between 5% and 7%.
  • Save scenario splits farther from loan scenario as this % increases.
sensitivity analysis10
Sensitivity Analysis
  • Effect on Loan scenario is large.
  • Every extra year spent in school increases the breakeven point by 8 to 10 years.
summary
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.
resources
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