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Graduate School: Loan vs. Save

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

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

  2. 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

  3. 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

  4. Results • Scenario’s match at 25 years • Loan scenario will make more after this point

  5. 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.

  6. 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.

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

  8. Sensitivity Analysis • Starting salary before graduate School. • Effect is minimal.

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

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

  11. 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.

  12. 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

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