Question

Explain your return on educational investment. Consider what you will pay for your program, how much you'll borrow, and estimated future salary over the length of your career.

Answer 1

Introduction:-

Return to investment is an important topic in today's modern economics. As a producer, one would want to maximize their profit margins by selling at the highest possible price, while maintaining customer relationships as well.

On the other hand, as a consumer, one would want to maximize their returns in terms of the satisfaction they derive from consuming the product or service offering by analyzing the benefits they get from alternative options and choosing and selecting the best one accordingly.

Case Specifics:-

As a student, we are a consumer in terms of the educational facilities one avails over a period of time from any course or specialization they opt for respectively. Modern economics allows us to analyze this investment and the returns one may expect also.

Generally speaking however, it has been observed that the net results for students tends to profitable when compared to the initial investment. This happens because even when the initial returns in terms of the earnings from jobs may relatively be lower to the overall costs, over a period of time accumulated benefits far exceed the costs incurred due to the overall earnings in the entire length of ones career.

Cost Benefit Analysis:-

To analyse the case study, let us consider MBA as an advanced course which we are to undertake and our ultimate aim is to analyze the cost benefit analysis over a period of time.

Costs:-

The costs of an average Masters in Business Administration course in the United States is about 60,000 US Dollars in terms of the fees charged by the respective college. This can be referred to as the direct cost of acquisition of the product. While extra costs such as coaching fees, cost of transport, hostel etc may also be paid, we would not be considering the same for calculation illustration purposes.

Further, banks grant educational loans on such programs relatively easily and considering the high amount involved financing is a good option and an ideal debt ratio would be 60:40. Meaning, that 36000 US Dollars can be taken as a loan from the bank, and the remaining amount are best collected from self sources which is 24000 US Dollars.

Benefits:-

The average working age of a citizen is about 60 years till the time when one retires and the average age at which one starts their first job is about 25 years.

Thus, the average employed period would extend to about 35 Years respectively. The average salary of an MBA in the United States is about $124,000 which means a net profit of 64,000 US Dollars if i were to clear all my loan in the first year itself.

In the subsequent years, all amount earned would be profit over the initial investment this would mean $124,000 per year for about 35 years which would be about $42,16,000 one can also expect reasonable increments and adjustments in this over a period of time respectively.

Please feel free to ask your doubts in the comments section if any.