The Real Cost of a VCU Education

Last night Jason raised the point from our reading that college graduates earn substantially higher incomes than those with only a high school diploma, so I wanted to find out how this played out in terms of wealth (income, assets, and debt). With skyrocketing costs of attendance, is a college degree really that profitable?

If you want to see just the actual cost of a VCU bachelor's degree with loans, skip to the bottom.

If you're interested in the usurious practices that add up to this cost, see the math below.

Assumptions: VCU's cost of attendance remains constant (it won't; it will increase)

Option 1: You're wealthy and pay for four years of VCU without financing:

VCU 2013-2014 in-state undergrad cost of attendance: $21,084.28 x 4 years = $84,337.12

Option 2: You're not wealthy and thus finance your entire degree:

VCU 2013-2014 in-state undergrad cost of attendance: $21,084.28

Federal Stafford loan interest rate: fixed @ 3.86%

Loan origination fee: 1.072 %

[(cost of attendance) + (loan origination fee)] = [(21,084.28) + (226.0234816)] = $21,310.3034816/yr

x 4years = $85,241.2139264 ~ $85,241.21

Assuming that you can qualify for federal Stafford loans, you will have a fixed interest rate of 3.86% (much lower compared to '06-'08 interest when it was 6.8%). However, as a dependent student, you can only borrow $5,500 your first year, $6,500 your second year, and $7,500 your third and fourth year, and $4,000 after (at which point you will max out). This leaves the following deficit of funds for VCU's cost of attendance:

1^st year: -$15,810.30

2^nd year: -$14,810.30

3^rd & 4^th year: -$13,810.30

The remaining balance will have to be paid or financed privately – private loans do not qualify for any federal benefits such as public service loan forgiveness [partial or full] or income based/contingent repayment plans.

If you are an independent student/emancipated, you can borrow slightly more, but for our purposes that doesn't matter because for simplicity's sake, I'll assume that you are able to find a private lender with the same low fixed interest rate and origination fee as the federal government's (you probably won't).

Also, while you are in college, interest continues to collect on your loan which is capitalized each year.

So here's your new total:

Years of study	Cost of attendance & loan origination fee (Principal)	Previous balance	New balance without capitalized interest	Capitalized interest over a year while in school	What you now owe
1st	$21,310.30	0	$21,310.30	$ 822.58	$22,132.88
2nd	$21,310.30	$22,132.88	$43,443.18	$1,676.91	$45,120.09
3rd	$21,310.30	$45,120.09	$66,430.39	$2,564.21	$68,994.60
4th	$21,310.30	$68,994.60	$90,304.90	$3,485.77	$93,790.67

Total cost at the end of 4 years: $93,790.67

Using the loan repayment calculator at http://mappingyourfuture.org/paying/standardcalculator.htm gives the following results:

# of years in repayment	Principal	Interest paid	Total cost	Monthly payment	“Minimum annual salary to handle these payments”
10	$93,790.67	$19,412.16	$113,202.83	$943.35	$141,503.00
15	$93,790.67	$29,904.71	$123,695.38	$687.19	$103,079.00
20	$93,790.67	$40,959.22	$134,749.89	$561.45	$84,218.00
25*	$93,790.67	$52,561.44	$146,352.11	$487.84	$73,176.00

*For the federal part of your loans, you can have them discharged after 25 years of payment [and even then you have to pay taxes on the forgiven amount as income], but this probably will only affect graduate students as you can borrow very little from the government as an undergrad.

Fun fact: Wall Street regularly borrows money from the government at a less than 1% interest. There are people trying to change this: http://act.boldprogressives.org/survey/warren_student_debt/

On the bright side, the banks can repo your car and foreclose on your house – but they can't take away your education!