The Bursting Of The (Mis)Education Bubble, pt 3: As Bad As Harvard Endowment Funds -0.05% ROI? The Levered Harvard Diploma!

Reggie Middleton's picture

The college endowment investment results have rolled in, and if Harvard were to get a grade for the year it would probably receive an "F" as reported by the NY Times:

"Harvard reported a 0.05 percent loss and a drop in its endowment of over $1 billion in the same period, even as a simple Standard & Poor’s 500-stock index fund gained about 5.5 percent. Harvard’s endowment decline is more than the entire endowments of roughly 90 percent of all colleges and universities." 

Ironically enough, if one were to calculate the ROI of a Harvard undergraduate diploma, the number is remarkably similar at about 0.05%. See the graph below...

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These returns have been calculated by our proprietary College/University ROI Analysis Engine. At the bottom of this post you can find a link to a simplified beta of this engine, which will be freely available to blog subscribers, and will be available via smart phone app and over the web as well. This app has morphed into an incredibly comprehensive and capable piece of knowledge kit - so much so that it had to be materially simplified just to post a portion of it on the web! 

There are many concepts used in the model that may be new to the Sheeple type. For instance...

Economic Return on Investment (eROI)

Introducing a reality-based method of valuing an education - the "Economic Return on Investment". You see, unlike many  other investments, the education is  a completely hands on, active experience. You cannot simply dump money into a fund and walk away. You must manage it, and  your labor (or how the market actually values your labor) is actually part and parcel of the return on investment .

Thus, it would be highly unrealistic to exclude the economic cash flows stemming from your attempts to pay debt service (assuming debt was used) in calculating  ROI. Since said debt is truly full recourse, its service must be factored in, and as such so should all of the practical variables that affect said servicing. Think of the net return on stock investments.

Click to expand...

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This episode of the Keiser Report was one of the (if not the) most viral episodes ever. What was so interesting and controversial? A topic that damn sure hit home, that's what. Click here for the full episode.

When factoring in reality, many diplomas really don't look so appetizing considering the time, labor, effort, risk and expense in attaining them and fruitful employment related to the diploma afterward. Let's mark some top ivy league (remember, this is the so-called creme de la creme) diplomas to market, as well as the lowly disrespected for-profit online schools, trade schools and city universities. Oh yeah! I forgot to mention that I threw in an internship with a tech company for good measure. Let's add this quip in for the sake of argument (Yahoo Finance):

A few reports circulating this week have pointed to some fortunate Facebook software engineering interns who are set to bring home an average monthly salary of $6,225, according to, a careers site that provides data on salaries (based on employee generated content). That works out to a yearly salary of $74,700. For comparison, median household income from 2006 to 2010 was nearly $52,000, according to the latest Census data. (The average monthly pay for all Facebook interns, according to the site, is around $5,800.)

Jealous yet? There’s more. A few anonymous Facebook interns posted further details, with one second-year student saying he/she was offered $5,400 a month and a $1,000 housing stipend. Another computer science graduate student said they got $6,800 a month with a $1,000 housing stipend, negotiated up from $6,600. (Some Quora commenters noted intern salaries correspond to the number of years of college you’ve completed.) Facebook software engineers make an average of $111,452 a year, according to Glassdoor.

... So how do interns at the social-networking giant fare compared with their counterparts at other firms? Glassdoor released a report last month listing intern salaries at 20 top-rated companies (rated by current and former interns). Here are some highlights (figures are average monthly salary):

Software engineering intern, Google: $6,463 
Research intern, Microsoft: $6,746
Software development engineer intern, Microsoft: $5,539
Intern, Cisco: $4,017
Software development engineer intern, Amazon: $5,552
Graduate technical intern, Intel: $5,681
Intern, IBM: $3,935

As we know, majoring in computer science is a smart move. Finance and accounting offers lucrative job opportunities as well:

Tax intern, Ernst & Young: $4,136
Advisory intern, PricewaterhouseCoopers: $4,702
Audit intern, Deloitte: $3,822
Business analyst intern, Target: $2,785

Click to enlarge...

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As you can see, a 2yr unpaid internship that yields a nominal salary growing at 3% per annum beats a levered ivy league diploma (salaries were sourced from the respective schools graduate statements and surveys). Debt can be a bitch, as can the time value of money and opportunity costs. For those who may not understand how this works, just think about starting school today with student loans and not breaking even until 2045 - that's right, the year 2045! Debt slaves - one and all!!!

Click to expand!!!

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Of course, the major that you are pursuing has an awful lot to do with the value of the diploma, as does the current business environment and the point in the economic cycle. We will explore that in detail in my next post on this topic.

This is part 3 of the "How To Profit From The Impending Bursting Of The Education Bubble" series. If you haven't read the earlier installments, please do:
 Click here to access the early beta version of the BoomBustBlog College/University ROI Analysis Engine. The next post on this topic will go through the model in illustrous detail and present the next iterative version of the beta for all to play with, as well as instructions on how to get the most out of it. It will enable you to value any diploma from any school, complete with ROI, NPV of funds invested, and time to break-even. 

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e-recep's picture

some college graduates i know took cooking lessons and opened their own small bakeries. 

it looks like a good choice for today because :

a) china is no threat to such a business.

b) big conglomerates cannot cook EXACTLY what you're cooking so the pressure of competition is there but not immense as in retail.

c) the bill per customer is not that big, $1, $5, maybe $10 dollars or $20 tops. sums, still payable by the struggling upper middle class.

Groundhog Day's picture

If you can get into an ivy league or comp. college and can afford to go without student loads, then you should go, otherwise take a free ride in a division one college, at least you won't feel bad if you don't have a job out of college

Fuh Querada's picture

I thought an Ivy League diploma got you hot chicks and heiresses.

geno-econ's picture

Seldom you get both----better off buying a lottery ticket, hot chicks is the easy part, especially if its a winning number

geno-econ's picture

Many recent graduates in my neck of the woods are getting their first apartments (usually shared with friends) subsidized by parents in effort to maintain parent privacy and hope that mingling with peers will lead to finding jobs and mates. In other words ,Reggie's stats may be understated. It reflects a different future society going forward (marrying later, older child bearing years, difficulty paying for college and shift in responsibility for education to government as well as difficulty in saving for retirement. Disparity in income and wealth will intensify as a result and put strain on the entire economy. Meanwhile DC gridlock continues as well as the Ponzi econometric model. Reggie is doing the best he can

Citxmech's picture

Meh - the nuclear family model was a crock of shit anyway.  The new thing will be the same as the old thing:  Living like the Beverly Hillbillies. . .  before they struck oil.

CH1's picture

the nuclear family model was a crock of shit anyway.

No, it's a hell of a nice way to live. It's just not something that should ever be forced on anyone.

Citxmech's picture

Personally, I prefer the "it takes a village" model - but tastes vary.

However, the nuclear family, like suburbia,  was never going to be sustainable in the long run as a model for society.  It relies on the ability of older folks to be productive enough to successfully retire while surviving the threat of inflation robbing their savings.  If we assume that programs like Medicare and Social Security are unsustainable - how can the wide-spread enjoyment of retirement work?  - especially in an aging populace.  Look at Japan for instance ("hurry up and die" etc.).

Note, that prior to the industrial surge facilitated by the advent of cheap-oil/industrial agriculture, even on a gold standard, only a tiny proportion of people were successful enough to rest on their laurels throughout old-age without familial support of some sort.

pitz's picture

CS a good subject to major in?  Only if you like very high unemployment, and being on a stack of 1000 other applicants for the 1 in 1000 that outfits such as Facebook and Google typically hire (Google received 1 million resumes for 1,000 software engineer positions they hired last year).  Top universities such as UC Berkeley can't even show >40% of their graduating classes employed in post-graduation surveys.

$110k might sound like a lot of salary, but keep in mind such is in the SFBay area where everything is inflated to the moon price-wise.  And outfits like Facebook, Google, and others only hire the top of the class. 

Suisse's picture

I don't really see how this bubble can pop normally as it seems to be manufactured due to politics rather than normal lending mechanics. These loans cannot be discharged, and until some type of debt forgivnance mechanism is in place how will it truly pop? Has there been any type of push in Congress to make this debt dischargeable?

SmittyinLA's picture

I bet most of the students at Harvard are getting a free ride and come from politically connected families.

ChanceIs's picture

I can attest to that from my prep school experience.

I am opening my kimona a little too far, but two of them from Harvard '79 got golden parachutes for wrecking Excite and Citi.  Neither went to grad school.  The first one was buying little dotcoms with cash (if not bond sale proceeds) instead of making the takover targets accept Excite stock (or in hindsight, pay to have Excite take them over).  Stoooooopid.  He once boasted to me that....'I don't have an MBA.'  Of course having an MBA dosen't guarantee that you will have the common sense and self control not to buy into rising bubbles.  OTOH, they got theirs and the stockholders got shafted.  Who was smarter?  George W. Bush had a Harvard MBA.  He was the dumbest of all but got to ruin a whole country.  I think that the reward is negatively correlated with the damage you do.  He has to be raking it in somehow.  Bubba Clinton is.

roadhazard's picture

Hey Reggie, speaking of edumacation bubbles bursting, how come Capital Account was pulled from RT and will we ever see our Lauren again. Sorry if this has been explained before but if so I have missed it.  



Reggie Middleton's picture

She lives in NYC now and hosts the Yahoo Finance TV show.

Never One Roach's picture

Good article reggie. My (unemployed) neighbor's son has $87k in loans and an MBA. He has had job offers for $57k to $77k. When I ask him (or his father) why didn't he take them he responds, "I'm worth more then that."


Houston, we have a Big Problem.

monad's picture

What is it that you don't understand? Now that failure is guaranteed, there is no need to even pretend to struggle to great accomplishment. As Ayn Rand said, "I QUIT." Don't feed the leeches.

CH1's picture

Don't feed the leeches.

Amen. Don't feed the leeches.

pitz's picture

At least he had offers.  For the CS grads that Reggie says is such a great program to study, even top schools like UCB in the Bay Area can't prove >40% of their graduates are employed.  Similar numbers out of Cornell. 

CVfriendship's picture

Worth so much more, that I'd rather not work to prove my worth.....God help us.

sitenine's picture

Fuck it, right? Americans are morons anyway - what good is school going to do for them? If they were even remotely intelligent, they wouldn't stand for the tuition hike shafting year after year in the first place.

SafelyGraze's picture

the solution is as simple as it is obvious: an Affordable Education Act which will spread the cost through mandatory contributions by employers and income earners nationwide.

These contributions ("investments") will allow even more individuals to receive student loans.

the Affordable Transportation Act, the Affordable Detention Act, and the Affordable Earthquake/Hurricane/Disaster Act are still in draft stage.

eat your vegetables!