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Like many, I see education from a combination of angles. Unquestionably, education makes us broader thinkers and more sparkling conversationalists. Education makes us more actualized humans.
But as a finance guy, a small evil part of me always applies the $64,000 Wall Street question to every activity – from brushing my teeth to tossing a ball with a (in my case, non-existent) dog. It’s the bottom-line question: “How is this making me money, like, right now?”
One of the problems of education, generally, is that we have a hard time proving or quantifying its value. What is the value of holding your shoulders back and head high when you walk into a job interview, knowing you’re the best they’re going to interview that week? Or the value of the feeling, when given a work assignment, of “Boom! I got this!”
Philosophically, how can you put a value on just knowing more stuff?
The weird thing about my friend Michael Girdley – who started the computer coding school Codeup – is that he’s ambitious enough to say that the education community tradition of waving a hand at hard-to-measure fuzzy feelings is not good enough. Just because the education community finds it difficult to measure value doesn’t mean that business people shouldn’t try.
In less than two years he’s established a pattern of tracking data on the most important finance question of education. By that, I mean the bottom-line question: How is this making me money, like, right now? Girdley shared with me the pre-Codeup and post-Codeup earnings of his students, along with some useful stats on entry-level and mid-career web developer salaries.
Using a couple of his statistics, I want to take a stab at figuring out the total value, right now, of a student’s investment in Codeup.
“The average Codeup graduate saw her annual salary jump $13,035 in the year after graduation from the program.”
What does that really mean? What can you do with that number if you plan, say, 30 working years at this higher salary?
It would be great to say that a Codeup education is worth 30 times $13,035, or $391,050. However, money in the future is not as valuable to me as money today, so that calculation is not quite accurate. I mean, you could figure it, but finance guys will give you the time value of money speech that you don’t want to hear again.
With a salary increase of just $13,035, we can calculate what that amount is worth today by using a discounted cashflow formula. So let’s be sophisticated and apply our discounted cashflow formula to 30 years of earnings, elevated by $13,035.
I have to assume a “discount rate,” which is some combination of taking into account inflation and future investment risks. I’m going to assume a 5% discount rate. Using my 5% discount rate, I estimate the value today of my elevated salary to be $200,379.90. That’s the sum of 30 years’ worth of $13,035, but “discounted,” or translated back, into today’s dollars.
That discounting allows us to more accurately compare the $16,000 tuition for Codeup with the total financial value, today, of that education. By that measure, you pay Codeup $16K today for something worth on average, $200K today. Another way of putting it is that you are buying something today worth 12.5 times that amount. With these numbers, Codeup sounds like pretty good deal.
“The average web developer, nationally, earns $91,750. That’s $61,525 more than the average pre-Codeup salary of surveyed Codeup students.”
So that’s interesting.
We can imagine a number of reasons for this difference which don’t have to do with the value of Codeup. Maybe the average web developer is older and more experienced on the job than the average pre-Codeup student. Maybe national salaries are higher than San Antonio salaries, on average.
I mean, I’m sure they are.
But still. If one of your goals is to swim in a higher-paid talent pool, it might pay to learn the butterfly stroke.
How much would 15 peak years of earning $61,525 more than you earn now be worth, like, right now? Again, I don’t think it’s as high as 15 times $61,525, or $922,875, because of the whole discounted cashflow of money in the future not being worth as much money today. Also, to be fair, you probably won’t earn the average national salary until you had a few years to ramp up your career.
But what about discounting 15 years of an additional $61,525 per year, at a 5% rate, starting 5 years from now, using the exact same formula that we used before. Discounting those 15 years of earning the average industry salary gives me a value, today, of $500,366.44. Which, to state the obvious, is 31X the price of tuition.
With those kinds of numbers I start to feel like that sales guy from Entourage: “What if I was to tell you that you’d pay $16,000 tuition to Codeup for something worth $500K today? Is that something you might be interested in?”
Look, seriously, there are a lot of assumptions embedded in my statement that “you could pay $16K in tuition today for future salary jumps worth $500K, today.”
Most important of these is the assumption that, by training as a programmer, you can earn the national average salary for programming jobs. And we all know there’s no guarantee that happens.
But – and this is a big but – it’s not a crazy assumption. Because, really, it’s an assumption that the average happens.
It’s an assumption that you could be paid what other people in your industry are generally paid. It’s an assumption that markets are somewhat efficient. It’s an assumption that, if you have valuable skills, you can find employers and work situations just like other people.
All of which makes me pretty confident that the financial return on a skills upgrade like Codeup can be somewhere between 12 and 31 times the upfront tuition cost.
Back to the value of an education
As I said before, education leads to more sparkling conversations as well as to a more fully actualized life. Of that, I have no doubt.
But I appreciate my friend Girdley’s business-like approach to showing that the value of his program can be somewhere between a 12 and 31 times multiple of your investment. Just thinking like a finance guy, is that something you might be interested in?