Student Loans but No Part-Time Job
Suppose instead that our full-time student qualifies for a federally subsidized student loan to help pay for tuition expenses. According to our Financial Aid Office at UW-Superior, a federally insured Stafford Loan has a loan limit of $31,000 and a fixed interest rate of 4.45 percent APR. Office staffers report that the most typical term-loan students select is for 10 years. Loan repayments automatically begin six months after the student no longer enrolls in college. As a college freshman at UW-Superior, the loan would cover $5,500 of the $9,109.50 tuition/books expense, which means the student would have to pay $3,609.50 out of pocket. Part-Time Job and No Student Loans Suppose our student works part-time during the regular school year as well as during the summer months. Our student has no student loans, and pays tuition each year with cash withdrawn from savings, financial grants, scholarships or financial support from parents and relatives. We took a stratified random sample survey of the student body, and we found that out of 239 respondents, approximately 57 percent of students worked at off campus jobs and more than 41 percent of these students worked 20 hours per week or more. Based on the results of our student survey, we concluded, somewhat conservatively, that most students who attend UW-Superior work an average of 14 hours a week or more during the academic year, earning an average wage of at least $11 per hour. These students will earn $5,236 during the 34-week period of the academic year. During the 14 weeks of summer recess, most students work an average of 34.5 hours a week or more and earn an average wage of at least $11 per hour, earning an average of $5,313 during the summer. Students who match this profile will have an annual income over a 50-week period of approximately $10,549. Subtracting this amount from the $20,229 of average annual income earnings for 18 to 24-year-olds, we get an average of $9,680 in annual full time employment income that a UW-Superior student forfeits by attending college full time. The abbreviated payment schedule shows costs in the freshman year in column 5 equal to ($20,229 - $10,549) + $9,109.50 = $18,789.50. The lower cost is because part-time employment income defrays part of the tuition and forgone income costs of college. In addition, the benefits of this income stream are not reduced by loan repayments after graduation. We find that the IRR averages 14.43 percent per year over the UW-Superior graduate’s work-life of 42 years. This IRR is the highest of the three income streams, and helps explain why such a high percentage of students at UW-Superior hold part-time jobs.
To access to the full report including appendices, visit uwsuper.edu/econimpact 9
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