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Rudimentary Quantitative Analytics in Building a College Financial Decision

Support System

Kyle Wesley Taylor

361-816-3532

2032 2nd Avenue Apt #4, New York, NY 10029

kylewesleytaylor@gmail.com

May 2014

Quantitative Business Analysis

Professor Andrew O. Coggins, Jr. and Professor Janice Winch

Department of Management and Management Science

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Précis

This research looks at quantitative analytic techniques in building a financial

decision support system. The goal is to show that increasing model complexity via

the addition of more variables and a greater quantity of data will yield a more

accurate model. This has been done by creating a simple financial model intended

to break down the overall actual costs of attending a university and the expected

monthly loan payment a graduate from said university can expect to have, as well as

the impact of the loans on their salary. All of the variables in the first model, though

real-world data, are assumed to be static for the life of the model. After analyzing

the results of the first model, a second model is proposed wherein fewer

assumptions are made and fewer variables are assumed to be static. Using

historical data over a period of time, time-trend analysis is used in order to acquire

the best-fit predictive functions for the variables: interest and tuition price. In

addition, more research allows for a better salary approximation based upon major

in college, as well as assuming a level of family contribution towards college. The

student loans are also split between federal subsidized loans and federal

unsubsidized loans based upon the percentage of tuition allowed to be taken out for

each according to U.S. Government standards.

Upon completion of the second model, a much more reasonable and realistic

financial breakdown is achieved. Following this, dialogue on further improvements

and potential model subsets are explored in improving the second model into an

even more complex third model. It is concluded that increasing model complexity

via increasing data quantities for analyzing yields a more accurate result.

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Table of Contents

Tables and Figures……………………………………………………………………………….…....Pg. 4

Introduction to Quantitative Analytics……………………………………………………...Pg. 5

Research Question…………………………………………………………………………………….Pg. 7

Building Model 1……………………………………………………………………………………….Pg. 8

Analysis and Limitations of Model 1………………………………………………………..Pg. 13

Building Model 2……………………………………………………………………………….……..Pg. 15

Analysis and Limitations of Model 2………………………………………………………..Pg. 30

Conclusions……………………………………………………………………………………………..Pg. 32

References……………………………………………………………………………………………….Pg. 35

Appendix…………………………………………………………………………………………………Pg. 37

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Tables and Figures

Table 1: Starting Salary, Cost of Attendance, and Loan Rate by University..Pg. 8

Table 2: Total Note Payable and Interest Accrued During College........….....Pg. 10

Table 3: Cost Breakdown.............................................................................................Pg. 11

Table 4: Effect on Salary…….........................................................................................Pg. 12

Table 5: Federal Unsubsidized and Subsidized Loan Rate...............................Pg. 16

Figure 1: Federal Unsubsidized Loan Rates & Time-Trend Analysis............Pg. 17

Table 6: Predicted Subsidized Rates…….................................................................Pg. 18

Table 7: University Tuition From 2002-2010…….................................................Pg. 19

Figure 2: University Tuition Growth Rate From 2003-2010….........................Pg. 19

Figure 3: Tuition and Time-Trend Analysis……....................................................Pg. 21

Table 8: Trendline Equation, Type, and R2……...............................................Pg. 21-22

Table 9: Back-Testing Tuition Trendlines…….......................................................Pg. 23

Table 10: Predicted Tuition........................................................................................Pg. 24

Table 11: Cost, Note Payable, and Interest Accrued During College.............Pg. 25

Table 12: Change in Average Salary and BS/BA Salary......................................Pg. 26

Table 13: Total Cost and Salary Breakdown……...................................................Pg. 29

Figure 4: 2-Stock Optimization ………........................................................................Pg. 33

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Introduction to Quantitative Analytics

In the age of “Big Data,” the need for a workforce with quantitative skills is in

high demand. A quantitative analyst, or quant, is someone that can sift through

large amounts of data and build a model to accurately foretell an outcome. In the

financial market the ever-increasing complexity of trading securities (liquid and

illiquid) gives rise to people who can not only understand the models, but can also

manage or enhance them. For instance, a relatively new sector in the financial

industry is that of quantitative trading, also known as algorithmic trading. This

involves collecting, transforming, and storing enormous amounts of data on the

market in order to build an alpha generation platform. Alpha is a term used in the

market place as excess returns, or profit as it were. Quantitative trading

encompasses building financial models designed to spot trends in the marketplace

in which excessive profit is likely. Rigorous back-testing and simulations are

standard before the “alpha generation platform”, or model, can be executed – and

the timing of execution is crucial as it must be implemented before alpha shrinkage

(Jay, 2008).

Quants aren’t limited to the financial industry only, but can work in a number

of fields. An operations quantitative analyst, for instance, may sieve through a

company’s terabytes upon terabytes of data, apply the relevant data to a model, and

see where the company needs to streamline efficiency, cut costs, or allocate funds

more heavily in an area within the company. Quantitative analysts may also work in

environmental science or even behavioral research. Due to the arduous nature of

the work in forecasting, quants require a blend of mathematical, computational, and

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financial skills (Yates, 2013). However, it isn’t just the complex skillset that make

quantitative analysts so desirable; it is also the understanding of how to phrase a

research question to an intricate and multifarious problem that sets them apart, as

well as accuracy of their solutions.

At the most basic level, quantitative analysts can be thought of in terms of

fortunetellers.

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Research Question

I have proposed the research question “Does increasing model complexity

affect model accuracy?” As an illustration, a simplistic model will be built to yield a

desired answer, and from there will be improved upon by adding more complexity

to build a second model, which hopefully will yield a more accurate answer. The

topic chosen to illustrate this is that of the actual cost of attending college and

student loan debt. The number of 25-year-old Americans with student debt has

risen from 25% in 2003 to 43% in 2012. Outstanding student loan debt topped $1

trillion for the third quarter of 2013, “with balances and delinquency rates rising to

record highs even as a strengthening economy allows Americans to reduce total

borrowing” (Gage, 2014). In contrast, auto, mortgage, and credit debt have all

declined from their peaks. Student loan debt can have a pretty significant effect on

the economy. According to the Federal Reserve, the burden of student debt can keep

people unable to buy homes or cars, thereby really affecting the whole economic

cycle and making it an extremely relevant issue at this point in time (Gage, 2014).

Thus, I found it pertinent to construct a model in this field that shows what a

prospective student can expect to pay in entirety for their education, as well as the

disposable income they can expect until full loan repayment. The goal is to increase

model complexity so that the second college financial model yields a more

reasonably accurate result to aid the prospective student in determining the

feasibility of attending their prospective university.

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Building Model 1

To build a simple model, we need only a few inputs to model a simulation

that would show us the amount per month it would take a student to pay back the

loans they took out for their education. The initial input for the model will be 6

randomly chosen private schools: Princeton, Yale, Columbia, Dartmouth, Harvard

and New York University, as well as 4 public universities: University of California –

Berkeley, Pennsylvania State University, University of Texas – Austin, and Rutgers

University of New Jersey. By gathering average starting salaries upon graduation

for each university (Pay Scale, n.d.), average annual cost of attendance (CNN Money,

n.d.), and the federal student loan interest rate (U.S. Department of Education, n.d.),

table 1 shown below is put together.

Table 1: Starting Salary, Cost of Attendance, and Loan Rate by University


Average Average Annual Cost of Fixed Federal
Starting Salary Attendance Loan Interest
Princeton University $58,300 $57,628.00 3.86%
Harvard University $50,700 $60,240.00 3.86%
Dartmouth College $54,100 $64,034.00 3.86%
Columbia University $54,700 $64,949.00 3.86%
Yale University $48,900 $61,333.00 3.86%
University of
California-Berkeley $52,100 $32,479.00 3.86%
Pennsylvania State
University $48,600 $31,517.00 3.86%
New York University $48,700 $65,303.00 3.86%
University of Texas -
Austin $48,800 $25,587.00 3.86%
Rutgers University of
New Jersey $48,500 $29,512.00 3.86%

Based on these figures, some assumptions will have to be made about the

model. We will assume the student will receive no grants or scholarship, and the

total cost of attendance will be paid entirely by federal unsubsidized student loans

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with a fixed interest rate of 3.86% compounded daily from the first day of term. It

will also be assumed the student will have the standard repayment plan of 10 years

according to “FinAid” (n.d.). For all universities, it will be supposed that the annual

cost of attendance loan will be disbursed in the fall semester, assumed to start

August 1st. The student will start their career in June following graduation and

begin repayment July 1st.

With this information, a simple model can now be built in Excel to show how much

the student will be paying in total for their education, as well as the percentage per

month of their disposable income will be spent on repayment the 10 years following

graduation.

In table 2, the total loan amount to be repaid as the student starts their

career is found by determining the sum of all the future value of cash flows using

FV=PV*(1+i)N, where PV is present value, i is the interest rate, and N is years (i.e.

annual cost * (1+3.86%) + annual cost * (1+3.86%)2 + annual cost * (1+3.86%)3 +

annual cost * (1+3.86%)3.917). In the last cash flow, N=3.917 because the loan was

disbursed in August of the previous year and the first payment will be made in July,

therefore 11 months is equal to 0.917 years.

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Table 2: Total Note Payable and Interest Accrued During College
Total
Average Total Note
Interest
Annual Total Payable
University Accrued
Cost of Degree Cost Upon
During
Attendance Repayment
College
Princeton
University $57,628.00 $230,512 $253,421.29 $22,909.29
Harvard
University $60,240.00 $240,960 $264,907.65 $23,947.65
Dartmouth
College $64,034.00 $256,136 $281,591.91 $25,455.91
Columbia
University $64,949.00 $259,796 $285,615.66 $25,819.66
Yale
University $61,333.00 $245,332 $269,714.16 $24,382.16
University of
California-
Berkeley $32,479.00 $129,916 $142,827.62 $12,911.62
Pennsylvania
State
University $31,517.00 $126,068 $138,597.19 $12,529.19
New York
University $65,303.00 $261,212.00 $287,172.39 $25,960.39
University of
Texas -
Austin $25,587.00 $102,348.00 $112,519.79 $10,171.79
Rutgers
University of
New Jersey $29,512.00 $118,048.00 $129,780.12 $11,732.12

From this it can be seen that the average interest accrued while attending a

private school is $24,745.84, and for the public universities it is $11,836.18. Now

the monthly payment requirement can be calculated in excel by using the payment

function and inputting the annual interest rate (divided by 12 for monthly interest),

the number of payment periods (10 years = 120 months) and the present value of

the loan which is equal to the total amount of loans and interest accrued up to July

1st. As shown in Table 3, this gives you your monthly payment, and by multiplying

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the monthly payment by 120 months, the final actual cost of attending each

university is found.

Table 3: Cost Breakdown


Monthly Loan Total Amount Paid After Total Interest
University Payment 10 Years Paid
Princeton University $2,548.94 $305,872.73 $75,360.73
Harvard University $2,664.47 $319,736.47 $78,776.47
Dartmouth College $2,832.28 $339,873.92 $83,737.92
Columbia University $2,872.75 $344,730.47 $84,934.47
Yale University $2,712.81 $325,537.79 $80,205.79
University of California-
Berkeley $1,436.58 $172,389.12 $42,473.12
Pennsylvania State
University $1,394.03 $167,283.10 $41,215.10
New York University $2,888.41 $346,609.40 $85,397.40
University of Texas -
Austin $1,131.74 $135,808.38 $33,460.38
Rutgers University of
New Jersey $1,305.34 $156,641.15 $38,593.15

Comparing Table 3 with the Table 2, the total interest paid is found by

subtracting the total amount upon full repayment from the actual degree cost. In

every instance the interest paid is greater than if the student had attended one extra

year of college. This can be broken down further by finding the student’s

prospective monthly salary derived from the average starting salary and comparing

it to their average monthly loan payment. This model is now complete and if the

student would like to attend any other university currently not in the model all the

input they would need is the annual cost of attendance and average starting salary

from the university to fully break down their total degree cost, loan payments, and

disposable salary.

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Table 4: Effect on Salary
Net
Average Monthly % Monthly Disposable
Monthly Loan Salary To Income
University Salary Payment Loan Month Per Year
Princeton
University $4,858.33 $2,548.94 52.47% $2,309.39 $27,712.73
Harvard
University $4,225.00 $2,664.47 63.06% $1,560.53 $18,726.35
Dartmouth
College $4,508.33 $2,832.28 62.82% $1,676.05 $20,112.61
Columbia
University $4,558.33 $2,872.75 63.02% $1,685.58 $20,226.95
Yale University $4,075.00 $2,712.81 66.57% $1,362.19 $16,346.22
University of
California-
Berkeley $4,341.67 $1,436.58 33.09% $2,905.09 $34,861.09
Pennsylvania
State University $4,050.00 $1,394.03 34.42% $2,655.97 $31,871.69
New York
University $4,058.33 $2,888.41 71.17% $1,169.92 $14,039.06
University of
Texas - Austin $4,066.67 $1,131.74 27.83% $2,934.93 $35,219.16
Rutgers
University of
New Jersey $4,041.67 $1,305.34 32.30% $2,736.32 $32,835.89

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Analysis and Limitations of Model 1

For the private colleges, over half to nearly three-quarters of the student’s

monthly salary will go to repaying their debt for the next 10 years, while for the

public schools over a quarter to slightly over a third of monthly salary is spent on

repayment. According to our data, NYU has the highest cost of attendance but one of

the lowest average starting salaries, yielding 71.17% of monthly salary spent on

repayment. That is nearly three-quarters of the graduate’s monthly salary going to

their debt, giving them a yearly disposable income of $14,039.06 until they are

approximately 32 years old. According to the U.S. Department of Health & Human

Services (2014), that is only 20.3% above the 2014 poverty threshold of $11,670 for

a single person household. Clearly, the results from the forecasting model show a

depressing outlook on the feasibility of attending most of the universities in

question, and show a significant skew between the average starting salary and

actual disposable salary the graduate would be making whilst in repayment of their

debt.

However, it must be seen that there are so many assumptions made for this

model that it is overly simplistic and thus not very accurate. For example, taking the

average starting salary from universities with over a hundred different majors will

substantially distort the results. The average starting salary between a business

major and a drama major, for instance, would in all likeliness be vastly different.

Another noteworthy mistake is the assumption of ceteris paribus, or that all the

variables remain constant. It is fundamentally wrong in creating a predictive model

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to assume one time-stamped variable to remain perpetual in the future. Indeed, for

any analyst the only constant they may truly depend on is that of change.

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Building Model 2

Therefore, to improve the model more data is required. Taking historical

data over a period of time and conducting a time trend analysis will yield the data

set’s best fit forecasting equation (linear, logarithmic, exponential, polynomial, etc.),

or if the data does not fit a time trend, matching it to its best fit distribution (i.e.

gamma, triangular, linear, exponential, etc.) is a suitable way to yield an accurate

mean and standard deviation for future forecasts. It will no longer be assumed that

the cost of attendance will remain constant, but by seeing the historical change in

tuition cost over time it can be taken into account for the student’s four years spent

at college. In addition, the historical federal interest rate on student loans and

percentage change in starting salary based on the student’s major will be analyzed

to improve the forecast. In this particular instance, we will assume the prospective

student will be attaining a bachelors of science in Engineering. Also, it will not be

assumed that the student will bear the full financial burden of college, but that the

student is responsible for tuition only, whilst the expected family contribution (EFC)

will cover the expenses of room and board, meal plans, books, and miscellaneous

fees. Once this data has been analyzed, fit to a distribution or time-trend, the model

may then yield a more accurate cost breakdown and disposable income-until-

repayment.

In our new model, we will look at cost of attendance not as the actual full

cost, but as the historical tuition cost from the years 2002-2010 per school for a

student. Taking the historical data over a number of years will then allow us to see

if there is a time-trend relationship or, if not, to fit it to its best fit distribution for

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predicting the expected change in tuition cost over the course of the following four

years the student is expected to attend a university.

The interest rates on the student loans will be broken up into percentages

between subsidized and unsubsidized loans based on The U.S. Department of

Education. The first year of college aid (assuming the student is in the majority and

dependent), the student may not exceed 63.64% of cost of attendance in subsidized

loans with the remaining in unsubsidized loans. For the second year the student

may not exceed 69.23% in subsidized loans, and for the third and fourth year the

student may not exceed 73.33% in subsidized loans.

By taking the historical federal subsidized and unsubsidized loan rates over

the past 8 years (U.S. Department of Education, n.d.) a table can be put together and

analyzed as such:

Table 5: Federal Unsubsidized and Subsidized Loan Rates


Federal Unsubsidized Interest Rates
Year 2006 2007 2008 2009 2010 2011 2012 2013
Rate 6.80% 6.80% 6.80% 6.80% 6.80% 6.80% 6.80% 3.86%

Federal Subsidized Interest Rates


Year 2006 2007 2008 2009 2010 2011 2012 2013
Rate 6.80% 6.80% 6.00% 5.60% 4.50% 3.40% 3.40% 3.86%

The unsubsidized interest rates remain the same for 7 years before dropping nearly

in half in 2013. This can be taken into account in two ways, the 8th year can be

assumed to be an outlier and 6.80% interest can be used in the model, as it is the

mode. However, it can also be interpreted that the unsubsidized rate compared to

the subsidized rate is quite stable, and that if there is such a drastic change in the

last year we must assume it is for a significant reason and will continue to be stable

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at 3.86% for years to come. In this instance, the second reason seems the more

likely when taking into account the steady decline in the subsidized loan rates.

When analyzing the federal subsidized loan rates there is a clear indication of a

time-trend relationship. By graphing the interest rates to a chart we can then

extrapolate a predictive equation based on the best fit to the original data.

Figure 1: Federal Unsubsidized Loan Rates and Time-trend Analysis

Federal Subsidized Interest Rates from


2006-2013
8.00%
y = 0.0004x2 - 1.4699x + 1,482.1864
7.00% R² = 0.90265
6.00%
Interest Rate

5.00% Original Data


4.00%
2 per. Mov. Avg. (Original
3.00%
Data)
2.00%
Poly. (Original Data)
1.00%
0.00%
2005 2010 2015 2020
Year

The original data is shown on the above time-trend analysis graph. The best-fit

trend is the two-period moving average, however we cannot get an equation for

future predictions with this method, we look at other trendline graphing options

and search for the highest possible R2, or coefficient of determination. The

coefficient of determination (R2) is an indicator of how well the regression line

estimates the real data points, or the “best fit” of the trendline. A coefficient of

determination of 0 represents absolutely no fit between the trendline and data

points, while a coefficient of determination of 1 signifies that the predictive

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trendline perfectly fits the real, observed data. The highest possible R2 value that is

achievable with this data set is that of 0.90265 with a polynomial trendline.

Therefore, in predicting the change in interest rates for the next four years we are

given the equation y = 0.0004x2 - 1.4696x + 1,482.1864 with X being equal to the

year and Y being the expected interest rate for that year. It is important to note that

this equation has been rounded off to 4 decimal places, and should be expanded out

in Excel to 30 decimal places to achieve the most accurate result. Thus, our

predicted unsubsidized interest rates for the next four years when the formula is

input into Excel comes to be:

Table 6: Predicted Subsidized Rates


Predicted Subsidized Interest Rates
2014 2015 2016 2017
3.10% 2.91% 2.80% 2.75%

Based on the above predictions, the percentage of the tuition year loan that

will be paid for by subsidized loans will be fixed at the predicted rates on the date of

disbursement, but will not accrue interest until after the student graduates. The

unsubsidized rates are assumed to be static at 3.86% for the next four years.

Table 7 shows historical change in tuition prices for the universities in our

model (Cost of Tuition for American Colleges and Universities, n.d.) from the years

2002-2010.

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Table 7: University Tuition From 2002-2010
Tuition
University 2002 2003 2004 2005 2006 2007 2008 2009 2010
Princeton
University $26,160 $27,230 $28,540 $29,910 $31,450 $33,000 $33,000 $34,290 $35,340
Harvard
University $26,019 $27,448 $29,060 $30,620 $32,097 $33,709 $34,998 $36,173 $37,012
Dartmouth
College $26,562 $27,771 $29,145 $30,465 $31,965 $33,501 $35,178 $36,915 $38,679
Columbia
University $26,891 $28,385 $29,788 $31,472 $33,246 $35,166 $37,223 $39,326 $41,316
Yale University $26,100 $27,130 $28,400 $29,820 $31,460 $33,030 $34,530 $35,300 $36,500
University of
California-
Berkeley $15,197 $16,580 $20,068 $23,686 $23,961 $25,338 $26,785 $28,264 $31,022
Pennsylvania
State
University $15,522 $17,610 $18,828 $20,784 $21,744 $22,712 $23,712 $24,940 $25,946
New York
University $25,380 $26,646 $28,496 $30,094 $31,690 $33,420 $35,290 $37,372 $38,765
University of
Texas - Austin $10,096 $10,490 $11,268 $14,435 $16,310 $20,364 $24,544 $27,760 $30,006
Rutgers
University of
New Jersey $15,829 $16,866 $17,715 $18,248 $19,753 $20,356 $22,059 $22,518 $24,044

From that, we can calculate the growth rate via ((new tuition price – old tuition)

price / old tuition price), shown below in figure 2.

Figure 2: University Tuition Growth Rate From 2003-2010

Since it is clear that there is positive correlation between time and tuition price, the

best approach is graphing a time trend analysis rather than fitting the data to its

best-fit distribution. Inserting sparklines at the end of each row helps to show at a

glance the stability or instability of the growth rate over the period and better give

us an idea of what to expect when graphing the university tuitions (i.e. is the growth

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rate steadily increasing, decreasing, or irregular?). To proceed with the graph,

tuition prices will be the Y-axis and the year will be the X-axis. Once all the data has

been graphed, each data series can be selected and the trendline that yields the

highest coefficient of determination is selected and projected at least 2 periods

forward (to ensure that the projected data seems to fall in line with the original

data). For each data set, or university, the trendline type, equation (rounded), and

R2 is shown on the graph (Figure 3). As mentioned before, the coefficients need to

be expanded to 30 decimal places to ensure an accurate equation and forecast. On

the graph, the straight-marked scatter plots shows our actual university prices over

8 years with each university identifiable in the legend, below which shows the

specific trendline best suited for each data series. There were two trendlines that

had the highest coefficient of determination, yet when taking a look at their future

forecast clearly showed improbable outcomes. For the University of California at

Berkeley and for the University of Texas at Austin, both had a best fit of a third

degree polynomial function. However, the two-period forecast on the graph showed

U.C. Berkeley to quickly overtake the Ivy-League schools in terms of tuition price,

while U.T. Austin’s future tuition prices began to trend down significantly. Since

both of these seemed questionable, the next best fit of a logarithmic trendline was

chosen. Finally, the top right corner of the graph shows the prediction equations in

terms of f(university) with the corresponding coefficient of determination for each,

all of which are 0.96 or higher.

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Figure 3: Tuition and Time-Trend Analysis

Because we’ve graphed 8 years of data for 10 different universities, as well as all the

trendlines and corresponding equations, the chart can seem overwhelming. It’s

easier to see the equations and their fit are shown in Table 8.

Table 8: Trendline Equation, Type, and R2


Coefficient of
University Formula Type Determination
y = -41.2879x2 +
166,812.1364x -
Princeton University 168,449,968.5758 Polynomial 0.99084
y = -40.8896x2 +
165,467.6502x -
Harvard University 167,354,665.5030 Polynomial 0.99867
y = 1,516.7x -
Dartmouth College 3,010,257.8667 Linear 0.99616
Columbia University y = 2*10-43e0.0542x Exponential 0.99968
y = 1,359.6667x -
Yale University 2,696,128 Linear 0.99495

University of y = 3,792,826.2785ln(x) -
California-Berkeley 28,816,827.4477 Logarithmic 0.96507

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Coefficient of
University Formula Type Determination
y = -60.2576x2 +
Pennsylvania State 243,009.7606x -
University 244,977,213.0485 Polynomial 0.99589
y = 3,431,268.8565ln(x) -
New York University 26,059,109.5563 Logarithmic 0.99811

University of Texas - y= 5,480,234.8819ln(x) -


Austin 41,652,778.6793 Logarithmic 0.96017
Rutgers University of
New Jersey y = 3E-41e0.0515x Exponential 0.99306

Now, we can copy the formulas into the cells at the end our observed tuition

prices where X will be the year for the predicted tuition price and Y will be said

tuition. We have data up to 2013 for our federal subsidized and unsubsidized loan

rates and predicted the future loan rates out to 2017, but only have data up to 2010

for the tuition prices. This was the only 8-year period where all universities tuition

prices were given without some data missing for certain years. Ideally, the longer

the historical data the more accurate we can assume our prediction equation to be.

The tuition prices must be predicted out to year 2017 to fall in line with our

predicted interest rates, so our predicted values are nearly as many as our observed

values. It should be noted that the longer the prediction values compared to the

observed values, the higher the probability of marginal error A. The magnitude of

error can be measured by the mean absolute percentage error (MAPE), by using the

equations to predict back through the years that we have actual tuition prices and

then comparing the two. MAPE is the sum of the absolute value of the forecasted

data subtracted from the actual data over N, or the number of data used, multiplied

by 100 will yield the average percent our predictions are off. The equation is:

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𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑒𝑑 𝐷𝑎𝑡𝑎 − 𝐴𝑐𝑡𝑢𝑎𝑙 𝐷𝑎𝑡𝑎
∑| |
𝐴= 𝐴𝑐𝑡𝑢𝑎𝑙 𝐷𝑎𝑡𝑎 × 100
𝑛
Table 9 shows the predicted values and can be compared to table 7 shown

previously with the actual tuition prices.

Table 9: Back-Testing Tuition Trendlines


Predicted Tuition

University
2002 2003 2004 2005 2006 2007 2008 2009 2010
Princeton
University $25,945.09 $27,399.27 $28,770.88 $30,059.91 $31,266.36 $32,390.24 $33,431.55 $34,390.27 $35,266.42
Harvard
University $25,848.23 $27,552.99 $29,175.97 $30,717.17 $32,176.60 $33,554.24 $34,850.11 $36,064.19 $37,196.50
Dartmouth
College $26,175.53 $27,692.23 $29,208.93 $30,725.63 $32,242.33 $33,759.03 $35,275.73 $36,792.43 $38,309.13
Columbia
University $26,645.84 $28,129.90 $29,696.61 $31,350.58 $33,096.68 $34,940.02 $36,886.03 $38,940.42 $41,109.24
Yale
University $25,924.67 $27,284.34 $28,644.01 $30,003.67 $31,363.34 $32,723.01 $34,082.67 $35,442.34 $36,802.01
University
of
California-
Berkeley $15,866.07 $17,760.12 $19,653.22 $21,545.37 $23,436.59 $25,326.86 $27,216.18 $29,104.57 $30,992.02
Pennsylvan
ia State
University $15,723.02 $17,401.19 $18,958.84 $20,395.98 $21,712.61 $22,908.72 $23,984.31 $24,939.39 $25,773.95
New York
University $25,059.89 $26,773.38 $28,486.02 $30,197.80 $31,908.73 $33,618.81 $35,328.03 $37,036.41 $38,743.93
University
of Texas -
Austin $7,429.61 $10,166.31 $12,901.64 $15,635.60 $18,368.21 $21,099.45 $23,829.33 $26,557.85 $29,285.01
Rutgers
University
of New
Jersey $17,954.99 $18,903.90 $19,902.95 $20,954.81 $22,062.25 $23,228.23 $24,455.82 $25,748.29 $27,109.07

Now, when executing the formula mentioned previously, a value of 2.95 is yielded.

This tells us that our prediction equations compared to our actual observed data is

on average only 2.95% inaccurate. Using the tuition growth rates from Figure 2, the

mean average growth rate/year is 6.49%. Comparing this to our first model

wherein the tuition is assumed to be static for student’s 4 years attending

university, it can be seen that by the fourth year the tuition is on average 25.96% off.

Therefore, the accuracy of the second model is greater than that of the first.

23
After we have plugged in the trendline equations, the following predicted

tuition prices are computed, of which we’ll be using 2014-2017 in calculating total

cost of attendance and salary until full loan repayment.

Table 10: Predicted Tuition


Tuition
University 2011 2012 2013 2014 2015 2016 2017
Princeton University $36,060.00 $36,771.00 $37,399.42 $37,945.27 $38,408.55 $38,789.24 $39,087.36
Harvard University $38,247.02 $39,215.77 $40,102.74 $40,907.93 $41,631.34 $42,272.97 $42,832.82
Dartmouth College $39,825.83 $41,342.53 $42,859.23 $44,375.93 $45,892.63 $47,409.33 $48,926.03
Columbia University $43,398.85 $45,815.98 $48,367.73 $51,061.61 $53,905.52 $56,907.83 $60,077.35
Yale University $38,161.67 $39,521.34 $40,881.01 $42,240.67 $43,600.34 $44,960.01 $46,319.67
University of California-Berkeley $32,878.53 $34,764.10 $36,648.73 $38,532.43 $40,415.20 $42,297.02 $44,177.92
Pennsylvania State University $26,488.00 $27,081.53 $27,554.55 $27,907.05 $28,139.04 $28,250.52 $28,241.47
New York University $40,450.61 $42,156.43 $43,861.41 $45,565.54 $47,268.83 $48,971.27 $50,672.86
University of Texas - Austin $32,010.82 $34,735.27 $37,458.37 $40,180.12 $42,900.51 $45,619.55 $48,337.25
Rutgers University of New Jersey $28,541.76 $30,050.17 $31,638.29 $33,310.35 $35,070.78 $36,924.24 $38,875.65

In moving along with the model, now that we have our predicted tuition

prices as well as predicted interest rate values, we can begin to calculate the total

costs as before in the first model. The total degree cost is calculated by summing the

predicted tuition prices from 2014-2017 for each university. The total loan amount

is slightly trickier to calculate. Since the subsidized loans do not accrue interest

while in school, you simply add up the percentage of the tuition allowed to be taken

out in subsidized loans for all four years attending college. As previously stated,

subsidized loans are not to exceed 63.64% of the tuition for the first year (2014),

69.23% for the second (2015), and 73.33% for the third and fourth year (2016 and

2017) of attendance. The remaining tuition (36.36% for 2014, 30.77% for 2015,

and 26.67% for 2016 and 2017) must be taken out in unsubsidized loans, which do

accrue interest while in school. To compute the interest, the forecasted

24
unsubsidized federal interest rates are used to find the future value of each loan.

The 2014 loan will be gathering interest for all for years of college attendance so the

calculation will be [(2014 Tuition * .3636)*(1.031^3.917)]. The 2015 loan will only

be gathering interest from the second year (date of disbursement) through 2017 so

its future value is calculated as [(2015 Tuition * .3077)*(1.0291^2.917)], and the

same principle is applied to the last two loans with the calculations being [(2016

Tuition * .2667)*(1.028^1.917)] and [(2017 Tuition * .2667)*(1.0275^0.917)]. The

total loan amount, then, is figured by adding the future value of all unsubsidized

loans and the subsidized loans. Then, the total interest accrued during attendance is

simply computed by subtracting the degree cost from the total loan amount. Table

11 shows the breakdown for each university.

Table 11: Cost, Note Payable, and Interest Accrued During College
Total Interest
Total Degree Cost Total Note Payable Accrued During
University Upon Repayment College
Princeton University $154,230.42 $157,839.41 $3,608.99
Harvard University $167,645.06 $171,553.10 $3,908.04
Dartmouth College $186,603.93 $190,901.99 $4,298.06
Columbia University $221,952.31 $226,986.97 $5,034.66
Yale University $177,120.69 $181,205.55 $4,084.86
University of
California-Berkeley $165,422.57 $169,197.63 $3,775.05
Pennsylvania State
University $112,538.08 $115,182.00 $2,643.92
New York University $192,478.50 $196,902.84 $4,424.34
University of Texas -
Austin $177,037.43 $181,031.44 $3,994.01
Rutgers University of
New Jersey $144,181.02 $147,457.84 $3,276.82

25
Instead of using the average starting salary of each university, we’ll use the

average starting salary of the prospective student’s intended degree (Bachelors of

Science in Engineering) for each university given on PayScale (n.d.).

Table 12: Change in Average Salary and BS/BA Salary


Overall Average
Average Starting
University
Starting Salary with Percent
Salary BS/BA Increase/Decrease
Princeton University $58,300 $67,138 15.16%
Harvard University $50,700 $88,437 74.43%
Dartmouth College $54,100 $73,698 36.23%
Columbia University $54,700 $56,595 3.46%
Yale University $48,900 $68,747 40.59%
University of California-Berkeley $52,100 $57,109 9.61%
Pennsylvania State University $48,600 $52,236 7.48%
New York University $48,700 $50,111 2.90%
University of Texas - Austin $48,800 $60,429 23.83%
Rutgers University of New Jersey $48,500 $46,333 -4.47%

In comparing the overall average salary per university with that of the student’s

intended degree salary, we can calculate the percentage change via ((Starting Salary

with BS or BA – Average Starting Salary) / Average Starting Salary). As mentioned

earlier, it was thought that there would most likely be a difference in a graduate’s

salary based upon their major. The salaries of lower paying majors taken into

account for each university’s overall average starting salary was assumed to likely

have “dragged down” the average salary when compared to a degree requiring more

technical skills. As can be seen from above, this is the case in all but one university.

Now, with all of the information thus far, we can complete the model and

calculate the monthly loan payment for the graduate (still assumed to be the

standard 10 year repayment plan), the total amount paid upon completion of

repayment, the total interest paid, the percent of the graduate’s monthly salary

26
spend on repayment, and their net disposable income per month as well as per

annum.

In calculating the monthly payment, the formula

M = P * ( (J/12) / (1 - (1 + (J/12))^ -N)) is used, where P is principal amount, J is

annual interest, and N is number of months of amortization. Calculating the loan

payment in this model is slightly problematic. This is because unsubsidized loans

use variable rates, meaning the interest is subject to change every year. In order to

calculate the payments for the unsubsidized loans using a variable rate strategy, we

would have to use our trendline equation to predict the unsubsidized interest rates

10 years further into the future, which is nearly double the actual observed data and

therefore subject to much more error. From there we would then need to calculate

the payment for each year the interest rate changes and add them up (along with

the fixed interest subsidized loans) for the graduate’s expected monthly loan

payment. Since this would highly decrease the accuracy of the model, we will

assume the four predicted unsubsidized interest rates to be fixed from the date of

disbursement, much like the subsidized loans. Thus, to calculate the monthly loan

payment in Excel we use the payment function, which requires the interest rate,

number of payment periods, and the present value of the loan. The interest rate will

be the annual rate divided by 12 for the monthly interest. The number of payment

periods is the same as in the first model (120 months, or 10 years) and the present

value (which must be input as a negative) is the amount of the loan at each interest

rate upon graduation. So, we must sum the payment calculations of each loan that

has a different interest rate in order to get the final monthly loan payment the

27
student will incur for the 10 years following graduation (or until full loan

repayment). The calculation is: PMT((3.86%/12),120,-

(2014Tuition*63.64%+2015Tuition*69.23%+2016Tuition*73.33%+2017Tuition*7

3.33%) for all of the subsidized loans taken out during the four year period at the

static interest rate of 3.86%. To this must be added the payments for each

unsubsidized loan at each different interest rate, which is PMT((3.10%/12),120,-

(2014Tuition*36.36%)*(1.031^3.917)) + PMT((2.91%/12),120,-

(2015Tuition*30.77%)*(1.0291^2.917)+ PMT((2.80%/12),120,-

(2016Tuition*26.67%)*(1.028^1.917)+ PMT((2.75%/12),120,-

(2017Tuition*26.67%)*(1.0275^0.917). This will generate the graduate’s monthly

loan payment. From there, to find the total amount paid after 10 years, you simply

multiply the monthly loan payment by 120 months. To find the total interest paid,

you subtract the total amount paid after 10 years from the total degree cost.

After this, the graduate’s starting salary can now be taken into account to see

the feasibility of loan repayment. To calculate the percent of monthly salary spent

on loans, first divide the average annual starting salary by 12 to find the monthly

salary, then divide the monthly loan payment by the monthly salary and multiply by

100 to get a percentage. For the net disposable income the graduate can expect per

month during repayment, simply subtract the monthly loan payment from the

monthly salary, and for per annum disposable income merely multiply the latter by

12. After completing all of the above calculations, we will have generated a

comprehensive breakdown of the cost of the graduate’s degree as well as a

28
reasonable overview for expected expenses and disposable salary until full loan

repayment.

Table 13: Total Cost and Salary Breakdown


% of
Average Monthly
Starting Total Salary
University
Salary Monthly Amount Total Spent on
with Loan Paid After Interest Loan Net Disposable
BS/BA Payment 10 Years Paid Repayment Income/Month Per Year
Princeton
University $67,138 $1,565.44 $187,852.71 $33,622.29 27.98% $4,029.39 $48,352.73
Harvard
University $88,437 $1,701.45 $204,174.12 $36,529.06 23.09% $5,668.30 $68,019.59
Dartmouth
College $73,698 $1,893.35 $227,202.42 $40,598.49 30.83% $4,248.15 $50,977.76
Columbia
University $56,595 $2,251.24 $270,149.34 $48,197.03 47.73% $2,465.01 $29,580.07
Yale
University $68,747 $1,797.18 $215,662.17 $38,541.47 31.37% $3,931.73 $47,180.78
University of
California-
Berkeley $57,109 $1,678.09 $201,371.05 $35,948.48 35.26% $3,080.99 $36,971.89
Pennsylvania
State
University $52,236 $1,142.37 $137,083.91 $24,545.82 26.24% $3,210.63 $38,527.61
New York
University $50,111 $1,952.87 $234,344.38 $41,865.88 46.77% $2,223.05 $26,676.56
University of
Texas -
Austin $60,429 $1,795.46 $215,455.26 $38,417.83 35.65% $3,240.29 $38,883.47
Rutgers
University of
New Jersey $46,333 $1,462.48 $175,497.45 $31,316.43 37.88% $2,398.60 $28,783.26

29
Analysis and Limitations of Model 2

As the table above shows, this model shows a more favorable outlook on the

cost of college compared to salary after graduation. Whereas the first model had

anywhere from a third to nearly three-quarters of the graduate’s monthly salary

going towards their loan repayment, this model shows that a engineering graduate

from any of the above colleges can expect to pay anywhere from about a quarter to

less than half of their salary on their student loans. Should the prospective student

wish to consider a different university from the ones listed above, it is a simple

matter of finding the historical tuition rate for any 8 year period (preferably nearer

to their expected year of entry to the college), as well as the starting salary for their

intended major from that university. After inputting the historical tuition, the graph

of tuition prices will automatically update, however the trendline will not. The user

must manually pick the trendline with the highest coefficient of determination and

then copy the formula given on the graph into the cells they wish to predict future

tuition rates. Another alternative is to simply enter directly into the forecasting

cells reasonable forecasted tuition. From there, all the information will update and

give them the financial breakdown for their university of choice.

There are some limitations to this model, as was the case in the first. As

mentioned earlier, the relatively small amount of historical data used for the time-

trend analysis, both for tuition prices and interest rates, can pose a problem the

further ahead the user attempts to forecast. A trendline could be more heavily

relied upon when there is a larger quantity of historical data to fit it to. The interest

rates, since there was again too little historical data on the government website,

30
yielded a trendline with the lowest coefficient of determination of all the trendlines

used in the model. Because of this, it was safer to forecast only 4 years in advance

and treat the unsubsidized federal interest rates as fixed-rate loans in calculating

the monthly loan payments for the 10 years following graduation, rather than

forecasting the unsubsidized interest rates for 14 years in advance in order to

compute the monthly loan payments for the unsubsidized loans as a variable-rate

loan (which they are).

31
Conclusions

In conclusion, we’ve improved this model from the first by increasing the

complexity of it. The second model is more realistic than the first for a few reasons.

Firstly, by not assuming static variables, but by taking historical data to forecast a

likely future rate in interest and in tuition price. In addition, instead of taking the

university’s overall average starting salary, we chose to use the starting salary for

the fictitious student’s planned major (engineering). Also, instead of assuming the

student will be responsible for the full financial burden of college, the assumption

was changed to a more likely scenario in which the student’s family contributes

somewhat to the student’s education. In this instance the expected family

contribution (EFC) was paying for room and board, books, meal plans, and other

miscellaneous fees, while the student was responsible for tuition payment. We also

split the loan amounts based on real percentages given by FinAid between Federal

Subsidized and Federal Unsubsidized, instead of assuming as in the first model that

the student would only have Federal unsubsidized loans, drastically reducing the

amount of interest accrued during college attendance. From all this, we were able

to forecast a financial breakdown for the student that was much less overwhelming

than in the first model as well as much more realistic. This model is by no means

perfect, and there is plenty of room for further improvement. For instance, taking

into consideration the economy could prove to be a very useful factor that could be

included in this model with regards to inflation rates in predicting more accurate

interest rates as well as future expected salaries. Including income tax rates would

help by generating a net income versus a gross income for the user. Additionally,

32
perhaps the prospective student has a small sum of money and would like to see

whether they should simply take out less loans, or if investing in the stock market

may yield them a higher return rate over their loan rates, thereby enabling them to

pay off more of their loans by investing rather than simply putting their sum

towards tuition to begin with. Merely choosing a couple of stocks and their

historical annual returns over a period would allow you to calculate the mean

annual return and standard deviation for each. Then, by calculating the return and

standard deviation of investing 0% in the first stock and 100% in the second, all the

way through to 100% in the first and 0% in the second, a graph of a parabola can be

produced of which the minimum point represents the highest possible return with

the lowest possible risk (standard deviation) that corresponds to the weight

invested in each stock (i.e. 36% Stock 1, 64% Stock 2) as seen in Figure 4.

Figure 4: 2-Stock Optimization

Return and Risk


0.2
0.18
0.16
0.14 0.114564392,
0.15
Return

0.12
0.1
0.08
return
0.06
0.04
0.02
0
0 0.05 0.1 0.15 0.2 0.25 0.3
Risk (Standard Deviation)

There are many more ways in which to improve upon the model, but the

common theme is they all require more data and fewer assumptions. Therefore, it

33
can be concluded that increasing model complexity by taking into account more

variables, and therefore a larger quantity of data, will yield a more accurate result in

future prognostications.

34
References

"2014 Poverty Guidelines." U.S. Department of Health & Human Services. ASPE, 22

Jan 2014. Web. 19 Mar 2014. <http://aspe.hhs.gov/poverty/14poverty.cfm>.

"CNN Money." How Much Will That College Really Cost? N.d.. Web. 19 Mar 2014.

<http://cgi.money.cnn.com/tools/collegecost/collegecost.html>.

"Cost of Tuition for American Colleges and Universities." CollegeCalc. N.d.. Web. 19

Mar 2014. <http://www.collegecalc.org/colleges/>.

Gage, Caroline, and Janet Lorin. "Student Loans, the Next Big Threat to the U.S.

Economy?." Bloomberg Business Week. Bloomberg, 16 Jan. 2014. Web. 1 May

2014. <http://www.businessweek.com/articles/2014-01-16/student-loans-

the-next-big-threat-to-the-u-dot-s-dot-economy>.

Jay, John. "The World According to Quants: Enter Alpha Generation Platforms." Wall

Street and Technology. Wall Street & Technology, 14 July 2008. Web. 19

March 2014. <http://www.wallstreetandtech.com/the-world-according-to-

quants-enter-alph/209000157>.

Pay Scale, . "2012-2013 PayScale College Salary Report." N.d.. Web. 19 Mar 2014.

<http://www.payscale.com/college-salary-report-2013/full-list-of-schools>.

"Repayment Plans." FinAid. N.d.. Web. 19 Mar 2014.

<http://www.finaid.org/loans/repayment.phtml>.

U.S. Department of Education. Federal Student Aid. Understand how interest is

calculated and what fees are associated with your federal student loan. N.d.

Web. 19 Mar 2014. <http://studentaid.ed.gov/types/loans/interest-rates>.

35
Yates, Tristian. "Quants: The Rocket Scientists Of Wall Street,” 10 May 2013. Web. 18

Mar 2014.

<http://www.investopedia.com/articles/financialcareers/08/quants-

quantitative-analyst.asp>.

36
Appendix

Table 1: Starting Salary, Cost of Attendance, and Loan Rate by University


Average Average Annual Cost of Fixed Federal
Starting Salary Attendance Loan Interest
Princeton University $58,300 $57,628.00 3.86%
Harvard University $50,700 $60,240.00 3.86%
Dartmouth College $54,100 $64,034.00 3.86%
Columbia University $54,700 $64,949.00 3.86%
Yale University $48,900 $61,333.00 3.86%
University of
California-Berkeley $52,100 $32,479.00 3.86%
Pennsylvania State
University $48,600 $31,517.00 3.86%
New York University $48,700 $65,303.00 3.86%
University of Texas -
Austin $48,800 $25,587.00 3.86%
Rutgers University of
New Jersey $48,500 $29,512.00 3.86%

Table 2: Total Note Payable and Interest Accrued During College


Total
Average Total Note
Interest
Annual Total Payable
University Accrued
Cost of Degree Cost Upon
During
Attendance Repayment
College
Princeton
University $57,628.00 $230,512 $253,421.29 $22,909.29
Harvard
University $60,240.00 $240,960 $264,907.65 $23,947.65
Dartmouth
College $64,034.00 $256,136 $281,591.91 $25,455.91
Columbia
University $64,949.00 $259,796 $285,615.66 $25,819.66
Yale
University $61,333.00 $245,332 $269,714.16 $24,382.16
University of
California-
Berkeley $32,479.00 $129,916 $142,827.62 $12,911.62
Pennsylvania
State
University $31,517.00 $126,068 $138,597.19 $12,529.19
New York
University $65,303.00 $261,212.00 $287,172.39 $25,960.39

37
Total
Average Total Note
Interest
Annual Total Payable
University Accrued
Cost of Degree Cost Upon
During
Attendance Repayment
College
University of
Texas -
Austin $25,587.00 $102,348.00 $112,519.79 $10,171.79
Rutgers
University of
New Jersey $29,512.00 $118,048.00 $129,780.12 $11,732.12

Table 3: Cost Breakdown


Monthly Loan Total Amount Paid After Total Interest
University Payment 10 Years Paid
Princeton University $2,548.94 $305,872.73 $75,360.73
Harvard University $2,664.47 $319,736.47 $78,776.47
Dartmouth College $2,832.28 $339,873.92 $83,737.92
Columbia University $2,872.75 $344,730.47 $84,934.47
Yale University $2,712.81 $325,537.79 $80,205.79
University of California-
Berkeley $1,436.58 $172,389.12 $42,473.12
Pennsylvania State
University $1,394.03 $167,283.10 $41,215.10
New York University $2,888.41 $346,609.40 $85,397.40
University of Texas -
Austin $1,131.74 $135,808.38 $33,460.38
Rutgers University of
New Jersey $1,305.34 $156,641.15 $38,593.15

38
Table 4: Effect on Salary
Net
Average Monthly % Monthly Disposable
Monthly Loan Salary To Income
University Salary Payment Loan Month Per Year
Princeton
University $4,858.33 $2,548.94 52.47% $2,309.39 $27,712.73
Harvard
University $4,225.00 $2,664.47 63.06% $1,560.53 $18,726.35
Dartmouth
College $4,508.33 $2,832.28 62.82% $1,676.05 $20,112.61
Columbia
University $4,558.33 $2,872.75 63.02% $1,685.58 $20,226.95
Yale University $4,075.00 $2,712.81 66.57% $1,362.19 $16,346.22
University of
California-
Berkeley $4,341.67 $1,436.58 33.09% $2,905.09 $34,861.09
Pennsylvania
State University $4,050.00 $1,394.03 34.42% $2,655.97 $31,871.69
New York
University $4,058.33 $2,888.41 71.17% $1,169.92 $14,039.06
University of
Texas - Austin $4,066.67 $1,131.74 27.83% $2,934.93 $35,219.16
Rutgers
University of
New Jersey $4,041.67 $1,305.34 32.30% $2,736.32 $32,835.89

Table 5: Federal Unsubsidized and Subsidized Loan Rates


Federal Unsubsidized Interest Rates
Year 2006 2007 2008 2009 2010 2011 2012 2013
Rate 6.80% 6.80% 6.80% 6.80% 6.80% 6.80% 6.80% 3.86%

Federal Subsidized Interest Rates


Year 2006 2007 2008 2009 2010 2011 2012 2013
Rate 6.80% 6.80% 6.00% 5.60% 4.50% 3.40% 3.40% 3.86%

39
Figure 1: Federal Unsubsidized Loan Rates and Time-trend Analysis

Federal Subsidized Interest Rates from


2006-2013
8.00% y = 0.000364285714285713x2 -
1.46959761904761x + 1,482.18636190476
7.00%
R² = 0.90264599913129
6.00%
Interest Rate

5.00% Original Data


4.00%
2 per. Mov. Avg. (Original
3.00%
Data)
2.00%
Poly. (Original Data)
1.00%
0.00%
2005 2010 2015 2020
Year

Table 6: Predicted Subsidized Rates


Predicted Subsidized Interest Rates
2014 2015 2016 2017
3.10% 2.91% 2.80% 2.75%

Table 7: University Tuition From 2002-2010


Tuition
University 2002 2003 2004 2005 2006 2007 2008 2009 2010
Princeton
University $26,160 $27,230 $28,540 $29,910 $31,450 $33,000 $33,000 $34,290 $35,340
Harvard
University $26,019 $27,448 $29,060 $30,620 $32,097 $33,709 $34,998 $36,173 $37,012
Dartmouth
College $26,562 $27,771 $29,145 $30,465 $31,965 $33,501 $35,178 $36,915 $38,679
Columbia
University $26,891 $28,385 $29,788 $31,472 $33,246 $35,166 $37,223 $39,326 $41,316
Yale University $26,100 $27,130 $28,400 $29,820 $31,460 $33,030 $34,530 $35,300 $36,500
University of
California-
Berkeley $15,197 $16,580 $20,068 $23,686 $23,961 $25,338 $26,785 $28,264 $31,022
Pennsylvania
State
University $15,522 $17,610 $18,828 $20,784 $21,744 $22,712 $23,712 $24,940 $25,946
New York
University $25,380 $26,646 $28,496 $30,094 $31,690 $33,420 $35,290 $37,372 $38,765
University of
Texas - Austin $10,096 $10,490 $11,268 $14,435 $16,310 $20,364 $24,544 $27,760 $30,006
Rutgers
University of
New Jersey $15,829 $16,866 $17,715 $18,248 $19,753 $20,356 $22,059 $22,518 $24,044

40
Figure 2: University Tuition Growth Rate From 2003-2010

Figure 3: Tuition and Time-Trend Analysis

41
Table 8: Trendline Equation, Type, and R2
Coefficient of
University Formula Type Determination
y = -41.2879x2 +
Princeton University 166,812.1364x -
168,449,968.5758 Polynomial 0.99084
y = -40.8896x2 +
Harvard University 165,467.6502x -
167,354,665.5030 Polynomial 0.99867
y = 1,516.7x -
Dartmouth College
3,010,257.8667 Linear 0.99616
Columbia University y = 2*10-43e0.0542x Exponential 0.99968
Yale University y = 1,359.6667x - 2,696,128 Linear 0.99495
University of y = 3,792,826.2785ln(x) -
California-Berkeley 28,816,827.4477 Logarithmic 0.96507
y = -60.2576x2 +
Pennsylvania State
243,009.7606x -
University
244,977,213.0485 Polynomial 0.99589

New York University y = 3,431,268.8565ln(x) -


26,059,109.5563 Logarithmic 0.99811
University of Texas - y= 5,480,234.8819ln(x) -
Austin 41,652,778.6793 Logarithmic 0.96017
Rutgers University of
New Jersey y = 3E-41e0.0515x Exponential 0.99306

Table 9: Back-Testing Tuition Trendlines


Predicted Tuition

University
2002 2003 2004 2005 2006 2007 2008 2009 2010
Princeton
University $25,945.09 $27,399.27 $28,770.88 $30,059.91 $31,266.36 $32,390.24 $33,431.55 $34,390.27 $35,266.42
Harvard
University $25,848.23 $27,552.99 $29,175.97 $30,717.17 $32,176.60 $33,554.24 $34,850.11 $36,064.19 $37,196.50
Dartmouth
College $26,175.53 $27,692.23 $29,208.93 $30,725.63 $32,242.33 $33,759.03 $35,275.73 $36,792.43 $38,309.13
Columbia
University $26,645.84 $28,129.90 $29,696.61 $31,350.58 $33,096.68 $34,940.02 $36,886.03 $38,940.42 $41,109.24
Yale
University $25,924.67 $27,284.34 $28,644.01 $30,003.67 $31,363.34 $32,723.01 $34,082.67 $35,442.34 $36,802.01
University
of
California-
Berkeley $15,866.07 $17,760.12 $19,653.22 $21,545.37 $23,436.59 $25,326.86 $27,216.18 $29,104.57 $30,992.02
Pennsylvan
ia State
University $15,723.02 $17,401.19 $18,958.84 $20,395.98 $21,712.61 $22,908.72 $23,984.31 $24,939.39 $25,773.95
New York
University $25,059.89 $26,773.38 $28,486.02 $30,197.80 $31,908.73 $33,618.81 $35,328.03 $37,036.41 $38,743.93
University
of Texas -
Austin $7,429.61 $10,166.31 $12,901.64 $15,635.60 $18,368.21 $21,099.45 $23,829.33 $26,557.85 $29,285.01
Rutgers
University
of New
Jersey $17,954.99 $18,903.90 $19,902.95 $20,954.81 $22,062.25 $23,228.23 $24,455.82 $25,748.29 $27,109.07

42
Table 10: Predicted Tuition
Tuition
University 2011 2012 2013 2014 2015 2016 2017
Princeton University $36,060.00 $36,771.00 $37,399.42 $37,945.27 $38,408.55 $38,789.24 $39,087.36
Harvard University $38,247.02 $39,215.77 $40,102.74 $40,907.93 $41,631.34 $42,272.97 $42,832.82
Dartmouth College $39,825.83 $41,342.53 $42,859.23 $44,375.93 $45,892.63 $47,409.33 $48,926.03
Columbia University $43,398.85 $45,815.98 $48,367.73 $51,061.61 $53,905.52 $56,907.83 $60,077.35
Yale University $38,161.67 $39,521.34 $40,881.01 $42,240.67 $43,600.34 $44,960.01 $46,319.67
University of California-Berkeley $32,878.53 $34,764.10 $36,648.73 $38,532.43 $40,415.20 $42,297.02 $44,177.92
Pennsylvania State University $26,488.00 $27,081.53 $27,554.55 $27,907.05 $28,139.04 $28,250.52 $28,241.47
New York University $40,450.61 $42,156.43 $43,861.41 $45,565.54 $47,268.83 $48,971.27 $50,672.86
University of Texas - Austin $32,010.82 $34,735.27 $37,458.37 $40,180.12 $42,900.51 $45,619.55 $48,337.25
Rutgers University of New Jersey $28,541.76 $30,050.17 $31,638.29 $33,310.35 $35,070.78 $36,924.24 $38,875.65

Table 11: Cost, Note Payable, and Interest Accrued During College
Total Interest
Total Degree Cost Total Note Payable Accrued During
University Upon Repayment College
Princeton University $154,230.42 $157,839.41 $3,608.99
Harvard University $167,645.06 $171,553.10 $3,908.04
Dartmouth College $186,603.93 $190,901.99 $4,298.06
Columbia University $221,952.31 $226,986.97 $5,034.66
Yale University $177,120.69 $181,205.55 $4,084.86
University of
California-Berkeley $165,422.57 $169,197.63 $3,775.05
Pennsylvania State
University $112,538.08 $115,182.00 $2,643.92
New York University $192,478.50 $196,902.84 $4,424.34
University of Texas -
Austin $177,037.43 $181,031.44 $3,994.01
Rutgers University of
New Jersey $144,181.02 $147,457.84 $3,276.82

43
Table 12: Change in Average Salary and BS/BA Salary
Overall Average
Average Starting
University
Starting Salary with Percent
Salary BS/BA Increase/Decrease
Princeton University $58,300 $67,138 15.16%
Harvard University $50,700 $88,437 74.43%
Dartmouth College $54,100 $73,698 36.23%
Columbia University $54,700 $56,595 3.46%
Yale University $48,900 $68,747 40.59%
University of California-Berkeley $52,100 $57,109 9.61%
Pennsylvania State University $48,600 $52,236 7.48%
New York University $48,700 $50,111 2.90%
University of Texas - Austin $48,800 $60,429 23.83%
Rutgers University of New Jersey $48,500 $46,333 -4.47%

Table 13: Total Cost and Salary Breakdown


% of
Average Monthly
Starting Total Salary
University
Salary Monthly Amount Total Spent on
with Loan Paid After Interest Loan Net Disposable
BS/BA Payment 10 Years Paid Repayment Income/Month Per Year
Princeton
University $67,138 $1,565.44 $187,852.71 $33,622.29 27.98% $4,029.39 $48,352.73
Harvard
University $88,437 $1,701.45 $204,174.12 $36,529.06 23.09% $5,668.30 $68,019.59
Dartmouth
College $73,698 $1,893.35 $227,202.42 $40,598.49 30.83% $4,248.15 $50,977.76
Columbia
University $56,595 $2,251.24 $270,149.34 $48,197.03 47.73% $2,465.01 $29,580.07
Yale
University $68,747 $1,797.18 $215,662.17 $38,541.47 31.37% $3,931.73 $47,180.78
University of
California-
Berkeley $57,109 $1,678.09 $201,371.05 $35,948.48 35.26% $3,080.99 $36,971.89
Pennsylvania
State
University $52,236 $1,142.37 $137,083.91 $24,545.82 26.24% $3,210.63 $38,527.61
New York
University $50,111 $1,952.87 $234,344.38 $41,865.88 46.77% $2,223.05 $26,676.56
University of
Texas -
Austin $60,429 $1,795.46 $215,455.26 $38,417.83 35.65% $3,240.29 $38,883.47
Rutgers
University of
New Jersey $46,333 $1,462.48 $175,497.45 $31,316.43 37.88% $2,398.60 $28,783.26

44
Figure 4: 2-Stock Optimization

Return and Risk


0.2
0.18
0.16
0.14 0.114564392,
0.15
Return

0.12
0.1
0.08
return
0.06
0.04
0.02
0
0 0.05 0.1 0.15 0.2 0.25 0.3
Risk (Standard Deviation)

45

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