Saturday, May 28, 2011

My back of the envelope analysis of why it makes Sense AND Cents to take AP classes and the AP tests seriously. By my count it is costing you AT THE MINIMUM $25,000 by not doing so! YES, that number is right...See my calculations...

How much is NOT taking AP classes and AP Tests costing you in REAL dollars? The calculation below will give you an idea of how much it costs you to forgo the rigor of Advanced Placement classes.  It is difficult to account for all costs, explicit or implicit.  I believe the bottom line number I arrive at is a LOW figure because of the particular number I use for tuition, room and board.  Read it and let me know of any other "opportunity costs" I have left out that will either INCREASE the difference or DECREASE it.  I am open to revision of these numbers...

Here is my step by step analysis of why you SHOULD take AP classes and the AP test in those subjects:

Skip AP classes in High School---Go directly to college

1. Go to college and take 5 classes, which equals 15 credit hours towards a degree.

2. Estimated  cost of attending a Public University in Texas  $8,000 (room, board, tuition, books,etc) to take 15 credit hours. This is an UNDER ESTIMATION!

3. To put this in perspective, if you had a job earning $8.00 per hour (net after taxes) you would have to work 1,000 hours to earn the money to pay a semesters tuition.  This is probably an OVER ESTIMATION or your net hourly wage.

4. 1000 hours/40 per week = 25 weeks of work (almost 6 months) to earn the money to attend college for 1 semester!!

5.  This assumes ALL your earnings went to pay for college and nothing else.

6. If you have to pay living expenses out of your paycheck, you may have to take out a loan, so add that to the cost of a semester. For simplicity, we will leave that out of the equation.

7. Your total cost for a semester of college for our purposes is $8,000,  and most likely more.

Now assume you took AP classes in High School.

1. Take 5 AP classes in High School. Take 5 AP tests and get a score that your college will take for credit

2. Each AP test costs $56

3. Total cost for AP tests $280.00

4. Assume you study an extra 10 hours a week for AP classes relative to non-AP classes.  We have 36 weeks of school  X  10  hours per week = 360 hours of extra study time

5. Assume we account for the money you “lost” by not working and studying instead---$8.00/hr X 360 = $2,800 (your opportunity cost of not working)

Lets total up what we have so far.

Your total cost of a semester of college WITHOUT AP tests= $8,000

WITH AP tests =$3,080 ($280 AP tests + $2,800 forgone wages)

The difference/savings =$4,920 WITH AP CREDIT

ALSO—you took care of a semester of college while still in high school (where you have to be ANYWAY). You can finish college a semester earlier than normal. You can get a full time job after getting your degree. Assume you get a job paying $40,000 per year (depending on your degree, add some (or a lot) or subtract some. That extra semester in college is costing you about $20,000 in income!! You have to add that into the above calculations.

Lost income by attending an extra semester of college = $20,000

The Total Cost of NOT getting 15 hours (1 Semester) of AP credit = $24,920

ANY QUESTIONS???

3 comments:

  1. Poor logic. A semester is only 3 months, not 6. Therefore your earning lost would be $10,000. You may also fail an AP test, frequent occurrence for kids attending poor public school systems. Most work studies in texas pay $12 per hour and waitressing and bar tending pay roughly the same, so 40 hr x 12= 480, plus you will receive it all back in taxes which can be applied towards tuition.

    Back of the envelop is the improper method to calculate this, you need to calculate net present value and discount the variables. You must not have taken an AP finance class.

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  2. I included lots of qualifying assumptions and I did not put a full price on the opportunity cost of your time. And opportunity cost is the real lesson here. I believe I accounted for any of the issues you raise--semester length, small differences in hourly wage you might earn, etc .Do you REALLY think it all balances out? That the benefit is small or non-existent? Go ahead and assume I am WAY off and knock $10,000 off the top, no do $20,000. You STILL come out ahead with even a cursory "back of the envelop" estimation. I actually made it BETTER than it appears. I assumed you would put ALL earned money towards tuition. This is not realistic so you would have to work A LOT more to make the tuition and take much longer to pay for it. Also, you are correct that you might not pass the AP tests because of inferior schools/teachers. While important, that is off the topic. You can take a bunch of AP tests, but if you only pass and get credit for 5 then it is a tremendous financial decision and WILL lessen the overall cost of college by thousands (how many thousands, ok, we can debate. That is clear. This was not meant to be an exact accounting of the differences---I am sure if you applied a net present value test to this the premise will still hold. I dont have to be a finance major to see the financial benefits of taking getting AP credit. I see it with my students and my own child. Bottom line: For the individual there are virtually NO COSTS to taking and passing 5 AP tests---I only see benefits (having to work harder in class is not a cost, as far as I see. It is still a benefit because the work will pay off in the future)...

    Also, please dont comment if you are going to insult me personally. This is not a blog for doing that. Other than that, I do appreciate the comments. Thanks!

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  3. The financial cost has been calculated incorrectly. Cash flows from each period need to be discounted back to the net present value. The issue was never with AP classes providing a financial benefit- a a relatively free class is obviously financially beneficial over a class that cost upward of $2000, it was the proposed cost of foregoing AP classes.

    Secondly, AP classes are inferior in quality of instruction, course material, objective (test prep class) , intelectual content and acceptance of AP classes are entirely up to the school. You need to account for the dropped organic chemistry class or biology class because they were inadequately prepared. The back of the envelope makes sense at an elementary, but it just appears one sided. The motivation behind any decision is to forego the next best alternative.

    Sorry for the insult, I am just shocked that no one uses financial formulas to calculate the value of money. Money today is worth more than money tomorrow.

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