The cost of an Oxford education

Imagine two students living in Australia who are about to enter university, Paul and Peter. Both achieved excellent results in their final year of school. Coincidentally, both also recently inherited $160,000 from a relative.

 

Paul and Peter both live about 15 minutes away from their local university. According to a recent report published by one of those university guides, this local university was ranked 55^th in the world for overall quality of education. When one considers how many universities there are in the world, this is certainly a high ranking.

Paul has decided to attend this university, it is close to where he lives, has good facilities and staff and offers the degree he wants to study for. Paul has chosen to study Economics and History. Paul will use approximately $30,000 of his inheritance to pay for his degree. The remaining $130,000 will be invested in one of the old blue chip ASX listed investment companies and Paul hopes to leave it there as a “nest egg”.

Peter is much more status conscious than Paul. Peter has always wanted to attend Oxford or Cambridge. He is very impressed by the old buildings, the eccentric traditions and some of the well-known past graduates of those two institutions.

Peter makes an application to Oxford as a foreign student. He has decided to study for a BA in History and Economics. After the application process concludes, Peter receives the pleasant news that his application has been successful. As it happens, the cost of Peter’s three year degree (plus living expenses and the odd airfare back home) will equal the amount of his inheritance.

Peter’s successful application to Oxford is a great talking point amongst his relatives and friends. A very bright future is envisioned for Peter. Peter won’t admit it, but he is enjoying all this attention from his friends and relatives.

While Paul’s relatives and friends are happy about his successful application to the local university, it hasn’t been met with the same adulation that has been accorded Peter.

Peter’s time at Oxford is generally pleasant, but he does get a little homesick on occasions. He misses family and friends.

Paul on the other hand has made minimal changes to his lifestyle. He still lives at home and has friends from school attending his university.

Both Paul and Peter complete their degrees at the age of 21.

Now we fast forward 39 years. Paul and Peter are both 60 and about to retire from successful careers.  Paul never did touch that inheritance. He simply collected dividends and enjoyed the capital growth. That inheritance is now worth $2m and pays approximately $80,000 in dividends each year.

Paul and Peter both earned approximately the same amount of money during their careers. Peter (despite attending Oxford) was unable to out-earn Paul. As we mentioned earlier, Paul is just as bright as Peter and also has a similar temperament and personality.

 

So now we can say that the cost of Peter’s Oxford education was in the vicinity of $2m, being the money that his peer Paul now has that he doesn’t. It’s a high price to pay for a “brand name” education.

Obviously, universities such as Oxford rely very heavily on their brand. Oxford’s more recent move into awarding MBAs is a very good example of this. Oxford has no history as a business school. It simply wished to capture a portion of the market for MBAs that it was previously missing out on.

The MBA degree at Oxford appeals to a certain clientele. The applicants tend to be people who have reasonably good jobs in the business world (but not always) and who (in all likelihood) would not have been successful undergraduate applicants but now are afforded the opportunity to obtain an Oxford qualification at a cost which is less than an undergraduate degree. It is very good marketing and I certainly applaud Oxford for it.

Harvard also uses its “brand name” to increase its earnings. The short management courses are a very good example of this. These courses are marketed to executive level people (from all disciplines). They undertake a very short course at Harvard for which they will be awarded some sort of certificate.

It amuses me no end when I see these certificates decorating the office walls of people who have attended these courses.

Once again, the vast majority of these people would not have been successful applicants to Harvard for under graduate degrees. Harvard is simply using its brand name (like Oxford) to charge very high fees for a short course (with relaxed entry criteria) that allows the applicant to say that they attended the university*.

 

* I too have been to Harvard, I visited some years back while on a trip to Boston.