Are MFE programs only for rich kids?

[aaronhotchner]

If you get a job that pays $200K after graduation, then your investment is sound. However, if you get a job that pays $80k, then you will have to smile at your boss for a few years to pay your loan off because your will be living in expensive areas of town, so you can not pay off the loan in one year. I do happen to think that in 'best case scenarios' it is a reasonable investment. However, when I look at MIT finance numbers, I realize that that makes no sense. DO the math. If you take a 100K loan, and have to repay with interest, yet you get a job in NYC that pays $90K, but rent is at least $2k, and assuming you may have a family to take care of, you have to pray to not lose your job for at least 5 years. It is no better than an $80K engineering job, where there is no debt to pay.

Where this argument falls apart is that it doesn't include preferences. I'm not a business trying to make the most profit. I'm a person, and I like finance, and I like MIT. I don't care if I start at $60k, and I'm reasonably confident student loans are priced with a minimum implicit payback period of 10 years -- I have no issue taking advantage of that entire period. Being in debt is of no concern to me because the value of the MIT degree is substantially more than the $70k I'm putting into it.

 

[pphan]

Where this argument falls apart is that it doesn't include preferences. I'm not a business trying to make the most profit. I'm a person, and I like finance, and I like MIT. I don't care if I start at $60k, and I'm reasonably confident student loans are priced with a minimum implicit payback period of 10 years -- I have no issue taking advantage of that entire period. Being in debt is of no concern to me because the value of the MIT degree is substantially more than the $70k I'm putting into it.

I agree that people have different interest. I myself also greatly value higher education. However when you take a 100k student loan, you also want to make sure that your investment can have a good ROR.

Maybe these 2 below examples are exception, and I assume the majority of MIT graduate can have a decent stable job, but it also forces me to think twice before making huge loan in this abysmal economy. You never know what will happen.

http://www.zimbio.com/pictures/FSif0oeAinx/Unemployed Banker MIT Graduate Peddles Street in 2008

http://money.cnn.com/2011/04/01/pf/joshua_persky/index.htm in 2011

http://online.wsj.com/article/SB10001424052748704699604575342751927334436.html


On the other hand, professional degrees like PharmD and MD have a fairly stable job market, but again people have different interest in pursuing their career.

 

[Dismantler]

This is very rare in the US. PhD programs get all the money and TA jobs when it comes to stipends.

How can you disagree with my post when it is the case in Canada ?! Funny!

AFAIK, master programs of any kind usually don't offer financial aid. That applies to MFE, CS, EE, etc. I don't how many traditional master programs you know that offer financial aid.

This statement is more objectionable than mine since I atleast tried to be specific rather than generalizing. Your statement for MFE is also not true in Canada. You can apply for NSERC and specific SHRC awards.

That means you can end up getting an MFE at University of Toronto for $0 or you can even make money !!!!!!!!!!

Also for CS and EE programs you are typically given a tuition waiver in Canada and also paid for TA duties and depending on the professor you could potential get additional money from his research funds.

As far as Canada's biggest university, financial support for graduate students has apparently become a big problem. It was brought to my attention by advertisements in the subway stations.

The fact is that most Canadian graduate students have some sort of funding be it in form of a tuition waiver or TAing. The issue of whether it is enough is not is for another day. CUPE is always trying to get money for grad student...they were the ones that organized the big strike at York University about 2 years ago. CUPE is a union that is what they do!

The reason why grad students complain is because they are not allowed to hold external jobs outside the university. I am not saying I can live on a $20k/year funding; all I am saying is that Canadian students have it pretty good.

Funding is a problem everywhere.

 

[alain]

How can you disagree with my post when it is the case in Canada ?! Funny!

I was talking about the US (I made that point very clear). I don't know how it works in Canada. If it is free, great!! I can't say the same thing about the US

This statement is more objectionable than mine since I atleast tried to be specific rather than generalizing.

My mistake, I should've specified I was talking about the US since most of the people in this forum ask questions about US schools. I really don't know how financing an education work outside of the US.

 

[Alexei]

I agree that people have different interest. I myself also greatly value higher education. However when you take a 100k student loan, you also want to make sure that your investment can have a good ROR.

Maybe these 2 below examples are exception, and I assume the majority of MIT graduate can have a decent stable job, but it also forces me to think twice before making huge loan in this abysmal economy. You never know what will happen.

http://www.zimbio.com/pictures/FSif0oeAinx/Unemployed Banker MIT Graduate Peddles Street in 2008

http://money.cnn.com/2011/04/01/pf/joshua_persky/index.htm in 2011

http://online.wsj.com/article/SB10001424052748704699604575342751927334436.html


On the other hand, professional degrees like PharmD and MD have a fairly stable job market, but again people have different interest in pursuing their career.

Few interesting things:
A person in a first link graduated in 1981 with only a BS degree from the MIT
The majority of professionals at the IB-place where he lost a job have MA/MS+ at a minimum
They earn with some number of years of experience (non-junior) 300k+/y
If a person from a first link learnt .net, he would have gotten a job at that same place at a minimum
That same person today is a CEO of his own company

 

[pphan]

Few interesting things:
A person in a first link graduated in 1981 with only a BS degree from the MIT
The majority of professionals at the IB-place where he lost a job have MA/MS+ at a minimum

How about 20+ years of work experience ? That's number should have some significant meaning while you are looking for jobs and also can help you to keep you seat. And, due to the bad economy, he was again unemployed 2nd times. I also highly doubt that an advanced degree can help you to keep your job.

That same person today is a CEO of his own company

I agree, however he could not find any job, he was force to open his own. Furthermore, the article from cnn ( the 2nd link ) also said that :

"

And even though ​

economic conditions in the U.S. have improved​

since his days with a sign board, Persky is now struggling to find a retail customer or investor to support his new business."​

​

​

You can open your company, be a CEO, however making profit from your business is another story.

Also this guy has worked for 20+ years, thus he should have some kind of saving, 401k... the like, so he can use the money to open his company. On the other hand, recent graduates have huge loan, struggle to land a job, thus having their own business is less likely to happen.

 

[helpteye]

Where this argument falls apart is that it doesn't include preferences. I'm not a business trying to make the most profit. I'm a person, and I like finance, and I like MIT. I don't care if I start at $60k, and I'm reasonably confident student loans are priced with a minimum implicit payback period of 10 years -- I have no issue taking advantage of that entire period. Being in debt is of no concern to me because the value of the MIT degree is substantially more than the $70k I'm putting into it.

If it is your preference, then ok. I am talking only from a logical point of view; not emotional.

 

[GoIllini]

I'm $20k in debt from undergrad, have more credit card debt than the balance in my checking account, and an IRA with less than $5,000. My $70k tuition will be fully funded by loans, and I didn't think twice about it.

Remember that student loans are unbankruptable debt. They are quite literally the modern form of debt peonage. And at the current rates (8% or more), you are going to need to come up with $500/month in interest just to tread water. And if you have an income actually capable of servicing that debt, you'll pay that interest and that debt with after-tax money.

You may want to seriously consider going to school part-time and working your way through. Or working for two years, saving up some money in a 401k, and paying with pre-tax dollars rather than paying off your loans with post-tax dollars. The tax benefits of going to school while working or after working cut the cost by about 30%.

It's not like we work for a hospital or the electric company. Finance is a high beta business. By borrowing to go to school, you are literally buying a start-up in a volatile industry with no income on margin. And that margin balance follows you until you pay it off- through bankruptcy, for decades and decades- they are even trying to garnish social security payments from some people.

Just be careful. I survived 2008. I know a few people who are still living in their parents' basements and will likely spend the rest of their lives running from creditors.

Where this argument falls apart is that it doesn't include preferences. I'm not a business trying to make the most profit. I'm a person, and I like finance, and I like MIT. I don't care if I start at $60k, and I'm reasonably confident student loans are priced with a minimum implicit payback period of 10 years -- I have no issue taking advantage of that entire period. Being in debt is of no concern to me because the value of the MIT degree is substantially more than the $70k I'm putting into it.

That's great, but $500/month out of your budget is a heavy burden on $3500/month if you are working in New York. Trust me, I've lived on $3000/month and it's not fun. You're not just giving up eating out, you're giving up beer at home. You're lowering the heat to 65 degrees. $2900/month working in NYC- even if you decide to save on rent and live in NJ- is awfully darned tough to live on. And that's before we start paying your credit card bills and undergraduate debt. Tack that on- assuming another $25K of debt at 8%, and now you're down to $2700/month. Rent alone is going to cost you $1000 to share a two bedroom at Grove Street. Tack on $50 for utilities, $100 in the summer. Subways and PATH will run you $150/month. Lunch at work will cost $200/month. This leaves you with less than $300/week to spend on everything else, including food for dinner, clothing, and the like. And that's before the principal reductions in your student interest. Assuming a 15 year paydown period on $90K of debt, take out another $500/month. That leaves you really with $200/week for variable expenses.

You are being dangerously optimistic.

As for me, I am four years out of school and heading back for a full-time one year program that will cost me $65K, including living expenses. I am paying for it pre-tax and cash via 401K withdrawals. So I'm really paying $40K after-tax. I also have substantial brokerage and cash savings But I'm still nervous. If I graduate into a particularly bad recession, I might earn less than what I'm earning right now.

Trust me, I lived through 2008, you're taking $90K in debt (plus credit cards) a little too lightly.

 

[bigbadwolf]

You are being dangerously optimistic.

Excellent post. One thing to add to the mix is the observation that in the next few years, the profession of financial engineering is going to change beyond all recognition (if it survives at all).

 

[GoIllini]

BTW, don't forget to budget for moving expenses. I think I wound up watching $5K worth of cash fly out the door to find a place to rent and to move. And I was ridiculously thrifty- moving myself and finding a place in NJ. Search costs amounted to about $800 for plane tickets, food, and a hostel. Cash moving expenses amounted to $700 for the trailer rental, tolls, and gasoline. The deposit and first month's rent really hurts. In NJ, they can ask you to put up first month's rent and 1.5 months deposit. So on a $1000/month rental, that's $2500 up-front; $3500 if you owe a broker fee. In Manhattan, broker fees run 15% of full year's rent. So a $2000/month rental really costs you $7600 in cash up-front to move into. Plus, of course, the trailer rental, tolls, gasoline, and search costs.

And they could easily lay you off after six months. They did it to analysts in 2008; it will happen again. And when they lay you off before a year, they get the signing bonus back.

 

[tfors]

Excellent post. One thing to add to the mix is the observation that in the next few years, the profession of financial engineering is going to change beyond all recognition (if it survives at all).

Would you care to elaborate on "the profession of financial engineering is going to change beyond all recognition"? Important topic to think about for someone looking to get in the field.

 

[bigbadwolf]

Would you care to elaborate on "the profession of financial engineering is going to change beyond all recognition"? Important topic to think about for someone looking to get in the field.

Financial engineering has become like the online game Second Life: the money it deals with has no basis in reality. The ongoing crisis that started in the last part of 2007 and that continues through to today is because of the lack of relationship between the virtual world of financial engineering and the constraints of the real world. In a virtual world it doesn't matter because there is usually no connection between accumulating a (virtual) fortune there and the real world. Michael Betancourt has theorised financial engineering in an interesting fashion and Dmitry Orlov cites him here:

The powers that are currently acting and that are causing these riots, protests, rebellions... are fighting for their own survival, and the shift that's happening is perverse because we are driving towards a collapse, and it is almost inevitable that we are going to have this collapse again at some point. To a certain extent I think it may have already started with the credit freeze in 2009. The attempt to print our way out of it isn't going to result in hyperinflation necessarily (although there are people who are saying that it will) so much as it will result in a complete revaluation of the system, in which we arrive at some other, new equilibrium. Part of the problem with getting there is that there are forces fighting over who has the largest number of these essentially immaterial objects, this immaterial currency. What will happen is that at some point they will have most of it (and we are moving towards that already, if you look at any of the various numbers on who has the wealth and who doesn't). What will happen when it gets concentrated enough is that the entire system will freeze up like it did in 2009. This is because the equilibrium and the maintenance and the survival of this system depends upon the circulation of these immaterial commodities. As soon as they start getting hoarded, or as soon as people who have them start cashing out and into some sort of physical commodity, both of these can trigger an imminent collapse, not necessarily in the sense of a bank run or a panic, but in the sense that the system can no longer feasibly maintain its own equilibrium... it drives towards ever greater disequilibrium, because that's the ground state for this sort of a situation, where you have vast immaterial production versus limited physical production.

Or of you prefer to hear Betancourt speaking, here he is being interviewed by Max Keiser (from the 12:00 minute mark onwards).

I'm not claiming he's right but his explanation makes the most sense to me.

 

[kuwantfin]

When I look at the job statistics recently from most top quant programs, the average salary of entry level rarely reach 100K even at the very best institutions. The majority are earning 60-90K, and with normal increments of 5% as I have been told by close friends who work in Wall Street, it is not so fast to reach 120K a year given that you still have the job at that time. Most of these positions are in very expensive location where rent can easily be 2K or more for a tiny studio appt. While the entry level salary for quant analyst is stagnant over the years, fees for MFE programs are rising well above 10% each year, and not to count the amount of admission fee of thousands of applicants that were rejected, many programs do not even bother to send a properly written rejection letter, they just simply send an automatic generic email sometime ridden with typographical errors and that's it, for a fee of $100-240. A program that receives 800 applicants earns nearly 150K in application fee, that is more than a year of salary for an associate professor in a good university. And the job for this 150K compensation is simply to screen out these 800 applicants, what a good job!

I concur with jondan. I think there should be some kind of rule for schools to at least tell on what basis a candidate was rejected. I think candidate has full right to know so that they can improve on areas where they are lagging behind. I know UC Berkeley does a good job of evaluating profiles for students.

 

[kuwantfin]

Financial engineering has become like the online game Second Life: the money it deals with has no basis in reality. The ongoing crisis that started in the last part of 2007 and that continues through to today is because of the lack of relationship between the virtual world of financial engineering and the constraints of the real world. In a virtual world it doesn't matter because there is usually no connection between accumulating a (virtual) fortune there and the real world. Michael Betancourt has theorised financial engineering in an interesting fashion and Dmitry Orlov cites him here:



Or of you prefer to hear Betancourt speaking, here he is being interviewed by Max Keiser (from the 12:00 minute mark onwards).

I'm not claiming he's right but his explanation makes the most sense to me.

From this theory will it be good to say than - we were living most of the lives in virtual world (No recession) and less time in real world (recession times)

 

[GoIllini]

Here's what does it for me. I look at these charts and I hear the gregorian chants of "O Fortuna" rising in the background:
http://sternfinance.blogspot.com/2008/10/future-of-financial-industry-thomas.html
http://sternfinance.blogspot.com/2008/11/are-banker-over-paid-thomas-philippon.html

 

[bigbadwolf]

Here's what does it for me. I look at these charts and I hear the gregorian chants and scary orchestra of "O Fortuna" rising in the background:
http://sternfinance.blogspot.com/2008/10/future-of-financial-industry-thomas.html
http://sternfinance.blogspot.com/2008/11/are-banker-over-paid-thomas-philippon.html

The first one seemed the more interesting to me. An excerpt:

After a continuous collapse in the 1930s and 40s, the GDP share of finance and insurance industries was down to only 2.5% of GDP in 1947. It recovered slowly and was mostly stable at around 4% until the late 1970s, and then grew quickly to reach 8.3% of GDP in 2006.

The third large increase, from 1980 to 2001, corresponds to the financing of the IT revolution. From 2002 to 2006, I am not quite sure what the financiers were doing. Or rather, I am not sure that the services provided by insane trading volumes and real estate derivatives were worth the price tag.

As I see it, the increasing "financialisation" of the economy has served a purpose of camouflaging the general weakness and stagnation of the real economy. Before the crash of '08, finance accounted for 8% of GDP (up from 4% of thirty years ago, and 1-2% of earlier eras) and 40% of corporate profits (see this Economist article here). In simple terms, finance until 2008 was a collective fairy tale that the public, policy-makers, and financiers themselves fooled themselves into believing -- while the bedrock of the real economy did not improve. We're still living in the aftermath of a rude awakening from that fairy tale. I'm unconvinced that finance will ever return to its previous dominant position in the economy -- a position based on weaving webs of illusion, on creating speculative booms and busts. Part of the reason it won't is (in my opinion) that the real economy -- on which finance fastens with parasitic intent -- is so anemic. Real growth is now in the past. Talk of growth these days is merely statistical sleight-of-hand (in this connection see Paul Craig Roberts' essay here).

 

[GoIllini]

I'm a bit less pessimistic. I just see 40 years in the desert. (Ok, more like 20).

In spite of the financial crash of 2008, corporate profits are still setting records. Income on the S&P 500 is approaching $100 this year. Back in 2000, it was barely 1/3 that. So what we're seeing is that even though the foam on top of the economy is shrinking, it's still not coming down in the beer mug- which means that the real economy (the beer) has to be rising a little bit.

Cynics and pessimists will say it's just inflation, but the fact is that manufacturing jobs are starting to come back. The US textile industry is able to compete a lot better with China today than it was ten years ago, for instance. And while we're not producing more resources than we were ten years ago, we're getting more out of them. For instance, the average car on the road today gets 25% more mileage than it got in 2000.

Eventually, the economy is going to produce more merger opportunities, more IPOs, and more financing opportunities. It will just take a decade or two.

 

[tfors]

My opinion is that economies are bound to keep growing (in booms and bursts) as long as productivity grows. Productivity growth depends mostly on technological innovation, which will continue as long as there is science and R&D. The question is how will quantitative finance evolve in this picture. The way of the horseshoe fitter or are we still at the beginning of the revolution?

 

[bigbadwolf]

In spite of the financial crash of 2008, corporate profits are still setting records. Income on the S&P 500 is approaching $100 this year. Back in 2000, it was barely 1/3 that. So what we're seeing is that even though the foam on top of the economy is shrinking, it's still not coming down in the beer mug- which means that the real economy (the beer) has to be rising a little bit.

But it's not clear what the nature of these "profits" is. For example, lefties and liberals like to say that US corporations are sitting on $2 trillion. But they don't understand that this money cannot be employed as capital -- there is nowhere to invest it in the real economy. So are the profits just more digital money with no ready reference to the real world? This isn't clear to me. Again, it points to the disjuncture between the fairy tale world of digital finance and the real economy.

My opinion is that economies are bound to keep growing (in booms and bursts) as long as productivity grows. Productivity growth depends mostly on technological innovation, which will continue as long as there is science and R&D.

As fund manager Peter Thiel contends here, most of what's been happening during the last few decades has been the manipulation of bits and bytes rather than electrical engineering, mechanical engineering, etc. Excerpt:

One regulatory perspective is that environmentalism has played a much greater role than people think. It induced a deep skepticism about anything involving the manipulation of nature or material objects in the real world. The response to environmentalism was to prohibit scientists from experimenting with stuff and only allow them to do so with bits. So computer science and finance were legal, and what they have in common is that they involve the manipulation of bits rather than stuff. They both did well in those forty years, but all the other engineering disciplines were stymied. Electric engineering, civil engineering, aeronautical, nuclear, petroleum—these were all held back, and attracted fewer talented students at university as the years went on. When people wonder why all the rocket scientists went to work on Wall Street, well, they were no longer able to build rockets. It’s some combination of an ossified, Weberian bureaucracy and the increasingly hostile regulation of technology.

But his reasoning diverges from mine in that for me, the reasons are 1) the diminishing returns from science and engineering (what Thiel refers to as technological deceleration), and 2) a finite and resource depleted world. These put natural constraints on "development" and growth. For instance, peak oil was arrived at in the US in the early '70s and for the world as a whole in 2005. Forget the fantasy of alternative fuels: we are looking at a post-industrial world of resource scarcity. The first intimations of this are the transfer of "growth" to the digital world of financial fantasy that took place for at least a decade before 2008, which policy-makers are still desperately trying to resuscitate (for lack of any real alternative).

On a side note, the connection between the digital and the financial, which Thiel refers to, is captured in an insightful paper by Betancourt:

I know the discussion in my article may appear to be primarily concerned with financialization; however, in my view financialization is an epiphenomenon, a symptom, of another distinct process whose origins lie with the emergence and ascendancy of what I have called the ‘aura of the digital.’ My concerns are with how this immaterialism has come to dominate the political economy, and those factors that suggest how this dominance manifests itself as immaterial values created without productive action.

The immaterialism apparent in the emergence of the digital has deployed financialization as a vehicle for the semiotic development of wealth and accumulation without physical production.

Of course, all of the above represents one point of view -- my own. And it may not be correct.

 

[Andy Nguyen]

This discussion is still relevant today as it was a decade ago.
We have a surge of interest in quant finance industry from students whose household income is lower and $100K for tuition is a fortune. This causes a big dilemma of how to afford an MFE degree to then get a $150K/year jobs.
The youtubers, social media influencers, finance bros play a big part in hyping this quant space causing many young people to have a very unrealistic view.

What is your take on this?