Is college worth it? The answer depends on how much you spend. That’s it. If you spend too much on college, it’s not worth it because your lifetime earnings will never make up for the cost you spent too early in life.
While the thought of incurring student loan debt makes many prospective students reconsider pursuing post-secondary education, the impact of a degree can still outweigh the pain of loan debt on future financial well-being as long as the amount is kept to a minimum.
University degree He can They represent a sound investment in your future earnings. Financial return over a lifetime He can Make a college education a good investment — but only if you don’t spend too much on it. Yes, college graduates earn, on average, 84% more over their lifetime than just high school graduates.
But what if your career earnings are only $400,000 more than if you didn’t go to college, and spent $100,000 total on college? Getting an extra $300,000 over the course of 40 years of work was a really poor use of the original $100,000. That $100,000 could have grown to over $1,000,000 over the same 40 years if you never spent it on education…
But on the flip side, if you spent just $20,000 total on college, and earned an additional $400,000 over your lifetime, that investment is now worth it. You’ve essentially doubled your potential future earnings ($20,000 would only grow to $200,000 naturally – but your education increased it to $400,000).
So, how do you know if college is worth it? Here’s how to dive in and see.
College value
Why do people go to college? There are a lot of ideals – learning, networking and building lifelong relationships. But the truth is, college costs money. Most students go to college because they are trying to learn skills that will allow them to earn more money after graduation.
I am waiting? This sounds like an investment. Because it is!
Students pay money upfront, only to see a return on investment after graduation. It’s also part of today’s student loan crisis. Too many students have borrowed money for this investment, and the return on investment is not what they expected (making it difficult to repay their student loans).
What do the data show about the value of college?
Well, one of the most frequently cited statements showing the value of college comes from Social Security Administration.
“Men with bachelor’s degrees earn nearly $900,000 more in average lifetime earnings than high school graduates. Women with bachelor’s degrees earn $630,000 more. Men with graduate degrees earn $1.5 million more in average lifetime earnings than high school graduates. Women with graduate degrees earn $1.1 million more.”
This is a great data point – but it misses a key factor. How much did this person pay for this degree?
It seems amazing that you can suddenly earn an extra $900,000 over the course of your lifetime (that’s roughly 45 years of work after college). But what if you paid $900,000 for this degree? Is it worth it? Of course not.
This is the crux of the issue. What is the value of increased lifetime earnings in today’s dollars?
Net present value of lifetime earnings
This is an eye-opening place. It can also be a bit messy since we have to make some estimates – like the rate of return/inflation. We also have to realize that not everyone is equal, not all professions are equal, etc.
But it’s good to have some data points. Let’s calculate the net present value of $900,000 and $630,000 over 45 years (that means you graduate from college at 22 and work until you’re 67). We will use a 5% return rate for our calculation.
Men’s Current Net Worth ($900,000): $100,167
Women’s Current Net Worth ($630,000): $70,117
With these incredibly rudimentary calculations, we can easily see the value of college. For a man, if you spend $100,000 on your college education, you will break even over your entire life. If you’re a woman, that number is $70,000. If you spend less, you’ll start getting a positive ROI, and if you spend more, you’ll start getting a negative ROI.
Here’s where it gets a little scary though. What if we used a more reasonable rate of return of 8%? The value of college is greatly diminished.
Men’s Current Net Worth ($900,000): $28,195
Women’s Current Net Worth ($630,000): $19,373
The truth is that the value of college likely lies somewhere between these two calculations. But you can see that it really becomes not worth it if you spend a lot of money.
So, how can you factor this into your college decision?
Calculate your college’s return on investment
The key to determining if college is worth it is simply calculating your return on investment (ROI). Specifically, we’ll look at how much a borrower would have to pay for college.
If you can pay cash for your degree, it doesn’t matter if it’s worth it because you’re buying a luxury you can afford (yes, I know education shouldn’t be viewed as a luxury – but paying for it in cash can be). Only if you’re going into student loan debt does it really matter.
It’s like buying a car to get to work. The goal is to work so you can make money, and you need a car to get there. You can buy an old car cheaply – it will take you from home to work. Or you can buy a new Mercedes. They both perform the same function – but one is much cheaper and has a better return on investment. But if you have a lot of money and price doesn’t matter, buy any car you want. But most Americans are not in this situation – so we must think critically about the costs and return on investment.
So, the name of the game is to only borrow as much as it makes financial sense. This amount is: Never borrow more than your expected salary after your first year of graduation.
“Never take on more student loan debt than you expect to earn in your first year after graduation.”
So, if you plan to become an engineer and expect to earn $60,000 a year, don’t borrow more than $60,000 in student loan debt. If you want to become a teacher and expect to earn only $38,000 a year, don’t borrow more than $38,000.
It’s a very easy rule to understand, but it can be difficult to follow.
There is also a lot of research today to understand ROI. For example, Foundation for Research on Equal Opportunities A set of data was recently released to calculate the return on investment on 30,000 bachelor’s degrees from different schools and programs. You can see the real answer to the question of was college worth it.
We’ve put a lot of this together in our College ROI Calculator.
Related to: Where to apply to college (finding financial and academic fit)
How to understand what you will earn after graduation
This can be difficult – but this is where you should start. What do you want to do after graduation and how much will you earn?
When you’re 17 or 18, it can be impossible to know. But you can have a soccer field (and you should, especially depending on the field you want to go into). Remember, just 27% of graduates have jobs related to their major in collegebut that’s a good baseline where to start.
Once you have a soccer field, you can build a buffer zone around it. Do you want to join education? Find out what a low grade teacher does in your state. marketing? Find out what marketing jobs are available? Want to become a doctor? Well, I hope you talked to some doctors.
If you don’t know where to find salaries, look at sites like Glass door and actually. Both sites have salaries and company reviews – which can be useful for understanding more about top companies in the industry you want to get into.
Reducing education costs
Research public school tuition as well as other low-cost programs. While the benefits of an Ivy League education can pay off in networking and career opportunities, it doesn’t make sense to overspend to gain these benefits. Look for low-rated and well-rated study options.
You can also choose a combination of starting at a community college (which is free in 30 states), then transferring to a public school after you meet your general education requirements.
Ask for financial aid and scholarships. There are funds available for students of all financial abilities and backgrounds. With a little work, it is possible to reduce inflated school fees to a minimal cash investment. Don’t rule out working at a university, employee benefits often include free tuition plus comfortable salaries.
Choose to live at home or rent a low-cost apartment off campus. Reducing or eliminating room and board expenses can help limit the amount of student loans.
Related to: The ultimate college budget guide
Accelerate your studies
Take AP courses in high school, or experience entry-level courses with options like CLEP. Choose a major and stick to core studies to avoid spending valuable tuition money on outside classes. Choose to earn general education credits at a lower cost at a community college. Get ahead of your investment by graduating early and on time. Extending your stay in school only increases debt and delays your return on investment.
In my case, I took as many AP courses as I could, and took the AP exam every spring. As a result, I was able to start college as a sophomore because of the amount of credits I earned in my AP classes, and I was able to graduate early (even though I changed my major). AP courses were the key to graduating early and saving a little on college costs.
Work through college
Don’t be afraid to get out and work during school. In addition to the fact that you get paid and can use that money to offset the costs of your college education, working gives you amazing skills that you can transfer to any job after college.
For many college students, working in retail or in a restaurant is a flexible way to find a job while still balancing your school schedule.
Conclusion – Is college worth it?
Is college worth it? maybe.
Like any investment, you won’t know until you make it and start seeing returns. But you can protect yourself by spending as little as possible upfront.
For example, reducing the amount of student loan debt you carry with you into adulthood creates a better foundation for making future investments and growing personal wealth.
Although there are many paths to success, a college degree is still a good option for those looking to earn a solid living and live financially comfortably. The return on investment depends on students managing their money wisely, making strong career choices, and backing their degrees with discipline and work ethic.
While incurring loan debt puts students behind workers without college degrees in the first few years of work, the earnings potential for those with college degrees far outweighs those without. However, it only makes sense if you are not spending a lot of money on that college degree.
What do you think? Is college worth the investment?
