Let’s say you just graduated from college and your net worth is negative because of student loans. please do not worry. You actually have a higher net worth than you think! This article will help you calculate the value of a college degree.

A college degree is a valuable asset. Millions of people are willing to dedicate her four to six years of life and hundreds of thousands of dollars to get a college degree. So, of course, a college degree is an asset.

We can see that Net Worth = Assets – Liabilities.

We also know that the net present value of an asset is equal to the future cash flows discounted by the estimated growth rate. In this case, future cash flow from a college degree equals a college graduate’s lifetime earnings.

## Different ways to calculate the value of a college degree

To you who are worried about Supreme Court rejects Biden plan In order to wipe out $400 billion in student loan debt, this post should help you feel more comfortable with loan repayments. As a result, you are more likely to build more wealth, contentment, and happiness. 4 wins in a row!

Here are three ways to value your college degree as an asset in your net worth calculation.

### 1) College costs and modest rates of return

The first way to calculate the value of a college degree is to add up the cost of a college degree. Then add the return on investment that you would have gotten if you had invested your money instead.

Conservatively, you can use the risk-free rate of return (10-year Treasury yield). Alternatively, you can use the risk-free rate of return plus a small premium.

For example, if you paid: Full Cost of Attending Boston University in four years. Assume that the total cost increases by 5% each year. In addition, room, food, and tuition fees are included in the university expenses. The costs will be:

- Year 1 (2024): $86,363
- Year 2 (2025): $90,681
- Year 3 (2026): $95,215
- Year 4 (2027): $100,000

Total college cost: $372,259, average annual cost is $93,064. Assuming an annual return on investment of 5% if he invested the money instead, his four years of college totaled about $534,000.

Therefore, the total value of a college degree equates to at least $534,000. The major premise is that we are rational subjects.we will *no* If you don’t think the investment is worth it, pay or take the time to get a degree from Boston University.

Let’s say a Boston University student graduates with $120,000 in student loans and no other debt. Their net worth is actually equal to $534,000 minus his $120,000 = $414,000. not bad!

### What the cost method of valuing colleges means

Here are some other assumptions when evaluating college degrees based on the cost method.

- The higher the college tuition, the higher the net worth.

- Abolition of affirmative action reduces the net worth of affirmative action-backed college graduates

- Wealthy families who can afford to pay more for college end up having college graduates with higher net worths.

- Students who win grants and scholarships to reduce college costs can “free ride” and maximize the value of their college degree. Just because candidates pay less to college doesn’t mean employers will pay them less.

- Overall, private college graduates are wealthier than public and community college graduates.

## 2) The value of a college degree is equal to the graduate’s estimated lifetime earnings

Lifetime earnings for bachelor’s degree holders are estimated at $2,268,000, according to the Center for Education and Workforce at Georgetown University. Therefore, we can also assume that the value of a college degree is worth approximately $2,268,000.

Suddenly paying an exorbitant amount of $372,259 for four years at Boston College and other private colleges with high tuition seems like a pretty good deal.

Unfortunately, in order to earn $2,268,000, you have to work to the assumed age. Therefore, it may not be the best practice to equate a college degree with a graduate’s estimated lifetime earnings.

Let’s assume that the age at which college graduates stop working is 62, or 40 years after college. Therefore, the average income of a college degree holder is $56,700. In my opinion, this seems reasonable, if not a little low.

But considering it takes 40 years to earn $2,268,000, it’s unfair to use a college graduate’s estimated lifetime earnings to calculate college value. Since we expect a real investment return, we need to discount the $2,268,000 value to calculate: *dollar today.*

## 3) The value of a college degree equals the net present value of future cash flows

The most accurate way to calculate the value of a college degree is to perform a net present value (NPV) calculation. In the NPV formula, all future cash flows (CF) over a given holding period (N) are discounted back to the present using a rate of return (r). This rate of return (r) in the above formula is the interest rate and is commonly called the discount rate.

Discounting is just the opposite of growth.

Let’s make the following assumptions about the university’s NPV calculation:

- Discount rate is 5%
- College Fees $327,259
- college graduates work for 40 years
- Annual income of $56,700
- The total revenue over 40 years would be $2,268,000.

After entering these numbers, NPV calculatorto win $629,387.

So, for this Boston University graduate who paid full fare, his college degree is worth $629,387. $629,387 includes individual costs of $372,259 for four years of tuition.

The following shows what the NPV calculation looks like truncated at period 4. A college graduate works for 40 years, so the calculation is for his 40 years.

### Discount rate is an important variable

Using a discount rate of 4% instead of 5% increases the value of a college degree to $782,000. Using a 3% discount rate increases the value of a college degree to $974,000. Finally, using a 2% discount rate jumps the value of a Boston University degree to $1,218,471.

Why does a college degree go up in value when the discount rate goes down?

Imagine hyperinflation has brought the discount rate to 100%. His $1 million value 40 years from now will be much lower than it would be if inflation were only 1%. With inflation at just 1%, it’s worth more than what you pay for college.

To put it another way, if inflation were going at 100% a year, taking four years to graduate would be much more costly. In such a scenario, you would want to graduate early in order to make more money. With 1% inflation, you can have a good time in college.

### The more years of service, the higher the value of a college degree

It’s more difficult to control how much you earn annually in your lifetime. However, you may have better control over your years of service.

If you want to increase the asset value of college graduates, you should increase the length of service. If you want to FIRE, your college degree will be worth less.

Therefore, those who want to pursue a master’s degree or Ph.D. should be prepared to work as long as possible. Retiring early after spending a lot of time and money on education is not financially optimal.

## College graduates can now increase their net worth

Some might argue that I am ridiculous in assigning an asset value to a college degree. If so, one could argue that stocks, real estate, and other things in which we invest our money have little value.

It’s hard to believe that the Nvidia stock you buy will trade for 40 times your annual earnings. We’ll have to wait 40 years before we generate enough revenue to match our current market capitalization. With an estimated net profit margin of 28%, it will have to wait 142 years before the company is profitable enough to match today’s market capitalization. Nvidia’s dividend is a modest $0.04 per share.

If we agree that crazy money stocks, real estate, and other investments count as assets in calculating net worth, so should a college degree. Given that most people have to spend four years earning a degree, it could be argued that a college degree should be an even more valuable asset than stocks or real estate.

Therefore, we should all be able to increase our net worth by the value of a college degree. If you can get multiple college degrees, you can increase your net worth even more.

This is welcome news for master’s and PhD holders who have spent years training. congratulations!

In the past, many professional degree holders lamented how far behind they were compared to my average net worth on the above-average person graph. The added asset value of a college degree will narrow the gap or eliminate it entirely.

## Add at least $122,000 to my net worth

Using a cost-plus methodology to evaluate college degrees can increase your net worth by $122,000 if you wish. His tuition at the College of William and Mary was $44,000 for his four years from 1995 to 1999. UC Berkeley’s Haas School of Business cost me $78,000 over three years, considering I did it part-time.

Given that the NPV calculation is more accurate, you may need to increase the value of your college degree. After all, I worked at the bank he worked for 13 years, made decent money every year, and retired early with a net worth of about $3 million.

However, I have come to believe that the university can only be held responsible for the first 13 years of income generation. The rest of his 11 years of income and net worth actually came from my investments, my entrepreneurial activities, and my personal educational endeavors (reading, etc.).

Therefore, the cost-plus method of calculating the value of a college degree is probably the most appropriate. Once you get your first job, what you do after that is more important to your income.

Using my logic for valuing college degrees, I feel less bad about potentially paying about $750,000 for four years of college in 2038. My assumptions are no scholarships and a 5% compound annual growth rate based on an average 4 year cost. Current private college tuition ($350,000).

I hope that this article will help ease the minds of all parents and college-going students who are afraid to pay for college.

Although the profits of college graduates are declining, it is clear that the potential income of college graduates is much higher than that of college graduates. The best-case scenario is to attend her four-year college, which is cheap and has a good reputation.

## The value of a college degree increases year by year

One last thing I want to point out. Thanks to aggressive cost inflation, the value of college degrees is increasing year by year. As a result, the value of a college degree increases your net worth each year.

It cost me $44,000 to attend William & Mary for four years as an in-state student, but now it costs at least $270,000 for an out-of-state student to go all-in. His 6x return on investment after 24 years is a healthy compound annual return of 12%.

And if you have a college-educated spouse, your household net worth will increase even more. I would appreciate it if you read this article and feel that college graduates have become richer.

If you want an easy way to keep growing your net worth, keep reading. Every book you finish reading adds to your net worth by at least the value of the book. Some books like “Buy this, don’t buy that” offer practical advice that could make you much richer than the average person in the long run.

Don’t underestimate the value of your education. It’s worth more than you think!

## Reader Questions and Suggestions

How much do you value a college degree? If you assign value to an intangible asset such as a stock, why can’t you assign value to a college degree? Do you think you’re going to pay college tuition and spend your time only if?

Listen and subscribe to The Financial Samurai podcast on Apple or Spotify. On this site, we interview experts in their respective fields and discuss some of the most interesting topics. Please share, rate and review.

For more nuanced personal financial content, join over 60,000 other users and sign up for our free Financial Samurai newsletter and email submissions. Financial Samurai is one of the largest independent personal finance sites launched in 2009.