The idea of incurring student loan debt makes many future students reconsider pursuing post-secondary education, but the impact of a degree still outweighs the pain of loan debt on future financial well-being. A college degree represents a sound investment in your future income. Lifelong financial benefits make an undergraduate education a sound investment.
Remember, on average, college graduates earn 84% more over their lifetime than high school graduates. Stories of successful college dropouts like Bill Gates encourage the idea that a bachelor’s degree isn’t worth the time or money spent, but those who enter the workforce without a degree find it difficult. Once hired, employees without a degree may find their lack of a degree an impediment to future promotions and pay raises.
So how do you decide if college is worth it? Here’s how to dive in and see.
why do people go to college There are many ideals, such as learning, networking, and building lifelong relationships. But the truth is, college costs money. And most students attend college because they are trying to acquire skills that will allow them to earn more money after graduation.
wait? It sounds like an investment. The reason is!
Students are paying upfront to see the return on investment after graduation. It’s also part of today’s student loan crisis. Too many students borrowed money for this investment, but the return on the investment was not what they expected became difficult to repay).
What does the data show about the value of colleges?
Now, one of the most commonly cited data points to the value of college is Social Security Administration.
“Men with a bachelor’s degree earn a median lifetime income of about $900,000 more than high school graduates. Women with a bachelor’s degree earn a median lifetime income of $1.5 million more than high school graduates. Earn more dollars. Women with graduate degrees earn $1.1 million more. More.”
This is a great data point, but it’s missing an important element. How much did the person pay to get the degree?
It’s amazing to suddenly earn $900,000 more in your lifetime (about 45 years of work after college). But what if he paid $900,000 for that degree? Is it worth it? of course not.
And that’s the crux of the problem – What is the value of increased lifetime income in today’s dollars?
Net present value of lifetime income
This is where the eyes are opened. It can also be a bit cumbersome as you have to make some estimates, such as rate of return/inflation. We must also recognize that not everyone is equal, and not all careers are equal.
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 (i.e. graduate from college at 22 and work until age 67). We use a return rate of 5% for our calculations.
Net present value of men ($900,000): $100,167
Female Net Present Value ($630,000): $70,117
This incredibly rudimentary calculation makes it very easy to see the value of college. For a man, if he spends $100,000 on his college education, it will break even for the rest of his life. If you are a woman, that amount is $70,000. If he spends less, he has a positive ROI, and if he spends more, he has a negative ROI.
However, this is where it gets a little scary. What if we use a more reasonable return rate of 8%? Colleges are significantly less valuable.
Net present value of men ($900,000): $28,195
Female Net Present Value ($630,000): $19,373
The truth is that college values are likely to lie somewhere between these two calculations. But if you spend too much money, you will find that it really starts to become worthless.
So how can you personally factor this into your college decisions?
Calculating College ROI
The key to determining whether college is worth going to is simply calculating your return on investment (ROI). Specifically, we look at how much a borrower will have to pay to the university.
If you can pay cash to get 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 considered a luxury. Be it). The only time it really matters is if you have student loan debt.
It’s like buying a car to go to work. The goal is to work to earn money and you need a car to get there. You can buy a really cheap old car – one that will get you from your home to work. Both perform the same function, but one is much cheaper and has a better ROI. But if you have a lot of money and the price tag doesn’t matter, buy the car you like. But most Americans are not in that situation. So you have to think critically about cost and return on investment.
So the name of the game is to borrow only the amount that makes economic sense. And the amount is: You will never borrow more than your expected first year salary after graduation.
“Never take out more student loan debt than you expect to get in your first year after graduation.”
So if you plan to become an engineer and expect to earn $60,000 a year, don’t take out more than $60,000 in student loan debt. If you want to be a teacher and she only makes $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 are also many studies done today to understand ROI. for example, Equal Opportunity Research Foundation recently released a set of data that calculated the ROI of 30,000 bachelor’s degrees from various schools and programs. You will find the real answer that it was a worthwhile college.
Related: Where to Apply to Universities (Find Your Financial and Academic Fit)
How to Understand Your Income After Graduation
This can be daunting, but you have to start here. What do you want to do after graduation and how much can you earn?
Once you’re 17 or 18, it can be impossible to know.But you can (and should) get a ballpark, especially depending on the field you want to get into. 27% of graduates have a job related to their college majorbut it’s a good baseline for where to start.
Once you have a ballpark, you can build a buffer around it. do you want to go to education? See what low-end teachers make in your state. marketing? See what marketing jobs are available? Want to be a doctor? Well, I hope you’ve talked to some doctors.
If you don’t know where your paycheck is, check out sites like: glass door When that’s rightBoth sites have salaries and company reviews. This will help you understand a little more about the big companies in the industry you want to enter.
Reduced tuition fees
Research public school tuition and other low-cost programs. The benefits of an Ivy League education can be rewarded with networking and career opportunities, but it doesn’t make sense to squander them for those benefits. Find options that rank well and have low tuition fees.
You can also choose a hybrid of attending a community college (free in 30 states), meeting general education requirements, and then transferring to a public school.
Seek financial aid and scholarships. There is money available for students of all abilities and financial backgrounds. With just a short trip, you can turn ballooning school tuition into a minimal cash investment. Don’t rule out working in college. Employee benefits often include free tuition on top of a comfortable salary.
Choose to live in your own home or rent a low-cost off-campus apartment. Reducing or eliminating room and board costs can help keep student loan costs down.
Related: The ultimate college budget guide
Take AP courses in high school or test entry-level courses with options such as CLEP. Choose a specialization, stick to important studies, and avoid wasting valuable tuition on unnecessary classes. Choose to get low-cost general education credits at a community college. Get ahead of your investment by graduating early and on time. Extending your time in school will only increase your debt and prolong your ROI.
In my case, I took as many AP courses as I could and took AP exams every spring. As a result, thanks to the number of credits I earned in the AP class, I was able to enter university in my second year and graduate early (even though I changed my major). AP courses were the key to graduating early and saving a little money in college.
work in college
Don’t be afraid to go to school and work. Beyond the fact that you get paid to offset the cost of your college education, working gives you great skills that you can transfer to any job after college.
For many college students, working in a retail store or restaurant is a flexible way to find work while balancing their school schedules.
Conclusion – Is College Worth It?
Is college worth going to? Maybe.
As with any investment, you won’t know until you make an investment and start realizing returns. However, you can protect yourself by keeping the initial cost as low as possible.
For example, paying off student loan debt as an adult creates a better foundation for making future investments and growing your personal wealth.
There are many paths to success, but a bachelor’s degree is still a good option for those looking to live a solid life and live financially comfortably. The return on investment depends on students managing their money wisely, making strong career choices, and backing up their diplomas with discipline and work ethic.
Incurring loan debt puts students behind workers without a degree for the first few years of employment, but the earning potential of college graduates is more than that of those without a college degree. Much better than students. However, it only makes sense if you don’t spend a lot of money on that bachelor’s degree.
What do you think? Are Universities Worth Investing In?