Are you the type of person who obsessively makes pro/con lists? If so, attempting to understand the value of a college degree is enough to have you spending all of your spare time frantically adding data to spreadsheet columns. Even if you don't go down the rabbit hole of ranking the faculty by how many books they've published, you probably still find it tricky to determine which school will give you the most value for your tuition dollars. You might even be wondering whether with the rising cost of college it still makes financial sense to attend at all.
There are a lot of different ways to conceptualize the value of a college education to figure out whether it's worth going to a particular school or attending college at all. Here are five ways to look at the value of a college degree.
1. Return on Investment
College is one of the most expensive investments people make — four years can add up to more than a starter home or a fancy sports car. Just like you would carefully consider whether to buy a house, you should think about college as a financial investment.
The Cost of Your Education
To calculate your return on investment, you'll need to first look at your net cost of attendance, or what you'll actually pay to attend a school after all non-loan financial aid you receive in the form of grants, scholarships and merit aid. You can estimate your financial aid with a net price calculator that all schools are required to have on their websites. Based on information you provide about your financial situation, the calculator will estimate the amount of financial aid you may get if you attend that school, which will give you an overall idea of how much you'll have to pay out of pocket.
Next, you'll need to determine how much of that cost your family will be able to pay in cash, versus how much you'll have to cover by taking out student loans. You can use a student loan repayment calculator to understand how much those student loans will cost you in interest as you pay them off. Add the amount your family can pay in cash to the amount you'll pay on your student loans over time to get the total investment in your education.
Calculate Your Return
Armed with this information, you'll be ready to calculate your return. Most colleges list the average salaries of their graduates online. This gives a general idea of what you can expect to make. But average salaries can vary widely depending on your degree. When it comes to choosing a major, those looking for a bigger return should consider STEM (science, technology, engineering or mathematics) or health-related fields. Georgetown University's Center on Education and the Workforce found that STEM and health-related degrees earned about $11,000-$14,000 more per year than arts and humanities majors after graduation.
Other factors like where you live, how much experience you have and the size of your employer can also affect your average salary. If you know you want to major in education, you might be able to find an average salary listed for graduates of that department on the school's website or by asking the admissions office. Be aware, however, that this only gives you an average for all graduates rather than for specific jobs you might get with your degree. Another resource is Payscale's College ROI Ranking, which tracks the value of a college degree from most institutions.
Getting the Final Figure
Once you have an idea of your average salary you can multiply that by your anticipated working years and divide it by your total investment to get a number that represents your return on investment. For example, if you'll make $1 million over the course of your career and pay $100,000 for your degree, your return will be 10 times your investment.
While the larger returns on investment are best, what's important is that you'll be able to make enough money to repay your student loans and earn more than you paid for school.
Want to get into Harvard because you think it will make you wealthy? Students are often told by parents or school counselors that the more prestigious a school, the better the payoff — but is that really true? It turns out, it depends on your major.
In a recent study out of Brigham Young University, researchers found that school choice only affected earnings in certain fields. Business majors who attended top schools earned 12 percent more than those who went to mid-tier schools, and mid-tier students earned 6 percent more than those who went to low-ranked schools.
Social science and education majors also enjoyed a prestige boost. Those who showed the least benefit from prestige were engineering and science majors. In contrast, humanities majors who went to elite schools made more than those who went to the least selective schools, but there was almost no difference in earnings between those who went to the most prestigious schools and those who went to mid-tier schools.
3. Increased Future Earnings
If you're worried that you'll graduate and end up making minimum wage as a barista, you'll be glad to know that's not likely to be your fate. According to The College Payoff report, also published by Georgetown's Center on Education and the Workforce, those with bachelor's degrees make an average of around $2.3 million over the course of their working lives compared to those with only a high school diploma who make $1.3 million.
Thinking of getting an advanced degree? If so, the report says in a lifetime you're likely to earn around:
- $2.7 million with a master's degree
- $3.3 million with a doctoral degree
- $3.6 million with a professional degree
It's not just about making a higher salary. A college degree also translates into lower unemployment rates. According to the Bureau of Labor Statistics for 2016, people with these degrees experienced the following unemployment rates:
- 5.2 percent with a high school diploma
- 2.7 percent with a bachelor's degree
- 2.4 percent with a master's degree
- 1.6 percent with a doctorate or professional degree
4. Opportunity Cost
There are a number of obvious costs involved in going to college like tuition, room, board and an unlimited supply of espresso for all those late night study sessions. While studying, you may also be giving up the income you would have earned if you were working full-time instead.
To figure out your opportunity cost, you'll have to look at what you could have made if you had decided to work rather than go to college to calculate your lost income during that period. According to Georgetown researchers, for students who don't work while attending college, they miss out on around $15,000 in income each year, or $45,000 over four years, if they worked full-time for minimum wage. Students who do work while in school will have a lower opportunity cost. But given that there's almost a $1 million difference in income potential between someone with a bachelor's degree and someone with a high school diploma, not working while studying can be a worthwhile trade off.
If you're going back to school for an advanced degree, the calculation will be more individualized since you'll know the current income you're foregoing to study or you'll have a better idea of what you could make with your bachelor's degree. While you might easily be able to make up that loss when you graduate and get a better paying job, it might take a while for you to do so, depending on your field or the time it takes to earn your degree.
While it's important to see your college degree as a financial investment, it's equally important that you enjoy your studies. College lasts at least four years and if you're at a school you don't like or studying something that you aren't interested in, then the ensuing career opportunities won't make you happy either.
Having a passion for what you're studying in college and your chosen career is invaluable — even if it can't be measured like your student loans and future earnings. So, before you get too carried away by numbers, make sure you're excited about the college and major you choose. Money isn't everything.