As college continues to get more and more expensive each year, it can be harder and harder for potential students to determine whether attending is really worth it.
On average, universities in the US raise tuition costs by about 3.2% each year, higher than the roughly 2.5% rate of inflation. On the other hand, average wages for US jobs increased between 2.9 and 3.1% this last year, a rate we can estimate is roughly the annual average.
This means that college tuition prices are going up a little faster than wage growth. All this said, is going to college actually worth it? In other words, what is the return on investment of attending college?
Calculating the ROI of a college degree
Calculating the return on investment of a college degree is actually pretty simple on the surface of things. You simply determine what the salary you will get from having a college degree versus the Salary you would receive with simply a GED and divide by the cost of tuition.
That said, you’ll want to do this over 10 year, 20 year, and possibly lifetime increments to determine when your college ROI will turn positive. Rather than just talk about the math, let’s do an example and then look into schools and degrees more specifically.
Let’s say your four year tuition cost at a university is 125,000 dollars, or $31,250 in tuition and fees each year, the average annual price of tuition in the US. Then let’s assume that your salary difference will be $17,500 per year. This number is taken from a Pew research study determining the yearly median income gap between high school grads and college grads.
10 years after graduating, you’ll have made $175,000 more dollars than if you didn’t go to college at all, meaning your 10-yr ROI is 175,000/125,000 is 1.4, or 140%. Your 20-yr ROI would be 350,000/125,000, 2.8 or 280%. If we say you would work for 45 years after getting your degree, then we can calculate your lifetime college degree ROI, based on these average numbers as being 6.3, or 630%. Numerically speaking, based on these average values, you’d have earned $787,000 more during your career just by having a college degree.
From those examples you should get a pretty good idea of simple ROI calculations for college and how they work. I should note, we didn’t factor in inflation, the 4 years you would’ve been working if you didn’t attend college, or the fact that salary differences will vary based on degree path and skillset.
From the onset, college looks to be a positive ROI after about the first 5 to 10 years. When you look longer term, college makes sense monetarily, at least based on the average numbers.
Are top schools worth it?
Let’s take these calculations and look at more specific schools, again working with average numbers since that’s the best way to present college as a whole together.
If you look at the chart below from the Data Face, you can see that attending the top colleges in the nation produce some pretty strong 20-year returns. MIT and Caltech specifically seem to produce the highest ROIs for graduates. After 20-years, MIT grads earn about $959,000 more than college grads and CalTech students a little less at $864,000. This makes sense though, both of these schools are highly STEM focused, which as a sector has higher salary ranges than others. Even still, we can see that Princeton has grads earn about $764K more after 20 years and Yale grads $626K.
All of this presents some strong arguments for college being worth it, especially the nations top universities, but it’s important to note that we’re working with averages here, and that can skew the values relevant to you.
Tailoring College ROI to you
When calculating ROIs for college, you’ll want to zero in on your specific degree path, your specific college, the salaries where you plan to work, and the alternative career choices you have if you didn’t go to college. Going to an ultra-expensive university for a degree that won’t net you very much money can mean that it would take several decades for your college education to be worth it.
Conversely, going to a cheaper school might net you the same education and same job opportunities with a far lower up front cost. This concept can be seen in the data too. Determining which college is right for you isn’t just about finding the right culture fit, you might also want to determine how you can maximize your return on investment too, since college is ultimately a giant business investment decision for the rest of your life.
When you examine the data, it becomes a little clearer how going to a cheaper school can net you the same potential return in income down the line with lower up front cost, meaning you break even sooner. If you look at this chart comparing private to in-state colleges, you can see that nearly all students break even going to an in-state cheaper school, but a much more significant percentage of private college grads don’t break even, even after 20 years.
The other interesting thing about this data too is that in-state and private colleges offer about the same earnings potential, or ROI over your life.
So, now that we’ve gone through some specific examples working from data, demonstrated how you can calculate ROI for your own situation, we have to answer the question of whether college is actually worth it.
In general, it still seems like college is worth it in the US if we look at average numbers, though you might want to strongly weigh going to a cheaper school if maximizing your ROI is something you care about.
College isn’t for everyone, though. There are fantastic trades that you can start working in right out of high school that could make you more money than if you got a degree in history and became a teacher or historian for example. Determining whether college is worth it is a unique equation for each and every person, one that also changes every years as tuition fees rise as well.
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If you want to learn more about how they can help, they have programs at low-cost or now cost depending on your financial aid status that you can check out at our link below. And if you sign up, you’ll be supporting our channel as well!