The question so many people ask themselves every year. Is college worth it? Whether you are just graduating high school, or are in the midst of a career change, it’s a question you need to ask. It sounds simple, as most parents will by default answer “yes, of course”. But it’s more complicated than that, and the right answer is, “it depends on a number of factors.” At the end of the day you need to calculate the return on investment (ROI) to understand the worth of a college degree.
There’s no question statistically that post-secondary education increases our ability to earn money. And based on averages, the higher the degree level, the higher the average salary. Just look at the numbers provided by the Bureau of Labor and Statistics. It’s clear.
But there’s some nuance to those numbers because not all degrees are created equal. For instance, there is a wide range of salaries for a lawyer, but you might end up paying just as much for schooling regardless of the job opportunities. That creates a potential for large differences in the college ROI.
If you’d like, you can jump straight down to our college ROI Calculator. Otherwise, continue reading to learn about some of the questions you should consider when figuring out if college is worth it.
Table of Contents
Total Cost Impacts ROI?
There are several factors to consider when looking at the total cost of college. Often people don’t look into expenses outside of room and board that will quickly add up. That’s especially true if you need student loans that will have you paying interest. That interest can add up over a long period of paying off the loan.
Tuition and Fees – Tuition and fees are most often the largest part of college costs. According to the Department of Education College Scorecard, the average in-state tuition and fees are $22,155. The average out-of-state tuition and fees are $25,569.
Compare that against the average total cost of $34,220, and you see there is still a hefty yearly cost beyond just tuition and fees.
Room & Board – The next largest expenditure is often room and board, with a wide range of costs in this category. It depends on whether you stay on or off-campus and pay for meal plans offered by most colleges. Regardless of how you go about this, it’s a big factor in figuring out if a certain college is worth it. Room and board may completely change the college ROI calculation and make it a better deal to attend another university or local trade school.
Additional Living Expenses – As with room and board, additional expenses can add up quickly. This is especially true for younger students not accustomed to managing money on their own.
Interest on Student Loan Debt – According to the Federal Reserve, over half of students took on some student loan debt for the 2017-2018 school year. That debt is typically between $20,000 and $25,000 and can add a large monthly payment after graduating. In fact, between 13% and 20% of people with outstanding student loan debt are behind on their payments.
Estimate your student loans by using our student loan calculator.
Opportunity Cost – Don’t forget to factor in the opportunity cost of working rather than being in school. If you are a young student, that opportunity cost is probably minimal since you can’t command a high salary. But if you are looking for a new career later in life and already have good earnings potential, opportunity cost can be a large part of the college ROI equation.
Net Price Calculators – Don’t forget that all colleges are required to have net price calculators to help show you an all-in cost. These can be very beneficial because they take into account specific family circumstances. Things like income level, high school grades, and other factors can make it more or less likely you will receive some financial aid. Be sure to check these calculators when seriously considering if a college is worth it.
Increased Earnings Equals Better ROI
After establishing the costs of school, you need to figure out your earnings potential. There is a wide range of possibilities as most degrees can offer many different career opportunities. That said, you may have a good idea of where you want to end up after graduating. Look at what job opportunities in that area are paying.
Find other jobs that might be pertinent to the degree you are considering to see alternatives. There’s no doubt you want to pursue your passions in life, but doing it without calculating the ROI can backfire. Doing what you love while struggling to pay back student loan debt can take the joy out of working in a field you love.
Once you’ve identified the likely jobs you might have, search for those jobs on our site. You’ll find the median earning 10 years after graduation for each occupation where data is available. The Bureau of Labor and statistics tracks this information, along with the expected growth rate of these jobs over the next ten years.
You should be looking for careers with a good salary and those that have a good outlook for growth.
Do I Need a 4-Year College Degree?
Some careers demand a 4-year degree. Doctors, Lawyers, Accountants are undoubtedly going to need a minimum of 4 years in college.
But certain people do not need a 4-year college degree to maximize their ROI. If you are uncertain what career you’d like to go into, it’s worthwhile exploring other options. Finding less expensive community colleges, trade schools, or apprenticeships allows you to reduce costs.
A community college can offer a broad curriculum that allows a student to explore different subjects more easily. You can then transfer credits if you decide to move further with your education.
In the case of a career school or apprenticeship, you can actually get paid while getting an education. Just be aware these are very focused schools designed to train you for a specific job.
Consider all the options before deciding whether a 4-year college is worth it.
How do I Find the College with the Best ROI
Finding colleges that offer the best value for your money is key to maximizing college ROI. Let’s look at a few things that can drive significant gaps in cost between schools.
In-state vs. Out-of-State Colleges
Sometimes you might be tempted to head to the college with your favorite sports team or party scene. That might make for a fun environment, but it can be costly if that means going out-of-state. The difference in cost for an in-state student at a public university can be significant. Here in Michigan, the University of Michigan charges $14,826 for an in-state student vs. $47,476 for out-of-state. That’s over $30,000 delta per year and $120,000 if you manage to graduate in 4 years. That makes the college ROI and value proposition for an in-state student vastly different than out-of-state.
Private vs. Public Colleges
Just as in-state schools often have better rates for their students, public universities often cost far less. The best public colleges in America will offer top-notch educations and degrees that will give you a competitive chance at jobs around the country. Before agreeing to pay a substantially higher price at a private university, make sure you understand if it’s worth it based on the ROI for that college.
Look, let’s get it out there that many big-time colleges these days operate similar to businesses. They have huge advertising and marketing budgets.
They have huge sports teams that act as a major draw to many people deciding about college. And it’s in their best interest to maximize the amount of money charged for tuition. And they should maximize the value of the service they provide. It’s how our system works, especially in the world of private colleges.
But for this reason, public Universities offer some of the best value colleges because they allow in-state students to attend at a more affordable cost.
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How we Calculate the College ROI
Calculating the ROI of going to college is straightforward. By taking the cost and future earnings variables we discuss below, we can quickly find the ROI.
Current Salary – Knowing your current earnings potential is key to knowing the ROI of a college degree. This is the basis for the opportunity cost you will forfeit while in school, assuming you can not work simultaneously.
Future Salary – Being able to increase earnings while doing something they enjoy is why many people go to school. If you don’t stand to increase your earnings potential, then the ROI will not be there. That doesn’t mean going to school is the wrong thing for you if it’s based on a passion. Just go in knowing there may be little to no financial benefit.
Total Cost of School – Factoring in all the costs, including the opportunity cost, is necessary for an accurate ROI. You will need the cost of tuition, room, and board, loans and interest, additional expenses, and other costs you may incur over your time in college.
Time in School – In today’s world, the amount of time it takes to graduate from school varies widely. That can have a large impact on a college ROI. With college costing tens of thousands per year, an additional year will decrease the potential return.