Education is an investment, and college is one of the biggest investments ever. As we all know, studying costs a lot of money. But college gives you the opportunity and advantage to get a good job and earn a better salary.
If you are thinking of going on to college, you may be surprised at the total costs listed in this college brochure. Often, the answer to a fear of how much it will cost to study is “it will be worth it.”
But how do you predict that the rate of profit you’ll spend tens of thousands (or hundreds of thousands) of dollars on for years to come will actually pay off as a college graduate? Let’s take a look at some strategies to help you put your dollars on this diploma.
Educational Value: What the Data Say
Even though the cost of college is rising and beating inflation, data shows it’s still worth the cost.
Data from the Bureau of Labor Statistics show that more educated Americans make more money. Looking at the median weekly earnings of those aged 25 and over, a graduate with a bachelor’s degree earns $484 more per week than someone with a high school degree.
- Bachelor’s Degree: $1,248
- Associates: $887
- High School: $746
Research by the Federal Reserve Bank of New York also supports the argument that education is still beneficial despite rising costs. Bachelor’s and associate degrees have achieved 15% returns over the last decade.
This data shows that higher education increases your income compared to high school graduates. But does it apply in all situations?
How Much Should You Spend on College?
Deciding how much it will cost (and how much to spend) to study for four years is a personal choice. Whether and how much this will affect your future finances is not easy to predict. While reviewing general information is helpful to give you a guideline to estimating the value of college, it’s a good idea to take the time to write it yourself.
Here are some tools to help you with that.
College net price
Tuition fees have been the subject of debate as they have doubled in the United States over the past 30 years. For the 2018/2019 school year, tuition at a four-year public college is $24,869. The cost to participate in a private nonprofit organization that year was $51,874, and the personal benefit was $33,219.
These costs can be a good start for estimating the value of higher education, but it is even better to calculate the net costs of education. The net price is the price per year after taking into account scholarships and grants. In some cases, this can cut tuition costs significantly.
To get an estimate of the expected net price, you can look up the school’s net price calculator. Depending on your financial situation, attending a higher-tuition school can be as cheap as a lower-tuition university.
By calculating the net price, you can get a better idea of how much it will cost to graduate from each college you are considering.
Average salary after graduation
Now that you have an idea of how much tuition will cost, it is time to figure out how much that will help you break into the job market. When figuring out how much to spend on your education – and how much to borrow on student loans – it’s important to get a good estimate of the average salary you can expect.
The starting point for your research is the Hamilton College Career Major Tool. This tool allows you to search by major and find out the average annual income for each major.
Another option is to use PayScale data. Using your tool, you can find that the median salary for someone with a marketing degree is $60,555, while someone with a bachelor’s degree in computer science earns a median salary of $84,895.
With both tools, it’s best to remember that they’re just a starting point. Wages depend on many factors, including the local labor market and competition from other educated workers.
If you have a shortlist of colleges to attend, you may find better data on the estimated average full-time salary. For example, Duke University lists median salaries for the 10 highest-paying jobs in its class for 2019. And the University of Colorado, Boulder Engineering, reports that 62 percent of graduates expect between $55,000 and $79,999.
Return on Investment
Even with this data, it can be difficult to calculate the value of your degree. Fortunately, there is more research that can help.
The Center for Education and Workforce at Georgetown University released a report in 2019 that ranked 4,500 colleges by return on investment (ROI). This report allows you to search the name of the school to see where the net present value of the degree compares to other colleges. You can also look at the percentage of graduates that can seriously affect the rate of return you can expect from the school.
Return on investment is the economic value most associated with investing in the stock market or buying a home, but it can help students decide how much student loan debt to pay or whether to return for that master’s degree.
How Much Should You Borrow?
If you decide, on your terms, that the college is worth attending, you still need to worry about the costs. Some students have unlimited funds to pay for college. About 70% of students take out loans to finance their studies.
While many students are in debt, how much is too much? Whatever you borrow, you have to pay it back with interest and don’t want that student debt to burden your finances for years to come.
The decision on the loan amount is a personal decision and depends on several factors. But the CFPB provides a rough guide: Don’t borrow more than you expected to earn as a starting salary when you left school.
For example, using this guide to estimate your starting salary to be $50,000 (estimated starting salary for the class of 2019), you shouldn’t borrow more than $50,000 and the CFPB will calculate it when you factor in interest to your monthly payments payment is 14% of your gross income ( before tax). When you borrow more, you may struggle to meet the minimum monthly payments.
Ultimately, the decision of whether a school is worthwhile and how much money is spent is very personal. However, many tools and calculators can help you find this possibility.
Disclaimer: This blog post contains educational information about personal finance and is not intended to be legal, financial, or tax advice.