Is College Worth It?

Image source: Huffington Post

The cost of a college education continues to increase faster than just about anything else these days, and a generation of college graduates are still having trouble finding jobs in their chosen fields. Many of them are still working multiple part-time jobs or moving back in with mom and dad just to make ends meet. Against that backdrop, for today’s high school seniors looking forward to college and then post-college careers, the future can sometimes look a little discouraging.

So, when I came across the following webpage claiming to analyze whether the cost of a college degree is still worth it, my interest was immediately piqued: Priceonomics.com: Is College Worth It?

The site claims to compare college costs vs. potential increase in earnings over a high school degree. You can find breakdowns by school-types and also for individual schools, by entering the name of the college you are considering into the search bar beneath the graph.

Of course, as with any analysis, you have to put the data into context. One caveat is that the search tool compares the future earnings of a college degree against the cost of college without considering grants and scholarships. However, most students don’t pay the full ticker price, especially at private institutions. Once those are factored into the analysis, you get a picture like this:

As you can see, for the majority of college graduates, their lifetime earnings are increased by $400,000-800,000 over a high school diploma. For this increase, they paid somewhere around $40-80k (net of grants and scholarships). To put this in investment terms, that’s a return of about 18% per year (if annualized over one’s working life). Obviously, that’s a pretty good return on your money.

Another caveat that immediately comes to mind is that your future earnings obviously depends largely on what degree you earn, and perhaps to a lesser extent, on your GPA. These are just averages, so the results would obviously vary greatly depending on whether you are interested in pursuing a psychology degree or one in engineering. To get more information on potential salaries of different degrees, check out the Occupational Outlook Handbook.

While it’s clear that, for the vast majority of people, a college degree is still a good financial decision in the long run, we would nevertheless recommend a well-informed look into the expected return on your college investment. This requires not only the future salary expectations of a particular degree, but also aspects such as the average SAT scores of incoming students, available financial aid programs, cost-of-living in the nearby area,  and of course, the tuition and fees cost. College Board is is useful resource for finding many of those data points, and much more. As financial planners, we are happy to help our clients think through this important financial decision.