Low rates. No fees. Just money for college.
If you’re thinking about going to college, the total cost listed in those college brochures might give you sticker-shock. A common reply to fear about how much your higher education will cost is, “it’ll be worth it.”
But how do you actually estimate that the degree you’re going to spend years earning and tens (or hundreds) of thousands of dollars earning is actually going to pay off as a college graduate? Let’s walk through some strategies to help you put a dollar value on that diploma.
Low rates. No fees. Just money for college.
Value of an Education: What the Data Says
Even though the cost of college is increasing and outpaces inflation, the data points to it still being worth the cost.
Data from the Bureau of Labor Statistics shows that with more education, Americans earn more money. Looking at median weekly earnings for people 25 and older, those who complete a bachelor’s degree earn $484 more per week compared to someone with a high school diploma.
High school: $746
Research from the Federal Reserve Bank of New York also supports the argument that education is still worth it, despite the rising costs. Both Bachelor’s degree and an Associate’s degree holders have earned returns of 15% over the past decade.
That data makes it clear that on average, a college education will increase your earning power over high school graduates. But is that the case in all situations?
How Much Should You Spend on College?
Deciding how much a four year degree is worth to you (and how much you want to spend) is a personal decision. There’s no easy way to predict whether it will impact your future finances and by how much. While looking at 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 do your own assessment.
Here are some tools to help you do just that.
Net price of college
The cost of college is a topic of many conversations because it’s more than doubled over the last 30 years in the United States. For the 2018/2019 school year, the cost to attend a four-year public college was $24,869. The costs that year to attend a private non-profit was $51,874 and a private for-profit was $33,219.
Those costs can be a good place to start when assessing the value of a college education, but even better would be to get an estimate of the net price of education. The net price is the cost per year after taking into account scholarships and grants. In some cases, this can bring down the price tag for college significantly.
To help you get an estimate of the net price you can expect to pay, you can search the net price calculator by school. You may find that depending on your financial situation, attending a school with higher tuition costs might be just as affordable as a lower-priced college.
By getting the net price, you’ll get a better estimate of how much a degree will cost you at each college you’re considering.
Average salary after graduation
Now that you have an idea of how much college will cost, it’s time to figure out how much that will help you make when you enter the job market. If you’re trying to determine how much to spend on your education — and how much to borrow in student loans — getting a good estimate of the average salary you can expect to earn is important.
One place to start your research is the Career Earnings by College Major tool from the Hamilton Project. With the tool, you can search by major and find the median annual earnings for each major.
Another option is to use data from PayScale. Using your tool you can find that the average salary for someone who graduated with a BA in Marketing is $60,555 while someone who graduated with a BS in Computer Science earns an average salary of $84,895.
With both of these tools, it’s good to keep in mind that they’re just starting points. Pay will vary by many factors, including your local labor market and competition from other educated workers.
If you have a short-list of colleges you’d like to attend, you may even find better data to estimate average full-time salaries. For example, Duke University lists average salaries for the top 10 highest paying jobs from the class of 2019. And the University of Colorado Boulder Engineering school report that 62% of graduates expect to earn between $55,000 and $79,999.
Return on Investment
Even with that data, it can be difficult to get an estimate of what the value of your degree might be. Luckily, there’s more research that can help.
The Center on Education and the Workforce at Georgetown University published a report in 2019 ranking 4,500 colleges by their return on investment (ROI). Using this report you can look up a school by name to see where the net present value of the degree ranks, compared to other colleges. You’ll also be able to see the graduate rate, which can seriously impact the ROI you can expect to receive from a school.
ROI is an economic value most associated with stock market investing or home buying, but it could help students decide how much student loan debt they could pay off, or if you should go back for that Master’s degree.
How Much Should You Borrow?
If, after doing your own assessment, you decide that attending college is worth the cost, there is still the concern of paying for it. Few students have unlimited funds to draw from to pay for college. Approximately 70% of students take out loans to fund their college education.
While many students need to take on debt, how much is too much? Whatever you borrow you will need to repay, with interest, and you don’t want that student debt to be a strain on your finances for years to come.
Deciding how much to borrow is a personal decision and it depends on a number of factors. But the CFPB gives a rough guideline to follow: don’t borrow more than you expect to earn as a starting salary when you leave school.
For example, if you think you think your starting salary will be $50,000 (the approximate starting salary for the class of 2019), using this guideline you shouldn’t borrow more than $50,000. The CFPB estimates that when you include interest in the loan repayment calculation, the monthly payment will be 14% of your gross (pre-tax) income. Borrow more than that and you might struggle to meet the monthly minimum payments.
Ultimately, deciding whether school is worthwhile and how much you should spend is a very personal decision. But there are plenty of tools and calculators that can help you start exploring these choices.