When is a college education a good investment? Of the 15.6 Million undergraduate students who are in university right now, how many have had a serious look at whether their education is a good investment?
I, for one, did not consider if my education would be a good investment, but wish I had given it some thought. In this article I will go over six key factors that will influence if college is a good financial investment and show how you can calculate if your education will be a good investment.
6 Factors That Influence If College is a Good Financial Investment
#1 – The Degree You Get
Which major you choose to study will have a significant impact on your income leaving school and as a result the return your investment in education will have.
From a recent NACE study here is the median starting salary by major…
- Engineering $59,000
- Computer Science $56,000
- Business $48,000
- Health Sciences $43,000
- Math & Sciences $41,000
- Communications $40,000
- Education $37,000
- Humanities & Social Sciences $35,000
#2 – What School You Go To
The school you select will have an impact on the job opportunities available to you when you graduate. Some companies only recruit from a select list of schools and as a result many of the highest paying jobs are narrowly concentrated around a few schools.
Here is a list of the 5 schools with the highest starting salary according to the 2013 PayScale survery…
- MIT $68,400
- CalTech $67,400
- Harvey Mudd College $66,800
- Colorado School of Mines $64,200
- Loma Linda University $63,400
One interesting thing to note is that many of the schools in the top five specialize in engineering degrees which is the highest paying career out of college.
#3 – How Long It Takes To Repay Your Student Loans
Like all loans the longer you take to pay off your student loans the more they will cost you.
If it takes you 5 years to pay off $30k in student loans with a 5% interest rate you will spend $3,968.22 on interest. However, if it takes you 25 years to pay off the same loan you will pay $22,613.10 in interest and this will negatively affect the return on your college investment.
#4 – How Old You Are When You Go To College
If you are going to school at a later age in life you will have fewer years to earn the additional income a college education provides. If the company you are working for is going to pay for your education than the financial return will be positive.
#5 – What Alternatives You Have
Depending on your situation you may in a lucky position where you have a high paying job available to you immediately out of high school. For example, if you can join a family business where a college degree would provide marginal benefit you will end up with a significantly higher return by working for the 4 years it takes to attend school.
#6 The Academic Results You Achieve
Just as not all degrees/schools are equal not all students are equal. If you achieve a high GPA you will have a better chance of getting a high paying job.
In a study completed by MIT, there was a +/- $8,000 swing from the median starting salary for students with the best GPA and worst GPA.
So in summary you should go to MIT straight out of high school, study engineering and get a 4.0 GPA – it’s that easy
How To Easily Calculate if College Is A Good Investment
Investing is at its core the allocation of scarce resources between alternatives. In the case of investing in your education the scarce resources you will have to spend are your money and your time. The alternative is not going to college and entering the job market right away.
Below is a video that shows how you can make a few assumptions and determine if you think your college education will return a positive ROI.
Want more information? Get the student loan ROI calculator here.
What are your thoughts on whether college is a good investment? Does your degree matter?