Is College Worth It? How To Calculate Your ROI

While the thought of incurring student loan debt makes many prospective students reconsider pursuing post-secondary education, the impact of a degree still outpaces the pain of loan debt on future financial well-being. A college degree represents a sound investment in your future earnings. The financial return over a lifetime makes an undergraduate education a sound investment.

Remember, college graduates, on average, earn 84% more over their lifetimes compared to just high school graduates. While tales of successful college dropouts like Bill Gates encourage the notion that an undergraduate degree is not worth the time or money spent, those entering the workforce without a degree face and uphill battle. Once hired, degree-less employees might find their lack of degree a hurdle to future promotions and raises.

So, how do you know if college is worth it? Here’s how to dive in and see.

Calculating Your College ROI

The key to deciding if college is worth it is simply to calculate your Return on Investment. Specifically, we’re going to look at how much you should borrower to pay for college. If you can pay cash for your degree, it’s almost always worth it and there is little else to consider. It’s only if you’re going into student loan debt that it really matters.

So, the name of the game is to only borrow as much as makes financial sense. And that amount is: never borrow more than your expected 1st year post-graduate salary.

So, if you plan on becoming an engineer and expect to earn $60,000 per year, don’t borrow more than $60,000 in student loan debt. If you want to be a teacher and only expect to earn $38,000 per year, don’t borrow more than $38,000.

It’s a very easy rule to understand, but it can be hard to follow.

So what do you do if you’re coming up short when following this rule? You have three options.

Reduce Tuition Costs

Research in state school tuition as well as other lower cost programs. While the benefit of an Ivy League education does pay off in networking and career opportunities, it does not make sense to overspend for those benefits. Find well-ranked, lower tuition options.

Seek financial aid and scholarships. There is money available to students of all abilities and financial backgrounds. With a little bit of leg work, it is possible to reduce ballooned school tuition to a minimal cash investment. Don’t rule out working for a university, often employee benefits include free tuition in addition to comfortable salaries.

Choose to live at home or rent a low cost apartment off campus. Reducing or eliminating room and board expenses can help limit the amount of student loans.

Accelerate Your Studies

Take AP courses in high school, or test out of entry level courses with options like the CLEP. Pick a major and stick to the core studies to prevent spending valuable tuition money on extraneous classes. Opt to take lower cost general education credit hours at a community college.  Get ahead of your investment by graduating early and on time. Extending your stay in school only increases debt and postpones your ROI.

In my case, I took as many AP courses as possible, and took the AP exam each spring.  As a result, I was able to start college with sophomore standing due to the amount of credits I received for my AP classes, and I was able to graduate early (even though I changed my major).  AP courses were the key to graduating early and saving a bit on college costs.

Work Through College

Don’t be afraid to go out and work during school. Beyond the fact that you get paid and you can use this money to offset the costs of your college education, working gives you amazing skills that you can transfer to any job after college.

For many college students, working in retail or in a restaurant is a flexible way to find a job while still being able to balance your school schedule.

Conclusion – Is College Worth It?

While most loans defer until after graduation, start paying down debt while it is under control and low interest. Mitigating the amount of student loan debt you carry with you into adult life creates a better foundation to make future investments and grow personal wealth.

While there are many pathways to success, an undergraduate degree is still the best option for those looking to earn a solid living and live in financial comfort. The return on the investment depends on students managing money wisely, making strong career choices, and backing up their diplomas with discipline and work ethic.

While incurring loan debt sets students behind non-degreed workers for the first few years of employment the earnings potential of those with college degrees far outpaces those without. It’s the difference between investing in a lottery ticket or contributing to your 401k. One is a shot in the dark, the other is a sound investment.

What do you think? Is college worth the investment?

Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.