- 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 wellbeing.
A college degree represents a sound investment
in your future earnings.
The financial return over a lifetime
makes an undergraduate education a smart move.
Remember, college graduates on average
earn 84% more over their lifetime
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 an uphill battle.
Once hired, degreeless employees
might find their lack of a degree
a hurdle to future promotions and raises.
So how do you know if college is worth it then?
In this video, we'll dive in and see.
Hey everyone, this is Andy Hill
with The College Investor,
investing and personal finance for millennials.
If you're new to the channel and like what you hear,
please hit subscribe so you're ready
when our next video comes out, thanks.
So why do people go to college in the first place?
Well, there are a lot of ideals:
learning, networking, and building lifelong relationships.
But the truth is college, it costs money.
And most students are going to college
because they're trying to learn skills
that will allow them to earn more money after graduation.
Wait, that sounds like an investment because it is!
Too many students borrowed money for this investment
and the return on the investment is not what they expected,
thus making it hard to repay the student loans
that they took out.
So what does the data show about the value of college?
Well, one of the most commonly cited pieces of data
showcasing the value of college
comes from the Social Security Administration.
Men with bachelor's degrees earn approximately $900,000 more
in median lifetime earnings than high school graduates.
Women with bachelor's degrees earn 630,000 more.
Men with graduate degrees earn 1.5 million more
in median lifetime earnings than high school graduates.
Women with graduate degrees earn 1.1 million more.
That's a great data point but it emits a key factor.
How much did that person pay for their degree?
It sounds amazing to suddenly earn $900,000 more
over your lifetime,
which is approximately 45 years of working
after college graduation.
But what if you paid $900,000 for that degree?
Is it worth it?
No, of course not.
That's the crux of the issue.
What's the value of the increased lifetime earnings
in today's dollars?
That's where it gets eye-opening.
It can also be a little messy
since we have to make some estimates
such as the rate of return
and also factoring in inflation.
We also have to realize that not everyone is equal,
not all careers are equal, et cetera,
but it's good to have some data points to help.
Let's calculate the net present value
of both $900,000 and $630,000
over 45 years.
That means you graduate at 22,
and then you work until you're 67.
We'll use a 5% return rate for our calculation.
Net present value for men of $900,000
would be $100,167.
Net present value for women of 630,000
would be $70,117.
With this incredibly rudimentary calculation,
we can see pretty easily the value of college.
For a man, if you spend $100,000 on your college education,
you'll break even over your entire lifetime.
If you're a woman, that number is $70,000.
If you spend less, you start having a positive ROI.
If you spend more than that, you have a negative ROI.
Here's where it gets a bit scary though.
What if we used a more reasonable 8% return rate?
The value of college diminishes significantly.
Net present value for men of 900,000
would be $28,195.
Net present value for women of 630,000
would be $19,373.
The truth is the value of college likely lies
somewhere between these two calculations,
but you can see it really starts to become not worth it
if you spend too much money.
So how can you personally factor this
into your college decision?
Let's talk about calculating your college ROI.
The key to deciding if college is worth it
is to simply calculate your return on investment, ROI.
Specifically, we're gonna look at how much you should borrow
to pay for college.
If you can pay cash for your degree,
it doesn't matter if it's worth it
because you're buying a luxury that you actually can afford.
It's only if you're going into student loan debt
that it really matters.
It's like buying a car to get to work.
The goal is to work so you can earn more money
and you need a car so that you can get to work, right?
You can buy a really cheap car,
really cheap old car that gets you from your house to work,
or you can buy a brand new Mercedes.
They both serve the same function
but only one is much cheaper
and actually has a better ROI, right?
But if you have so much money
and the price tag doesn't matter,
buy whichever car you want, right?
But most Americans aren't in that situation.
So we have to critically think
about the cost and the return on investment.
So the name of the game is to only borrow
as much as makes financial sense,
and that amount is never borrow more student loan debt
than you expect to earn in your first year post-graduation.
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 wanna 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.
There's also a lot more research today
to understand the ROI of college.
For example, The Foundation for Research
on Equal Opportunity recently released
a bunch of data that calculated the ROI
on 30,000 bachelor's degrees
from different schools and programs.
You can see the real answer
to whether college was worth it in that information.
We'll keep that link in our description.
Let's talk about how to understand
what you will earn after graduation.
It's gonna be a tough one
but it's where you have to start.
When you're 17 or 18 years old,
it can be impossible to know,
but you can get a ballpark and you should,
especially depending on what field you want to go into.
Remember, only 27% of graduates
have jobs related to their major in college,
but that's a good baseline of where to start.
Once you have a ballpark,
you can build a buffer around that.
Want to go into education?
See what a low-end teacher makes in your specific state.
Marketing, see what marketing jobs are available.
Wanna be a doctor?
Well, I hope you've spoken to some doctors.
If you don't know where to find salaries,
look at sites like Glassdoor and Indeed.
Both sites have salaries and company reviews,
which can be helpful to understand a bit more
about big companies in the industry you want to get into.
It's also important to do your best to reduce tuition costs.
Research in-state school tuition,
as well as other low-cost programs.
While the benefit of an Ivy League education
could pay off in networking and career opportunities,
it does not make sense to overspend for those benefits.
Find well-ranked, lower tuition opportunities.
You could also opt for a hybrid
of starting at a community college,
which is free in 30 states,
and then transferring to a state school
after you knock out your general education requirements.
Seek financial aid and scholarships.
There's money available to students of all abilities
and financial backgrounds.
With a little bit of legwork,
it's 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 that you take on.
It also helps to accelerate your studies.
Take AP courses in high school
or test out entry level courses
with options like C-L-E-P, CLEP.
Pick a major and stick to the core studies
to prevent 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.
As an example,
the founder of The College Investor, Robert Farrington,
took as many AP courses as possible
and took the AP exam each spring.
As a result, he was able to start college
with sophomore standing
due to the number of credits he received for his AP classes.
And he was able to graduate early,
even though he changed his major midstream.
AP courses were the key to graduating early
and saving a bit on college costs.
You can also work through college.
Don't be afraid to go out and work during school.
Beyond the fact that you can get paid
and can use this money
to offset the cost of your college education,
working gives you amazing skills
that you can transfer to any job after college.
For many college students,
working at retail or in a restaurant
is a flexible way to find a job
while still being able to balance your school schedule.
So in the end, is college worth it?
Well, maybe, like any investment,
you won't know until after you make it
and start to realize the returns.
But you can protect yourself
by spending as little as possible upfront.
For example, mitigating the amount of student loan debt
you carry with you into adult life
creates a better foundation to make future investments
and grow your personal wealth.
While there are many pathways to success,
an undergraduate degree is still a good option
for those looking to earn a solid living
and live in financial comfort.
The return on the investment
depends on the 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-degree workers
for the first few years of employment,
the earnings potential of those with college degrees
far outpaces those without.
However, it only makes sense
if you don't spend a lot of money
on that undergraduate degree.
Well, enough from our side, everyone.
We wanna hear from you.
What do you think?
Is college worth the investment?
Please let us know in the comments below.
This is Andy Hill from The College Investor.
We'll see you in the next video.