Home > Students > What’s Your College Degree’s Return on Investment?

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Are you a high school senior? It’s fast approaching the time of year when you’ll be making your final college decisions, but the criteria that you have traditionally been told to use when making these decisions could lead you to make choices that you’ll regret later.

Most students have been told that the quality of the academics is important, as well as the reputation of the school. On college visits, schools have emphasized the campus life, facilities, residence buildings and amenities. While these factors can help guide you toward schools where you’ll learn a lot and have a good time, but if it means going thousands of dollars into debt in order to have those experiences, you might want to weigh your decision carefully and perhaps consider a cheaper college.

You may, at some point, have been encountered the belief that attending a more prestigious school will mean an automatic ticket to making much more money or having a better life. The problem is that prestige doesn’t always translate into more earnings. Researchers Stacy Dale and Alan B. Krueger published a study in 2011 that suggested that once you control for other variables, going to a more selective college didn’t affect earnings at all. However, other studies have shown that sometimes prestige does matter, particularly at Ivy League schools.

Where you go to college should be looked at, at least in part, as an economic decision with real and lasting economic consequences. As a student, you’re on campus for four years (or more), but as a student loan borrower you’re likely paying off those loans for 10-25 years. Choosing where you go to college is one of the largest purchases you’ll ever make in your life – up there with buying a house or car. Unfortunately, if you’re making that decision at 17 or 18 years old, you may not fully understand the consequences of your choice. A 2012 study by Young Invincibles found that many student loan borrowers don’t even understand how student loans really work.

So how should you decide what school to go to? While there are many reasons that people attend college, one factor that can help you decide is whether it’s a good investment. Depending on who you ask, the increase in earnings you’ll get as a college graduate is anywhere from $250,000 to over $1 million. But that’s an average. That return varies significantly based on what school you attend, what degree you take, how much you pay and how much of what you pay is paid with student loans.

Here’s how to calculate the potential return on investment you’ll get from the colleges you’re choosing from.

1. Determine How Much You’ll Really Pay

Once you get the financial aid offers from the schools you applied to, you’ll have a better idea of what you’ll really need to pay in order to go to each school. Add up all the costs of attending each particular school including estimated room and board, tuition, books, fees, travel and any other living expenses you expect to have while you’re there. Next, subtract any non-loan assistance the school has offered including grants, scholarships, merit aid, work study and any other financial aid. What you’ll have after that is your cost for attending that particular school.

But once you have that number, you’re not done! You need to figure out how much of that amount you can pay in cash and how much you’ll need loans for. Once you know how much you’ll need to borrow to go to that school, you need to calculate how much those loans will cost you as you pay them off. Since loan terms can often range from 10-25 years, I suggest you choose a realistic 15-year period for paying off your loans. There are student loan calculators that help you figure out how much you’ll pay in interest over the years. Once you have this figure, you can add this to what you paid in cash and you have your total educational investment.

2. Determine How Much You Can (Realistically) Expect to Earn

Many colleges will list the average salary of graduates from that college. While that can be helpful to give you a general idea, if you’re getting a degree in Liberal Arts or Engineering your salary will probably be below or above that average, respectively. Some departments track the salary of graduates and post them online. If you can’t find salary information for graduates, you might want to call the Admissions Office and ask them if they can provide it to you. You can also use Payscale’s College Education Value Ranking which calculates the return on investment of almost 1,500 colleges.

You might also want to check to see if they have figures on how many graduates are in fields relevant to their degrees, and how many are actually employed. Obviously, if you pay for your degree and then can’t find a job after you graduate, that will translate into a bad return on your investment.

Another thing to keep in mind is what you want to do with your degree. For example, if you’re doing an Engineering degree because your dream is to help build wells for the indigent, you’re likely going to make far less than the average Engineering graduate. If your goal is to work in a profession that offers low wages, you may want to consider whether you can get additional grants or scholarships… or perhaps even look at what a less costly school has to offer.

3. Don’t Make an Emotional Decision

Despite what college rankings and college admissions offices will try to tell you, the differences between schools may not be as big as they seem. Most schools offer a great education and equally great opportunities to get a job after you graduate.

While what college you go to is not solely a financial decision, it is one of the most important and biggest financial decisions you will make in your life. While emotions will undoubtedly come into the equation, try to make your choice from a more rational place.

Keep the educational return on investment in mind and consider your future self. Do you want to be paying off your enormous student loans into your 30s or 40s? Or would you rather be enjoying your life, and spending that money on things like your home, your kids or amazing vacations with friends or family?

Student loans can have a big impact on your credit, so the better off you’ll be if you can plan ahead and borrow what you will reasonably pay back in upcoming years. If you already have student loans, you can see how they’re affecting your credit by getting your free credit scores on Credit.com.

More on Student Loans:

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