One of the biggest questions that students and their parents have when considering attending college is whether or not it's worth the investment. The reality is that attending college can be a significant financial investment, but it can also have a high return on investment (ROI) if done correctly. In this blog post, I will discuss how one can measure the ROI on attending college.
First, it's important to understand what ROI means. ROI is a measure of the financial return on an investment relative to the investment's cost. In the case of attending college, ROI refers to the financial return on the investment in education compared to the cost of attending college.
To calculate the ROI of attending college, there are several factors that need to be considered. These factors include:
Cost of attendance
The cost of attendance is one of the most significant factors that need to be considered when calculating the ROI of attending college. The cost of attendance includes tuition, fees, room and board, and other expenses such as books and supplies.
The cost of attendance varies depending on the type of institution, location, and program of study. For instance, attending a private university will generally cost more than attending a public university. It's important to research the cost of attendance for each institution of interest and factor in any financial aid or scholarships that may be available.
Earning potential
Earning potential is another factor that needs to be considered when calculating the ROI of attending college. On average, individuals with a college degree earn more than those without a degree.
According to a report by the Georgetown University Center on Education and the Workforce, individuals with a bachelor's degree earn $1 million more in lifetime earnings than those with only a high school diploma. In fact, individuals with advanced degrees such as a master's or doctorate degree can earn even more.
It's important to research the earning potential in the field of interest and compare it to the cost of attendance. This can help determine if the investment in education is likely to result in a positive ROI.
Student loan debt
Student loan debt is another factor that needs to be considered when calculating the ROI of attending college. According to the Federal Reserve, Americans owe over $1.7 trillion in student loan debt, with the average borrower owing over $38,000 in student loans.
It's important to consider the cost of student loan debt when calculating the ROI of attending college. Students and their parents should research the interest rates and repayment terms of any loans that may be taken out to pay for college. Most importantly, students should consider the monthly loan payments that will be required after graduation and factor that into their financial planning. Specifically, I'd recommend calculating your estimated monthly loan payment and compare it to the estimated monthly earnings and the cost of living in the city/town you plan on living in post graduation. Stay tuned for an upcoming blog post to explain this further.
Job market demand
Job market demand is another factor that needs to be considered when calculating the ROI of attending college. The job market is constantly evolving, and some fields may have higher demand than others.
It's important to research the job market demand in the field of interest and consider how that may impact future job prospects and earning potential. Some fields may have a high demand for workers, while others may be more competitive.
Networking opportunities
Networking opportunities are another factor that needs to be considered when calculating the ROI of attending college. College provides students with access to a variety of networking opportunities such as professors, classmates, and alumni.
Networking can be an important factor in career success, as it can lead to job leads, mentorship, and career growth. It's important to research the networking opportunities at each institution of interest and consider how that may impact future career prospects.
Now that we've discussed the factors that need to be considered when calculating the ROI of attending college, let's discuss how to actually calculate it.
To calculate the ROI of attending college, you can use the following formula:
ROI = (Earnings from degree - Cost of degree) / Cost of degree x 100%
Let's break down each part of the formula.
Earnings from degree: This is the expected earnings that one can expect to earn over a lifetime as a result of obtaining a college degree. This can be calculated by researching the earning potential in the field of interest and estimating the potential income over a lifetime.
Cost of degree: This includes the total cost of attending college, including tuition, fees, room and board, and other expenses such as books and supplies. It's important to factor in any financial aid or scholarships that may be available.
Once you have the earnings from the degree and the cost of the degree, you can plug those numbers into the formula to calculate the ROI.
For instance, let's say the total cost of attending college is $100,000, and the expected earnings over a lifetime as a result of obtaining a degree are $1 million. Using the formula, the ROI would be:
ROI = ($1,000,000 - $100,000) / $100,000 x 100% = 900%
This means that the investment in education is expected to result in a 900% return on investment over a lifetime. Of course, this is a hypothetical example, and the actual ROI will vary depending on the individual circumstances.
It's important to note that the ROI of attending college is not just about the financial return on investment. College can provide individuals with personal growth, intellectual stimulation, and networking opportunities that can have value beyond just financial gain.
Moreover, ROI should not be the only factor that is considered when deciding whether or not to attend college. Other factors such as personal interests, career aspirations, and family obligations should also be considered.
In conclusion, calculating the ROI of attending college is an important step in deciding whether or not to invest in education. By considering factors such as the cost of attendance, earning potential, student loan debt, job market demand, and networking opportunities, individuals can make informed decisions about their future. While the financial return on investment is an important factor, it's important to remember that college can provide value beyond just financial gain.
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