For decades, higher education was considered the pathway to the American Dream, promising better jobs and higher lifetime earnings. But with the increasing cost of higher education, as well as the rising cost of living, students and parents are correct to ask: “Is a graduate degree still worth it?”
Most students attend college or university to improve their earning potential. But the return on investment (ROI) for higher education varies widely depending on a multitude of factors, including your student loan debt. So how do you decide if higher education is worth it, especially if you pay it with student loans?
Student Loans
Before we dive into the ROI for higher education, let’s talk student loans because they can significantly impact the ROI on your college degree.
Federal student loans are provided by the government, and so come with benefits like income-driven repayment plans and loan forgiveness options in some instances. For this reason, when applying for college or university, it’s best to apply for federal loans first.
But what if you exhaust the federal student loan option? Private student loans can help. SoFi graduate student loans, for example, charge no loan fees, and there are both fixed and variable interest rates available. Of course, taking out private loans, no matter how many benefits they offer, would mean taking on more debt, which can lower your ROI after graduation.
Still, sometimes you simply need additional funds, and if you find yourself in such a situation, we highly recommend shopping around for private student loans to make sure you are getting the lowest interest rate possible. In addition to checking interest rates, check the terms and other fees (and benefits!) different lenders offer.
ROI of a College Education
The simplest way to calculate the ROI of your desired college or university degree is to take your future earning potential over a set period – usually 20 years – and subtract the cost of attending the college and the years spent completing the education.
The cost includes the price of tuition, fees, room, and board, which for most students will be covered by student loans. For example, the average cost to attend a private four-year college is currently $39,400 per year, according to CollegeData. As for public four-year colleges, the average cost is $10,940 per year. Much cheaper, yes, but still nothing to sneeze at.
You should also consider how long it will take you to complete the education. For instance, if it takes you an additional year or two to complete a degree, you will need to pay more for your education (tuition, fees, room and board, etc.). On top of that, that additional year or two of school will translate to opportunity costs. Why? Because you could have spent that extra year or two generating income in your chosen career and paying back the debt.
What about the earning potential? Naturally, earning potential varies greatly depending on your education level, major, and the type of job you get after school. But the easiest way to figure out your earning potential is to compare the average salary for your major from previous graduates from the universities you’re considering.
So, Is Higher Education Still Worth It?
Data shows that the more education a person has, the more they’re paid over their lifetime.
The Hamilton Project, last updated in 2018, found that, on average, career earnings for bachelor’s degree graduates are more than twice as high as for those with only a high school diploma.
And according to Education Data Initiative, the return on investment for a bachelor’s degree is 38.1% after 20 years, while the return on investment for a master’s degree is 90.1% after 20 years.
However, a report from the Center on Education and the Workforce found that many people with only high-school diplomas out-earn those with more advanced degrees. This shows that many employers (including tech giants) either don’t require a college degree, or rank it as the most important qualification in an applicant.
Conclusion
While a growing number of employers are dropping degree requirements for middle-skill roles, the vast majority of high-paid jobs still require a college degree. So yes, going to college or pursuing other higher education is still worth it – in most cases. It can also be incredibly expensive, but higher education always was and will be an investment in the future.
In addition to the potential increase in earning potential, pursuing higher education also comes with a variety of intangible benefits. A college or university education can open doors for your career and help you develop essential life skills.
But ultimately, circumstances differ. The pandemic has changed the world, and many well-paid jobs today do not require a college degree but skills and experience. Still, the fact of the matter is that, on average, college graduates earn more than non-graduates.
