What’s the Real Value of a College Degree?

With the cost of higher education rising at a steady pace, prospective students, are taking a closer look at the value of a college degree. From housing and books to scholarships and student loans, the determining factors go far beyond tuition expenses. However, despite the fact that college can be expensive, the US Department of Education still estimates that roughly 70% of students who complete high school immediately enroll in college.

While enrolling in a college or university remains the most popular post-secondary choice for high school graduates, the significant rate of students who leave college after one or two years suggests views may be changing when it comes to the value of a college education. However, with more than 5,300 colleges and universities in the United States alone, it takes more than a quick Google search to determine the real value of a college degree.

5 Questions to Help You Determine the Value of a College Degree

If you are trying to decide whether higher education is worth the investment for yourself or your child, there are many factors to consider. The first and arguably most important aspect to examine is the true financial cost of a college degree.

1. What is the economic value of a college degree?

At first glance, figuring out the value to a college degree seems simple. After all, the US Census Bureau routinely studies the lifetime earning potential of people with various degrees. In a 2017 report, the Bureau estimated that individuals with high school diplomas earn roughly $1.2 million, associates degrees approximately $1.5 million, and bachelor’s degrees nearly $2.1 million over the course of their careers. If you take those figures at face value, the choice is clear. But like most things in life after high school, the decision is a little more complicated than it seems.

To determine the true cost — and eventually the overall value — of a college degree, it just makes sense to start by calculating all the education-related expenses. Tuition is, by far, the largest figure on the financial ledger. In their latest report on the price tag of a college education, COLLEGEData reported “a moderate college budget for an in-state public college for the 2017–2018 academic year averaged $25,290. A moderate budget at a private college averaged $50,900.” These figures included tuition, fees, housing, meals, books, miscellaneous school supplies, and transportation expenses. So, as you research potential college choices, be sure to account for all the same expenses. This will give you an estimated education expense.

Before you let the tuition costs and related expenses discourage you from pursuing higher education, it’s important to remember that as many as 85% of college students received financial aid of some kind. From federal grants and loans to private and institutional scholarship programs, there are countless sources of financial assistance available. For a more in-depth look at the various forms of financial aid, visit the US Department of Education website. In addition to financial aid, it’s also important to factor in any assistance your family can provide. Whether they come from parents, grandparents, or even your own hard work, family financial contributions can go a long way toward reducing the need to borrow money via student loans.

Let’s talk about student loans for just a minute.

Judging by the number of Internet memes and social media posts about student loans, you might be tempted to think that student loans are as much a part of the college experience as professors, textbooks, and late-night study sessions. Considering the fact that more than 44 million Americans are currently responsible for approximately $1.48 trillion in student loan debt (yes, that’s trillion with a “T”), that idea may be more accurate than anyone wants to admit. No doubt about it, a college education is expensive. If you will need financial help to complete your degree, federal loans traditionally offer excellent terms and interest rates. However, they don’t always cover all the necessary expenses. If you find yourself coming up a little short, your credit union may offer affordable financing options that can help you bridge the gap and avoid making some common student loan mistakes.

OK, back to the financial value equation.

Once you have calculated the total expenses for your degree of choice and subtracted the amount that will be covered by grants, scholarships, and the amount you and your family will be able to contribute, you should have a reliable estimate of how much you would need in student loans. At this point, you can use a student loan calculator to calculate how much you will pay in interest over the course of your repayment plan. By adding your expected contributions and the total amount you’ll pay for student loans and interest, you will arrive at the overall cost of your college degree. Now, before you let yourself get discouraged at the figure in front of you, remember the earning potential we discussed at the start of this article. A college education is an investment designed to pay dividends throughout your career.

For clear perspective on the real economic value of a college degree, compare your overall expenditures with your expected career earnings. If you earn a college degree and enjoy a career earning potential of $2 million — roughly twice what you could expect to earn with a high school diploma — and your total educational costs add up to $100,000, it’s safe to say that is a sound investment. If you look at your education the same way you would view any other investment, the economic benefits become clear. Spending $100,000 to earn a $1 million return simply makes sense.

2. What about community colleges?

So maybe you’re sold on the value of a college degree but still digging for more affordable options that will help you stretch your educational dollar. This is an area where community colleges can often provide incredible value. By attending a local community college for two years, you may be able to reduce your educational expenses while earning an associates degree or transferable credits that will allow you to transition to a four-year institution.

While community colleges, also known as junior colleges, traditionally have lower tuition costs (in-state costs typically range from $45-$125 per credit hour, compared to $325 per credit hour at the typical public university), you can still apply for financial aid. This increases the likelihood that federal grants and various scholarships could cover most, if not all, of the associated tuition expenses. As an added benefit, community colleges are usually located close enough to population centers to allow their students to attend while living at home, which eliminates the cost of room and board.

So, whether you’re looking to enter a career field that only requires an associate’s degree or you want to transfer to a traditional four-year university with as little student debt as possible, attending a nearby community college may provide the perfect combination of education, convenience, and affordability you’re looking for. From a strictly financial standpoint, it’s certainly worth your time and consideration. You can find information on community colleges near you by clicking here.

3. Does the school’s reputation matter?

To this point, our discussion on the value of a college degree has focused almost exclusively on economics. For hiring managers in the majority of career fields, a degree is a degree, which means the conversation doesn’t need to go much further. However, a specific college choice can play a more subtle role in select professional pursuits. If you want to work for a prestigious law firm, a high-powered Wall Street investment bank, or influential political advocacy groups, where you went to school matters as much, if not more than which degree you earned.

Before you settle on your school of choice, it is a good idea to determine which career track you might pursue after graduation. If your sights are set on positions with firms or agencies that place a premium on the academic reputation of the university, it just doesn’t make sense to attend an educational institution that won’t help you land the position you are working toward. So, while the financial expense may be higher to get a degree from more prestigious universities, the value is found in the doors those degrees can open for you.

4. What is the social/emotional value of a college degree?

Have you ever met someone who graduated from the same college or university that their parents, grandparents, and great-grandparents did? When you see the sense of tradition and family pride that radiates during their college-related conversations, you start to realize that the financial aspects of the education may have been less important than the common bond the experience provided.

Maybe this sounds like your family, or perhaps it’s the kind of tradition you’d like to start with your children and grandchildren. If that’s the case, the “value” of a college degree may extend beyond facts and figures. That’s not to say that the financial aspect of paying for college isn’t an important consideration. It’s just that, unlike well-defined factors like cost, expense, credits, and debits; value can be a far more subjective concept. And when you look beyond the immediate circles of family and friends, a college degree has also been shown to create a beneficial ripple effect when it comes to your potential impact on society.

According to a report by the Association of Public & Land Grant Universities (APLGU), “Over 60 percent of bachelor’s degree holders earn their diplomas from public universities and public university graduates play a central role in enhancing their communities.” Since a college degree can open the doors for professional projects, nonprofit leadership, volunteer opportunities, or philanthropic endeavors, the social value of that degree can extend far beyond your personal accomplishments.

5. What is the opportunity cost?

With all we’ve covered so far, the decision to pursue a college degree may seem like a no-brainer. After all, if you look at the average earning potential of college degree holders and compare it to that of those who only have a high school diploma, it’s obvious that having a college degree is better than not having one, right? Well, that depends. Before you decide to get that degree, it pays to look at something called the opportunity cost.

Dictionary.com defines opportunity cost as “the loss of potential gain from other alternatives when one alternative is chosen.” To calculate the opportunity cost of a college education, you compare the results of an alternate plan (i.e., getting a job right out of high school) to the decision to spend the next few years pursuing your degree. Let’s look at a simple example:

Scenario A: Rather than attending college, you decide to get a full-time job as soon as you finish high school. The average starting salary of a worker with a high school diploma is currently $30,500 per year. Over the next four years, you would earn $122,000.

Scenario B: After graduating from high school, you decide to go to college. Your educational expenses run roughly $30,000 a year. By working hard, you earn your degree in four years. When you graduate, you will have spent $120,000 on your education.

When you total the college expense you racked up and the money you didn’t earn by working, you’re looking at an opportunity cost of $240,000.

Now, before you dismiss the thought of higher education altogether, it’s important to look beyond the quick and easy financial comparisons.

Would the job in Scenario A offer opportunities for advancement? Does the job allow you to develop skills that will enable you to increase your earnings over the course of your career? If you chose to go to college, do you currently have the discipline necessary to complete your degree in four years — or would you need to add a fifth year and additional expenses? Do you have a clear idea of what major you would pursue in college? Would it be beneficial to work for a year or two and discover potential career paths?

In many cases, college graduates can expect to earn higher starting and long-term salaries than those without a degree. Even with an opportunity cost of $240,000, it’s entirely possible that someone with a college education would pull ahead in overall earnings about midway through their career. So, even though the opportunity cost looked steep at first, it should be a consideration, but certainly not the determining factor.

The Bottom Line: What makes a college degree valuable to you?

So, after all of this, maybe the question isn’t so much “What is the value of a college degree?” but “What is the value of a college degree to you?” With so many factors to consider and so many options to weigh, a college decision isn’t one to take lightly. Whether you’re enrolling in college for the first time or thinking about going back after a few years, the Spero team is here to help. We’ll walk you through the financial details and help you create a plan that makes your college experience the best it can be!