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Whether you are going to college for the first time this fall or are a young professional coping with student loans, you may be coming to grips with the cost of higher education.
According to Bloomberg, the cost of tuition has exploded by 1,200 percent over the past thirty years. While your parents or grandparents could go to school and work part-time to pay the bills, that is not feasible for most people anymore.
However, that doesn’t mean that a degree is not worth the investment. According to a Pew Research Center survey, the earning gap between workers with a bachelor’s degree and those with only a high school diploma is wider than ever.
The difference in median annual earnings is $17,500. Over time, that difference can add up significantly. In a study published by the Georgetown University Center on Education and the Workforce, researchers concluded that the difference in lifetime wages between high schools graduates and those with a college degree was over $1 million.
Factors affecting ROI
A college degree is an investment, and like all ventures, it is important to understand your college return on investment (ROI). There are three essential factors to consider when evaluating whether your degree and chosen college are worth the expense.
Net cost of attendance
The first thing you need to figure out is how much you will actually pay for school. There’s the published sticker price of attending a particular school — tuition, room and board, books, and other expenses — and there’s “net cost,” which is what college will actually cost after you’ve claimed all of the federal, state, and institutional grant aid available to families in your income bracket.
Most students don’t pay “full freight,” so it’s important to find the net cost of each school you’re considering. College Abacus is a useful tool that can give you an estimate of how much a school usually costs, based on scholarship offerings and other aid.
After determining the net cost of attendance over four years, review what your actual debt load will be. Consider your full financial aid package, including scholarships, grants and loans. In some cases, scholarships can help you avoid taking out so much in student loan debt. In others, the scholarships will barely cover books and supplies, and you’ll have to borrow to attend school. You can use a student loan calculator to see how much a loan will truly cost you over its lifetime.
Also, evaluate whether or not you will be able to work while going to school. In some programs, many students can hold jobs. In others, the rigorous curriculum makes it impossible. Whether or not you can have a job can significantly affect your debt burden.
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While signing a promissory note can seem like nothing when you are a freshman, keep in mind that you will be paying back those loans for a decade or more. Evaluate your chosen career path’s entry-level salary.
According to Edvisors, a site that provides information on how to pay for college, a good rule of thumb is to limit total borrowing to no more than one year’s salary right out of school. Setting that limit can keep you from getting over-burdened and prevent you from defaulting on your loan.
There are exceptions to the rule. For career paths where salary increases can be significant, such as in technology or law, taking on more debt can be reasonable. For instance, a Michigan State University survey found that the average entry-level salary for an engineer is $56,000. At the other end, social work majors are expected to make approximately $36,000 after graduation.
Engineering students can afford to take out more debt in student loans, while other majors may need to come up with alternatives, such as attending community college first and then transferring to a four-year school, to minimize their debt burden.
Tools to evaluate your investment
While college guides and rankings can be a good place to start the college search process, there are a growing number of tools that can help evaluate the ROI of colleges and degrees you’re interested in.
U.S. Department of Education
The U.S. Department of Education’s College Affordability and Transparency Center also offers a powerful suite of tools for comparing the programs, costs, and student outcomes at thousands of schools. Tools include College Navigator, which provides insight into a school’s graduation, job placement, and student loan default rates.
Launched by the White House in 2015, College Scorecard provides information on how much money a school’s graduates earn, the student loan debt average students carry and how many students can keep their loans in good standing.
While these are valuable insights, one of the biggest drawbacks is that it does not provide graduates’ earnings by major — all majors are lumped together in one statistic for average income. For a school that produces many science, technology, engineering and math (STEM) graduates, that can skew the results. Those earning degrees in the humanities or social sciences may earn substantially less than the average for the school as a whole.
College Scorecard also focuses on traditional, full-time students, so non-traditional students, such as adult learners, may find the information inaccurate.
PayScale is a popular tool that lists schools by their salary potential. PayScale’s report is compiled by researching over 1,000 schools and determining the average earnings of alumni. Data is collected from self-reported surveys. PayScale is one of the few sites that includes median mid-career data, giving you an idea of what to expect as your career progresses.
While PayScale can be a useful tool during your research, it does have limitations. For instance, because it relies on self-reported data, there is no guarantee of accuracy in the results. It also oversamples young professionals fresh out of school, who are more likely to use salary calculators. This can skew the results, because older, higher-earning workers are underrepresented.
Finally, PayScale does not distinguish between graduate degrees and undergraduate degrees. If those with a master’s degree share their salaries, that can bump up the median salary for their alma mater.
College Measures, a division of American Institutes for Research (AIR), is working with several state governments to help college students and their families identify fields of study and careers that will produce a high return on investment. The group says its “work focuses on the hot jobs that present the best opportunities for students to launch exciting careers and on the hot skills that students need to get those jobs.”
College Measures powers several sites that help high school students research colleges and careers at the state level — Launch My Career Colorado, Launch My Career Tennessee, and Launch My Career Texas.
Launch My Career Colorado
The first of College Measures’ state sites to get off the ground, LaunchMyCareerColorado.org debuted in June, 2016. The website is aimed at helping students and families determine future salaries based on their chosen university, major and industry. It lists high-demand areas of employment in the student’s area and provides a lifestyle calculator, allowing students to see how long it would take in their career path to achieve their financial goals.
However, one issue higher education officials have raised about the site is that it does not include data on graduates who have taken jobs in other states. For instance, if technology graduates left the state to take lucrative positions in California for Google or Facebook, their incomes would not be included in the data for technology majors, making the information incomplete.
JA Build Your Future app
First rolled out in 2013, the JA Build Your Future app from Junior Achievement USA was updated in February, 2016 to include more careers profiles and fix a glitch that caused some early reviewers to pan the app.
JA Build Your Future lets you explore levels of education required for more than 100 careers and compare the cost of a degree to potential income. The app won’t crunch numbers for individual schools, but you can specify whether you plan to attend a public or private college or university, and whether you’ll be an in-state or out-of-state student. After adjusting the contribution you expect you and your parents expect to make and the amount of student loans you may need, the app will provide a return on investment (ROI) score between 1 and 5, with 5 indicating you should have no problem repaying the debt you’d have to take on, and 1 meaning it will be difficult to pay off.
The app draws salary and education data from two main sources — the U.S. Bureau of Labor Statistics and PricewaterhouseCoopers’ financial literacy curriculum — supplemented with content and review from Junior Achievement. The app serves up numbers that are based on national averages and other available data that may not reflect all costs and requirements, but you can make manual revisions to any inputs you think you have better data for.
One issue with the original version of the app that led some reviewers to pan it was that after reading terms and conditions, some users didn’t realize they needed to scroll down and hit “accept” to get into the app, said Junior Achievement’s Ed Grocholski. The February update corrected that problem, added additional careers based on user feedback, and provided more current data about college costs and incomes related to specific jobs and career paths.
“We may not have all careers everyone wants but have endeavored to include the most sought after,” Grocholski said.
Removing emotions from the equation
Your college education is one of the most expensive investments you will make in your lifetime. Your return on investment for your education comes down to evaluating what you will pay out of pocket versus what your earning potential will ultimately be. Taking emotions out of the equation and focusing on the data and research can help you make a more practical and thoughtful decision, limiting how much student loan debt you need to take on.