My son recently got accepted into a college program that would cost about $45,000 per year for tuition, room, and board. This is exciting news — but also potentially expensive news. At what point does the cost of college outweigh the likely economic benefits?
Of course, the value of college goes far beyond simply allowing someone to prepare for a higher paying job. College can help you discover your path in life, develop your mind, and open doors to experiences that are not available to most people. But how much is too much to pay for college, from a purely financial perspective?
College’s cost in dollars and opportunity
The main costs of college are tuition, room, and board. The average total cost of attending an in-state public university is over $20,000 per year, and the average cost of private college is over $40,000 per year, according to the College Board.
Opportunity cost is another cost of college that is easily overlooked. If you spend four years attending college full-time, you miss out on four years of full-time income that you could have earned instead. You also potentially delay starting to build investments and reaching financial independence.
The most insidious cost of going to college is probably lifestyle inflation. Almost everyone tends to spend more as they make more. Even though college graduates will likely make more money than those who don’t go to college, college grads will probably also spend a lot more on a more expensive lifestyle. Just because you make more money doesn’t mean you’ll end up having more money in your bank account or a higher net worth. (See also: What to Do When You Can’t Afford Your Child’s College Education)
College will boost future earnings by a lot
Even though the costs of attending college can be prohibitive, the benefits in terms of increased salary can easily add up to millions of dollars over a career. Let’s say you are 18 years old and decide to start working full-time at an entry-level job that pays $20,000 per year. Your earnings over your career until age 65, with a 3 percent raise every year, would be $2,007,930.
Now let’s say instead of starting to work full-time at age 18, you attend college for four years. You start working full-time at age 22 with a starting salary of $45,000 per year, which is a reasonable expectation for a wide range of college majors. If you work until age 65, assuming a 3 percent raise each year, the earnings over your career would be $3,846,775.
Taking into consideration that you delayed starting your career for five years to attend college, you would still earn over $1.8 million more over the course of your career from the benefit of your college education.
Of course, expected starting salaries vary with college major. According to the National Association of Colleges and Employers, engineering majors are at the top of the…
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