Planning for college? How to get a bigger return on your investment

By Gina Gallagher | Citizens

College is exciting … rewarding … and fun.

It’s also a huge investment; one that’s likely to be among the biggest you’ll make in your lifetime. You can look at the tuition and fees of schools around the United States to learn that. According to U.S. News, the average price for the 2019-2020 school year at public institutions was $10,116 and $36,801 at private colleges. Yikes!

But despite the high average cost, there’s still some good news about college.

It’s still worth it.

According to a study by the Federal Reserve, the average grad with a bachelor’s degree earned $78,000 annually, versus $45,000 for the average worker with only a high school diploma. That’s a pretty big difference, especially so when you consider lifetime earnings.

But the real question is: What difference will a college degree make for you?

There’s actually an important measurement that can help you figure that out. It’s one that every investor should consider before putting up any money: return on investment, or ROI (if you want to throw around an impressive term). Simply put, ROI can help you determine the financial benefit you could receive for investing in your college education.

And the great part is, you don’t actually have to be a finance major or a math whiz to figure out how to achieve a positive ROI; you just need to think about some key questions. Questions that we just so happen to discuss below.

What's the true cost of your college?

At this point in your life, you’re probably tired of hearing your parents tell you how expensive college is or reading the scary “sticker prices” that colleges and universities publish on their websites. Though those prices may reflect fees like tuition, room and board, activities, books, and health fees, they don’t necessarily reflect the amount you'll have to pay. The cost you’ll pay is actually the net cost, which is the sticker price minus any sources of additional funding you might have. Those sources include grants, scholarships, and work-study funds; essentially, the financial aid you receive that you don’t have to pay back. Let’s look at an example of how net cost works:

College A has the following published fees:

You received the following:

Your net cost of college would be: $29,200

This net cost is what you’ll use to determine your ROI. You can use the College Board’s calculator to determine net costs at hundreds of schools.

Once you know the net cost of your college, you’ll need to think about how you can afford to pay it. For millions of students, the answer is student loans.

How much will you need to borrow

If you’re thinking of taking on student loans, you won’t be alone. According to Forbes, nearly 45 million student borrowers in America owe more than $1.5 trillion in student loan debt. That translates to $32,731 owed per student. In 2020, it’s estimated to be a staggering $37,172, a result of rising higher education prices.

The amount of student debt you’ll incur depends on the total cost of college and any additional sources of income you may have to lower those costs. For example, can your parents give you financial help? Is there a college fund in your name? Will you be working during college? Can you work during the summer and use that money for college? Having additional sources of funding for college will help you keep your debt lower, which is always a good thing.

“ Many college students don’t think about the debt they owe until they have to start repaying it, usually after graduation. ”

Another important thing to note about debt … really important … is that many college students don’t think about the debt they owe until they have to start repaying it, usually after graduation. What they don’t realize is that they may end up carrying that debt later on in life. For example, according to CNBC, college students expect to have their student loans paid back within six years; however, in actuality, it’s closer to 20! That means they’re paying back debt when they’re thinking about attending graduate school. Or saving to buy a home. Or maybe even starting a family and someday sending their kids to college.

That begs the question: How do you determine how much debt is too much?

Some experts believe that it should be based on what you would expect to earn after your first year of graduation, and that if your debt is less than your annual income, you’re likely to have it paid off within 10 years.

Based on that theory, the amount of debt you have and the repayment timeframe depend on the answer to another very important question…

What's your major and future earning potential?

You may not know your major now, or even end up in a career related to it later in life. But the fact is, the major you choose and where you go to school could have a very big impact on your ROI.

Degrees in the STEM fields (science, technology, engineering, and math) often have the highest earning potential. For example, it’s estimated that the average entry level pay for engineering majors is between $45,000 - $70,000, depending on the engineering discipline. Other higher-paying majors include business management, economics, nursing, computer science, and law. If you’re wondering about the money you can make based on your major and school, check out sites such as PayScale and the College Scorecard.

Of course, the amount of money you’ll make is also dependent upon other factors — including some you can’t control, such as the economy. It goes without saying that if you’re in a field that’s been badly impacted by an economic downturn, your salary and your ROI could be lower.

There’s another thing to consider about your future career path and ROI. If you’re thinking about a major that requires additional schooling or leaving a job to pursue an advanced graduate degree, you have to factor in the loss of potential income when calculating your ROI. For example, let’s say you plan on enrolling in a two-year, full-time graduate program after college. During those two years of school, you’d be missing the opportunity to earn money. That loss of income should be factored into your ROI in addition to the cost of school.

But money isn’t everything. There’s another question you need to ask…

What do you value?

While it’s great to be in a high-paying profession, it’s important that you choose a career that rewards you personally, too. And, you want to find a career that you’re good at and you enjoy doing. You need to understand what you value. You won’t find the answer on a calculator, but it can greatly impact your personal finances — and your ROI.

Let’s say you value helping people and have a passion for social work, a profession that regrettably isn’t known for high compensation. Because you’ll earn less money, technically your ROI would be lower. You can, however, raise your ROI by reducing the amount you spend for college. For example, you could choose a less expensive school, or spend the first two years at a community college.

Bottom line, college really is fun, rewarding, and exciting — and if you spend less on college costs or increase your earning potential, it can be a great investment, too.

Ready to make investing in college more affordable?

Our experienced student lending professionals can help you figure out the best way to fund your college education that will improve your chances of your investment having a positive ROI. Visit us on our Student Lending page — we’re on chat and ready to talk.