We all know attending college isn’t cheap. You’ve got your annual tuition, books, room and board, food, clothing, transportation and any number of other things associated with attending college.
We make an investment in college expenses because we believe it will pay off at some point in the future. However, have you stopped to think about what opportunities we've given up in order to go to college?
Opportunity cost refers to the loss of potential gain from you choosing one option from a number of alternate options. For every choice you make, there is potential benefit you lost out on by choosing that option.
For example, if your friend calls and asks you to go out to a movie, you have to decide if you go or stay home and watch TV instead. If you decide to go out to the movie, the opportunity cost is the money you spend on the movie and the time you could have spent watching TV.
If you decide to stay home and watch TV, you have saved yourself $12-15, but you have lost the opportunity of a potentially fun experience shared with a friend.
It may seem like a no-brainer to you to choose one option over the other. Maybe you really need to save money because you are totally broke. On the other hand, maybe it's a movie you've been dying to see. But no matter if the decision seems obvious to you, you always give up something every time you choose one thing over another.
Applying Opportunity Cost to College
Now that you have a brief understanding of opportunity cost, how can this be applied to your decision to attend college? In the grand scheme of things, you can choose to either attend college or… not.
If you choose not to attend college, one likely scenario would be you picking up a job. Say you get a job out of high school for $35k per year. After four years you’ve earned about $140k (without any increases in wage or bonuses).
What happens if you go to school? Let’s assume your yearly tuition and expenses is $30k and you choose to put your head down and graduate within four years. Let's say you choose to stay completely focused on school and do not work while in college.
After four years you are out $120k right? Well… yes, but this is where opportunity cost comes in. Because you chose to go to college instead of working, your opportunity cost is actually the sum of your college expenses plus the money you could have earned had you chosen not to work. Your opportunity cost to attend college is $260k.
So, am I better off working instead of going to college?
It seems like based on the above scenario, a high school graduate with a decent job will be well ahead of you financially by the time you graduate college. So does that mean you shouldn't attend?
No, of course not. Not everyone has the skills or desire to obtain a high-paying job out of high school. But, at the same time, not everyone has the skills and desire to submit themselves to four years of study right after they get their high school diploma.
The good news is that people who graduate with a degree typically have a higher starting and long term career salaries over someone without a degree.
What you need to evaluate is how long it will take you to catch up with the person who didn’t attend college and what you think your long term earning potential will be. Maybe you’ll start in the low $30k range, but have earning potential in the high $70s.
The person not attending college starts out ahead because they don't have debt, but their earning potential may start to wane by their mid-career.
To get a better understanding of which colleges offer the most return on investment, be sure to visit the Outcomes Tab in the any college profile on College Factual. You can see, for example, that a graduate from Harvey Mudd College will catch up to an average high school grad within 11 years.
Keep exploring your college options, think about what you want to do career-wise and determine what makes the most sense for you.