Will College Pay Off for You?

Parents, teachers and relatives all tell you "Go to college! It's your only hope of finding a great-paying job and having the life of your dreams." But is that true? And how can you tell if college will pay off for you specifically? 

The Problem with Averages

The problem with averages is that they only give you very generalized information about a certain topic, and depending on who you are, it may not apply to you at all.

Consider this, the bottom 25% of college graduates earn no more than the average high school grad. Add a student loan payment to that scenario and a lot of those college grads probably would have better off not going to college.

Peter Cappelli explores these issues and more in his book Will College Pay Off? A Guide to the Most Important Financial Decision You'll Ever Make. He reminds us:

...different bachelor’s degrees are not comparable from a labor-market perspective. A finance degree from an elite college positions one in a completely different labor market from a dance degree granted by a mediocre college. The variance in prospects across colleges and across degrees is so great that talking about “average” returns is irrelevant for an individual making a financial decision about which college to attend. (Cappelli, Loc 1644)

Are you Saying I Shouldn't Go to College?

Of course not! College is still a great investment for most people. Even those college grads we referenced earlier in the bottom 25% will most likely not stay there for their whole career. Still, students can make some terrible mistakes when it comes to choosing a college. Here are just a few of them: 

1. Taking on too much debt.
2. Taking too long to graduate.
3. Transferring colleges or majors too many times.
4. Dropping out before finishing your degree.

Maximize Your Higher Education Investment

Cappelli includes some solid advice to students to maximize the value of their degree. Some of his best suggestions include...

1. Avoid private loans. The limit on loans backed by the federal government is $31,000 meaning you won't over-borrow. Plus federal loans usually have more favorable interest rates. Choose a college where you won't have to borrow more than this amount in order to get your degree.
2. Make a plan to graduate in four years. Choose a school where most students graduate on time (four years). The government considers six years to be a reasonable time to graduate, but those extra two years in college can cost you a lot!
3. Consider "non-traditional" forms of education. Not every student has to go to a four-year school for their whole degree. Many students begin studying at a community college and then transfer to a four-year school. Many more succeed quite well with an associates degree or some sort of training in high-skilled crafts or trades.
4. Internships, internships, internships! Most employers will be more interested in a graduates' internships and other real-life work experience than in their college major or GPA.
5. Don't blindly follow your passion. Another common piece of advice given to students is "just follow your passion and the money will follow!" In very competitive fields such as the arts this is only true for those individuals who are just so good they can't be ignored. If you are determined to follow your dreams fine, but be very wary of getting into a lot of debt in order to do it.

"Just go to college" is not enough!

The big takeaway from Cappelli's book is an investment in education deserves careful thought and consideration. Not just any college will do. 

Looking at the actual return on the costs of attending college, careful analyses suggest that the payoff from many college programs—as much as one in four—is actually negative. Incredibly, the schools seem to add nothing to the market value of the students. Much of that problem may have to do with the attributes of the students attending those schools, but that should still give us pause about the idea that college pays off for everyone. (Cappelli, Loc 2861)

In addition to what Cappelli recommends, we suggest the following tips to choosing the right college.

• In addition to looking at graduation rates, and student loan default rates, choose a college that is a match for you academically, financially and socially.
• Choose a major that is a good fit for you and that will also pay off in the long run.
• If you don't feel ready for college, consider taking a gap year to help you gain experience in the real world and decide what you'd like to do with your future.

Ready to get started?