Before trying to answer this question, let’s make sure we are on the same page regarding the definition of an investment. For our purposes, we’ll define an investment as an arrangement where you pay out money upfront so you can receive some type of financial benefit later on.
One common example of an investment is the purchase of stocks. The owner of shares of stock (known as a “shareholder”) may potentially enjoy two financial benefits. First, many (but not all) stocks may make regular payments to their shareholders known as dividends. Second, the shareholder also hopes to possibly profit later on by selling the stock itself at a price higher than that which was originally paid.
We’ll refer to the total amount of money received back relative to the amount originally paid out as the “rate of return.” The more received back compared to the initial cash outlay for the investment, the higher the rate of return.
A wise person seeks an investment that pays a high rate of return yet is also reasonably safe. Unfortunately, many people have seen their life savings or retirement accounts wiped out by making not-so-smart investment choices. They placed their money into investments offering the potential for very high returns, but in reality, were very risky. Regardless of the type of investment, the goal is to safely maximize the amount of money received back compared to the amount originally paid out upfront. After all, who would make an investment with the intent to lose money?
College as an Investment
When viewed in such a financial context, college might be considered an investment of sorts. However, unlike stocks, etc., it is not just an investment of money, but of time as well. You invest several years of your life. These are years where you could have otherwise been out earning a full-time paycheck. Most students, however, have to forego those paychecks in order to pursue their degrees.
Then there’s the actual money invested to get the degree. Money used to pay for tuition, books, supplies, lab fees, room, board, etc. These funds may be in the form of either personal cash paid out of pocket (usually by yourself or parents) or borrowed dollars obtained through student loans. Scholarships and other “free” money may also be used, but these dollars were not yours to begin with and do not have to be paid back, so we’ll not include them as part of your investment.
Here’s the plan. You invest money to get a degree. Upon graduation, the college degree serves as a sort of “ticket” to enter a career and start earning an income. The income received over the rest of your working life is the return on that initial investment.
The goal is to obtain a degree that will provide a rate of return on that money greater than if you had just kept it or used it for something else, and not gone to college at all.
Such a Deal
Let me ask this. Would it make sense to invest $60,000, perhaps most of it with student loans, into a degree leading to a job paying only $24,000 per year? Assuming, of course, the person could even find a job in their particular degree field. Maybe not such a good deal.
But, that is what is happening to some students.
They go to college and pay out huge amounts of money, either directly or by using student loans. Then, upon graduation, they either cannot find work in their degree field, or their field is one which they knew in advance would not pay well. The possible inability to find a job in your degree major represents risk when considering college as an investment. How big is that risk?
According to an article by the Seattle Times, “Nearly 43 percent of recent college graduates are underemployed — that is, working in jobs that don’t require a college degree…” So, for those folks, was their degree a good investment?
After graduation, if student loans were used, they have to also begin paying back all that money. Oh yes, plus interest. Because college is so expensive, the majority of students do use loans. According to an article by Zack Friedman on Forbes.com, “Nearly seven in 10 seniors (68%) who graduated from public and non-profit colleges in 2015 had student loan debt.” He goes on to describe the magnitude of the overall situation, stating “There are 45 million borrowers who collectively owe more than $1.5 trillion in student loan debt in the U.S.”
Wow! That is a LOT of money being invested in college degrees!
Why Does This Happen?
Many, if not most high school students feel pressured by their parents, family, friends, school, and others to go to college. Beginning even in grade school, youngsters are told to study hard and get good grades so they can get into college. Companies often encourage their employees to complete their degrees or pursue advanced degrees.
In general, all this well-intentioned advice is quite correct. According to a study by Georgetown University, “The difference between the lifetime wages of college and high school graduates is $1 million.” In the long run, it is true. You will almost always do better financially over the course of your life with a college degree in hand.
But… a degree in what?
Hey, What’s Wrong with my Degree?
This is where things get dicey. A fact of life is that not all degrees are created equal. They do not all offer the same income and employment potential. For example, a bachelor’s degree in engineering or software development offers significantly higher income potential and prospects for employment than a bachelor’s degree in, let’s say, medieval poetry written in Latin.
Now don’t get me wrong. Pursuing a degree in medieval poetry is fine if that’s your passion and area of interest. Provided, of course, that you recognize it is probably not the greatest investment financially. When is the last time you saw a job posting for a high-paying position which specifically required a bachelor’s degree in medieval poetry? Yeah, that’s what I thought. Let’s be real. The income potential and prospects for a job in such a very narrow field are probably quite limited, especially if you only have a bachelor’s degree.
And, that leads me to my next point. Many times, a bachelor’s degree by itself just doesn’t cut it anymore. It is becoming more and more common in many fields for an individual to need a master’s degree or even a doctorate (e.g., Ph.D., DPT, DNP, etc.) to realize their full career potential. A person with the medieval poetry degree mentioned earlier could eventually go on to become a well-paid, fully-tenured professor at a major university. But, to do so would certainly require more than just a bachelor’s degree. Most likely, a Ph.D. would be necessary.
So, when planning your career, make sure you clearly understand how much total education you will actually need. Also, does the education need to happen all at once? Or, can it be acquired over time, perhaps while you are working full-time in your career field?
A Degree in Anything?
Now some readers may stop me right there and argue that a degree in ANYTHING is better than NO degree at all. In general, I would agree. It is true some positions and employers only require a bachelor’s degree. Any bachelor’s degree. If you look around, you will find postings for excellent jobs which only require the applicant to have a bachelor’s degree in any major.
So, if your goal is to have a degree in something as opposed to having nothing, by all means, get one. But, to make that a smart investment, find a way to get the degree as inexpensively as possible. Don’t go deep into debt. Maybe attend a less expensive college. Could you work and attend college part-time, paying as you go? Some employers offer excellent tuition assistance programs which can greatly ease the financial burden.
Do Your Research
I’ve mentioned you need to consider income potential and job prospects for your chosen field. How do you find out this information? First, check out my article What is the Outlook for Your Career Choice? What is the Future Outlook for Your Career Choice? A free online resource mentioned in the article is the Occupational Outlook Handbook prepared by the U.S. Bureau of Labor Statistics (BLS). Also, check several of the popular job search websites and see how many positions are actually available in your field of interest. These sites may also state the salary ranges currently being offered. Note that pay rates can and do vary greatly by geographic area.
I do have one important caveat when considering a career field based upon the income potential. Never pursue a career in an occupation in which you have no real interest strictly because it pays well. It is a well-established fact that money is only, at best, a short-term motivator. Having to get up every day for the rest of your working days and drag yourself into a job which you never really liked, one which you have eventually come to despise, is almost like a self-imposed life prison sentence.
So, Is College a Good Investment?
Yes, it CAN be – if done wisely.
- First, research your desired career using resources like the BLS. Is the potential return worth the risk and investment? Does it make financial sense?
- Unless your field pays really well with great job prospects right out of college, avoid going into debt. Even then, always look for the least-costly options. Explore scholarships, grants, work-study, or other funding that does not require repayment.
- Does your career even require a four-year degree? Have you explored other options, such as two-year degrees or an apprenticeship? Check out my article Apprenticeships: Earn While You Learn. Also, listen to my podcast Is College Really Necessary?
- Suppose you decide to get a four-year degree but are not sure about which major to choose. That’s not unusual. Remember, colleges always have basic courses everyone must take regardless of their major. Many students begin college simply with the idea of first getting all those required courses out of the way. That’s fine. But if that’s the plan, do it as inexpensively as possible. Maybe consider a less expensive college to start, but make sure the credits will transfer elsewhere later on.
- Online colleges may be a less expensive option. However, make sure they’re legitimate, preferably associated with a well-known university, and have transferable credits. Besides, employers know about those shady online diploma mills where you merely pay money, do no actual work, and then magically get a degree. In fact, many employers will not even accept degrees from these so-called “colleges.” Don’t waste your money.
- Have you considered the armed services? Some branches may offer guaranteed training in your desired field and the ability to earn a college degree while serving your country.
Agree? Disagree? Feel free to leave a comment and share your experience or thoughts!