It Costs Over $10 Million in Opportunity Cost to Go to College

[LevelUP]

I actually came to this conclusion on my own and was searching the internet for an article written by someone who could properly analyze the opportunity cost of going to college.

The common statistic I see is that people who go to college make $1 million more than high school graduates. However, the opportunity cost isn't factored in.




Does It Still Make Sense To Go to College?
https://moneyguy.com/article/does-college-make-sense/

[ItsNeverTheLionsYear]

I don't buy it. The $10 million figure assumes a bunch of things:

1. You are paying for college out of pocket
   
2. You could invest the money that you would otherwise spend on college
   
3. The market will provide a consistent return on investment (not a given!)
   
4. You would not leverage your college degree to get a better, higher paying career
   
5. Your college degree would help you get into a job that would extend your working life, i.e. get you a desk job instead of manual labor. I put in my time as a landscaper and boy did I not have any coworkers or even bosses above the age of 50. 
   

Even the article points out that college is worth it if you invest more than $14,640 a year above what you'd be putting away otherwise.

[LevelUP]

I guess WE ALL LIVE IN NORTH KOREA since nobody will say anything about this.

Where is the MSM? Where is academia? Where are the mathematicians talking about this?

Note: Dramatic effect added.

There are two different ways to look at the opportunity cost of college:

1. Not going to college at all.
   
   

This could mean flipping burgers at McDonald's or some other $15 an hour low-wage job, which is around $30k a year.

For some, it could mean a respectable job that pays at least $50k a year, such as working in IT, sales, or the trades.

       2. Doing an accelerated degree online.


In this case, we are comparing apples to apples: both an on-campus student and the online degree student are making an average of $50,000 per year.

For the people that went to an on-campus college, I took:

1. The average college debt, which, according to the Education Data Initiative, is $35,000.
   
   
2. Added $5,000 in interest for a 6-year loan, bringing the total to $40,000.
   
   
3. Included an annual savings rate of $7k a year, which is the max IRA savings limit.
   

Results:

On-Campus Student

Considering someone spends 5 years in college, it would take them until age 29 to break even. By the time they hit 65 years old, they would have $2.1 million.

Accelerated Online Degree

For the person that got their college degree at 18 years old, they end up with $6.1 million at 65 years old.

Skipped College

For the non-college person making $15 an hour, they end up with $3.9 million by saving the same 14% of income, which would be $4.5k a year. So they end up $2 million ahead but make $1 million less in earnings over a lifetime. Therefore, they are still $1 million net ahead of the college grad even though they make $20,000 less per year.

[jg_nuy]

The savings rate is the fallacy in this argument. The costs of rent, health insurance, car, etc do not realistically allow that type of savings rate. Most Americans live in perpetual debt whether they go to college or not.

[LevelUP]

The savings rate is the fallacy in this argument. The costs of rent, health insurance, car, etc do not realistically allow that type of savings rate. Most Americans live in perpetual debt whether they go to college or not.

The calculations aren't perfect, and if anyone has any other suggestions, I would like to hear them.

Most financial gurus will advise a plan similar to what was suggested: maxing out the IRA so you end up with $2 million by retirement.

Some companies offer 401k match plans that include stock or cash. I didn't account for this.

[Jonathan Whatley]

A decent amount of college debt goes towards housing, meals, transportation, and other living expenses. Everyone will have incurred living expenses whether they went to college or not. Someone who completed an accelerated online degree at age 18 likely had their college study period living expenses paid largely or wholly by their parents.

Some well-paying jobs are available exclusively or generally based on on-campus study that aren’t available based on an accelerated online degree alone. No accelerated online degree you could expect to complete at 18 would lead to an entry-level job in nursing or mechanical engineering. A traditional – or a hybrid online, but not very accelerable – bachelor’s in each subject would.

[LevelUP]

I ran some numbers to find the break-even point for a non-college grad.

If you take 30 AP/CLEP credits and complete only 3 years of on-campus college with $30,000 of debt (including interest), you will have $3 million by the time you are 65 years old. 

Considering that you earn $1 million more than a high school graduate, you will end up with the same amount.

[jg_nuy]

The average monthly expenses for a single person were north of $3600 and it goes up from there as the household size increases:
https://www.forbes.com/advisor/banking/a...-expenses/

Housing and transportation are around 50% of that cost and those are sunk costs. I guess I just have trouble seeing where that 14% savings comes from in this situation. Middle class Americans pay around 15-20% in effective taxes and fees, give or take, so a single individual needs an income of around 50K just to break even.