How to Treat College As an Investment
College tuition has been rising faster than inflation for some time, and many graduates find themselves with a heavy debt load without the income to pay it back comfortably. Unfortunately, these students (and their parents) did not evaluate college choices by determining how to maximize their return on investment (ROI).
Many factors are involved in determining the return on investment you could receive from a particular college, and it will take some research. But taking those steps now will help avoid excessive debt in the future.
College Stats and Reputation
The college is likely to give itself a glowing rating: “96% of students in jobs or post-graduate education within 6 months of graduation!” Look closely at the details of this statistic and see if the numbers look good for your particular field. If they don’t brag about this at all, there’s probably a reason. But consider also if the college is respected by employers. If graduates are hired but aren’t getting really good positions, employers probably aren’t impressed.
Is there a substantial endowment at the school to help students financially? That probably means the alumni love their school and want to help others attend. Is there a network of alumni who like to hire junior alum? This might be harder to research, but if they do, the career center is surely going to tell you about it if you ask.
Your Intended Major
This is an important factor in determining your ROI. If you’re interested in a lucrative field with many job opportunities, such as cybersecurity, you can choose to attend a school that will cost you more because you will make more money and make it right out of school. If you intend to major in history, you should choose a school that will cost less or that is close to home so you can commute and keep your debt manageable, since your income will likely be lower than that of your STEM buddy.
Loans vs. Scholarships and Grants
Remember, even though a financial aid package may have you shelling out only $5,000 per year, if the package includes $20,000 in annual loans, college is costing you $25,000 per year. And it will likely go up before you graduate. Focus on good quality schools that will give you scholarships and grants.
Your Family Income
That said, families with lower incomes are likely to get more scholarships than families with higher incomes. Unfortunately, those who are somewhere in between may find they get fewer scholarships and are left with a remaining cost that is too burdensome.
In many cases, middle-class or lower income families can actually have a lower college cost at a very prestigious college than at a less expensive state school. Why? Because the prestigious schools often have massive endowments with which to help students whose parents can’t afford to pay. So don’t rule out expensive colleges.
Nevertheless, make sure you can actually do well at the college you choose. You would be better off going to a decent but lesser-known school and getting a 3.9 GPA than going to a big-name school and graduating with a 2.9.
If you have any questions about calculating the best ROI for your particular situation, give us a call. We can help you walk through this process to find the very best value that can lead you to a bright future.