How To Quantify Your College Degree & Take On Less Student Loans! #FinHealthMatters + College Degree Asset Calculator

How To Quantify Your College Degree & Take On Less Student Loans! #FinHealthMatters + College Degree Asset Calculator

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People choose their college because of a variety of reasons — where their friends are going, how pretty the dorm rooms are, whether the athletic division has an awesome team, etc.

But few focus on the most important factor: The Cost.

Teenagers get student loans and federal grants dolled out like candy. They don’t think to compare the cost of one college to another. If you knew the average income of two colleges was the same upon graduation and the average income midway into their career was also the same, would where you go become clear if one was an expensive private school and the other a state school? Would you build a financial calculator to figure out the best choice?

I did, and I’ve included it at the bottom so you can see your own personal results for any college you’re considering. Hopefully it will allow more high school students to reconsider student loans in favor of a cheaper, but just as good college (as measured in lifetime earnings – loan cost).

Your college diploma is an asset. Treat it like one and value the worth of it.

How Much Would My College Choice Cost Me Over My Lifetime?

To calculate the actual quantifiable value of your education, we need to calculate two components.

1). The Net Present Value (NPV) of the student loan debt taken on to attend the school.

We’ll assume a very conservative discount rate on the entire model — the rate you will probably be able to refinance to when you graduate.

2). The NPV of your future earnings.

Combining these two, you can how much college degrees are worth at different universities and if there is one that is vastly different in value, pick that one.

Quantifiable Metrics to Value Your Future Earnings – Assets

Most colleges offer data that tells you how much the average graduate will earn and how much a graduate will make in the middle of their career. Some colleges even break it down by industry sector. For example, an engineer or programmer might not get paid more depending on which college they go to, but a investment banker might. While it’s important for people trying to get an MBA, law, or medical degree, it might not be important for those who aren’t aiming for those types of roles. If you can compare industry salaries of graduates, that will be a better calculation that just comparing the salary of every graduate.

The website Payscale offers salary reports for early and mid-career as well if you can’t find it on the college website.

If you just want a good job, but don’t want the stress and extra hours some professions offer, then it might not really matter the brand name of your college.

Geographic Location

Most students don’t consider the fact that living at home for college will save you a ton in room and board. Plus you can do your laundry from home and have a quiet place back at home while everyone else hears the parties through the thin walls.

You won’t have to deal with the potential stress of a uncomfortable roommate, and you can always drive to and from campus if it’s near. Get a friend on campus who you can bunk with some nights if the partying gets out of hand and offer home-cooked food and laundry to them in exchange. Win-win.

Unquantifiable Metrics – Career Programs (Assets)

You want to check out schools with a great career program because you want your school to have skin in the game — your career. Most colleges publish their employment rate for each class of graduates. You’ll want to note if they consider part-time or volunteer work as part of their stats as some try to sneak that in. Compare the employment stats across colleges.

  • Do companies fly in to the college campus to come meet prospective students? If so, this shows extreme interest, because if companies are not flying in and you do not have a physical person to contact at that company, you will be sending your resume in to the black hole of the HR internet, and odds are you won’t get a job there.
  • Do colleges come and set up presentations and interviews on campus? Larger, more established firms often hire the majority of their talent pool from on campus interviews or presentations. They want to see and interact with the students in person, which is going to be hard for you if your college does not offer this.
  • How many job fairs are there specifically for students? How many companies come to them? Are there enough good employers that come to campus so there is enough to go around?
  • Do Fortune 500 companies, startups, or competitive government employers come?

Though I can’t quantify this with numbers, you can ask the college questions or go online to figure this out. Remember, you’re trying to get the best financial value out of college. If there are two colleges with similar NPV’s, go to the one with a better career program.

Reasons to Chose Private Over Public

Most students are not aware that lower income students are able to go to college completely free, and that even students whose parents make 6 figures are able to get a large chunk of their college tuition money paid for by the college.

If you are a resident of the state, you can attend public colleges for much cheaper than private schools if your parents make a very high income. If they make a low to mid-level income, it might still be cheaper to go to a private school. Run the numbers! I did, and eventually ended up going to a Top 10 college for FREE and not taking out any student loans due to this. That alone almost cemented my future early retirement and financial independence.

The Right Fit

Obviously you don’t want to go to an engineering school if you’re into english literature and vice versa, but most colleges have comparable programs for the more common majors.

Unless you are striving to enter the C-Suite and need crazy amazing connections, people will usually end up in the same place eventually given their hard work, not just talent. In high school, you are herded like little sheep with counselors and teachers watching over you. In college, you are left much more to your own devices and responsible for your own actions. The large majority of professors are not going to chase you down and ask where your homework assignment is or try to get you better prepared for a test. That is now all on you.

If you have the discipline necessary to study on your own, network with your classmates, and have fun in your spare time and not have a mental breakdown, you’ll do fine no matter which college you go to.

But All The Good Schools Have The Best Stats!

Ah, the good old art of self selection.

Ask yourself this: if a person can get into Harvard, but decides they don’t need college, how do you think they’ll end up?

They’d be fine. Zuckerberg, Gates, etc. If you can get in, that’s a pretty big signal already even if you don’t go.

The kids that go to the Ivies and other highly ranked colleges of the world go there because they’re ambitious and have self selected towards the most prestigious and competitive schools (we’re not talking politics and legacy here, it’s not that blog topic). The qualities that these kids hold — ambition, high-intelligence, grit, hard work, etc. will stay with them no matter where they go. If you have these qualities, why spend more if the NPV of your college degree is smaller if you go to a private school than if you went to a very good state school?

You could argue that going to a school with Type-A personalities would push you harder, but ultimately you’ll end up in the real world, possibly at the same companies. Does it really matter then if the present value of the difference in education is a few hundred thousand dollars over the course of your life?

Scholarships – Get Free Money Instead of Student Loan Debt

Getting scholarships is definitely a numbers game. Sometimes there are just so many qualified people out there aiming for the highest value scholarships. But that shouldn’t stop you from trying to win them! My financial aid, grants, and scholarships paid for all my college tuition because I was willing to work hard. I even made $300/hr once while applying for a scholarship!

Some great scholarship sites are fastweb, scholarships, and finaid.

College Counselors, Parents, and Teens, Please Run The Numbers!

Here’s a calculator that can show you how much more or less money you’d have over the long run depending on which college you went to.

 

College counselors, I’d love it if you could share this calculator with your students so they can make an informed decision about how much college will cost them!

Parents, please take a few hours with your kids and explain to them how much they’d owe and what that kind of monthly student loan payment would do to their financial health. Play around with the calculator and input your child’s favorite schools to see if there is one that stands out as financially the best.

Teens, do the legwork and see how much you’d save if you considered a different college. Feel free to comment below or ask another grownup if you have any questions about it.

Calculator Assumptions

  • When you graduate, I’m assuming you’ll refinance your student loans. In 4 years, the interest rate will probably be higher due to the Fed raising rates, so I’m assuming 5% interest.
  • For simplicity, we assume all loans are unsubsidized (ie, the government will not pay your interest for you while you are in school, so your interest accrues) — it should not have a material difference on choosing which school.
  • Any portion of a student’s cost that is not funded via savings or scholarships/grants will be borrowed via student loans.
  • It takes 4 years to graduate from college.
  • Linear interpolation for income up to midcareer (defined as 43 for our model), then a 3% COL increase (no available data on avg income when retired, that’s why)
  • Midcareer average income is based on past graduates, not today, because we don’t have today’s data.
  • We assume retirement at 65.
  • Calculator does not assume taxes — maybe in a future model.
  • We use 5% as a conservative discount rate instead of the 10Y yield because normal people’s cost of borrowing is from a company, not the 10Y yield.
  • NPV of the student loan is the same as the original student loan due to discount rate equaling loan rate.
  • Disclaimer: This model is not perfect and cannot calculate exactly what the value of different colleges are, only give you estimate with the data out there. Hopefully it should show that some colleges have enough of a large disparity to make it obvious which colleges are more expensive.

Next Steps

For my next articles in this series, I’d like to create a blog post and calculator for the following scenarios:

  • Shows how much you’d save if you spent 2 years at community college, then transferred to a state or private school. Of course, this is risky, as there’s no guarantee the private or state school would accept you after two years.
  • One that calculates how much you’d save if you took AP courses in high school or took college credits during high school.
  • Cost effectiveness of summer school (where the credits are usually much cheaper)!
  • Model that shows the NPV of your college degree by year since many people looking to be financially independent are going to retire much earlier than 65.

Subscribe to my email list to get updates so you can be the first to know when these articles come out :).

Has this article made you rethink the cost of branding and college? Are there any other college hacks you know of that I didn’t reference?

If you like the embedded calculator, please leave me a comment below and I’ll figure out how to embed a download button.

Author: Olivia

Olivia worked in finance and wants you to learn the secrets of financial independence. She believes there are so many ways to monetize your life and make money doing the things you're already doing because so many companies offer free money.

The average savings account rate is 0.1%. The big banks have incredibly low savings accounts rates. CIT Bank offers a 1.75% savings account. You can open an account with just $100 and no monthly fees or charge . Tired of being charged fees and getting peanuts in interest at your current bank? Open a CIT Bank savings account in less than 15 minutes online.

If you have a car, Rideshare apps allow you to pick a direction you want to go twice a day, so you can get extra money going somewhere you were driving to anyway at least twice a day. Get a $300 sign-up bonus with Lyft.

One of my favorite ways ways of monetizing my life is via credit card bonuses with cards that give you cashback or rewards. Check out our review of the Chase Sapphire cards, which give you at least $500 in cash or $625 in travel credit.

2 thoughts on “How To Quantify Your College Degree & Take On Less Student Loans! #FinHealthMatters + College Degree Asset Calculator

  1. I landed a few scholarships but it was hard pickings because it was 2009 and everything was in the crapper. I got enough for my first year but not the following, and by I thought I just take on the debt. It really is free money though. And I agree with your assessment on Gates and Zuckerberg. I think Jobs was one of them too?

    Did you hear about the story where teachers who received education grants had their grants turned into interest loans over small system trip ups? That’s the stuff that makes me think education is corrupt on the large. It’s hard to imagine millennials funding their school / donating their money like Alma maters of yesterday years.

  2. Oooo Am I first comment for once?!?! Yayyyyy great job compiling the info for this article, Olivia!

    On a side note, and this might just be my economist brain working, but NPV’s and Linear Interpolation?! Like Dang!

    Haven’t seen anyone use those terms in relation to student loan calculations yet. FTW!

    -Jack

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Author: Olivia

Olivia worked in finance and wants you to learn the secrets of financial independence. She believes there are so many ways to monetize your life and make money doing the things you're already doing because so many companies offer free money.

The average savings account rate is 0.1%. The big banks have incredibly low savings accounts rates. CIT Bank offers a 1.75% savings account. You can open an account with just $100 and no monthly fees or charge . Tired of being charged fees and getting peanuts in interest at your current bank? Open a CIT Bank savings account in less than 15 minutes online.

If you have a car, Rideshare apps allow you to pick a direction you want to go twice a day, so you can get extra money going somewhere you were driving to anyway at least twice a day. Get a $300 sign-up bonus with Lyft.

One of my favorite ways ways of monetizing my life is via credit card bonuses with cards that give you cashback or rewards. Check out our review of the Chase Sapphire cards, which give you at least $500 in cash or $625 in travel credit.