Is College a Good Investment?

There are many studies and debates in academia on if college has value, how much the value is, and whether the value comes from learning or from the piece of paper you get at graduation. There are so many factors and assumptions involved that even if you can determine a rate or return for society as a whole or for an average individual, it is very difficult to apply that to an actual person. You are not just an “average individual” in a hypothetical conversation, you are a real person who will have a real outcome. This is how to make college a good investment for YOU.

Rate of return depends on cash flow in and cash flow out. If an investment leads to a significant inflow of cash to you, but you had to put more in than you get out, your return will be negative. To have a positive return on investment you need to have more inflow (money coming to you from the investment) than outflow (money you put into the investment). The more you can maximize inflow and minimize outflow, the higher your return on investment.

Minimize Outflow (cash from you)

School Matters (or maybe not)
School choice may play a role in income potential, job prospects, or grad-school admissions depending on major and career path. Students who attend top tier schools like the Ivy Leagues have higher graduation rates and higher salaries throughout their careers, but this may have more to do to the quality and background of students they attract and accept than to the schools themselves. In some fields like consulting, asset management, medical, or legal, name recognition of top-tier universities can help with job prospects. It can also help with admissions to certain grad school programs. However, there are many career fields where prestige of the school means very little.

Cost Matters
All else being equal, the less you spend on college the higher your return. For whatever career path you decide to pursue, you should consider the cost of the school you choose. If you are going into a career path where prestige of the school matters and your earnings potential will significantly outweigh the cost of attendance, then choosing a more costly school may be a good investment. If you are going into a career path with low income potential and/or where prestige of the school does not matter, then choosing to attend a more costly school may not advance your career prospects and may be very harmful to your financial future.

Funding Method Matters
Taking out loans to fund college increases the cost of college and decreases the return because you are paying interest on top of the cost to attend. The concept of leverage doesn’t apply as directly here as it does for other investments. If you take out a loan for a rental property, the tenant pays the principal and interest. If you take out a loan for college, you still pay the principal and interest in most cases.

Maximizing Inflow (cash to you)

The lifetime earnings of the average high school graduate are $580k. The average college graduate earns two to three times that over his or her lifetime.1 That may sound like a slam dunk, but there is a lot more to it. When it comes to future income potential, what you choose to study in college is more important than what school you choose and possibly even than whether or not you graduate.

Major (Career Field) Matters
The spread between the average income of the highest earning major and the lowest earning major over the span of a career is $3.4M.2 So while the decision to go to college can have a significant impact on your earnings potential over your lifetime, the major and career path you choose can have a much greater impact. Highest earning Majors are in the STEM and Business fields with Petroleum Engineering being at the top ($136k median earnings). Lowest earning majors are in the education, arts, and social work fields with early childhood education being the lowest ($39k median earnings).

Interest and Aptitude Matter
While the average engineering major earns double what the average educator earns, the top 25% of educators make the same as the bottom 25% of engineers.2 You need to choose a career that you can be successful in. You will have a hard time being successful in any degree program or career that you do not have an interest in or aptitude for. You need to choose a major and career field that fits your interests and skillsets.

You Matter
No college degree or career path can guarantee a good income. You cannot just go to college; you need to develop skills and a knowledge base that people will pay you for. You cannot just get a job; you need to add incredible value to your employer or clients. College and careers are just avenues to build that knowledge and skill and provide that value. If you are a good student and a good employee, college can be a good investment. If you are a bad student and/or a bad employee, college will be a bad investment.

For more information on the value of different majors check out:

*To narrow this topic, I am only looking at financial return on investment in the form of increased earnings potential. There are many other values to college education including but not limited to networking, relationship building, access to a wider variety of career fields, general education, and tons of fun.

1 “Social Security Administration.” Reports, Facts and Figures | Press Office | Social Security Administration, Social Security Administration,
2 Carnevale, Anthony P., Ban Cheah, and Andrew R. Hanson. The Economic Value of College Majors.
Washington, DC: Georgetown University Center on Education and the Workforce, 2015.

Josh Roberts

Josh grew up in Tyler and after graduating from Baylor with a degree in financial planning, moved back to Tyler to pursue a master’s degree in accounting at UT Tyler and a career in financial planning. Josh holds the Certified Financial Planner designation and is a licensed Certified Public Accountant in the state of Texas.
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