Is College Worth It Financially? Not Really

school sucks

Yesterday night, I had an argument a discussion with my dad and my sister about college. My dad read an article that said even whites are now pessimistic about their future, even though they have been better off than other ethnicities in the past. He thought that if more people went to college, the general population would be better. I strongly disagreed. Argument Discussion ensued.

Most people are NOT better off by going to college. In some instances, they are even worse off than a someone who has never attended college. Don’t believe me? See for yourself.

I Hope You Like Numbers

Let’s start out with some assumptions:

  • A college graduate will make $40,000 per year for the rest of her life. The tax rate is 20%. So she will take home $32,000 after taxes.
  • A high school graduate will make $14,500 per year for the rest of her life. (The amount was determined by a minimum wage of $7.25 per hour, for 2,000 hours per year). The tax rate is 10%. So she will take home $13,050 after taxes. According to TIME magazine, a high school graduate makes about $30,000 per year. So I’m really underestimating what she’ll make.
  • The college graduate wanted to get the most value for her money so she opted for a state school. The cost of attending college in 2013 (which includes tuition, food, and room) is $25,000 per year. Although unrealistic, let’s assume the amount remains constant for the next 4 years. This is based on the cost of attendance for Rutgers University in New Brunswick, NJ. Although most people take longer than 4 years to get their degree, let’s assume that she is a smart girl and took only 4 years to get her degree.

When Does a College Graduate Catch Up to the High School Graduate?

Table 1 - College Is Not Worth It 1

Table 1 – College Is Not Worth It 1

Therefore, attending college will truly cost her $38,050 per year. The cost is based on the $25,000 cost of attendance and $13,050 opportunity cost — the after-tax, minimum wage pay she would have received if she worked right out of high school. That comes out to $19,025 per semester. Her parents cannot afford college so she must borrow the full amount. Based on the Stafford loan, the interest rate is 6.8%, compounded daily.

She busts her butt during college and secures a job that begins one month after college graduation. She makes $40,000, so her after-tax pay is $32,000. That is $18,950 more than she would have made as a high school graduate. That translate to a benefit of $1,579.17 a month. But remember, the benefit did not come free.

If she applies the benefit of $1,579.17 a month to the true cost of college, it will take her almost 20 years catch up to a minimum wage earner.

How Far Does a College Graduate Go When She Works Until 70?

Table 2 - College Is Not Worth It 2

Table 2 – College Is Not Worth It 2

(In table 2, the first loan amount of $434.57 is the extra money she keeps after paying off the loan, the difference between $1,579.17 and $1,144.60.)

In 2015, during the start of her junior year, she will be 20 years old. Therefore, she will work until 2065, at 70 years of age. So after catching up to the high school graduate, all the additional earnings goes to her pocket instead of the bank: $1,579.17 a month until she retires.

Let’s assume she saves the excess money and gets a 5% annual return (which is a fair return on investments), compounded monthly. The future value upon retirement (at 07/01/2065) of all the additional earnings after breaking even is $1,604,813.35.

Table 3 - College Is Not Worth It 3

Table 3 – College Is Not Worth It 3

When the future value is translated to the present value (again, at 5% annual return, compounded monthly), it comes out to $119,840.82. So what does this mean?

It means that if you attend a public university as an in-state resident, you will be almost $120,000 better off than a high school graduate earning minimum wage assuming if the following conditions are met:

  • You start working 1 month after graduation.
  • You find a job that pays $20 per hour.
  • You work 2,000 hours per year until you are 70 years old.
  • You do not lose your job.
  • You do not stop working to start a family.

The chance of meeting all the conditions is very, very slim for the average college graduate.

  • Many college graduates do not start working so soon after graduation.
  • Many college graduates do not start out making $20 per hour. Heck, even PhD’s and lawyers have a hard time making $20 per hour.
  • Many college graduates are not working full-time.
  • Many college graduates lose their job.
  • Many college graduates stop working to start a family, especially females.

Therefore, the chance of a college graduate coming out ahead by $120,000 is quite small.

You also have to take into consideration what happens if you fall behind on payments. If you have trouble making ends meet, especially in the beginning, your loans will compound to a much bigger amount. You may not even catch up to a high school graduate after 20 years, if at all. Then what happens? If you are not careful, your loans could default. That means the loan company sells your loans to a collections agency. Your credit scored is ruined. You will be hounded, bullied, and threatened until you pay. If you cannot pay, the collections agency will sell that loan to yet another collection agency. And the cycle of threats and bullying will keep on repeating and repeating.

That is why I do not recommend going to college. You are taking on a huge amount of risk for basically little gain. (Yes, $120,000 is not a lot of money for the risk you will endure.)

What Happens if She Attends a Private University?

In the above scenario, I was especially generous to the college graduate. She attended school “cheaply” and I severely depressed the opportunity cost, the salary of the high school graduate.

What happens if I changed just one variable. Instead of attending a public university, she attends a private one. (Each year, many students opt to attend private universities, incurring much more cost than necessary.) The college graduate will attend one of the top schools in the nation, Duke University in Durham, NC. Duke’s cost of attendance in 2013 is $55,000 per year, much more expensive than the previous example. And let’s assume it remains constant for the next 4 years.

Therefore, attending college will truly cost her $68,050 per year. The cost is based on the $55,000 cost of attendance and $13,050 opportunity cost — the after-tax pay she would have received if she worked right out of high school. That comes out to $34,025 per semester. Her parents cannot afford college so she must borrow the full amount. Based on the Stafford loan, the interest rate is 6.8%, compounded daily.

Table 4 - College Is Not Worth It 4

Table 4 – College Is Not Worth It 4

If you take a look at table 4, you will see that at the beginning of her last semester (01/01/17), her total student debt will be $307,613.62 (the underlined amount), a monster of a number. The interest for the year at 6.8%, compounded annually, is $20,917.73. The yearly benefit for her higher wage is only $18,950 (after-tax wage of $32,000 minus after-tax opportunity cost of $13,050). As you can see, the interest on her true cost is bigger than the benefit of a higher wage.

In this scenario, she is worse off than a high school graduate earning minimum wage. She will never catch up. Sorry Duke, you’re not worth the money.

Going to college should not be automatic. Do not pick a school based upon its ranking the U.S. News. The number one concern for picking the right school is its cost. The more you pay, the bigger your risk. A school’s reputation does not guarantee you a high wage nor a good job.

If I was fresh out of high school, I would not go to college. So what would I do instead? Click here to find out!

Always question group-think, my friend. Always.

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  1. the college thing no matter how you look at it turns out to be a bad investment.

  2. Bob Smith says:

    What was it that Frank Zappa said…oh yeah, I remember:

    “If you want to get laid, go to college. If you want an education, go to the library.”


  3. thedirtthatmoves says:

    Hi Alex,

    I know you’ve got a lot of numbers here and you’ve got a lot to say about opportunity costs… but I think you’re missing a few things:

    People who have college degrees live longer; enabling them to also work longer and have ‘Benefits’ – Retirement plans, insurance, and other employer-paid niceties that nearly double the wages of many employees that the minimum-wage guy will never see. Also, according to the Bureau of Labor Statistics, the guy with the education is going to have a job (and be able to collect unemployment benefits) when the going gets tough.. See:

    Some truth-telling: I’m only familiar with the costs of going to school here in California, so can’t speak to a person going to school in another state. IOW, YMMV

    Here in California, you can even *get PAID* to go to school. How?
    Go to community college as a full-time student. You get:

    Pell Grant $5,775 (FREE MONEY you never have to pay back)

    CalGrant ‘B’ $1,656 and tuition (Other CalGrant options pay MUCH more, see:… but I’m just talking about community college in my example).

    The BOGG Waiver $all of you community college tuition costs are paid (everybody qualifies) except student service fees, effectively lowering what you pay to the JC to $68.

    Get Arrested… Not that I’m recommending that you do so; but if you have, and were incarcerated as a juvenile (aka: became a ‘ward of the court’) you automatically became a Foster kid, entitling you to more than $5,000 in additional grant money.

    Wear your hat backwards… There are all sorts of crazy scholarships out there that go unclaimed each year, because students don’t know about them or don’t apply.

    Alex, everything in life boils down to the choices we make… e.g. – None of us should ever make a left turn across traffic, if you read the statistics for traffic fatalities, but most of us do.

    The same goes for PLANNING what you’ll be doing for the next 40-50 years of your life, when deciding what you DON’T want to be doing with your time, is as important as what you do. So, when you take away the opportunity costs by being smart with your choices, you can see that education in fact pays huge dividends both financially and in the extra years you’ll live by retaining your sanity.

    Think about it, Alex: Do you really want to spend those years asking the question: “You want FRIES with THAT?”



    • Alex Ding says:

      Or you can borrow a book from the library and educate yourself instead of relying on schools. Heck, you can even take MIT classes online without paying! That only difference is that you won’t get a piece of paper, but that may even change in the future. It is already offering certificates for completion of online courses.

      You make it sound like everyone who gets a degree automatically gets a nice job, but that is not the case. If getting a degree is so lucrative, why are people having such a hard time paying back their student loans?

      People who can produce results (especially unique results), whether they have degrees or not, are the ones who will have the good jobs.


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