Breaking Down the Cost of an Education

College is expensive. It can be argued whether or not it’s worth it, but most data tends to support a correlation between college degrees and higher lifetime earnings. According to a 2018 article in Forbes, “College graduates are 177 times more likely to earn $4 million or more.” In 2017, USA Today published an article saying the pay gap between college grads and everyone else was at an all-time high.

That being said, nothing is absolute. College isn’t for everyone. For those who choose to pursue it, the cost must be carefully assessed as well as a plan to pay for it. Those impressive earnings will translate to something meaningful much sooner if you graduate debt-free.

So think about that – going to college can exponentially increase your chances to build wealth – but graduating with a pile of debt can play a major role in delaying your progress. Understanding the cost of an education and your ability to acquire one without borrowing can spell retiring much earlier than most, or at least having the option.

Borrowing for School

The Student Loan Hero published some jaw-dropping stats in this post. Here are some highlights:

1. The average class of 2018 graduate that borrowed for school finished with $29,800 of debt.
2. There’s about $1.56 trillion in student debt right now; that’s $521 billion more than the total US credit card debt.
3. 11.5% of all student loans are 90 or more days late right now.

I like to put it in these terms. If you borrow to pay for college, you graduate with an additional car payment…possibly an additional house payment, right when you hit the real world at that first job out of school.

Talk about slowing things down! This is anywhere from $200 to $500 a month you could be investing, or money you could be using to maximize any company benefits such as 401k, HSA, or discounted employee stock, etc.

If you don’t think that’s a big deal, think again. If you graduate college at the age of 22, and miss out on 10 years of investing because you have a student loan payment of $275 per month – that means when you turn 32 and finally pay the loan off, you missed out on having a nest egg worth $48,785.88. It gets worse…lets say you end up retiring at age 60. Had you started investing right out of college instead of paying that student loan, you’d have $609,312.96 by simply investing $275 per month over those 38 years. If you waited until you were 32 and eliminated your student loan debt, $275 per month would only be $284,943.55 when you turned 60. That’s over $300,000.00 of missed retirement money by simply having a $275 per month student loan payment for 10 years after you graduated. Crazy.

The Real Price of School

So how much does school cost? That’s tricky. Private universities, Ivy League schools – those are typically much more expensive that community colleges and state universities. Plus, living in dorms is more expensive than living at home, or living with roommates. Having said that, it’s obvious the cost varies, but we need some kind of number to work with.

According to the US News and World Report, nearly half of kids that went to school in-state lived at home or with parents, so keep that in mind when I roll their numbers out. A public in-state education averaged $9716. A public out-of-state education ran $21,629. A private school ran $35,676.

Using their average costs, I recommend breaking them down further to find out what you might realistically pay cash for. For example, if I know an education in my state at a public college would be close to $9716 if I lived at home, I need to understand that if that represents a 4-year-degree, that would be $2,429 per year, and if I’m taking the summer off, about $1214.50 per semester.

Now break it down further. A semester is typically 16 weeks. So now we’re looking at $75.91 per week. This math says that if you worked your butt off your senior year of high school and the summer before college, you could easily afford the first semester and write your own personal check for the tuition.

Insist on going out of state? Fine. Have it your way.

1. 21,629/4=5407.25 per year
2. 5407.25/2=2703.63 per semester
3. 2703.63/16=168.98 per week

It’s more expensive, but it can be done. It takes planning, discipline, and probably more than anything, it takes parents that can compel their kids not to be morons; that is a TALL ORDER.

Obviously the private schools get much higher and can be in a league of their own as far as affordability, but there are ways to tackle that bear if you insist also.

Subsidizing the cost

If the deck is stacked against you, there are options. First of all, if you come from a family with no money, there are typically tons of grants and scholarships just for you. Simple Google searches will spit out so many results you’d never even be able to apply for them all because there are so many.

Really, the first step should be filling out a FAFSA. This is the gateway to the easiest free money if you’re low-income or have some qualifying special need.

As of this writing, you can join the National Guard and get a fat sign-on bonus, or up to $50k in student loan repayment – or in some cases, BOTH. Is it a sacrifice? Yes. I believe this is less of a sacrifice than being $40k in debt upon finishing school though…

Working at the school can often reduce costs too; these programs are usually offered after the FAFSA has been filled out, but every school website should have a link to get you the info as to what’s available.

Obviously, as much as it sucks, working full-time or part-time while being a student is a good way to avoid borrowing.

To me though, if your parents will let you, stay home and go to the closest school to their house. That itch to get out there and do life will feel overwhelming, but if you could equate your decision to $300k extra money at some point in your life, it might help.

Know anyone thinking of going to college? Share this with them. As always, feel free to reach out to me with any questions or comments. Be sure to subscribe/follow so you don’t miss any future helpful pieces!