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Is the ROI (Return on Investment) of a College Degree Worth It?

Why are parents so willing to pay HUNDREDS of THOUSANDS of dollars for a college degree without researching all of the other options? I mean, you wouldn't pay $250,000 for a house you wouldn't use, would you? But the fact is, many pay that much (or more) for a degree that is not being used at all (because they are unemployed/underemployed) or is just sitting on a desk (because the graduates are in a field unrelated to that degree.) It's time to start looking at the college degree as any other big ticket purchase or investment you would make. Before you make any investment you would ask yourself some simple questions:

1. Do you understand the investment?

2. What are the terms of the investment?

3. What would be the Return on Investment?

Unfortunately, many students (and parents) just assume that the cost of college will pay off in the long run and that the more you pay for college the better your degree. I'm sure you have all heard the old saying that assumes that a college graduate will make over one million dollars more in a lifetime than that of just a high school graduate. However, research is showing that depending on many factors, that is no longer proven true.

If your child's major doesn't need a specialized career path, or specific degree why spend thousands of dollars on a degree when you can get the same thing for a FRACTION of the cost? You have to figure if the investment is worth it. Too many are just jumping onto the "college bandwagon" without really considering all of their options. Many are filling out student loan paperwork without truly understanding what it is going to cost them in the long run and what they may have to put off or give up after graduation. Most students (and parents) don't realize that they probably won't just be paying for four years of tuition, but more likely five or six years (the average time it takes a student to graduate now). And a majority don't factor in the fact that most college graduates end up taking over 20 YEARS to pay off their student loans and that with compound interest, hidden fees, rate changes, penalties, etc... that college degree ends up costing twice as much as anticipated! Plus, don't forget that the average student who has student loan debt has an additional average of about $14,000 in consumer debt accrued while at college on their credit cards! Looking at a post-graduation debt and spending chart, one notices that only 1 in 5 graduates can't afford BASIC LIFE NECESSITIES because of this huge debt load (see bottom of page). This is another reason so many graduates end up moving back home after graduation (the percentage is hovering around 85% as of right now.) And, furthermore, none of these numbers deals with the likelihood that your student may want to continue their education and be interested in obtaining a graduate or doctoral degree.

You really have to look at a couple of things: the ACTUAL COST (tuition, room, board, textbooks, & other expenses) and OPPORTUNITY COST (income and benefits NOT earned because the student isn't working during the time they are in college earning their degree). Let's say you can get a degree for $100,000 or the same degree at a less prestigious university for $25,000. Most people think that spending the extra money will produce a chance at a better paying job. But will it produce one that with benefits 4 TIMES greater? Take the example of a student who wants to be a teacher. She could get the same degree for two very different costs. Most first year teachers don't make much money right out of the gate, and it is not a profession with rapid salary growth. So let's say this student lands a job right out of college for $37,000. Depending on which degree path she went with (the $100,000 or the $25,000), which one is she going to have a harder (and longer) time paying off those student loans? Would getting that $100,000 degree been worth it?

Another factor to look into is time and benefits lost when a student takes years to complete their degree when, instead, they could have been in the workforce earning money and interest. Even a modest income of about $20,000 starting at the age of 18 or 19 for four years adds up to $80,000. A very simple example is this. Let's say there are two guys: the first goes off to college, the other finishes his college degree 1 year after high school (by using College Out of the Box of course!). The first guy, JIM, ends up taking an extra year to graduate (5 years instead of 4) and ends up with thousands of dollars in student loans. However, he did get a job paying $100,000 (since he went to Yale law school) and he put $2,000 into his IRA every year and saved 10% of his income every year until retirement. The second guy, STEVE, also with a degree, got a job but his salary was only $50,000 (because he was young and started off at the bottom). Like the first guy he will put $2,000 every year into his IRA but since he makes less he only saves 5% of his income every year until retirement. (I'm not adding interest or the increase of their salaries over the years or their savings and investments- to keep this simple) Who do you think has more at retirement- the first guy or the second? Because Jim was making twice as much and saving twice as much as Steve, it LOOKED liked he was much better off. However, since STEVE (the second guy) was smart with his money, he got his degree with NO student debt, he was able to get into the workforce sooner and have no debts to pay back. Jim would accumulate a savings of about 6.8 million dollars, but Steve would have a million and a half MORE -8.3 million- by the time he retires. The moral of the story: The sooner you start saving and the fact that you stay away from debt, no matter your salary, you can retire a millionaire many times over. (simple example taken from the book"The New Rules of Money" by Ric Edelman)

College is an investment like any other. It's time to really consider your options before you just leap and "do what everyone else is doing." Do your research, consider the alternatives, lay out your objectives and find the path that is right for you. Be aware of what you are getting yourself into. Do you want to be paying off loans for most of your adult life or could you be investing that money into something else? Is that piece of paper worth it to you and at what price?

Check out College Out of the Box webpage, FaceBook page, and EBook to see how you can get your college degree in less time, for less money, and with NO student debt!