Is a college degree worth it?

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Well, the first thing thing that I will say is that you had better finish what you start …

… because, if you don’t complete your four year college-level degree, you will probably still end up with the average student debt of $20,000 but only earn $4,000 a year more for your troubles!

But, let’s take a closer look at what the US Census Bureau has to say about students who do complete their degrees against those who don’t:

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OK, so for a $20k ‘investment’ (at least, if we assume the average debt left behind), the average college grad. can earn an extra $19k – $20k per year; sounds like a great deal?

It seems that we forgot to account for the extra four years of income that the high-school grad (but no college degree!) earned while you were off at the frat or sorority house!

So, let’s say that the college graduate starts (4 x $27k) + $20k behind the 8-ball … how long does it take him to catch up?

Well, if we assume that both achieve 4% yearly salary increases (starting from the same date that both are working, keeping in mind that the high-school-only grad. has already put four solid years of work in) and earns 8% on their investments (fueled by consistently saving 15% of their gross income), then we can see that it’s a ‘no brainer’:

– The College Grad would have saved $794,000 after 26 wonderfully exciting working years, and

– The High School Grad only saved $468,168 after 26 equally wonderfully exciting years working.

So, college is ‘worth’ $326k, in this admittedly highly-oversimplified example …. yippee!

But, readers of this blog aren’t thinking of spending the next 26 years working in the Quick E Mart, studiously saving 15% of their hard-earned income, just to earn 8% p.a. …

… no, they are preparing to be investors (say, real-estate and stocks) and/or entrepreneurs. Activities that high-school grads – and, even high-school drop-outs – can and certainly do in equal numbers to college grads!

You see, serious money making doesn’t discriminate on the basis of education … some of the world’s richest people have little to no formal schooling.

And, they aren’t wasting their ‘no college’ years earning $27k (and, salivating over their next 4% pay-rise) … no, they are busy reading this blog and starting their business/investment careers.

They have realized that serious wealth comes not from what you earn, but from the return that you earn on your money. So, with just the benefit of 4 years head start, they can turn a $20k per year earnings deficit into the same amount as a high-flying College Grad, by only increasing their annual return on that 15% savings from 8% to only 11.5%.

[AJC: If they can increase their return to serious real-estate investment territory of 20%, they will blow the college savings rate away by amassing nearly $3 mill. in 26 years, and if they achieve ‘entrepreneurial’ 50% p.a. returns, well they will join the ranks of the rich with more than $300 mill. to their name … really!]

Of course, if you choose to go to college – as I did, and will encourage my children to do – there’s nothing that says that you can’t also be an equally good entrepreneur and/or investor, on the side … or full-time 😉

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7 thoughts on “Is a college degree worth it?

  1. I think this is one of those things where the truth cannot be told by the numbers alone.
    While I have no doubt that a non-college grad COULD earn as much if not A LOT more than a grad (many of the world’s smartest and richest people dropped out of school). I believe it is significantly easier to do so with the degree.

    Some of these intangible reasons why could include:
    People from more affluent and/or successful families are statistically more likely to attend college. It is from this pool of people that you will develop lifelong friendships with, work with, compete against, and conduct business deals with.
    In addition, having a high paying job is not essential to become an entrepreneur or investor, but it certainly doesn’t hurt. Many, if not most, high paying jobs require a college degree.

  2. Adrian,

    Sorry I haven’t posted in a while- I’ve been busy trying to get my own blog started.

    It seems to me that there is a serious gap in our educational system. Most of a college degree doesn’t really help starting your own business… Business schools are far too expensive, require undergraduate degrees, and really seem to be targeting large corporation CEOs. Why isn’t there a vocational school for entrepreneurs? A two year degree that would teach real world business skills quickly, give young entrepreneurs some confidence, a bit of experience, and teach them about common mistakes as well?


    I’ve heard the networking argument- but I haven’t even heard of very good examples. How many of your college friends went into the same specialized area you did?

    -Rick Francis

  3. Two thoughts:

    a.) Education helps entrepreneurs
    In a recent analysis by the Manufacturing Institute, it was shown that the single most important contributor to a company’s innovation output (and in turn, commercial success) is the education of its workforce. The more educated, the more innovative, the more commercially successful.

    b.) Education helps entrepreneurs who fail
    Higher education is a Very Good Thing because on average it will drive a better financial outcome for the individual (as you state above). Is a degree a mandatory requirement to entrepreneurial riches? No. Does having a degree diminish your chances at entrepreneurial success? No. If you belong to the 90% of people who do not succeed at entrepreneurship – will you be better of with an advanced degree? Hell yes!

    Lets face it – most entrepreneurs fail. Entrepreneurial success a function of effort, luck, and stubbornness. Very few people have the right combo to succeed. If you do fail, your landing is much softer if you have a good education vs. just high school or less.

    Hence, you improve your overall outlook on success (regardless whether as entrepreneur or not) by getting a degree.

  4. Thanks for the comments; I think that we all agree that the answer is obvious: go to college and start a business on the side!?

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  6. advice, get the college degree WITHOUT spending all that $$… I went to community college for 2 years then transferred to a state university at instate rates, its a good value.. not sure what part of the world you live in but in the USA thats that best bang for the buck, my employers never know ( but I would tell them if they asked… they never have) that I went to community college for 2 years and then went to the another university for 2 more years to get my bachelors degree. Many states in the USA just require you be a resident and usually thats 1 or 2 years… So you could “target” a very good state school, go to community college in that state and become a resident of that state and then, you could go to that state school for a good price. now I graduated in 1994 but I worked on weekends selling video games at a local flea market community college cost me about 2500 per year and then state university about 4000 per year ( I did not live in campus way to expensive)… and I came out of college with 0 Debt.. that should be the goal… work weekends selling something on your own learn the business world AND pay for college… just sharing my story hope it helps.. looking back college was very valuable for me and I would say well worth it. One question still remains for me is … Is a “big shot” college like a Cornell university, or Harvard worth the financial price… That is a question I still have… For reference I’m 38 now so I graduated 17 years ago.

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