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Is That Degree Worth the Student Loan Debt?

Most don’t think twice about borrowing money for education. After all, borrowing money to pursue a college or graduate degree is an investment, right? We even call student loans “good debt” (as if there can be such a thing)! It’s true: Education unlocks opportunity and, often, the doors to higher income. Still, it’s wise to ask yourself: Is that degree really worth the student loan debt?

Determining What Your Degree is Worth

If a few simple math problems don’t scare you, there’s an easy way to determine if the degree you’re thinking about pursuing is worth the loans.

First, subtract your current age from the age you think you’ll retire. For example, 65 minus 25 equals 40 years to work. Next, determine how much you’ll think you’ll earn over your lifetime education level at your current education level. (You can use this lifetime earnings calculator).

Then, estimate how much you’ll earn after you get your new degree by placing your anticipated starting salary after graduation (see median salaries by degree for help).

Determining The Total Cost of Student Loans

Now that you have a rough estimate of how much you’ll make in your lifetime both with the degree and without it, it’s time to find out exactly how much those student loans will cost. Add up how much you think you’ll have to borrow. (And it’s probably wise to tack on 10-15% to your estimate for unexpected expenses and annual tuition hikes).

Then, use this amortization calculator to find the total cost of the loan. (If you don’t know the exact interest rate, 8% is a good average for student loans). For example, a $75k student loan at 8% paid back over 30 years would cost $522 a month and mean a total cost (principal plus interest) of $198,115.

Missed Investment Opportunities

That’s a lot of money. But wait, you say! The increase in my lifetime earnings is still a lot more than that. Plus, I could repay the loan faster, so the degree is worth it! Perhaps, but don’t jump to conclusions just yet. There’s something else to consider: What would happen if you invested the student loan payments you would’ve made?

If you invested $522 for 30 years and earned an average of just 6.5% interest (probably a conservative estimate), you’d add $577,425 to your bank account. That’s a net difference of $775,540! Now, you can make an accurate judgment.

If your anticipated lifetime earnings after earning your degree are more than $1 million more than your lifetime earnings without the degree, it’s probably worth a $75k loan. If not, you have to ask yourself long and hard whether it’s worth it. Certainly, you can’t put a price on happiness—and sometimes pursuing what you truly love is all that matters.

I would personally love to go back for a degree that would almost certainly increase my income, but after struggling with debt for more than five years, the last thing I want to do is to take out $50k, $75k, or $100k in more debt. No thanks! Instead, I’ll wait until I’m totally debt free and I have saved and can pay for all of my living expenses and at least 50% of my tuition as I go to school. But that’s just me.

What About You?

Have you made the decision to take out big student loans knowing they are a good investment? Do you have huge student loan bills and find you aren’t making what you thought? Let me know!

About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. I can’t help but disagree. A college degree is what’s needed in the marketplace just to be competitive. It’s no longer an “option” that will just give you more money. If you want a basic, entry level job in the business world, you need a degree. If you don’t have a college degree, sure you can invest those student loan payments that you aren’t paying, but you will likely not have an extra $500 a month to do so. (Not to mention the sheer will-power it would take.) If you don’t have a degree and you lose your job, you are pretty much stuck trying to find a job in the same area where you were already working (which in an economy like ours, probably isn’t going to help you much.)

  2. Something you do not mention here is the free money an employer could give you for pursuing a degree in a career-related field. Just this quarter I started going back to school to finish my Bachelor’s degree (I have my Associate’s degree) and my employer will give me up to $5000 per year in tuition reimbursement toward tuition (not books, etc.). The stipulations are that I have to get C- or better and it has to be a career-related field (not job-related training).

    Overall, the school is going to cost about $25,000 for the 2+2 program and it will take me three years with a lower class-load and working full time, so it will end up only costing me $10,000 after I get the money back.

    The employer benefits because they can write that off their taxes (I think) and I do not have to pay taxes on it, everyone benefits greatly. I am really looking forward to the next couple of years and working on this. I am also trying to set aside money as I go along to be able to pay off my loans shortly after I graduate.

  3. Wow. If this was posted yesterday I’d think it’s some April Fools joke. I completely disagree with this. A college degree is a necessity to be competitive and there is absolutely no replacement for education. Crunch all the numbers you want–education is invaluable.

    And I think Kris makes a very important point–good luck finding a job without a degree that allows you to set aside an additional $500/month. I have friends with BS degrees, no loans, and struggle to save any money, let alone $500.

    And who spends $75,000 on college? Go to public school in state. Go to a (cheaper) satellite campus. Work while going to school. Hey, get a job at the university to have part of your tuition paid!

    Speaking of having someone else pay for college–lots of employers help with tuition costs. I’ll have my Master’s after 3 more classes and to date I’ve paid about $500 for it.

    • Education is “invaluable”? I disagree, education, and the money it costs to get that education is a business decision. You have got to know the ROI on your major. It is all guesswork, but is it wise for a student to spend $75,000 on a degree that the job prospects pay only $25k-$35k? Unfortunately, too many students use debt to pay for an education that won’t pay off and then they’re stuck with a high debt and a degree that doesn’t pay. Knowing your degree’s ROI and using his formula to determine it’s worth is important in my estimation. If a college education is an “investment”, it needs to be treated like an investment.

  4. One more thing missing from the equation- can you get the job you WANT without a degree. I went to grad school because I knew it was necessary for the positions I wanted to have later in life. I don’t love the payments, but don’t regret the 27K I took out for grad school.

    Some other things to think about:
    Will you qualify for federal assistance? (Pell grants, etc)
    Will your employer help pay for you to increase your skills?
    Will your life be more complicated (kids, more work responsibilities, etc)later on?
    Can you work while going through a program or will you need to take 1-2 years off of work?
    Does prestige matter in your area or can you go to a state school that is less expensive?

  5. I believe this statement is flawed : “If you invested $522 for 30 years and earned an average of just 6.5% interest ”

    Without a degree you may not have $522 to invest

    Of course there are plenty of folks that are very wealthy by starting a business or marketing a new invention without a degree but of course that isn’t the norm.

  6. I usually agree with most of what David says. However, this time I have to, for the most part, disagree.

    Having a degree at all is now a necessity for one to attempt to keep pace with the cost of living. Having an additional degree may become the norm in ten to twenty years, if not sooner. I have seen this progression (of the degree norms changing in the workplace) already in my lifetime and expect to see it again.

    Having an additional degree can well be worth the money, as it offers greater options and flexibility in where one can work, thereby increasing the potential for earning and increasing earning itself over time. Simply put, if you cannot find work or do not have the option to leave for a higher paying job, you may find yourself in a tight spot later.

    Any student should look at the earning potential of a desired degree before pursuing it. However, if you look at the numbers and still need it to do what you want in life, it’s worth it.

    I attended university at ages 27-30 as a transfer student, borrowing approximately $20K for the first two years (in addition to working). In the third year, I was awarded enough scholarships to live for that third year and pay back half my loans from the previous two years, leaving me with only $10K in student loan debt upon graduation. This was critical due to the low earning potential of my career. However, I do what I love and could not have progressed in my career without the degree.

    Every student should educate himself about the specifics of his student loans (for instance, to know he should pay off unsubsidized federal loans before paying off subsidized loans), the types of loans available, the lenders from which you may choose, and research and apply for scholarships.

    I am a huge advocate of education because I see the limitations of not having a necessary degree. Students should seek out all sources of funding, be well informed about borrowing, and not enter into any degree program haphazardly.

  7. While I can see why most of you agree with education, some others are quite successful without a degree. Some say it is luck and others say it is the product of hard work and determination. With a competitive job market, often times experience out weighs a degree with no experience. So, for others reading this, like myself, school is not the one all be all. You can be successful and SAVE money without a degree. It really depends on your industry you are looking to pursue and the work ethic you plan to build.

  8. A lot of great comments, though I realize I need to clarify a few things!

    I was thinking mostly about graduate school when I wrote this post, although as RM just pointed out it IS possible to be successful without a degree, depending on other training/experience. That said, $75k was just an example. I was thinking of Law/Business/Medical school and for those the amount could be even higher. Certainly an undergrad education at a public school can be achieved for much less.

    Now, I am NOT suggesting in this post people automatically rule out school and save money instead—I offered a formula for estimating the return going to school could get you. For many, the return in increased lifetime earnings will BLOW AWAY the cost of the student loans, so you should certainly go for it!

  9. I’m going to have to disagree with a lot of the comments here. Most people responding state that a degree is a necessity nowadays. I think that it may be a necessity for some areas but for other areas it’s not. I work in IT and I know plenty of people who don’t have degrees but have certifications and experience instead. These people are making $75,000 and up. They are in the role of managers and other leardership which “requires” a degree. Often times I’ve learned that when a job says it “requires” a degree it really means that it requires experience in the industry at least equal to the degree.

    As for me personally, I don’t have a bachelor’s degree and make a nice wage. I do, however, have certifications and nearly 10 years in the industry. That doesn’t mean that going back to school is a bad idea (in fact I’m in school part time now and will be finishing my bachelor’s this fall), I just think it’s not the necessity many of the commentor’s claim it is.

    I also don’t think it’s necessary to go into debt to get through school. I started at a community college to save money on my core classes and then switched to a 4 year university. I also worked at least one job (sometimes two) while going to school full time so I could pay for it out of pocket. For finishing up my degree, my current employer (I’m now full time) pays for half the tuition and I pay the other half out of my pocket. Sure, I’ve had to cut back in other areas but I’m willing to make that sacrifice. No debt needed.

  10. I pulled 20K in student loans for my BFA and had to work full time while going to school full time, but I think it was definitely worth it in my industry. But if I had known better I would’ve gone to a public school. My colleagues graduated from state universities and I from a private school but we make the same money, LOL. We have two new college graduates as non-paid interns at work, and I feel bad for them, because they went to private art schools for approximately 10K + per year. More and more I think the best bailout the gov’t can offer is the forbearance on student loans… Wishful thinking!

  11. Annie Tran says:

    I got a $40K loan to go to ASU for my MBA. I rationalized the bill by reminding myself that I went to the University of San Diego on scholarship (valued at $90K). I have yet to see any big payout with my MBA (graduated 2008), but then again I’m only 26, with 5 years work experience. An MBA is just a piece of paper until you can attach significant experience with it. I asked my bosses if there’s any increases or bonuses for getting my MBA and they said no.
    Experience + Degree is the best formula. My parents don’t have degrees and they worried over the years about layoffs and not being able to find work due to their lack of education. I have 2 degrees, but not enough experience. The MBA is my ticket to management. There have been instances where I work that people were looked over for mgmt positions because they didn’t have an MBA, and then there are some people who were told to go get their MBA’s so that they would be qualified if they applied for management positions.
    I really hope the MBA will pay off in the end. And if it doesn’t, there is still some intrinsic value for knowing I completed it.

  12. Where are you investing at a 6.5% interest rate in today’s economy?

  13. i totally agree with most of the posts. i went to a Big 12 (at the time SWC) school for a few years and tried to pay as i went, it didnt work. so i went to a local community college and took classes at night and worked at a feed lot during the day and that didnt work either. so i went to work for a couple of years busting cattle and realizing i was a worse cowboy than a student. at the age of 26 i was able to fill out my student loan applications by myself which allowed me not to include my parents income so i took the plunge and went to a local private university. i took out loans and received grants that paid both my tuition and expenses (including dorm) for $26k yearly. upon graduation three years later i was near $70k in debt and went to law school. three years at a top tier 1 law school and expenses put me in debt combined with my undergrad of nearly $300,000. straight out of school i recieved a job with a top 8 law firm thanks to the opportunity to be on law review and not try to hassle with making a dollar. i have now been out of school for 9 years and only have a few more months to repay my student loans, if it wasnt for those loans i would still be living in a podunk west texas cow town, would not have the opportunity for my children to go to the best private schools in new york, and would more than likely not be stuck here at the atlanta airport waiting for a flight. why? i could never have afforded to take the kids to disney land at the last second just because we saw a tv commercial.

  14. For the people that can’t afford student loan debts, its not good to go to school for the sake of parties or for a degree in a specialty field that eliminates a lot of job opportunities. The medical field is one of the best routes since people need care, but going to school for graphic design isn’t really worth it. You can teach yourself by buying the books for Photoshop instead paying someone else to teach you. Your skills are the thing that prove your worth anyway, the degree won’t matter if you’re good, because having the degree won’t matter if you suck.

    Going into debt only to end up a graduate working as a waiter to pay off student loans, is not the way to go. If you can afford to go to college do so, but if you don’t want to go, but you want to do something in life that doesn’t necessarily require a degree, then buy the software yourself, and essential books to teach yourself.

    There are also instructional videos.

    Your credit will thank you for it.

    Bush didn’t care about the students/graduates that couldn’t find jobs when he started two wars.

    Halliburton isn’t paying them off with the profit they made from the business venture either.

    So everyone that feels a degree is essential…..is wrong. Every single person doesn’t need a degree for what they plan on doing in their life.

    If they can’t afford going in debt its not worth it, because you can’t tell people the unemployed graduates with a degree and a mountain of student debt (struggling to get by) that “at least you have a degree”. Especially the ones that don’t get jobs due to prejudice BS. They will tell you to STFU and GFY.

    I say, don’t go into debt if you don’t have to, self educate if you don’t need the degree.

  15. I wish I had never gone to grad school! The job market was terrible and I got a full scholarship + stipend to go. But, I took out loans to pay for my other expenses, books, fees, etc – My stipend was around $600 a month. I am finishing the degree in 2 weeks and honestly, if I was a quitter, I would have stopped one year in. At least I have the degree now but honestly, not sure what I’ll do with it. So, yes, good advice. I blog about living on a budget now but wish I didn’t have to factor in such huge loan payments!

  16. Deanna Long says:

    I began my Associates program with LA College International in Dec. 2009. I must have racked up about 19k in debt of student loans, but felt great about graduating summa cum laude, right? Well, I am a single mother of a three year old girl, expecting again due to a trajedy, and am still single! I live in a rural area, but am planning on moving soon. Noiw I just started my degree program for a bachelor’s in Health Care Administration from the same college. After all is said and done, my loans should be about 34k. I am stunned! I wake every night wondering if I am doing the right thing. I am really about to let the college know I might sit out on this round.