Opportunity Costs for Going to College

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Going to College is expensive. I know, everybody is yelling “well duh!” in unison. But it’s even more expensive than you might think. Opportunity costs are very important to consider when planning whether or not to go to college.

Let me quickly define what I mean by opportunity costs for the purposes of this article. An opportunity cost is simply a choice between two possible options where you judge the benefits of one choice over the other.  You can choose to do this or you can choose to do that. You can buy a 1998 Chevy Cavalier or you can buy a new 2012 Toyota Prius. You can have cereal for breakfast or you can have oatmeal. You can choose to go straight to the work force after high school or you can choose to go to college.

Let’s look at the workforce or college example in more detail.

A lot of people when taking into account the financial implications of going to college only consider the debt they accrue while attending college; room and board, books, fees, tuition, etc.  They often don’t consider one of the biggest financial factors in the whole equation which is the cost of giving up four years of income to attend college. Four years of income will often add up to more than the total cost of tuition and all the related expenses. Four years income is a big chunk of money.

For example; we have two students who are graduating high school. One decides that he will go straight to the work force and the other decides to go to a four year college.  The student who chose to go to college will pay, or more likely owe, $71,440 when starting his or her career. But not only that, they will also be out an additional $120,000 in lost income. The $120,000 sounds like a lot but it is really pretty conservative, just take $30,000 a year multiplied by four years.  So college for that student came at a $191,440 cost of opportunity. At 22 years old after graduating college that student is down $191,440; let that sink in for a minute.

Now we move on to our student who chose to go straight to work after high school. Let’s say he or she chose to become an auto mechanic. The average salary for that job is $36,180. Multiply that by four years and at 22 years old that student is in the positive $144,720. That is a difference of $336,160 between the two. That’s a lot of money!

I want to be clear that I am not discouraging going to college at all. In general, college graduates earn more than high school graduates do. The unemployment rate is lower for college graduates than it is for high school graduates. Going to college is a must for a lot of career paths and it tends to provide more flexibility.  However, as I mentioned earlier, it is important to understand the opportunity costs. Make the decision from a position of knowledge and confidence.

Ask yourself; “Is accepting that cost necessary to get me to the place I want to be?” or more simply put, “is it worth it?”

As a side note, $71,440 is the average cost of a four year in state college based on data from College Board located here http://trends.collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector-2012-13. Check it out.

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5 thoughts on “Opportunity Costs for Going to College

  1. Jesse says:

    Lets pretend (or maybe you have) you already have a career path picked out and it doesn’t require a college degree, but there are course that can be taken to help improve your knowledge in that line of work. Do you take the course(s) or just stick to what you already know? Should you spend the money to get a better understanding in the career path you choose? Don’t go to college to figure this stuff out. Do it before you go…might save you some headache in the future. Is it worth the lost income in the present, in hopes to gain a better job and income in the future?

    • Excellent point Jesse. If you already know what you want to do, if you are passionate about it, if you are talented in it, and if you have thought of a way to make a profitable profession out of doing it, then I would encourage becoming the best you can in that field. Be the expert. Attend seminars and conferences. Take online courses. Attending tech schools and community colleges even though a degree isn’t required can be very helpful as well. Money spent on education is an investment and is usually not wasted so long as you have a plan for how you will be benefiting from that investment.

  2. John Harmeyer says:

    If someone were to go to work directly out of high school it might be better financially short term, but they might not recieve as much income if they were to go to college… Going to college may cost more up front but if someone got a better paying job the cost might be worth it. A person would also have to consider the time spent at their job. A good paying job might hinder the amount of time spent with their family if they choose to have one. So if they value time with family more than money, that person might have to accept a job with less income to be able to spend more quality family time. So, to figure out whether the cost of going to college is worth it, you would have to decide not only what you want to do for a living, but also the life style you want to live.

    • Thanks for responding John. You’ve hit on a lot of good points including the opportunity costs of your time and lifestyle. Education generally increases long term income but not always. If you know for a fact that obtaining a certain amount of education will increase your earning potential then I would say go for it! However, there are entire professions that obtain quite a bit of very costly education only to make less than their uneducated counterparts, think teachers, social workers, clergy, etc.

      But you are exactly right, for a lot of those individuals the cost investment and income loss allows them a certain lifestyle. Thanks for sharing your thoughts.

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