Tag Archives: Workforce

Opportunity Costs for Going to College

Image

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.

Tagged , , , ,

Don’t Judge a Plan by its Overalls

The year is 2002; the beginning of my senior year. I remember sitting in my high school career prep class with my guidance counselor and listening to the statistics about those individuals who went to college versus those who did not.  She said that if I were to go to college I would make on average $50,000 a year more than someone who went straight into the work force out of high school.  I would have a lot more job flexibility and I would be more desirable to all employers. It was implied that if you were able to go to college that you were supposed to go to college, it would make you elite.

I then remember looking over at the student next to me who was going to a mechanic work program half days and school the other half and I thought, “ you poor pimply faced soul, you are going to lose at life before you even begin. He had already been promised a job at the shop he was working at and was planning on working there for the foreseeable future.  He was wearing bib overalls and his fingernails were always greasy. That didn’t seem very prestigious to me.   College it is I said, “Sign me up.”

My bachelor’s degree is in education. When I chose that degree I closed my eyes and said “if I could do anything in the world and money wasn’t a factor what would I do?” I chose teaching. I like teaching. I have nothing but respect for teachers. However, the problem is that money is a factor when it comes to career planning. The night of my college graduation I found myself at 22 with a passion to teach and the potential to make a very modest $30,000 a year.  You see, what my guidance counselor failed to tell me is that at the end of those four years of education I would have a new high maintenance girlfriend named Sallie Mae.  Now I’m not blaming her for my woes. My guidance counselor was a nice lady who really seemed to care about her students. I’m also not saying I’m an idiot.  I was just a little unaware of what I was getting into. I knew that college was expensive and I knew that I would have to pay it back someday, but those ever growing numbers on my loan seemed so far away, until the morning after graduation.

I hesitate to play the “If I could go back would I do it the same?” game.  But I will, and I would not have done it the same. I would have done things much smarter and more intentionally.  The transition from high school to college can feel like a conveyor belt sometimes and you may find yourself on it heading full speed in a direction you’re not even sure you want to go. Looking back, I realize that I would have greatly benefited by having had a better plan right from the start.  It is my goal with this blog to help you access the resources you need and to spark the ideas that will help you develop a clear and intentional plan for the future.

By the way, that young mechanic with overalls and greasy fingernails that I mentioned earlier did have a plan. While I was accruing four years of debt at a private university, he was working. After high school he did a series of paid apprenticeships and learned some very specific skills. He received several raises and moved up the ranks at his shop. His salary four years after high school was over $60,000. He did all this while getting paid, not while paying someone else.

He had a plan.

Turns out it was a good one.

Tagged , , ,