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Financial costs and benefits of college


If you turn on the news, you may hear a debate raging over the value of a college education in the United States. In fact, many have begun to question whether going to a 4-year college* to get a bachelor’s degree is still worth it given the rising cost of tuition and uncertain job market that awaits newly minted college graduates.  Putting aside the numerous intangible benefits of college for a moment, let’s address the question from a purely economic perspective. Is going to a 4-year college a good investment?

The Basic Financial Equation of College: Cost vs. Benefit

At first glance, going to college can seem like a financial impossibility for many Americans. Over the past 40 years, the average price of college has more than doubled when taking inflation into account. The average public 4-year school now lists their total cost of attendance (which means tuition, room, and board) at nearly $20,000 year. The price of private colleges is listed even higher, with an average cost of attendance above $40,000/year:
Fortunately, the listed cost of college – sometimes referred to as the “sticker price” – can be deceiving. Aid from the federal government can substantially decrease the out-of-pocket cost that you pay for college based on your family’s financial need. In 2014, for instance, the federal government offered nearly $24 billion dollars in grant aid – grants that don’t have to be paid back – to college students who had need, in addition to disbursing around $100 billion dollars in low-interest government loans with flexible payback options[i].  On top of government grants, there is also private aid – both from individual colleges and private scholarship granting organizations – which can reduce the actual cost of attendance even further.
Some argue that continuing to college means giving up the chance to get a job immediately out of high school and begin earning money. This is certainly true; however, the delay in earning can pay off. The average 4-year bachelor’s degree holder, for instance, earns nearly $1 million dollars more over the course of their lifetime than someone who holds only a high school diploma:
If there really is substantial financial aid available for higher education, and the payoff can be so high, then what is the debate about? Like most complex issues, it’s important to move past generalities. You are not an average; you are an individual who will make specific decisions regarding college that will make the cost vs. benefit equation more or less attractive. The most important of these factors relate to your choice of college, your choice of major, and your persistence in graduating.

Choice of College

There are nearly 3,000 4-year colleges in the United States, and each has its own approach to determining how much assistance to offer to students with financial need (often referred to as need-based aid) [ii].  As a general rule of thumb, the colleges that offer the best need-based aid are the colleges that are the most selective public and private institutions in the country.  This may initially seem like a paradox. Why would many of the nation’s best colleges – colleges that receive so many applications that they could easily fill every seat with students whose families could pay full price – choose to offer the best financial assistance? First, it’s because these colleges believe that your long-term potential for success has little to do with your family’s present income, and by extension, your family’s income should have little to do with whether you can attend college. Second, it’s because these colleges have substantial sums of money that they have raised over the years, and these funds allow them to put their beliefs about your potential into action by offering financial assistance if you need it.
Let’s take Stanford University as an example, a highly selective university where the total cost of attendance was listed at $62,801 for the 2014-2015 school year.  For many families, this may seem completely out of reach. However, the university actually offers substantial assistance to ensure that finances do not keep you from attending. For instance, families of students who make less than $60,000 per year and have typical assets are expected to contribute $0 for a student's tuition, room and board, books, etc. Similarly, students whose families make between $60,000 and $100,000 receive scholarships to cover the entire cost of tuition. These generous financial aid policies are one reason that schools like Stanford see such a high percentage (95%) of their students graduate – the payoff of going to college – with an average of only $15,000 in total federal loan debt [iii].
Does this mean that you must go to Stanford or some other highly selective institution to make college economically worth it? Absolutely not. There are many tremendous colleges – public and private, local and national – where students take on a manageable amount of loans and graduate in high numbers. What it does mean, however, is that not every college's financial aid program is created equal - and you will need to do your homework to understand the true cost of attending a particular institution (a topic discussed in depth later in this resource!).

Choice of Major

Another decision that will impact the financial benefit of college attendance is your choice of major. A major is a specialization in your studies that is typically chosen by the start of your junior year (if not earlier), and different majors lead to different career paths and subsequently different income levels. For instance, the average engineering major earns significantly more than many other majors over the course of their career:
Earning potential certainly isn’t the only criteria for choosing a major, nor is it necessarily the most important – after all, if you choose something you hate, you probably won’t be very good at it! However, you should be aware up front that your choice of major in college will impact the economic value of your degree. In addition, finding one's first job(s) can be substantially more difficult with some majors than with others.

Starting vs. Finishing

So far, we’ve been exploring the costs and benefits of a 4-year college degree. What we’ve left unsaid: some students go to college and never finish. Students who drop out of college have substantially lower earnings, higher unemployment, and greater likelihood of defaulting on their debt than students who ultimately graduate:
This brings us to perhaps the most important point about the economics of higher education. While college can offer a tremendous boost in income relative to cost, these financial benefits overwhelmingly go to students who finish their 4-year degrees rather than those who start the college journey but do not persist.


We began by asking the question of whether a 4-year college is a good investment.
Certainly, college isn't for everyone. Some students aspire to careers that simply do not require a 4-year degree. If you want to become an electrician, for instance, you may be much better served in a vocational school or apprenticeship program than at a traditional 4-year college.
Even for those who do desire a career that requires a 4-year degree, there are important decisions to be made to ensure the benefits of college outweigh the costs. From finding a college that offers sufficient financial aid to choosing a major and ultimately persisting through graduation, the value of higher education will be determined in large part based on the choices you make.
Yet, if you proceed cautiously, the answer to the question around the economic benefits of college is definitive.  Financial aid can make it affordable to attend, and as a graduate you can earn far more over the course of your career. In short, yes - college can be one of the very best investments that you make.

*We will add information on 2-year degrees and how community college may factor into college planning at a later time - at present, our college information primarily relates to 4-year colleges.

Want to join the conversation?

  • aqualine ultimate style avatar for user WindElemental
    Could you do biology and engineering?
    (6 votes)
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  • leaf red style avatar for user shannonmking
    What's the difference between Social Science and Psychology?
    (12 votes)
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  • piceratops ultimate style avatar for user Shreya Rao
    I'm currently a junior high student studying in India. Will colleges like Stanford offer me financial aid too, or is it just for American students?
    (9 votes)
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    • blobby blue style avatar for user Jocelyn
      Most top universities like Stanford give financial aid to everyone, but there may be some limitations for international students. For example, some universities are need-blind when considering American applicants, which means they don’t take into account how much financial aid is needed when accepting applicants. Need-blind also means that the university will provide complete financial aid, to the point where they could pay for a student’s entire tuition, board, etc. for four years. For international students, some universities are need-aware when it comes to selecting. That means that the universities will consider the international applicants’ family incomes before accepting or declining, but will still provide them financial aid if they are accepted.
      (9 votes)
  • male robot donald style avatar for user Nicholas
    Interesting, would it benefit a fourth grader to read this?
    (8 votes)
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  • aqualine ultimate style avatar for user c2j
    " Second, it’s because these colleges have substantial sums of money that they have raised over the years, and these funds allow them to put their beliefs about your potential into action by offering financial assistance if you need it. "

    Would that money come from the tremendous amount of tuition the students paid?
    (7 votes)
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    • leaf red style avatar for user grahambgriffin
      Kind of. For upper middle class and upper class families, most colleges will charge the full price of tuition, which they can then use to provide financial assistance to students without as much money. However, colleges still have plenty of other financial resources such as sports programs, federal/state grants, government funding for other reasons, tax breaks, etc.
      (7 votes)
  • starky ultimate style avatar for user Ian
    Is film school a viable option for a college? Or is it too risky of a route to go, considering most filmmakers don't go far
    (5 votes)
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    • female robot grace style avatar for user Stel Drake
      You can look up the statistics regarding the average starting salary for a film major, but my intuition tells me that it's not very high. Film making is an art, and art is about taste and vision. Those are things you can't exactly "study" for, although I'm sure film schools have plenty to offer to their students.
      (2 votes)
  • leafers seedling style avatar for user Ivan Gautama
    Hey there, I was wondering, how do I know what Major should I pick? How do I know my so-called 'passion'? It seems to me that everyone's pick on their major is based on that, but how can I know about it?
    (4 votes)
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    • piceratops ultimate style avatar for user Barrett Southworth
      If you decide college Is the right choice and in general It still is even though debt is a serious consideration now, then you don't need to have a major picked immediately. A part of general education requirements for many universities today is a course that exposes students to many disciplines. If you find something that you enjoy and like you can declare a major in that, it is still possible to change your major at the sophomore/junior year without major impact to graduation date. If you wind up with a bachelors degree but plan on graduate school your masters degree might be in a focus completely unrelated to your bachelors.
      (4 votes)
  • duskpin seedling style avatar for user Kristina_JessieReks
    I want to be a family doctor, still in middle school but already planning. What high school subjects and what college classes should I take?
    (2 votes)
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    • aqualine tree style avatar for user David Alexander
      You have a noble goal. I wish you well.

      As you aim for medical school admission, recall that the medical school will be looking at your college or university records (not your high school records) and at your MCAT test score.
      Keep in mind also that you are aiming to be a FAMILY doctor, not a medical researcher who works in a laboratory.

      So, in high school, keep your mind open to what will make you a well-rounded person, a HUMAN BEING who relates well to other human beings. To do that, take some high school level courses in social sciences (Psychology and Sociology) and in the arts. With the MCAT in mind, take hard sciences like Chemistry and Statistics (to get your math and scientific skills up to speed). Don't forget to take courses in languages and communication that will help you understand the kinds of things that people bring to you, and to help them understand what you offer them.

      You have at least four years of high school and four years of university ahead of you before medical school even begins. Don't forget to enjoy as much of what those years offer you as can be found.
      (5 votes)
  • leaf red style avatar for user Julian Delgadillo Marin
    If i want to study physics and engineering, its possible to receive a double scholarship?
    (0 votes)
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    • piceratops ultimate style avatar for user Barrett Southworth
      Apply for everything, just because your going to be a double major doesn't mean you would get more money. There is enough overlap between the degree requirements, the university/college core requirements and likely some math and physics classes in common, that you will only need to add 10% to 30% more classes in total to graduate.
      (4 votes)
  • aqualine ultimate style avatar for user mitchell farkas
    Looking at the graph of Rising Cost of College, it shows in the year 2013 a public 4-year college's singular payment for one year is $18,391, and a private 4-year college is $40,917 for one year. Would these be the average cost of 4-year colleges in the entire United States, or just a single college itself?

    And since this chart is from 2013, it's practically 3 years out of date, seeing that it is now 2016. Saying that, how much would a public and/or private college cost today, considering the economy is starting to get back on it's feet after the recession and housing market crash of 2008.
    Because I've looked at public and private colleges here in Michigan and it's showing public 4-year colleges listing from $11,000 for one year at Central Michigan, $17,706 a year at Michigan State, and even skyrockets to $31,200 a year at University of Michigan in Ann Arbor*. And a private 4-year college, say, Calvin College in Grand Rapids, costs around $29,400 for one year as an in-state resident.

    *not to be confused with U of M facilities in either Flint or Dearborn.
    (2 votes)
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