The Decreasing ROI Of A College Education

The attitude that ‘you have to go to college if you want a job that pays well’ has been believed by many generations of American parents, but there is statistical evidence that the cost of college won’t produce a return on investment as impressive as in the past.

According to USA Today, the cost of tuition in the nation’s top 50 universities rose by 3.6% over the 2017-18 school year. Of course, you’d expect the price to rise over time, but not faster than inflation.

That was the case though. In fact, inflation floated around 2.2% during that 12-month period, which is considerably lower than a college education.

These figures will be far from exciting for families who are already bending over backwards to give their children an opportunity to gain the best education that this country can provide them.

It begs the question: is a college education still worth the investment?

How to calculate the ROI of a college education

The answer to the above question is subjective. If you have your heart set on a job that requires college education, the answer may always be ‘yes’, regardless how high the tuition costs soar.

There are plenty of high-paying jobs that don’t require college education though – and if you use this calculation from Investopedia, the ROI of college is dropping.

Investopedia suggests that you calculate your overall career wage from your job where college education is a must (starting wage *3% for every year until you retire) and divide this by the cost of tuition to get your ROI percentage.

The website suggests that student loans shouldn’t exceed the first year’s salary after graduation, although (as already suggested) this is subjective.

The Entrepreneur Argument

It would be unfair to explore this topic without mentioning the argument preached by dozens (if not hundreds) of self-development experts.

This is the argument that the best way to get filthy rich is through entrepreneurship or business ownership. There will always be a cap on your wealth while you’re trading time for money as an employee, even if you’re a college-educated employee.

Entrepreneurship doesn’t require formal education. It doesn’t require years of debt. Yet, it does allow you the freedom to eventually earn passive income and spend your time how you see fit.

This is what thousands of people who have chosen the digital nomad lifestyle are doing.

With entrepreneurship, you’re completely in control of your job security. This fact has led to many people labelling it a riskier career path than employment. However, in an era where fewer businesses are lasting long enough to grant employees a ‘job for life’, it could be argued that employment is now less secure than running your own business.

Sure, if you have your heart set on being on a doctor or lawyer, the path to a college education is still the one you need to tread. If your goals are simply to ‘be wealthy’ or ‘have a steady job’, maybe there’s a better path for you.