Value of College Degree Calculator

1. How to use the value of education calculator?
2. Main assumptions
3. The benefit of knowing the marginal value of your degree
4. Financial caution

    How to use the value of education calculator?

Start by estimating the average revenue (salary, freelance income or entrepreneurship income) you expect to make if you do not have the education you are considering, then enter the average revenue you expect to make after completing the education. Try to factor in the ease of getting employed after graduation as well as the risk of remaining unemployed for certain periods afterwards. Statistics on the salary performance of people who graduated from the same educational institution as well as a good understanding of where you would rank among your peers might help you get a better estimate. Also take into account trends in the job market to the extent you can make a prognosis.

Then enter your current age and the expected age at which you would retire, everything going decently well for you. This will be used to determine the length of your carrier in both scenarios - with and without an education.

Proceed to input the cost of the tuition which should include any fees (e.g. some universities and colleges charge extra for library access, campus transport, athletic facilities, etc.), but should not include room and board as it is expected that you would be paying a similar amount even if you are working instead of studying. If that is not the case, include the additional costs of room and board during studying. If you have qualified or believe you can qualify for a scholarship or other financial aid you can exclude that from the tuition cost.

After entering the duration of your studies, you can enter the amount you intend to loan to cover tuition and related marginal costs (see above) and its expected interest rate. If you intend to work during your studies you can also enter the average yearly income you expect to make.

The calculator will output the marginal value of the chosen education, its cost, as well as your carrier revenue with and without education. If loan information was provided you will also see the monthly pay back required to cover your loan. Most people use this calculator to estimate the value of their college degree, but it works just as well for high-school education and ongoing education later in life.

    Main assumptions

Some assumptions are necessary to simplify the input for users and the required calculations. Some of them might have significant impact on your particular situation so make sure you understand them.

Assumptions for the values of revenue / salary with and without the education of interest: these should be averaged across the entire carrier (for averaging use the career with longer expected working years, if unequal) and should take into account any possible unemployment periods as well as allow for the risk of not finding employment in your desired industry right away. If one salary is expected to grow much faster than the other, this should be reflected in the average you enter.

The calculator works with the assumption of a fixed interest rate, monthly interest compounding and equal monthly paybacks starting from the first month after you complete your education that result in returning the entire loan in a period of 10 years. If your interest rate is not fixed you can enter the average expected interest rate over the 10 years following your graduation. If your compounding is not monthly, then you can still use the calculator if the compounding is yearly since in such a case the calculator's estimate will be conservative.

Finally, but importantly, the calculator assumes that all of the difference in salaries with vs. without education is due to the tutoring you got in your college, high-school or other educational institution or the fact that you have a recognized degree of your choice. This is a strong assumption but is the right assumption for professions that require a degree in order to practice legally. It is likely less solid for professions where a degree is more of an option.

    The benefit of knowing the marginal value of your degree

The benefit of knowing the marginal value of your degree is that it will help you get a better perspective about what you are paying for both in terms of your money and your time. You will be able to understand if college is worth it for you. In some cases it might turn out that the degree you have set your sights on is not actually a good investment and you may need to reconsider your choice as far as money goes.

This is particularly important in case you need a loan to cover your tuition fees. While paying from own pocket for a degree of little value is bad, it is at least less risky while if you take a loan and are for some reason unable to pay it back on schedule you can face financial ruin, especially given that in some jurisdictions one can't default on their student loans (e.g. the USA as of 2019).

Obviously, what you get is an estimate, a prognosis, nothing more. Your actual return on an educational investment will depend on wise money management, wise career choices after graduation and backing up your diploma with discipline and strong work ethic.

    Financial caution

This is a simple prognostic tool which is a good starting point in estimating the return on investment in your education, but is by no means the end of such a process. Crucially, its accuracy depends on the accuracy of your input which is a prognosis in itself and thus carries uncertainty and risk. You should always consult a qualified professional when making important financial decisions and long-term agreements, such as long-term education loans. Use the information provided by the calculator critically and at your own risk.