By the time most college students have completed their undergraduate degree they are carrying around $30k in student loans. Those who attended private universities may have much more. Similarly, people from economically disadvantaged families who couldn’t afford to help with college also often carry higher levels of debt.
This dynamic doesn’t lend well to the idea of borrowing more money to pursue a graduate degree.
However, there are practical financial reasons why furthering your education can be beneficial. People with graduate degrees tend to earn higher salaries. They also are more frequently selected for raises.
Pain Point
It’s an unfortunate issue that college degrees are not framed as an investment right from the start. Most high school kids are encouraged to look at college instead as an experience. A milestone. Something they should be passionate about.
Passion is good. So is debt-free living.
Encouraging kids to pick their dream school and figure out how to pay for it later neglects to take into account how little kids know about personal finance.
The average high school student graduates without even knowing how to set up a personal budget. This kid is then expected to take out loans they will be paying off well into their thirties.
That’s not to say that there shouldn’t be a whimsical component to college. It’s many people’s first taste of independent living. That can be very enticing to an eighteen-year-old.
However, a basic cost-to-benefit analysis may help them make a more informed decision.
For example, do they want to be a teacher or a nurse?
These professions, while deeply noble and important, have a limited advancement threshold. There’s not really a corporate latter that can be scaled.
Teachers and nurses do receive raises as they advance through their careers. Usually, they are pre-fixed and not necessarily proportionate to performance.
What does that mean for an eighteen-year-old who wants to choose a college?
Well, what it means is that a teacher with a degree from Harvard will make the same salary that a teacher with a degree from Eastern Illinois University would.
Why take out six-figure loans when you will ultimately wind up in the same place as someone with a state school education?
On the other hand, if you want to get a finance job on Wall Street, taking the prestigious degree route is much more beneficial. Those six-figure loans will be worthwhile because you will be much more likely to earn a six-figure salary.
In other words, ROI is a concept that should apply to ANY major loan. You wouldn’t borrow $200K for a home you know will depreciate in value.
Why let kids do the equivalent when they are choosing their college degrees?
ROI for Graduate School
All that is to say that experiencing a return on investment from a graduate degree ultimately depends on what the student plans to do with it. By the time you’ve gotten to the point where you are considering a graduate degree, your goal should be more than just advancing your knowledge. You can do that for free at home with a library card.
You should have a specific career objective that correlates with the degree you are interested in.
Degrees that yield a high return on investment include:
- MBAs: Not only do MBAs earn significantly more than the general population but they also make more than people working within their field who only have an undergraduate degree. People with an MBA report making as much as $50K more than they did before their advanced degree.
- Engineering: Engineering undergraduate degrees are lucrative in their own right. Getting a graduate degree will boost your salary and make you eligible for more raises and promotions.
- Computer Science: Tech-related graduate degrees are often not only beneficial but required for most high-ranking jobs. If, for example, you want to work as a cyber security analyst, you’ll find that most of the highest-paying and competitive jobs require an advanced degree.
All of these above-described education paths are designed to connect you with a career that will result in a six-figure salary. However, there is a secondary ROI consideration for graduate studies that also bears consideration: Career positioning.
Some jobs require graduate degrees even though they don’t necessarily correlate with the highest possible salaries. Below, we explore how to pursue graduate degrees when your intended career will produce a modest income.
Making Your Graduate Degree Work for You
Business people have lots of great financial opportunities, but what about individuals who want to use their graduate degrees to become social workers or school administrators?
These jobs do produce good incomes but your ultimate return on investment will not be nearly the same as that of someone who is trying to take the corporate world by storm.
The general rule of thumb for any student loan is to not take out more than you can expect to recuperate within five years.
That doesn’t mean you have to pay your loan off in that time. It does mean the amount you borrow should comfortably fit within your anticipated income.
It goes back to what we discussed earlier: If you aren’t pursuing a job that requires a prestige diploma, you probably shouldn’t get one.
There are many great state schools that provide high-quality education at discounted rates. You can further improve your degree’s ROI by looking for ways to reduce the cost. Teaching Assistants receive discounted tuition.
Many universities provide other work opportunities that can decrease the ultimate cost as well.
Finally— try to pay cash for as much of your school as you can. If you are already working in your intended field, you can do this by simply only signing up for the classes you can afford to pay for out of pocket.
This will slow down your degree completion but it will also eliminate one of the most nefarious aspects of paying for college: Interest payments.
Here’s the bottom line: the less money you borrow, the more financial sense your degree will make.
