Thursday, May 01, 2008

The Break Even Cost Of A College Education

How much should we pay for our child to go to college? One way I could decide is to compare the opportunity cost of tuition versus the increase in salary from a college degree. Teach A Child To Become A Millionaire shared how a one time investment of $20,500 could become $1 million in 41 years. With the average private college tuition around $22,000, the opportunity cost of a private college education is about $4.4 million at retirement. Therefore, a way to calculate the break even point is to estimate the increase in salary that could also provide $4.4 million at retirement.

Using a future value calculation, 41 years of saving $9000 per year at 10% is required to yield about $4.4 million at retirement. In other words, the break even salary increase for attending the average private college is $9000 over that for a high school graduate. Since the average salary of a college graduate is about $22,000 higher than a high school graduate, it appears the cost of the average private college degree is worth it.

From a purely financial viewpoint, the break even cost of a college education is about $2000 higher salary for each $5000 of tuition. As long as one achieves the average salary increase of $22,000 for a college graduate over a high school graduate, paying up to $55,000 for a college education is a break even proposition, financially.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or education advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

1 comment:

experts on credit said...

I'm one of those firm believers in free education. But I paid for mine and my children's. I'd do it all over again.