Value of College Degree Calculator

How to use the value of education calculator

The calculator compares two paths that both end at the same retirement age: starting work now, or studying first and earning a higher salary afterwards. Fill in the fields below, using whole numbers.

• Revenue without degree: the average yearly income you expect without the degree.
• Revenue with degree: the average yearly income you expect once you hold it.
• Current age and retirement age: they set how many working years the comparison covers. The defaults are 18 and 65.
• Tuition and duration: the yearly cost of the programme and the number of years it takes, up to 10.
• Loan and interest rate (optional): the amount you borrow and its yearly interest rate. Enter both or neither.
• Revenue during studying (optional): what you earn per year while studying, for example from a part-time job.

The results are the marginal value of education, the cost of education, the monthly loan payment if there is a loan, and the lifetime revenue with and without the degree.

Main assumptions

The model is deliberately simple, so it is worth knowing exactly what it does:

revenue with degree = salary with degree × (retirement age − age) + income while studying × years of study

revenue without degree = salary without degree × (retirement age − age + years of study)

cost of education = tuition × years of study + interest paid on the loan

marginal value = revenue with − revenue without − cost of education

• A loan is repaid in 120 equal monthly payments, which is the "10 y" in the payment row, and the total interest over those payments is added to the cost. The interest rate is read as a whole number, so 6.9 is treated as 6.
• Salaries are flat averages. There are no raises, promotions, career breaks or unemployment.
• Nothing is taxed and future money is not discounted, so a dollar earned at 60 counts the same as a dollar earned at 25.
• Both paths run to the same retirement age. The salary with a degree is applied to every year until retirement, including the years spent studying, and the pay you give up while studying is subtracted separately, so the comparison is a little generous to the degree.

Worked example

A simple case. Someone aged 18 expects $35,000 a year without a degree and $60,000 with one. Tuition is $10,000 a year for 4 years and there is no loan. Revenue with the degree is 60,000 × (65 − 18) = $2,820,000. Revenue without it is 35,000 × (47 + 4) = $1,785,000. The cost is 4 × 10,000 = $40,000. The marginal value is 2,820,000 − 1,785,000 − 40,000 = $995,000.

With a loan and a part-time job. A student aged 19 expects $38,000 without the degree and $64,000 with it, retires at 66, pays $12,000 a year for 4 years, earns $5,000 a year while studying and borrows $30,000 at 6%.

1. Revenue with the degree: 64,000 × 47 + 5,000 × 4 = $3,028,000.
2. Revenue without the degree: 38,000 × (47 + 4) = $1,938,000.
3. The monthly payment on $30,000 at 6% over 120 months is $333.06, so the interest is 333.06 × 120 − 30,000 = $9,967.38.
4. The cost of education is 4 × 12,000 + 9,967.38 = $57,967.38.
5. The marginal value is 3,028,000 − 1,938,000 − 57,967.38 = $1,032,032.62.

How to read the result

Rearranging the formula shows what really drives the answer:

marginal value = (salary gain per year × years until retirement) − (forgone salary − study income) × years of study − cost of education

In the simple case the salary gain is $25,000 a year over 47 years, which is $1,175,000. Against it stand $140,000 of forgone salary during the four years of study and $40,000 of tuition. The break-even point is the yearly salary gain at which the marginal value is zero: (140,000 + 40,000) ÷ 47 = about $3,830 a year. If the degree lifts pay by more than that under these assumptions, it comes out ahead.

A negative result means the degree does not pay back before retirement under your numbers. That tends to happen when the salary gain is small, when you start late, or when the cost and the forgone income are high compared with the working years that remain.

Limits of the comparison

• Averages hide a lot. Pay varies widely by field, institution, region and individual. Use realistic figures for the specific programme, not the national average for all graduates.
• Time value of money is ignored. Earnings far in the future are worth less today. To see the effect, discount a stream of extra income with the present value calculator or the NPV calculator.
• Tax, living costs and benefits are left out. So are scholarships, grants and employer contributions; subtract them from the tuition you enter.
• Non-financial value is not counted. Job satisfaction, security, networks and the interest of the work itself matter but have no dollar figure here.

For the borrowing side, the loan calculator gives a fuller repayment schedule.

This calculator is a rough planning aid, not financial, career or educational advice. See the disclaimer.