My son and I had a discussion about school and grades the other day. He’s doing great in school, but sometimes we check in to see how things are going and to talk about his future education goals. It helps him stay motivated, and it’s a good way to set expectations for what financial help he can expect to get to pursue his higher education.
After our conversation, I began to wonder what would likely help my son get the best bang for his education dollar. There is an assumption that it always makes sense to move forward and get a graduate degree, but right now my son is leaning toward engineering. I’m not sure how useful an advanced degree would be, especially since there are plenty of good jobs for those with undergraduate engineering degrees. Plus, spending a couple more years studying means that he’ll be that many years behind on having relevant job experience. Is the trade off really worth it?
Recently, SoFi released an infographic aimed at illustrating the return on investment for an education, specifically graduate degrees. This is something to think about carefully because, as student loan debt becomes a greater issue for the next generation, you want to make sure that the bills can be paid.
Which Fields are Worth Pursuing Further?
As I expected, engineering doesn’t receive much of a return on investment for a graduate degree. You get great value for an undergraduate degree in engineering, since you can usually get a job with reasonably high pay right out of the gate. Going on to get an advanced degree in engineering will only provide you with a 10% higher lifetime earnings according to SoFi. Yes, it can seem like quite a bit of money, but you also have to factor in that the higher earnings assumes a worker to grind all the way until full retirement age and never changes careers.
Other fields that don’t offer good returns for getting an advanced degree? Business and mathematics. Once again, these are undergraduate degrees that offer the chance for a good job and pretty good pay upon completion of the course of study, and going on for more education doesn’t offer much of a bump in pay.
On the other hand, you can get better value for your education dollar if you get an advanced degree in the social sciences, humanities and fine arts. These areas general start you out with a fairly low salary upon graduating with an undergraduate degree, so you can get a decent bump in pay if you move forward with more education. I know that my ex-husband has more opportunities available to him with a Ph.D. in psychology than he had with a B.S. or M.S. degree. With a bachelor degree in psychology, he’d be lucky to make $40,000 a year fresh out of college. With a Ph.D., though, he had a much higher starting salary and now he makes good money as a full-time lecturer at a major university.
You also want to figure out how long you can expect to be employed. My mom earned her bachelor degree a few years ago. She teaches and she could get a bump in pay with a master degree, but she doesn’t expect to work long enough to make it worth the cost.
When plotting the course of your education, it’s important to be realistic about what you can expect to earn when you finish and whether or not you will earn enough to cover the cost of your student loans. I’ll be having frequent discussions with my son about this.
How about you? Do you think about your ROI when it comes to investing in your education?
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Yes but unlike in stock trading or real estate, I think in education both the return and the investment mean more than just money in and out. It may make sense to accept a lower financial ROI if the result qualifies one for a ‘dream job’. My nephew is in the middle of his undergraduate studies in engineering, and he is planning to finish graduate school through the Ph.D. because he aspires to be a college professor. He expects his M.S. and Ph.D. to be fully funded by assistantships, and his parents are covering his B.S. degree, so student loan repayments aren’t an issue. His investment is the opportunity cost of the time needed to complete the extra coursework and dissertation, but there is currently no alternative path to a professorship.
Another aspect of this education decision is goodness of fit. People who enter the same training program may see vastly different outcomes depending upon their talents and interests. Unlike the stock market where one person’s share of Apple fetches the same price as anyone else’s, the value-add of a sheepskin depends very strongly upon the characteristics of the holder. It’s sad to see how many mid-career types feel stuck in a poorly fitting occupation, even if it’s one that pays well.
I think it’s great that you are taking the time to talk with your son about his future plans, and I would encourage you to factor in non-financial aspects of both the returns and the investment. The best inside information on this topic comes from current and recently retired engineers. My own work experience in engineering has been excellent for nearly three decades, but it doesn’t always pan out.
Thanks for adding the non-financial aspects to “investing” in one’s education. You are absolutely right – being able to land a dream job should be at the top of anybody’s priority list. And plus, a happy worker will also stay working longer, meaning more paychecks too!
I agree that non-monetary considerations are an important part of the decision to go back to school. Advanced education is not an economic cure-all. However, there are worse habits to have than being a lifetime student.
I want to add another consideration to ROI. What is the source of funding for the education? If you have to finance the education out of your own pocket and/or take out loans, that means a longer break-even point. If you get your employer (or maybe even a rich uncle) to pay for your education, you can start seeing the economic benefits sooner.
I recently learned my employer moved the lifetime limit on payments towards higher education from $10k to $50k. $10k doesn’t go very far towards a degree, but $50k will cover most programs. This can be applied to either undergraduate or graduate programs. The potential glitches can be that you are usually required to continue working for the same employer for a number of years once the program is completed and the amount paid on your behalf might be subject to income taxes. You need to know the tax laws where you live, and how closely linked your degree program is to your current position.
And, always, always, always fill out the FAFSA and apply for financial aid. Don’t decide for yourself that you aren’t eligible, let the financial aid office make that decision. I’m willing to bet that you will be surprised to find you receive something. Be sure to meet all of the deadlines, even if you need to make amendments later.
Great points Gwen.
$50k is quite a bit for an employer to offer employees, so they’ll definitely want to somehow get that value back from you via a long commitment. Getting that money is a “bird in the hand” though so don’t ever turn that down, as you can always re-negotiate terms later 🙂
And good reminder on filling out a FAFSA. I was too stupid and ignorant to file for financial aid when I was young and my investment portfolio will forever miss that chunk of change compounded the past couple decades!
I believe ROI should be considered when thinking about a major and a career path. You can not just blindly pick a major without understanding the cost and job market. Maybe there are cheaper options to obtain the degree you wish. I don’t t believe a lot of high school student, parents and counselors are approaching college this way, and they should.
It would really help our country’s student loans problem if there was more clarity on how to take classes at the community college level to then transfer them to college for a degree. Being able to go to community college, preferably one that’s close to home for say 2 years, is by far the easily way to save on getting a degree.