Have you ever stopped to think about how much college tuition and loans might be hurting you in life? What if you got a job immediately out of high school and never went into debt? Which option would come out ahead? While it is nearly impossible to predict the lives of both those graduating from college and those that enter the workforce immediately, we can certainly make an education guess based on the data and the averages. Before digging into the numbers, my opinion is that you might be better off skipping college.
Before you start sending hate mail my way, you should know that I actually went to college and obtained a degree in Finance. And, I actually went back and got my Masters of Business Administration degree as well. Since I was never a big fan of debt, I kept my bills low and graduated with only $12,000 in debt. This allowed me to pay off my debts rather quickly and then got on the fast track only a few years after graduation.
But what about the average person? According to a multitude of different sources, student debt has actually climbed to about $30,000 per college grad! For most, this amount of debt will take 10 years to pay off, and that’s only if they find a decent job after graduation. Not everyone is so fortunate.
So if you take the college route, you will likely take 5 years to obtain a degree, but then your debts will stick with you for another 10 years after that.
Okay, now for the positives of a college degree. You will definitely have a larger selection of jobs at your fingertips when you graduate – more so than the high school grads anyway. Plus, your earnings will likely be more than the initial earnings of that high school grad as well.
So what do you think at this point? Would you be better off skipping college? Or, will you end up much wealthier with that degree?
The Pros and Cons of High School
If you get a job (or start your own business) immediately after high school, your net worth at the age of 18 is probably a hair above zero. You might have $1,000 or more to your name. It doesn’t sound like much, but since you are not going in to debt to get that college degree you are starting out far ahead of that degree seeker. Plus, by getting a job immediately, you will be earning money while the college student is spending it. In other words, your net worth is growing more and more positive each year and the collegiate is advancing farther and farther into the negative.
As a high school grad, your job opportunities will be limited. It is quite unfair in my opinion, but almost every job requires a degree these days – even a secretary job requires a degree now! Plus, without a degree of any kind, it is almost impossible for you to become a Director or a Vice President within a company. As a high school grad, you must be content with earning a meager wage for much of your life. The huge benefit though is your ability to stay out of debt and to earn money early in life.
How Do The Numbers Play Out?
So how much more do college grads actually make compared to the high school graduates? On average, their salary is actually $17,500 more, which is really quite substantial. Put another way, high school graduates earn only about 62% of what college grads earn. Based on these numbers, you might think it’s a slam dunk for the college earners to win out in the long run, but I still think avoiding all that debt might help the high school grads enough to eek out a better life overall.
Let’s set up the scenario. Here are the assumptions of the college student vs. the high school student:
- The high school student immediately earns $15 an hour after graduation at the age of 18
- The college student racks up $30,000 in debt and graduates in 5 years (at age 23)
- The college grad starts out with a salary of $24 an hour
- Assume that neither salary increases and the comparison does not include investments
- Comparison is earnings only
With these scenarios, the high school student stays ahead until about 32 years old – not nearly as long as I had hoped.
Okay, so it seems like the college student is winning hands down here, but I feel like this linear model isn’t telling the whole story. We really need to factor in some investments to make this a more realistic comparison.
The New Comparison With Investments
If both of these young individuals is wise, they will be socking some of their money away for retirement. Since the high school grad has no debt and is earning money, he will be able to invest immediately. The college grad, on the other hand, obviously can’t invest while he’s in school, and is limited with investing once they get out since they have debts to pay. Let’s model this in our assumptions
- The high school grad begins investing immediately at $4,000 per year
- The college grad is plagued with debt after graduation and can only invest $3,000 a year while paying off the loans
- After the loans are paid off, the college grad ups the yearly investment to $6,000 per year
- Since the debt is already factored in as a hindrance, it will not be calculated in the table. This is a charting of investment money only.
- Assume investment growth of 8% each year
Booya! Take a look at that graph! The college grad will actually never catch up to the investments of the high school grad, even with the large contributions later in life (I’m actually not sure why I’m celebrating this since I am a college grad… 😉 ). So, if the high school grad has a level head and starts investing their money early, the college grad can actually never catch up! Thanks to the power of interest, the gap will only continue to widen with age.
In this scenario, you are most definitely better off skipping college.
And, Don’t Forget About the Entrepreneur
Hard working individuals that start their own businesses are far more likely to become millionaires than the college student that works for a salary. In fact, according to The Millionaire Next Door, about 2/3 of every self-made millionaire is a business owner. And, chances are that they never did earn their college degree.
Think about Michael Dell, Mark Zuckerberg, Steve Jobs, Bill Gates, and many other billionaires that never bothered getting their college degree. These men are billionaires and would have never achieved their current level of success had they just worked a job all their lives. If you are ambitious and have a knack for business, then perhaps you should jump into the working world as your own boss! To be a success, you do not have to earn billions. Just keep a level head, continually earn a profit on your product or service, and reinvest the earnings back into your business. After a decade or two, you could easily be a millionaire – all without a college degree.
In summary, you can obviously earn a higher salary by going to college, but that doesn’t necessarily mean that that is the best option for your future.
So what do you think? Would you be better off skipping college?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.