Deciding to pursue a higher education is often a young person's first major financial decision. U.S. Census statistics reflect that the earning potential of college graduates is higher than high school graduates. On average, a person with a Master's Degree earns $31,900 more per year than a high school graduate. Compounded over the worker's lifetime, the numbers are even more staggering. A person with a Bachelor's Degree will earn, on average, almost twice as much as workers with a high school diploma over a lifetime ($2.1 million compared to $1.2 million).
It's no secret that there is value in education. This page is intended to provide you with tools to help you determine if your career path is one that will provide you with a return on your investment.
Step One - Estimate Your Out of Pocket Expense
Determine how much out of pocket expense are you looking at for each year that you attend school. Please review the How Much Do I Need To Borrow section for tips on estimating your actual expenses. Subtract any scholarships and grants (funding you do not repay) from your actual expense. The difference is your out of pocket expense. This amount is what you will cover each year from cash, savings, earnings and student and/or parent loans. Multiply the annual out of pocket expense by the number of years that it will take you to earn your degree.
Step Two - Review Potential Earnings and Job Satisfaction Statistics
There are many resources available on the internet to help you determine potential earnings and job satisfaction ratings for any chosen degree. We suggest that you do the research before you commit to a major. Are there multiple job options within your degree program? What are the employee satisfaction ratings for employees in that field?
Here's a couple of websites to get you started:
Step Three - Perform A Virtual Job Search
If you were entering the work force today with a degree in your chosen major, what kind of job opportunities are available? Where are these jobs available? Are you going to be willing to relocate after graduation to land that dream job, or are you going to be limited to opportunities in a specific geographic area (such as near mom and dad)? Know what kind of options you will have with your degree.
Step Four - Calculate Loan Payments
Now that you have determined how much it's going to cost you to go to school, and how much money you can earn when you land that first job, do the math.
The Federal government recommends that student loan payments not exceed 8% of your income. Some income-based repayment plans use up to 15% of income to calculate payments.
Using an income based payment plan, let's say you borrow $30,000 to earn your degree. Standard payments (ten-year) on $30,000 (at 6.8% interest) will be $345.24 per month. You will need to earn roughly $28,000 gross annual income to stay within the 15% range.
The preferred method of repayment would be to pay off your loans in five years, versus ten. Your payments would increase to $591.21 per month, but you would save nearly $6000 in interest and pay off your loans in half the time. You would need to earn $47,280 in gross annual income to stay within the 15% range.
Here's a link to a loan calculator that will help you figure out how much your payments will be once you go into repayment. Click Here for Loan Calculator
For more information regarding federal financial aid, please visit http://studentaid.ed.gov/.