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How To Calculate The Rate Of Return On Your Higher Education Course

Making the decision to invest in higher education is huge, especially if you are funding it yourself and are undertaking debt. We all check out the rate of interest on education loans while weighing the pros and cons of investing in an MBA or a degree abroad. A key factor to look at should be your rate of return on this investment.

Your rate of return will vary significantly according to the field you choose and the career prospects of the degree you choose. Key Factors: 1.Rate of Return

Rate of Return

Your rate of return is simply the return or potential earning divided by the cost of your higher education degree. This does not take into account the non-monetary benefits like the networking opportunities, the skill sets you develop and the experiences you have at college. However, it does put a monetary value on the amount of debt you will be incurring.

How Much Debt Should You Incur

Estimate your average income before doing the course, your income immediately after graduating and your average income over the period of 3 to 6 years after you complete the course. This is your potential earning and your loan amount should not exceed this. Calculate how long it would take you to pay back the loan while also factoring in time periods when you won’t have a steady income.

Placement Rate

Talk to past students and see what were the kind of placements they secured after graduating. Check the placement council and the percentage of students successfully placed for your course.

Sticker Price

Most colleges show you a sticker price and once you actually secure an offer the hidden costs start to add up. Talk to the guidance counsellors to find out the sum total you will be paying and if any funding is available to offset a few of these costs.

Opportunity Cost

Be sure to factor in the Opportunity Cost. Opportunity cost is the earnings you would have made if you worked for the two years of the degree. If post the higher education degree you receive a significant salary or position change then the degree is a value add. Increasingly students are opting for Executive MBAs and part-time courses, summer courses that allow you to work while you study. Having a side hustle or a part-time work gig can also help you offset the costs of higher education.

Cost Of Living

When choosing between colleges evaluate the cost of living in those cities as this will significantly determine the amount you will be spending in addition to tuition. Cost of living includes rent, groceries, incidental expenditure. These costs can be offset if you are able to work part-time during your course.

The Bottom Line

The point of this exercise is not to convince you to forgo higher education but to seek out smarter ways of funding it. Unsecured loans or loans without collateral usually have higher interest rates and can add to your costs. Co-op programs that offer blended learning allow you to earn while you learn and make it easier to enter the job market. Seeking out programs that give you skills that are specialised and highly demanded in your industry will stand you in good stead.


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