That master’s degree in art history may help you understand cubism, but is it going to help you buy a Picasso one day? While material gain is not the only driving factor in most people’s decision to pursue higher education, it is worth considering, especially as more Americans become conscious of graduating with large outstanding student loan debt.
Lifetime Earnings by Education
When you’re considering graduate school, you have a lot to think about, including which programs best fit your interests, where the school is located, how much it costs, and how you’ll pay for it. The price of some grad programs can be dizzying: One year at Harvard Business School may set you back over $109,000.
A potentially hefty price tag means you have to consider whether a degree is worth the cost, especially if you have to take out student loans to help you get there. One way to help you do this is to examine the ratio of the cost of obtaining a new degree relative to the income it will help you generate once you graduate.
This measure is very much like return on investment—the ratio between net profit and cost from an investment of resources.
Your time and tuition can be considered your investment resources, and your future income is your profit. For the purposes of this article, we’ll call this measure a return on education, or your ROEd. And of course, your ROEd depends on how much of a boost you get by going for a graduate degree and how much money you put into securing the degree.
So what graduate degrees are yielding students a high ROEd? Unfortunately, a grad degree in the humanities may provide a relatively small boost in income.The average salary for a graduate with an MA in the
humanities is $68,000. Other degrees—especially professional degrees like JDs, MDs, and MBAs—can provide a significant boost to your post graduation prospects. Stanford University Class of 2018 MBA grads have an average starting salary and bonuses of nearly $174,000, the highest in the country.
It’s clear that in some cases a graduate degree can have a huge impact on your lifetime earning potential, offering a high ROEd. Yet, this isn’t always the case, and with a low ROEd, you’ll want to weigh the benefits of a degree carefully.
Weighing a Graduate Degree
Your ROEd and other factors can help you decide whether a graduate program is worth it before you apply to graduate school.
Determining need: Determine whether or not you need a graduate degree to advance in your field. If you want to go into academia, you’ll likely need a PhD. However, if you have an undergrad engineering degree, you may not need more school to rise through the ranks of your company.
Factoring in your undergrad degree: not all undergrad degrees are created equal. Some undergrad degrees, like business, engineering, and mathematics degrees, are relatively lucrative out of the starting gate. Will a grad degree really produce a significantly higher salary? If you asked a Magic 8 ball this question, it would say “signs point to yes”: Someone with a bachelor’s in business can expect to earn an average entry-level salary of $56,720, whereas an MBA can earn a projected starting salary of $78,332.
Considering job prospects: When you achieve your graduate degree, will it be easy for you to find a job? With a PhD in an obscure subject, you may be competing for very few available positions. More general degrees may give you more job options and flexibility to grow.
Examining opportunity cost: The value of one choice relative to another alternative is known as opportunity cost. This concept is particularly relevant when you consider the financial opportunities you might lose by taking a few years off from working while you’re in school.
In other words, you won’t be getting a salary while you’re hitting the books. And if you’re already working at a relatively lucrative position, your opportunity cost could be high. You might want to factor this cost in when considering ROEd.
Note: There are ways to offset opportunity cost, such as working while you’re in school. Some employers will offer to pay for part of your schooling in exchange for an agreement that you will work for them for a given period of time.
Making conservative estimates: When calculating your own ROEd, being conservative with how much you think you will earn when you graduate, especially in your first years out of school, can be a big help. A conservative estimate helps keep you from overestimating your ROEd and can give you a better chance of arriving at a decision that’s financially beneficial to you.
Tipping the Balance
One way to improve your ROEd is by lowering the amount you pay for your degree. Look for scholarship programs that can help you pay for your tuition. Also, some degree programs offer full rides to students, often in exchange for teaching undergrad classes.
Sadly, help with tuition can be a rarity for degree programs that typically lead to high-paying jobs, such as MBAs, law degrees, and medical degrees.
If you need to take out student loans to pay for your degree, being smart about terms and interest rates can help you keep your costs down. When you’re considering student loans, shop around for lenders who offer low interest rates, low fees, and favorable terms.
You can refinance your student loans through lenders such as SoFi to help secure lower interest rates or a more flexible loan term. Doing so can be a good idea if you have a better financial profile than when you originally took out your loans.
Lowering the interest rate on your loan can reduce the amount you’ll pay over the life of the loan, helping to improve your ROEd. You can also refinance for a longer loan term—that would get you a lower monthly payment, but wouldn’t help your ROEd because it ultimately might mean paying more interest on your loan overall. Keep in mind that if you do refinance, keep in mind that you’ll lose access to federal loan benefits when refinancing for a private loan.
Also, don’t forget to look into student loan forgiveness programs. If you plan to find employment with a nonprofit or a government organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness program after you make 10 years worth of qualifying monthly payments.
You may also want to consider looking for employers who will help you pay back your loans as part of the benefits package they offer to employees.
Though money is an important part of your decision about whether to go to grad school, it isn’t everything. There are lots of benefits that can’t be pegged to a dollar amount, including social connections and whatever extra skills you acquire that aren’t directly related to your degree.
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SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.