The Quick ROI Calculation for College Education

The following is a guest post from Douglas Boneparth and Heather Boneparth, the authors of The Millennial Money Fix. If you’d like to guest post on Money Q&A, be sure to check out our guest post guidelines.

Ultimately, understanding the return on your college investment isn’t as easy as plugging numbers into an equation. After all, the college experience is much more than just what you learn in the classroom and what job you land after school. Yet, some basic math can actually teach us if choosing a certain school is a good or bad financial decision. Yet, for all the AP math classes out there, no one seems to be doing the simple addition and subtraction needed to figure out if pursuing a college degree is really worth it.

Calculating Return on Investment for a College Education

Calculating Return on Investment for a College EducationAs our book, The Millennial Money Fix (Career Press, 2017) points out, we know that those with a college education earn more than those who don’t have one – something like $17,000 more a year on average over a 30-year career. While this statistic is compelling, this is only one-half of the equation.

What we fail to show young people is how the cost of obtaining that education affects their ability to go into the world on solid footing. The average college graduate leaving school with close to $37,000 in student loan debt, making it obvious that one of the main sources of paying for college for many people is through loans. And in some extreme cases, students are borrowing hundreds of thousands of dollars to enjoy the college experience but no know exactly what it is they want to do. Yikes!

In order to help those thinking about going to college or those already in school (it’s not too late for you older Millennials), I am going to share with you the simple real-world math that anyone can use to quickly determine if they are making a smart financial decision regarding higher education and borrowing loans to make it happen.

Before we crunch any numbers, here are the six things you first need to know:

  1. How much do you need to borrow to pay for college?
  2. How much will you need to pay each month to service your student loans once you graduate?
  3. What job are you looking to get after school?
  4. Where are those jobs located?
  5. How much does that job pay on average?
  6. How much is rent in the place that job is located?

Now, let’s create an example by answering the questions above. Let’s say you borrowed $50,000 to pay for school. Using the loan calculator found on, when you graduate, you will have payments of $517/mo (that’s $50,000 in student loans @ 4.45% over 10 years).

Your dream is to work in digital marketing in New York City. You learn that entry level jobs at competitive firms in the Big Apple average around $45,000/year. You also learn that you will need $1,500/mo and two roommates to afford a place to stay.

We have our six things, but please know that I purposely failed to include taxes as part of them, which you will need in order to do the following exercise. I did not want to complicate things too much but we can use some basic Google searching (or ask a CPA friend) to come up with a fair tax assumption to use for almost any level of income. For this example, we will use 25%.

Let’s do some math!

Start by taking the salary of $45,000 and reducing it by 25% for taxes. That leaves you with $33,750. Now divide that by 12 to see what we have each month after-tax to live on. That’s $2,812.50/mo. Now, let’s subtract our student loan payment of $517/mo and rent of $1500/mo, leaving us with $795.50/mo.

Okay, stop here. What does this mean? Well, it means that you are going to have to figure out a way to live on less than $800/mo in one of the most expensive cities in the world! This doesn’t even consider health insurance premiums, your cell phone, food, clothing, etc. So, let me ask you, was the decision to take out $50K in student loan a good with given your goal in this example. Probably not but only you can determine that.

You can argue I setup this example to fail. That’s fine, but it’s also beside the point. What I hope I accomplished was an easy way for individuals to quickly see if their decision to choose a certain school was a good one based on what’s waiting for you afterwards. Set it up however you like but know that this requires mature and forward thinking, which is incredibly important before you make one of the biggest financial decisions of your life!

If your math doesn’t work out in a way that makes for a realistic and affordable entry into the working world, consider other avenues for reaching your goals. Maybe going to community college first or working a few jobs during college can create a different outcome. In our book, we provide a deeper look into the mechanics of making the right decision for higher education as well as tools you need to set yourself up for success so you can go after the great things in life. In the meantime, you can always use this little exercise to get you moving in the right direction.

Have you ever thought about calculating return on investment for a college education?

Douglas Boneparth, CFP®, MBA, is the founder and president of Bone Fide Wealth, a New York City wealth management firm focused on young professionals and entrepreneurs. He was named to the InvestmentNews Top “40 Under 40” and serves as the CFP® Board Ambassador for New York. Douglas is a valued media source on Millennials and their money. Visit his Press Page and Twitter for more on what he’s thinking.

Heather Boneparth, Esq., is his marketing manager, chief life counsel, and wife. In early 2013, she left the grip of private firm practice to pursue a more sustainable existence in the corporate insurance world. Her side hustle grew strong, as she wrote this book with Douglas while out on maternity leave from her job. If she was The Millennial Problem, this book was her Fix.

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