How To Calculate The Value Of A College Degree

Let's say you've just graduated college and have a negative net worth due to student debt. Don't fret. You actually have a higher net worth than you think! This post will help you calculate the value of a college degree.

A college degree is a valuable asset. Millions of people are willing to dedicate 4-6 years of their lives and hundreds of thousands of dollars to get a college degree. Therefore, of course a college degree is an asset!

We know that Net Worth = Assets – Liabilities.

We also know the net present value of an asset is equal to its future cash flows discounted by an estimated growth rate. In this case, the future cash flows of a college degree is equal to the college graduate's lifetime earnings.

At the same time, a college degree can be extremely expensive and time consuming. Now that everything can be learned online for free, is getting a college degree still worth it?

Various Ways To Calculate The Value Of A College Degree

For those of you who are upset about the Supreme Court rejecting Biden's plan to wipe away $400 billion in student loan debt, this post should help you feel better about paying back your loans.

In turn, you'll improve your odds of building more wealth, satisfaction, happiness, and getting ride of entitlement mentality. A big win!

Here are three ways to value a college degree as an asset in your net worth calculations.

1) The cost of college plus a conservative rate of return

The first way to calculate the value of a college degree is to add up the cost of a college degree. We then add on rate of investment return you would have earned if you had invested the money instead.

To be conservative, we can use the risk-free rate of return (10-year government bond yield). Or we can use the risk-free rate of return plus a small premium.

For example, let's say you paid the full cost to attend Boston University for four years. Let's assume each year the total cost increases by 5% a year. We also assume room and board and fees are included in the cost of college. The cost would be:

  • Year 1 (2024): $86,363
  • Year 2 (2025): $90,681
  • Year 3 (2026): $95,215
  • Year 4 (2027): $100,000

Total cost of college: $372,259 with the average cost per year at $93,064. Assuming a 5% annual investment return had you invested the money instead, the total cost of college for four years is about $534,000.

Therefore, the total value of a college degree is equal to at least $534,000. A big assumption is that we are rational actors. We would not pay the money or spend the time to get a college degree from Boston University if we did not think the investment was worthwhile.

Let's say a Boston University student graduates with $120,000 in student debt and no other debt. Their net worth is actually equal to $534,000 minus $120,000 = $414,000. Not bad!

Implications Of The Cost Method Of Valuing College

Here are some other assumptions if we value a college degree based on the cost method.

  • The more you pay for college, the greater your net worth.
  • The elimination of Affirmative Action reduces the net worth of college graduates who were helped by Affirmative Action
  • Wealthier families who can afford to pay more for college end up having college graduates with higher net worths.
  • Students who reduce the cost of college by getting grants or scholarships are able to “freeride” and benefit from the full value of a college degree. Employers don't pay candidates less because candidates paid less for college.

2) The Value Of A College Degree Is Equal To The Estimated Lifetime Earnings Of The Graduate

According to the Georgetown University Center on Education and the Workforce, it estimates the lifetime earnings of a Bachelor's degree holder is $2,268,000. Therefore, we can also assume the value of a college degree is worth about $2,268,000.

Suddenly, paying the outrageous sum of $372,259 for four years at expensive Boston University or any other private university sounds like a good deal!

Unfortunately, in order to earn $2,268,000, you'll have to work until the assumed aged. So valuing a college degree equal to the estimated lifetime earnings of the graduate may not be the best method.

Let's assume the age until a college graduate stops working is 62, or 40 years of work post college. The average income earned for a college degree holder is, therefore, $56,700. This seems reasonable, if not a little low in my opinion.

However, given it takes 40 years to earn $2,268,000, it is not fair to use the estimated lifetime earnings of a college graduate to calculate a college's value. Due to expected real investment returns, we should discount the value of $2,268,000 to come up with a value in today's dollars.

3) The Value Of A College Degree Is Equal To Its Net Present Value Of Future Cash Flows

The most accurate way to calculate the value of a college degree is to conduct a net present value (NPV) calculation. In the NPV formula, all future cash flows (CF) over some holding period (N) are discounted back to the present using a rate of return (r). This rate of return (r) in the above formula is the interest rate, which is commonly called the discount rate.

Discounting is merely the inverse of growing.

Let's assume the following assumptions for a college NPV calculation:

  • discount rate is 5%
  • cost of college $372,259
  • the college graduate works 40 years
  • makes $56,700 a year
  • the total value of 40 years of earnings is $2,268,000.

If you input these figures in an NPV calculator, you get $600,661.

Therefore, for this Boston University graduate who paid full freight, the value of their college degree is equal to $600,661. The $600,661 includes the person's cost of paying $372,259 for four years of tuition.

You can take the calculation a step further by subtracting the NPV of a high school degree from the NPV of a college degree. The reason is you may want to calculate the incremental value of a college degree over a high school degree.

Below is what the NPV calculation would look like, truncated at period 4. The calculation goes for 40 periods because the college graduate works for 40 years.

NPV calculation of the value of a college degree

The Discount Rate Is An Important Variable

If I use a discount rate of 4% instead of 5%, the value of the college degree rises to $749,991. If I use a 3% discount rate, the value of the college degree rises to $938,348. Finally, if I use a 2% discount rate, the value of a Boston University college degree surges to $1,178,796.

Why does the value of the college degree rise when the discount rate falls? It's because the value of the cash flow is worth more because it is getting discounted less.

Imagine a discount rate of 100% due to hyperinflation. The value of $1 million, 40 years from now will be worth much less than if inflation was worth only 1%. With inflation only at 1%, the price you pay for college holds its value more.

Put things differently, if inflation was running at 100% a year, taking four years to graduate is much more costly. In such a scenario, you would want to graduate sooner to make more money. At an inflation rate of 1%, you can take your sweet time in college.

More Years Worked, Higher College Degree Value

It's harder to control how much you will make per year in your lifetime. However, you may have better control over how many years you work.

If you want to increase the asset value of your college degree, then you should increase the number of years you work. If you want to FIRE, then the value of your college degree will decline.

Hence, for those of you who want to get Masters and Doctorate degrees, please be prepared to work for as long as possible! To retire early after spending so much time and money on education is a suboptimal financial move.

College Graduates Can Now Boost Their Net Worths

Some of you might argue that I'm being ridiculous for assigning an asset value to a college degree. If you do, then you can also argue that everything we invest money in, like stocks and real estate, also has little-to-no value.

The Nvidia stock you buy trading at 40X annual revenue is a leap of faith. You will have to wait 40 years to generate enough revenue to equal its current market capitalization. With an estimated 28% net profit margin, you will have to wait 142 years for the company to make enough profits to equal today's market capitalization. Nvidia has a tiny dividend of $0.04 / share.

Given we agree that funny money stocks, real estate, and other investments are considered assets in our net worth calculations, so should a college degree. You can even argue a college degree should be an even more worthy asset than stocks and real estate given most people have to spend four years obtaining the degree.

Therefore, every one of us should be able to boost our net worth by the value of our college degree. If we have multiple college degrees, then we can boost our net worth even further.

This should be welcome news for Masters and Doctorate degree holders who've spent many more years getting educated. Congrats folks!

In the past, many professional degree holders have lamented how they are so far behind in terms of my average net worth for the above average person chart. With the addition of the value of a college degree as an asset, the gap will narrow or be completely eliminated.

Adding At Least $122,000 To My Net Worth

Using the cost plus methodology to value my college degrees, I'll be able to add $122,000 to my net worth if I want to. The College of William & Mary cost $44,000 for four years from 1995-1999. UC Berkeley's Haas School of Business cost $78,000 over three years, given I went part time.

Perhaps I should increase the value of my college degree given an NPV calculation is more accurate. After all, I worked in banking for 13 years, made decent money every year, and retired early with a ~$3 million net worth.

However, I've come to believe college can only be accountable for, at most, the first thirteen years of my income generation. The remaining eleven years of income and net worth really came from my investments, entrepreneurial hustle, and individual educational endeavors (e.g. reading books).

Therefore, perhaps the Cost Plus way to calculate the value of a college degree is most appropriate. Once you get your first job, it's really what you do after that matters more for your income.

Using my logic for valuing college degrees, I now feel less bad about potentially paying ~$750,000 for four years of college in the year 2038. My assumptions are no scholarships and a 5% compound annual growth rate of based on the average four-year cost of a private university today ($350,000).

Hopefully, this article makes all parents and college-bound students dreading paying for college feel less bad as well!

Although the return on a college degree is diminishing, it is clear the income potential for college graduates is much higher than those without college degrees. The best-case scenario is to attend a reputable four-year college for the lowest price.

The Value Of A College Degree Increases Every Year

One final point I'd like to make. Thanks to aggressive cost inflation, the value of your college degree is increasing every year. As a result, the value of your college degree is boosting your net worth every year!

Although it cost me $44,000 to go to William & Mary for four years as an in-state student, it now costs at least $270,000 all-in for an out-of-state student today. Earning a 6X return on my investment 24 years later is a healthy 12% compound annual return.

And if you have a spouse who also has a college degree, your household net worth goes up even further! I hope after reading this article, all of you with college degrees feel much richer.

If you want an easy way to keep boosting your net worth, keep reading books. Every book you finish adds to your net worth by at least the cost of the book. Some books, like Buy This, Not That, will give you actionable advice that could make you far wealthier than the average person over time.

Do not discount the value of your education. It's worth more than you think!

Reader Questions And Suggestions

How much value do you assign to a college degree? If we assign values to non-tangible assets like stocks, why can't we assign values to a college degree? Do you believe that people will only pay the college tuition and spend the time if they feel the return will be greater?

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28 thoughts on “How To Calculate The Value Of A College Degree”

  1. The Expostriate


    I really have liked your articles on finance, markets, real estate, and the like. But you’re incredibly misguided on the topic of the value of going to school. I’ve submitted comments on this before, but it appears you didn’t accept them or deleted them.

    Let’s take a look at your points.

    #1. Just because people are led to believe, or otherwise believe, in the value of something, it doesn’t mean it is true. There are numerous examples of this in history (beads, tulips, tech stocks, beanie babies, etc.). Just because I believed that my degree was worth the time and money doesn’t mean that it is. And in my case, it definitely hasn’t. As I’ve written before in comments that aren’t on your website now, I’d gladly give back my degree and any claim to it in exchange for the debt being gone.

    #2 & 3. I made more money as a bartender and valet each month while in college than I did with the jobs I worked college for 11 years after paying my student loans each month. You may claim that my future earnings will exceed that eventually, but there is not proof. There is also no proof that working in those jobs during college would also not have seen pay increase due to wage raises, people increasing tips, promotions, etc.

    Please get off this subject because you do not know the reality that many people are experiencing. You got lucky. You went to a good school that was also a state school, so lower tuition. You got the job you went to school for. You got a good salary that increased immensely. You met and fell in love with your wife in college. Those are all aspects of a privileged life. Congrats.

    Please stop telling those of us who are not so lucky that we don’t know how good we have it. You don’t know what it is like to be us. And just like you don’t like having the “internet retirement police” giving you gruff about things they haven’t experienced, we don’t like people more privileged people telling us about things they haven’t experienced.

    1. Thanks for your comment. I don’t see your previous blocked comments. They might have been caught in a spam filter if you included links.

      I’m sorry you’ve taken this post in a negative way. It was meant to encourage people who don’t want to pay their student debt or are angry at college to value their college degree and give them a boost to their net worth. It’s like “free money” for those who have never added the college degree asset to their net worth. And I love free money.

      Do you disagree with how I calculate the value of a college degree? And do not appreciate your college experience more given it has an asset value?

      Where did you go to college and how much did you spend?

      I hope you will share your story about college, how much it cost you, and what you ended up doing after. How would you advise calculating the value of a college degree and what would you advise for your children?

      I totally agree with you that I am lucky. And I hope to help readers get lucky as well.

      What do you recommend I do with my thoughts on the subject? If you have any recommendations to help other college graduates, I’d love to hear them. You can even write a guest post if you want as my main goal is to help others. Thx

      1. The Expostriate

        I’m sorry Sam, but you have not encouraged me with this post. My college education was the single worst investment I’ve ever made, and I invested a couple hundred bucks in RIOT Blockchain back in 2017.
        My college degree has not been and is not an asset for me. It is a burden, a debt, a hinderance, and a regret. There is no positive value in my degree to me. I cannot think of any system that would yield a positive value for it. Even with very minimal increases in earnings from the jobs I worked I college, my net worth since then, if I had done those jobs and not went to college, would be higher than it is now. Simple estimates with conservative values put it significantly higher. And I see no reason to believe that what is yet to come for me will make up for the loss so far.
        For me, college was a waste of time, money, and energy, all of which I wish I could have back. I see no point in calculating the value, because that would just be throwing more time after it. I’m way far behind financially and in almost all of my life goals because of that degree.
        I went to a top 50 business school and graduated cum laude. My financial debt was in the 6-figures. My sleep debt was not quite as high, but it was/is also painfully significant. I don’t have the amount I paid in total, because I worked 4 years almost full-time (around 30 hours/week) alongside my studies. All that money went to school. No vacations. No spring breaks. No tutors. No laundry washing service. No paper proofreading. No Netflix.
        I never did anything that used my studies after studying, but a whole lot of things that had nothing to do with them. Often times, I’ve worked 2-3 jobs for 75-80 hours a week, just to scrape by with the lifestyle I more or less had as a student.
        I don’t plan to have children.
        I do have advice for other people’s children. First: it’s probably not worth it to go to college in the US. I’m not going to tell them what to do instead. My parents, teachers, guidance counselors, aunts/uncles, grandparents, friends’ parents, parents’ coworkers, coaches, church parishoners, etc. all told me some variation of: “go to the best college you can get into, get good grades, and don’t worry about the loans because the first two will get you want ever job you want and cost of the education will pay for itself.” It did not for me and many people I know. American society led me to believe in the value of a college education, and I blindly followed that “conventional wisdom.”
        My second advice would be to research and consider things outside of the so-called conventional wisdom. They could look to teach themselves and produce something that they could show employers/investors. They should consider schools outside of the US because they’re often cheaper and fewer people get bachelor degrees or higher in many other countries. There are some major economies where less than a quarter of the population has a bachelor degree or higher, making a degree from a university in their country more marketable and valuable. There are probably numerous other ways to have a fulfilling and lucrative career than the few paths I’ve mention here. Just know, that change is constant, especially for careers. What may be a good choice of path now, may very well be a poor choice in 20 years.
        My recommendation to current college grads? If you don’t get a job that uses your degree or that you really like within a year of graduation, consider getting out of the US to either get a master degree or start a new bachelor program in another country. If you have dual citizenship, consider leaving the US, and with it your debt behind, for good.
        Regarding the guest post: would it be paid? While I believe you do want to help people, and I do, too, it would be very hard for me to justify doing something for free on a multi-millionaire’s digital property, when she/he/they also state on said property that they make significant money from it. It’s nothing personal, but I wasted enough time on college for no benefit to do it any further.

          1. The Expostriate

            It treats me better than the US ever did. Still, I’m disadvantaged by the decision to have done my bachelor’s degree in the US and the repercussions that have be rippling out from it ever since. If I could go back and change one thing in my life, it would be to have moved to Europe after high school instead of going to college in the US. But sadly, that’s not possible.

            What I am doing is trying to enjoy myself, help good people, and focus on the positive moments I get. However, I’m guessing your question was work/employment focused. I’m still not doing anything that uses my studies, which is probably something I should just give up on at this point.

            1. Dude, I went to college too and it was worthless. I have a Bachelor’s degree in Rehabilitation Services (I wanted to save the world), my plan was to go on to grad school and get a masters so I could be a rehab counselor- then in class one day a few months before my undergrad graduation, my Professor looked up our profession on ONET (she was showing us how to use it for clients one day), our line of work after graduation paid like $15 an hour haha, it was super awkward haha everyone in class was like WTF. That moment I decided “fuck this shit”. I graduated and went into construction. I have never used my degree, although I did pay my loans back within 5 years.

              Moral of the story is that you can make 6 figures working construction- anyone can do it, just pick up a hammer and work your ass off.

              America rules!


              1. Good stuff Biff. And if you ever want to still save the world, you can!

                And the other lesson is to check what jobs you can get in the major you want, and how much they pay before you take on that major.

                1. Yes, absolutely.

                  I was listening to a podcast with Marc Andressen, founder of netgear, and basically the “Internet”. He said before he chose his major, he looked at how much money each field would pay and just picked the highest one! He ended up with computer science. Sounds like a good way to do it if you are motivated by money.

    2. As someone who would rather get free student debt relief, I thought Sam’s way of looking at the college degree as an asset was very helpful and original.

      We all make mistakes or suboptimal decisions. We should own them instead of expect the government or someone to bail us out.

      I’d try looking on the positive as you sound like you have plenty of time to make money and build more wealth.

      Telling Sam he’s just lucky for trying to help people value their college degree isn’t helpful.

  2. Sam,

    Not every college degree will provide a return-on-investment.
    Some do and some won’t. Therefore, be wise in your choices of majors. Otherwise, you’ll be paying for a long time and not happy with your decision.

    You should do a cost analysis and a career analysis of your choice of majors. The other option is community college when you are not sure yet. Once you figure out what you want to major in, you can stay and graduate with a 2-year degree or transfer to a 4-year university or college. However, make sure you talk to your advisor or stop buy the college career center for advise. Also, while at the college, try to take a personal finance planning class, so you can learn how to invest. If you are not into college there is apprenticeship or military that are options.

    The difficult part is finding something you like that is in demand and pays the bills or more, and you enjoy learning more about for years. However, it is no fun to graduate and not getting great job offers because your major was a poor choice, and you know your student loans will be due in a few months.

  3. Sam,
    It is interesting to me the number of college students that believe they are owed a college degree and should not have to pay for it.
    I graduated in 1979 with an engineering degree after working for four years to save up money to go to college and worked as a machinist, mechanic, and any other jobs that I could make money at and learn something that would help me later when I did get to college.
    After four years of scholarships, grants and over $10K in loans, I got my bachelor’s degree and was the highest paid engineering graduate in the class of 1979.
    Now after 40 plus years as an engineer, I have retired and have a comfortable amount to take me through retirement with my wife.
    I paid back ALL of my student loans, because I knew that without them, I would not have gotten that degree and others deserved that same chance.
    But then, I got a degree that was worth something once I graduated and that people would pay me well for my skills and knowledge.
    Many of the whining individuals who do not wish to pay back their loans, got worthless degrees in women’s studies, social enlightenment or Under Water Basket Weaving.
    So, to them, they cannot find a job, let alone anyone who wants to hire them because their attitude is that they should be making the same money as the Finance, Technology or Engineers graduates.
    This is the reason we are continuing to see the downward spiral into the haves and the have nots.
    I blame Mommy, Daddy, and a lack of high school guidance consulars for their complete lack of knowledge on what jobs and careers pay once you have a degree and what it costs to get that degree.
    If you are taking out $50K in loans, and the job/career only pays a senior level person $22K per year…RETHINK THE COURSES, DEGREE, and loans you are taking out to get that college degree.
    That’s what I did when I thought about getting a degree in theatre technology, that at best would have paid me $25K a year verses over $125K plus stock.

    Great column and love reading it every time you send one out.
    Thanks and my best to you and your family.

  4. For me, the value of having gotten a Ph.D. (when it was still affordable) was and is that never felt I was under-educated or under-qualified for anything I wanted to do or apply for. That boosted confidence and made for peace of mind. The cost of education today has become totally insane, as has the pressure for everyone to get an academic degree, and virtually every job requiring a college degree. This helps Big Education and no one else. Also, don’t forget the earlier start in their careers and several years of earning money for those who forego college while their friends in college incur huge debt and a not-so-certain future.

  5. “Total cost of college: $372,259 with the average cost per year at $93,064. Assuming a 5% annual investment return had you invested the money instead, the total cost of college for four years is about $534,000”

    Wow, that is a big assumption top build a thesis around.

    What percentage of degrees are hard to translate into real life earnings?

    Gender studies
    Film degrees
    Communications degrees

    The number of people that make a living from these degrees has to be low, and if true, it means that $ value is not $534k but something less. In fact it could be an expense that the borrower has to drag around as an expense, since it did not ultimately help them get a job.

    Case in Point-Last week a Georgia graduate with a Masters degree was waiting on us in a pizza slice restaurant. She had a degree in a Non-biz, non-STEM area of dubious value.

    BTW I love your column- this is not a refutation of your work just this one point in particular.


  6. Christine Minasian

    Another well-researched post Sam! As a parent of a B.U. daughter (class of 2021), because we had the money and saved for years to provide her with the college she wanted to attend, I have no regrets. The people she met there, the city she was in, the culture from learning at their London campus, I could go on and on….sometimes the intrinsic value is worth more, right?!?!

  7. I didn’t think about my college education having an actual value associated with it before. But it makes a lot of sense to me now. Even though most of the things I was taught in college were not really needed in my career, I wouldn’t have had the same opportunities without my degree.

  8. The value of a college degree is not 2.3M, it’s the marginal value gained on top of a high school degree. So it should be 2.3M – the lifetime earnings of a high school graduate. Meaning the NPV would be much lower than the 630K.

      1. I’m seeing that college graduates earn about 1.2M more than high school graduates in lifetime earnings. Instead of 5% as the discount rate, I used 7% as the opportunity cost of dumping the cost of tuition into an S&P index fund instead. Or you can make the argument that 7% is the savings on student loan interest based on today’s FFR. And then I used the same 40 years.

        Cost of tuition: $327,259
        Marginal value of college: $1,200,000
        # of Years: 40
        Additional Cash Flow/Year = $30,000
        Discount Rate: 7%

        NPV = 61,617.72

        Assuming the NPV of $61,618 is closer to the true value of a college education, an argument could be made that spending $327k in tuition for a below average education or majoring in a field with a below-average ROI is not worth the tuition cost as that may provide a negative NPV.

        P.S. Thanks for the response. Big fan of the blog!

        1. You make a good point about the earnings differential between college graduates and high school graduates as the more appropriate figure, not the full lifetime earnings of the college graduate. I will include the calculation.

          7% discount rate is aggressive in my opinion. Coming up with only a $61,600 in NPV seems light. But that’s the beauty of the market and modeling out our own figures.

          And if your number is indeed, correct, the vast majority of colleges should cease to exist.

          1. Using a discount rate of 5% would give an NPV of $133,903. If my number is correct, I’d argue that college tuition is grossly overpriced and should reduce tuition costs to increase ROI. Colleges act too much as corporations that want to maximize profit and not enough as educational institutions.

            1. Jerry is spot on. Exhibit A is the student loan debt crisis that many college graduates now find themselves in. The ROI of a college degree is actually negative for a lot of these folks who attended a high cost college and majored in a field with low pay.

              All else being equal, the more you pay for your degree, the lower your ROI. Therefore, its hard for me to see the logic of spending several hundred thousand $$$ to send my kids to a private school when a good, in-state public university degree can be obtained for a fraction of the cost.

              1. So, if people are rational actors, why do people pay so much money to attend college for years of their lives trying to get a College degrees?

                Is it possible that tens of thousands of families every year are being hoodwinked? I have definitely try to encourage my readers to look for the best low-cost options for college. But it seems like my advice is ignored.

                Personally, I am only willing to pay for a degree if it can return the highest amount possible through future earnings. Otherwise, I’m just chasing status and prestige.

                Related posts:



                1. College matriculation has been trending down for men for a while. Perhaps it’s because they
                  are doing the math and not because women are eclipsing men.

          2. I think we also need to consider that earnings will be taxed but most people are paying for college with after tax earnings. So the earnings difference needs a tax haircut.

  9. I’m currently earning a Master’s on my company’s dollar. Do I calculate return based on my out of pocket (books only), or on the Bachelor’s degree that got me the job at said company?

  10. As a non-American, I find it strange that a government will use my tax money to pay the debt of students. I would be especially pissed if I was not forgiven during my own time and had just finished paying off all my debt right before others were handed this big fat bonus.

    Maybe US government should focus more on lowering the general cost of education in the first place. These days the US university system is packed with administrators who do little to advance knowledge in science and other fields. These universities have also become more of group-think centers than actual places of knowledge, thanks to these same administrators.

    It seems it would be better to first cut costs in these schools (root of problem) before forgiving students (symptom of problem) who were unfortunate enough to be subject to these high costs.

    Shout out to Sam from Lagos, Nigeria. I enjoy your blog!

  11. I feel sorry for students with large education loans and grateful that we could pay six figures for our kids education and now they are high earning individuals. We really need more trade schools.

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