If you’ve watched the news or cracked a newspaper in the last year or two, you already know that tens of thousands of American college graduates have saddled themselves with huge amounts of debt. And “huge” is the right word to use. How will all those students repay $25,000, $50,000, $125,000 or more when most of them can only find low-paying jobs after they enter the workforce?
But crass as it might sound, let’s forget all those other people for a moment and ask a different question. What about you? If you are a current or future college student, how are you going to avoid the temptation to overspend on college and jeopardize your financial future?
The key is to carefully weigh the return on investment (ROI) that you can get from what you spend on college. Businesspeople know all about ROI, and calculate it before spending money. A man who runs an exercise studio, for example, won’t spend tens of thousands of dollars on ads in local newspapers until he tries out just a few ads and measures the results. A woman who owns a testing lab won’t spend half a million dollars on a new piece of equipment until she knows how much it will increase her ability to earn more money – in other words, the ROI on her money.
So, what will the ROI be on your college expenditures? It is something you can calculate if you ask questions like these...
- Based on what I am studying, how much can I realistically expect to earn after I graduate from college? If you’re studying to be an accountant, or a medical billing facilitator, for example, how much do entry-level jobs pay? You can learn those statistics pretty easily by looking at job listings online, by scanning the content on Jobacle.com, by posting questions on professional groups you’ve joined on LinkedIn.com, or by talking with people who are currently working in a profession.
- Based on those earning projections, how much can I afford to spend or borrow on my education? This is also a pretty simple calculation. If you’re going to be able to get a job as an accountant after you graduate and can earn $55,000 a year to start, you should be able to borrow about $10,000 and repay it over two years; you’d be repaying that amount, plus maybe $600 or so in interest, so your monthly loan payment would be about $440 a month for two years. If you tighten your belt, you could be able to manage that.
How to Get a Better ROI
There are two ways to get a better return on your educational investment. The first is to study to enter a field that pays more money, and to make sure that your studies equip you to find a job and succeed in it. The second is to cut your educational expenditures.
How can you cut your educational expenditures? Here are some strategies that smart American students are using successfully...
- Spend a year or two at a community college and then transfer to a bigger – and more expensive – state university. If in-state tuition runs about $24,000 at one of your state schools and you eliminate two years of study, you can do the math. You’re going to save roughly $48,000, which can exert a very positive change on your potential ROI.
- Earn college credit for knowledge that you already possess. The AP and CLEP exams can help you do it. So can a test called the DSST, which is not as well known.
- Take low-cost college courses online and transfer the credits you earn to your college or university. I write the blog for a company called StraighterLine, which offers high-quality college courses online and helps students transfer the credits they earn to their regular colleges. StraighterLine also offers a Freshman Year of College for $999 program, which can lower your total college outlay by about 25%.
The key to improving your ROI is to spend less and earn more. Sounds impossible? Not so. Lots of smart students are finding new ways to strike that balance every day.
Guest Author: Barry Lenson is editor of the blog at StraighterLine.com.