The rising cost of college has been well documented and debated over the last decade or so. Usually, these articles end with the obvious, and important question “when will it stop being worth it?” At some point, the cost of attaining an education will outweigh the benefit of receiving an education. I’d like to outline a holistic cost-benefit analysis, but using all back-of-the-napkin calculations.

Let’s start with some numbers. I will presume that a typical college education costs $150,000 after all aid, and that this debt takes 15 years to pay off. (This post is two-part, and

part one explains how I got these numbers). I will also ask the web what the lifetime value of a 4-year college education is over a high-school education, and the Wall Street Journal states it is

between $300,000 and $1,000,000. Let’s say $500,000, but we could easily redo this experiment with another number.

**1. Real Costs and Real Benefits**

So far, we have a straightforward model. The cost of a degree is $150,000 and the benefit is $500,000. Net benefit is $350,000

**2. Opportunity cost of earnings while in college**

Continuing to be straightforward, we know that while serving 4 years at university, Facebook tells us that our non-university friends are making “straight cash” and buying way better cars than we have. The opportunity cost of those for years of earnings is, let’s say, $30,000 x 4 = $120,000. We’ll round down to $100,000.

**3. Opportunity cost of Risk-Taking Ability**

Remember that we’ve decided in part 1 that our graduate will be paying for his college education for around 15 years. This

means that from the age of 22 – 37, our subject’s risk-taking ability is curtailed by his obligation to his lender. Let’s look at it a few ways:

- The lifetime cost of a child is estimated at just under $400,000. Our student’s college loans are like having half a child at the age of 22.
- Taking a simple average, our subject pays $10,000/year in college loans. If he instead invested $10,000 per year at a 5% return, he would end up with $225,000 at the end of 15 years. If he added no more principal after 15 years, he would still have close to $500,000 at the end of 30 years.
- According to Business Insider, the odds of startup success are 20%. The average IPO valuation is $250 million. I’ll resist the temptation to do an expected value on that (No I won’t! It’s $50,000,000.) But let’s be realistic and say that your ho-hum lawn care business can be sold for a $1,000,000. Expected value is $200,000.

Despite these silly examples, debt servicing is the most damaging cost of college that gets sometimes overlooked. It creates a generation of non-innovators. And it increases in a non-linear way as the monetary cost of college increases. For a student paying $20,000 per year at 5% interest, it will take 3 years to pay off $50,000 but 41 years to pay off $350,000.

How we value this cost can be a judgment call. But I will use our third example from above and call it $200,000. For larger debt loads or a subject who has a higher tolerance for risk, I think this number could be much, much higher.

**4. The WTHC Cost**

Finally, the Who-The-Heck-Cares cost. A rational economic model states that we will work for our entire careers in order to realize as little as a $1 advantage over our non-college brethren. If the average lifetime income of a non-college educated person is $1,000,000, then a rational person should go to college if the average lifetime income *after college costs *is $1,000,001. As if in the coffin of our now dead college-educated person, he is wearing his alumni ring, holding that $1 and smiling smugly.

But less rational (real) people must ask themselves what the personal, non-monetary costs of giving up your 18-22 years to a university are, and then the cost of structuring your life around paying for those 4 years. Especially with the availability of substitutes which are available now, with free MOOCs or local community courses available for a fraction of the price, and social and networking opportunities like MeetUp.com allowing non-college attendees to be socially “plugged in”.

Two factors, the rising costs of college and the greater availability of substitutes, have led us to a point where a traditional college education is on the cusp of not being worth it. And with the diverse number of factors that go into it, I can guarantee that many people are already overpaying. The student who does not qualify for financial aid, goes to an expensive school for a traditionally low earning potential career (art history?), and has an appetite for risk is almost definitely overpaying.

I would like to find the brave 18 year old who decides that a traditional education is not worth the rising costs, and this person will build their own curriculum and be better off than his traditionally educated peers.