College must have a return on investment (ROI)
If you are an audio and podcast fan you can listen to this episode of Murphy On Money or find the podcast on GooglePlay or iTunes.
Listen to “Murphy on Money – Ep9 – College Must Have a Return on Investment” on Spreaker.
First order of business, what in the world is ROI? Quoting investopedia.com:
Return On Investment (ROI) is a performance measure used to evaluate the efficiency of an investment. ROI measures the amount of return on an investment relative to the investment’s cost.
In even more simple terms, you want positive ROI because that means you made more with the product or service than you you paid for it.
For example: You are a hair stylist and you rent an expensive location because it brings you high paying clients. After paying all your costs including the higher rent you make more money in the expensive location than you would make in a cheaper location. The expensive location would be said to have a positive ROI.
Well, guess what, college needs to have ROI too. This isn’t always easy because college is quickly getting more and more expensive!
True story: I was consulting a college graduate that, despite graduating from a private university and spending $60,000 in student loans, has been working as a grocery clerk for over a year. Ringing up groceries was not what she went to school to do. She was frustrated and thought her only option would be graduate school, meaning more student loan debt. I asked her this, “What is the ROI on the graduate degree?” She then asked me, “What is ROI and how do I calculate it?”
She missed something she should have considered before starting school; education must to have ROI too!
To some, ROI is common sense. It seems logical that it would be a BAD IDEA to borrow $80,000 to go to school to get a job making $30,000 year, right? I mean, you could likely find a job making somewhere around $30,000 a year and never spend/borrow the $80,000 for the college education. So spending the $80,000 doesn’t help you make any more money, it doesn’t have return on investment (ROI).
So it’s very important when borrowing money, yes even for education, that you consider the results of spending/borrowing the money. How will the education change your life? Personally, I went to school and borrowed $45,000 to get an education that allowed me to make $60,000 as soon as I graduated. That was an engineering degree. That degree has had very good ROI. Spending that money on college has allowed me to make much more money than if I did not have a degree.
Wrapping up: I won’t go as far as to blame our student loan and university systems for the student loan burden many graduates face. We are responsible for our decisions, so if you are going to college soon or considering a second degree, it’s imperative to learn about ROI and be mindful of how much money you spend/borrow on college and what you’ll get for that money. If you are a parent, having a discussion with your teen about college ROI could go a long way in prepping them for financial independence and building personal wealth. It’s never too late…or too early!
Question for you: Did anyone talk to you about college ROI before enrolling or taking on student loan debt? Did you ever think about ROI when borrowing money for school?
If you like this article please please comment or share. Also check out my other articles. If there’s anything that you can’t find on Murphy on Money or if you have any questions please contact me, I’m here to help.