How to use the degree roi calculator
- Enter the total cost of the degree after any aid, including loan interest if you want it counted, and the years of study.
- Enter your yearly pay without the degree and the pay you expect with it in the first working year. Use the same kind of dollars for both.
- Set the share of pay you keep while studying (0 for full time study), the yearly raise and the working years to look at.
- Read the net gain, the payback year, the return on what you invested and the selected years table. The optional discount rate under Advanced options adds a present value line.
Formula
Without the degree, year t pay = pay now x (1 + raise)^(t - 1)
During study, with the degree = share kept x that pay - cost / years of study
After study, with the degree = first-year pay x (1 + raise)^(years since graduating)
Net gain = sum over all years of (with the degree - without)
Return = net gain / (cost + pay given up while studying)
Payback is the first year in which the running total of the differences is zero or more. The present value divides each year's difference by (1 + discount rate)^t.
Worked example
A degree that costs $80,000 over 4 years of full time study, with $40,000 of pay without it, $70,000 with it in the first working year, a 2% raise on both paths and 30 working years, is compared year by year. The pay given up while studying is $164,864.32, so the amount invested is $80,000 + $164,864.32 = $244,864.32.
In year 4 the degree path is −$20,000 against $42,448.32 without it, and the running total is −$244,864.32. In year 5 the degree path pays $70,000 against $43,297.29. The running total turns positive in year 13, which is 9 years after graduating, and after 34 years the net gain is $838,413.48, a return of 342.4% on the amount invested. If you keep half your pay while studying, the amount invested falls to $162,432.16. All of these were checked with a separate year by year calculation.
What the calculation counts
The comparison has two paths: working from today without the degree, and studying first and then working with it. The cost spread over the study years and the pay you give up while studying are the investment. After graduating, the extra pay compared with the other path is the return. The tool adds the differences year by year, so you can see when you break even and how large the gain is later.
Because the pay figures are your own estimates, the result is only as good as they are. A degree may change pay by a different amount in different jobs, and the same raise is used on both paths. Try a few scenarios, such as lower starting pay, a longer time to graduate or part-time work, to see how sensitive the answer is.
What is not included
The tool does not look up wages, tuition, aid or the chance of finishing, and it does not model tax, benefits, job security, interest on loans unless you include it in the cost, or the value of things money does not measure. Many people choose a degree for reasons other than pay, and this page does not say whether a degree is worth it for you.
Nothing you enter leaves your browser. Related tools include the college cost calculator, the student loan payoff calculator, the return on investment calculator and the job offer comparison calculator.
Assumptions and limits
- The cost, pay figures, raise, study years and working years are numbers you enter. The 4 years, 2% raise and 30 working years are examples.
- Both paths get the same yearly raise, and the first working year with the degree is paid the amount you enter.
- Taxes, interest, aid, benefits and the chance of not finishing are not modeled.
- The discount rate is optional and is used only for the present value line. Zero treats a later dollar as equal to a dollar today.
Frequently asked questions
How do I calculate the return on investment of a degree?
Compare the extra pay you expect with the degree against what you would earn without it, and weigh it against the cost and the pay you give up while studying. This tool adds that up year by year.
What counts as the cost of a degree?
Tuition, fees, books and any living costs you would not otherwise have, after grants and scholarships. The pay you give up while studying is handled separately, so do not include it in the cost.
What does payback year mean?
It is the first year in which the running total of the differences between the two paths reaches zero or more. Before that year you are still behind the path without the degree.
Should I use today's dollars or future dollars?
Use the same kind for both pay figures. Entering today's pay for both and a raise that matches expected pay growth keeps the comparison fair, and you can add a discount rate to see present values.