Understanding the Opportunity Cost of a College Education

A college degree is often seen as a gateway to upward mobility, but the path comes with a significant price tag. Beyond tuition and textbooks, students face the often-overlooked opportunity cost of enrolling in school. This article delves into the concept of opportunity cost in the context of a college education, exploring its impact on students' financial decisions and long-term prospects.

Defining Opportunity Cost

Opportunity cost refers to what you give up when you choose one option over another. In economics, it's defined as the value of the next-best alternative use of a resource. For example, spending time and money on a movie means you can't use that time to read a book or the money to buy something else. When considering college, the biggest opportunity cost for students is often the income they could earn by working instead.

The Significance of Foregone Income

For most college students, the income they forgo by not working full-time is a more substantial cost than tuition and fees. On average, this lost income represents about three-fourths of the private cost of a college education-the cost borne by the student and their family. A good way to measure this opportunity cost is to consider the income a recent high school graduate could earn by working full-time.

Full-Time vs. Part-Time Enrollment: A Financial Balancing Act

Given the significant opportunity cost, students often grapple with the decision of whether to attend college full-time or part-time. While part-time enrollment allows for more time to work and offset lost wages, it also extends the time it takes to earn a degree. This raises the question: does the lower opportunity cost of part-time enrollment compensate for the delay in entering the workforce?

Consider a hypothetical student pursuing a bachelor’s degree in political science at the University of Pittsburgh. According to FREOPP’s analysis, a student enrolling full-time could see a return on investment (ROI) of $377,000. However, if the student enrolls half-time and works half-time, the ROI drops to $186,000. While the student benefits from their half-time wages, it takes them eight years to complete the degree, delaying their entry into college-level work and shortening their career.

What if the student enrolls half-time but works full-time? While they might sacrifice some sleep, they could potentially earn more wages while enrolled. However, the delayed entry into the labor force remains a costly factor.

Broad Patterns in ROI: Full-Time vs. Part-Time

These patterns hold true for bachelor’s degrees more broadly. The median ROI for a four-year college graduate who enrolls full-time and finishes in four years is $343,000. In contrast, the ROI for graduates who enroll half-time and work half-time is $229,000, while the ROI for those who enroll half-time and work full-time is $339,000.

Similar trends are observed for two-year degrees. The median associate degree has an ROI of $156,000, assuming full-time enrollment and on-time completion. Because the labor market benefits of an associate degree are generally smaller, delaying graduation is less costly. However, even with half-time enrollment and full-time work, the ROI only modestly increases compared to full-time enrollment without work.

Unaccounted Costs of Part-Time Enrollment

It's important to acknowledge that these calculations don't account for all the potential costs of part-time enrollment. Due to data limitations, the risk of dropping out is often ignored. Part-time students may also face limitations in the types of jobs they can pursue, requiring flexible schedules and proximity to campus, which may mean settling for lower-paying options.

The Case for Full-Time Enrollment

Evidence suggests that full-time enrollment is often the best financial decision for students, provided it's a viable option. A college-completion initiative in Ohio, which offered comprehensive financial and academic support to students who enrolled full-time, demonstrated that this approach boosted both degree completion rates and earnings after graduation.

Read also: Future Leaders Program

Other Factors to Consider

Whether to attend college full-time or part-time-or whether to attend at all-is a personal decision that depends on many individual factors.

Financial Aid

Financial aid in California is very generous and can reduce costs tremendously, especially for students from low-income families. A CSU student whose family earns less than $30,000 pays on average $6,200 in annual college costs, compared to $20,500 for a student whose family income exceeds $110,000. Financial aid fully covers tuition for many students, especially those attending public colleges. But nontuition costs remain high.

Student Loans

An estimated 30 percent of California students at four-year universities took out student loans in 2022-23, lower than the national rate of 43 percent. Overall, public college students are less likely to take out federal, institutional, or private loans. About a quarter of CSU and UC students did so in 2022-23, compared to 43 percent of students at four-year nonprofit private colleges and almost two-thirds at four-year for-profit colleges.

Students who never finish their degree do not see the same wage bump as college graduates. This financial loss is compounded for those who took out loans to attend college in the first place. Three years after college, 22 percent of non-graduates have loans that are in default or delinquent, compared to 12 percent of graduates.

Choice of Major

The wage benefits of a college degree differ considerably across majors. Graduates in engineering and computer science earn a median wage of $120,000 annually, almost double what graduates in education make ($68,000).

Long-Term View

College graduates not only earn higher wages and have higher-quality jobs, they are also better protected during economic downturns. In the past several recessions, less-educated workers have borne the brunt of employment losses.

Beyond the Numbers: The Intangible Benefits of Higher Education

While financial considerations are crucial, it's important to remember that college has value beyond improved economic outcomes. A college degree also delivers several health and social benefits. College graduates are more likely to own a home and less likely to be in poverty or need social services.

Adapting to the Needs of Adult Learners

Online colleges designed for working adults need to consider the unique situation for prospective students. Adults have jobs that require time and attention; many have families to support both emotionally and financially. As adults consider the benefit of career-relevant skills that a university education offers, they may also be able to reduce the “cost” of such an opportunity by leveraging certain tax breaks.

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