The NPV Of A College Degree

While there has been debate about the cost of a college education, any analysis of cost should include both all outflows and all inflows. A recent article from Brookings discusses both the cost and financial benefits of a college degree. The Hamilton Project found that the return on a college degree doubled the stock market return since 1950 and is more than five times the return on corporate bonds, long-term government bonds, gold, or home ownership. The average IRR of a college education since 1950 was 15.2 percent. Since 1976, the IRR has fluctuated between 14 and 18 percent. In 1980, the NPV of a college degree was about $260,000 at a 5 percent rate and the NPV grew to more than $450,000 for someone starting college in 2010. Although the text deals with capital budgeting in a corporate context, remember that capital budgeting techniques can actually be applied any time a financial decision is being made.