The opportunity cost of attending college is likely to be highest for the person

We all know attending college isn’t cheap. You’ve got your annual tuition, books, room and board, food, clothing, transportation and any number of other things associated with attending college.

We make an investment in college expenses because we believe it will pay off at some point in the future. However, have you stopped to think about what opportunities we've given up in order to go to college?

Opportunity Cost

Opportunity cost refers to the loss of potential gain from you choosing one option from a number of alternate options. For every choice you make, there is potential benefit you lost out on by choosing that option.

For example, if your friend calls and asks you to go out to a movie, you have to decide if you go or stay home and watch TV instead. If you decide to go out to the movie, the opportunity cost is the money you spend on the movie and the time you could have spent watching TV.

If you decide to stay home and watch TV, you have saved yourself $12-15, but you have lost the opportunity of a potentially fun experience shared with a friend.

It may seem like a no-brainer to you to choose one option over the other. Maybe you really need to save money because you are totally broke. On the other hand, maybe it's a movie you've been dying to see. But no matter if the decision seems obvious to you, you always give up something every time you choose one thing over another.

Applying Opportunity Cost to College

Now that you have a brief understanding of opportunity cost, how can this be applied to your decision to attend college? In the grand scheme of things, you can choose to either attend college or… not.

If you choose not to attend college, one likely scenario would be you picking up a job. Say you get a job out of high school for $35k per year. After four years you’ve earned about $140k (without any increases in wage or bonuses).

What happens if you go to school? Let’s assume your yearly tuition and expenses is $30k and you choose to put your head down and graduate within four years. Let's say you choose to stay completely focused on school and do not work while in college.

After four years you are out $120k right? Well… yes, but this is where opportunity cost comes in. Because you chose to go to college instead of working, your opportunity cost is actually the sum of your college expenses plus the money you could have earned had you chosen not to work. Your opportunity cost to attend college is $260k.

So, am I better off working instead of going to college?

It seems like based on the above scenario, a high school graduate with a decent job will be well ahead of you financially by the time you graduate college. So does that mean you shouldn't attend?  

No, of course not. Not everyone has the skills or desire to obtain a high-paying job out of high school. But, at the same time, not everyone has the skills and desire to submit themselves to four years of study right after they get their high school diploma.

The good news is that people who graduate with a degree typically have a higher starting and long term career salaries over someone without a degree.

What you need to evaluate is how long it will take you to catch up with the person who didn’t attend college and what you think your long term earning potential will be. Maybe you’ll start in the low $30k range, but have earning potential in the high $70s.

The person not attending college starts out ahead because they don't have debt, but their earning potential may start to wane by their mid-career.

To get a better understanding of which colleges offer the most return on investment, be sure to visit the Outcomes Tab in the any college profile on College Factual. You can see, for example, that a graduate from Harvey Mudd College will catch up to an average high school grad within 11 years.

Keep exploring your college options, think about what you want to do career-wise and determine what makes the most sense for you. 

Understanding even basic economic principles can be tricky, and understanding opportunity cost is no different. Most of the explanations found online aren’t that helpful because they are often overly complicated. And if you’re like most people, you need a clear understanding of your options and how they stack up against each other – and you don’t have a ton of time to spend grappling with what should be a relatively simple concept.

In fact, economics is fairly simple. Economists tend to overcomplicate it with buzzwords and other jargon. So, in plain words, here is an explanation of the opportunity cost of attending college.

What is opportunity cost?

So there’s something you’d like to do. You know it’s going to take money and time. You can think of “opportunity cost” as the next best thing you could do with all that money and time. In this case, the opportunity cost of the project you want to take on is the money and time you’ll spend on it, plus whatever money, time, and enjoyment you’ll miss out on by not doing something else instead.

So, the opportunity cost is simply a way of analyzing your available choices. Your time and money are limited resources. You can make one of several different choices, but if you’re like most people, you only have enough time and money for one choice. Choosing option A means missing the value that option B (or C or D) would provide. Therefore, opportunity cost is what you’re missing out on by making a choice.

Why is it so important? Why should some confusing economic principle matter to you? Because it’s the key to understanding your individual life choices – as well as choices made by the government concerning your tax dollars. Opportunity cost allows you to understand the effects different choices have on your life.

What does opportunity cost have to do with college?

Most people tend to think of college as a necessary step that can provide them with an education that more or less guarantees them a successful life with a well-paying job. It’s part of the American Dream, after all. Right?

Not so fast. Just like any life decision, college carries an opportunity cost. When you go to college, you give up other things – in fact, in some cases, you might have to give up quite a lot. The opportunity cost of college is huge, and it will probably have a much bigger effect on you than you realize.

College costs a lot no matter how you look at it. Whichever college you choose, no one would argue that college tuition was “cheap.” In fact, it costs more than you probably think. Tuition is only one part of the cost; the true cost of college also includes any outside expenses plus the income you’re forgoing by going to school instead of work.

What could you do with that college tuition money instead?

If you didn’t go to college, could you work full time instead and save money to buy a car? If you’re going to college to study, say, photography, could you instead be learning in a hands-on environment under a professional photographer? The possibilities are endless. You could be on your way to becoming financially independent, rather than spending your time on school projects.

The essence of opportunity cost is what you choose to do versus what you choose not to do. You could spend a lot of money and time in college, sure. Or you could get an early start in your desired career, buy a car, and get started on the path to becoming stable and independent.

You can only be in one place at one time. When you choose to engage in one activity, you give up others. Now, you have your own ideas about what your best option is versus your next best option; so does everyone else. For one person, college might be option A while getting a job might be the next best option, option B. But for another person, working right out of high school might be option A while college is option B. Opportunity cost is subjective. You only have so much time and money to do things with, and you have your own opinions about what is desirable and what’s not.

What is The Opportunity Cost Of Going To College?

In short, the opportunity cost of going to college is the cost of tuition, any associated costs, and any income, experience, and pleasure you miss out on because you choose to attend college. This cost naturally varies from person to person, depending on what they would choose to do instead of attending college and how much value (monetary or otherwise) that endeavor holds for them. It is based on the principle that you have a limited amount of time and money to do what you want, so you have to make choices. It’s up to you to choose between two different options and the financial gains and other benefits they bring.

Opportunity cost applies to all of the choices you make, not just whether or not you go to college. It’s a great way to help you understand the effect one choice has over another in your life. It can also help you analyze the value of each choice.

For a fun way to demonstrate this concept, try this: pick something you currently do or spend money on, and find its opportunity cost. It might be attending college, or it might be anything from staying up too late or buying a new video game to buying a new car or getting married. Just choose any activity or expense, and find its monetary cost – then make a list of things you could be doing instead with that money and time. What would your next best option be? How much enjoyment are you missing out on by making the choice you made? Compare the two options and determine whether you chose the right one.

College is not an automatic, necessary step in everyone’s life. Think about the opportunity cost involved before making a decision.

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