I graduated high school and went to college, getting a degree in economics and mathematics. I’m not a radical and I hate risk. So why in the world would I start a business when my friends were going to graduate school?
I’ve always been blessed to be comfortable understanding money. I’m good at conceptualizing it and thinking of the implications. And that’s where my first stumbling block arose. Because there is no way around it: graduate school is expensive. Tuition and living expenses can easily push over $50,000 per year, and a grad school program will be two years in the case of most masters programs, and longer in the case of law degrees and programs.
So you come out of school with $100,000 in loans. Is that the end of the money story? Not so fast. Remember, you used to be doing something else. In my case, I was working a solid job that was paying me around median wage. The cost of going to school includes all these lost wages, too (Economists call this opportunity cost). So now the total cost of grad school comes in the neighborhood of $200,000.
There can be different goals of going to grad school. You may want to change career paths, make more money, or you might just like school. But most people want to come out making more money. How long would it be before you’ve come out ahead of where you would have been had you kept working your job?
Using data from a Georgetown University employment study we can get a handle on average wages for recent grads, experienced grads, and holders of graduate degrees. Let’s just pluck some values that look to be about in the middle. Obviously, in real life, engineering is more lucrative than education.
|Years after graduation||0||2||5||10||15|
|Grad School Job ($75k/yr)||-$100,000||$50,000||$275,000||$650,000||$1,025,000|
(This table intentionally leaves out any investments, discount rates and raises purely for simplicity. If any discounting is taken into effect, it would make graduate school look worse.
We can momentarily assume that periodic raises are given equally, but the ceiling may be higher for those with graduate degrees.)
The table shows that, using an average scenario, it would take about 10 years before you get back to where you were–strictly monetarily. In other words, you would have been richer for a full 10 years after grad school had you not gone. After 10 years, you start getting the monetary benefits of your degree.
Importantly, even given the tremendous cost of education, it should be considered a thirty year investment. If you get a graduate degree at twenty-five years old, you break even at thirty-five, and you come out way ahead by the time you start getting toward retirement at fifty-five or sixty. I don’t want to pretend that’s not true.
What I want to do is to think about the cost of graduate school and think about what else I might do with that money. Rather than go to grad school, is there anything else more compelling to do with $170,000? Quentin Tarantino famously said that people should not go to film school. They should take the money that the would have spent on tuition and make a film.
When I looked at the investment necessary to go to graduate school, I saw a greater opportunity, and that was to start a business.
In part two I will talk about my second reason: why should I pay so much to learn?
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