How Do I Calculate the Payback Period of a College Degree?

Payback period is the amount of time required to convert your investment in the program to generate income. So, in this article let’s understand how to calculate the Payback Period.

Updated by Ipsita Meher on 8th May 2020

College education is becoming costlier by the day. So, before spending your money isn’t it worth thinking that Is your money worth investing in the college program, and what can be the payback period? If you are taking a loan for your education, then is this loan worth taking? Well, if you know something called a Payback Period or Return On Investment then you will get answers to all these above questions. 

Many companies, organizations and profit-making agencies do calculate these returns on Invest to gauge, measure, and have an idea about how long will it take for their business to flourish and regain the capital they have invested in their business. Calculating the ROI is pretty simple —by dividing the cost of the investment with the benefit or return we get ROI. The result is either a percentage or a ratio. So, in this article let’s understand how to calculate the Payback Period

As we know a payback period is the amount of time required to convert your investment in the program to generate income, we must understand the mathematical part of it.  

When you decide to join a program in a particular college, it is very important to calculate the payback period of that program. 

Usually, companies and businesses often calculate how long it is going to take them to generate the revenue which will compensate their initial investment or capital. You can also use the same concept to determine which degree program best fits your budget and which college gives you a better ROI(Return On Investment). 

So to calculate the ROI or payback period of your college degree you need to know your investment and the salary or package offered by the industry for your college graduates. 

Understand the Numbers

Businesses calculate the payback period by looking at the cash flows or the revenue generated in each cycle and then they come to a conclusion that how long is it going to take the business to recover their initial amount. Similarly for calculating the Return On Investment or Payback period, you will look at the income instead.

Let’s understand this concept with an example.

Let's say that you invest $60,000 into your college education. This includes everything including your tuition fee, rooming boarding and lodging, conveyance charges, food, and other related expenses as well. After you finish your degree let’s say you end up being a theatre artist and on average you earn $5000 per month. 

Then

 $60000/$5000 = 12 months

Let’s take one more example. So, simply a payback period is the years needed to return the investment.  Let’s have a look at some of the most demanded professions and what is their payback period. 

Occupation

Years required to complete the program

Cost of degree

After-tax pay

Monthly repayment(if 15% of pay goes to school loans)

Years needed to repay education investment

1.Advertising, Marketing promotions, Public relations specialist

$52, 596

$74,935

$937

5.3

2. Economist 

4

$52, 596

$62, 786

$785

6.5

3. Political Scientist 

6

$68,010

$68,828

$860

7.9

4.Microbiologist

4

$52,596

$46,504

$581

9.3

5.Pharmacist

7

$92,421

$79,343

$992

9.7



6.Physician/ General Practitioner

8

$136,861

$113,443

$1,418

10.2



7. Market Research Analyst

4

$52,596

$42,045

$526

10.6

8. Dentist

8

$139,298

$101,444

$1,268

12



9. Lawyer

7

$103,677

$75,420

$943

12

10. Public Relation Specialist

4

$52,596

$38,196

$477

12.1

So, your education investment is going to take you a year, i.e 12 months to recover your college fees. This is just an example most of the time the payback period is two to three years. 

Lucrative Degrees with Higher Price Tags

There are some degrees which are quite expensive. But usually, these programs have higher salaries and lesser payback periods as compared to other ordinary programs.

For example, surgeons or doctors earn twice that of teachers. They attend school for a larger period of time in fact twice as that of teachers. They invest a huge amount in their education, as the returns are also very high. Their initial salaries are five times that of a teacher. 

Well, you cannot afford to pick a career solely based on the paychecks or Return On Investment or Payback period after all this the career most probably you will be dealing with till the rest of your life. But at the same time, we cannot ignore or avoid the financial aspect of it. 

The Outcomes and Expectations

You must understand that different professionals earn differently and different colleges charge differently for different programs. 

Moreover, if you compare the earning of a marketing professional with that of a teacher then you will see there is a huge gap. Marketing professionals will be earning 10 times higher than a teacher. 

For a marketing or advertising guy, it might take only 4 to 5 years to repay the loan whereas for a teacher it may take as long as 18 years to repay the loan.

Hence understand the criticality, invest your money wisely, and of course choose a degree program which is in line with your interest and the one which serves your interests the best.