Consider return on investment before taking out student loans

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By Susan Pohorski

photo college graduates strike thoughtful pose

Are you among the 79 percent of parents of prospective college students who are questioning the return on investment of a college education?

According to a survey by Kaplan Test Prep and Money magazine, only one in five parents surveyed think the cost of a four-year college degree is worth “the value it delivers.” Sixty percent of parents surveyed indicated they think more about the expense of college education than about their own retirements.

Average student borrowing in the U.S. is $35,051 for 2015 graduates, according to an analysis by Mark Kantrowitz of Considering that student loan debt needs to be paid over a 10-year period, the monthly payments are escalating. Using the U.S. Department of Education’s Repayment Estimator, the monthly payment on a direct subsidized loan would be $359 for a total repayment amount of $43,124. This amounts to $4,308 per year from your student’s earnings. What’s even scarier? There is no reason for us to believe this is going to change any time soon.

Wisconsin student borrowing
Here in Wisconsin, a state resident attending the University of Wisconsin-Madison this year will pay $24,735.76. If your student is attending UW-La Crosse you can expect to pay about $14,812 plus personal expenses. Now multiply that by four years or more…

According to the Institute for College Access and Success the average student loan debt for Wisconsin students attending four-year public and private non-profit colleges is $28,810. Seventy percent of students in the state graduated with student loan debt in 2014.

Calculating the return on investment
If you expect your child’s four-year degree to be a ticket to higher earnings, you should consider the actual return on investment. How do you do that?

Let’s say your child wants to attend UW-Whitewater. The 2015-2016 cost of attendance for a full-time dependent student is $18,314. If your student borrows $8,000 per year for four years, that’s a total of $32,000.

Will he/she be able to pay? says you will need a salary of at least $44,191.20 to be able to afford to repay that amount at a 6.8 percent interest rate with monthly payments of $368.26.

Nationally, the employment rate for adults ages 20-24 with a bachelor’s degree or higher is 88.1 percent. The average salary for the class of 2015 bachelor’s degree holders is $50,651. However, the average salary in Wisconsin, according to, is $41,000. Average college graduate salaries for job postings in Wisconsin are 11 percent lower than for job postings nationwide. says Wisconsin bachelor’s degree holders with less than one year of experience earn about $47,599. With five or more years of experience, the average climbs to $57,826.

So, maybe your student will land a job that will allow him or her to handle the payments. It is still going to impact their cost of living budget. The problem is more dire if your student finishes a four-year degree and doesn’t get a job that pays enough to make their student loan payments. This is the scary scenario playing out all over the country.

The big investment
What’s a parent to do? Investigate the placement rates of graduates before you choose a college. Find out how the college helps graduates find jobs. Different degree programs will have different placement rates, so be specific. Will a degree in accounting from XYZ University land your student a job that will help him or her payback student loans in 10 years? Also, don’t assume your child is making a smart long-term financial decision by choosing a four-year college over a two-year college. More and more students are discovering the two-year pathway to gain valuable skills with much less debt or to more efficiently begin a four-year degree.

As with any investment, it is important to determine what the return will be. This requires some investigation. How have similar investments paid off in the past? How well do graduates perform in the employment world? Ask these questions when evaluating higher education options to ensure a better return on investment for your child.