Projecting Payoffs

Projecting Payoffs

The words Pain and Gain on a matrix of choices showing how to minimize pain or sacrifice in order to maximize returns and results

The Last “R”

So far we’ve explored ensuring affordability by running two sets of necessary filters: how to narrow down your college choices by priority so as to not run afoul of opportunity costs (Rank), and how to know how much college you can your income and assets will allow you (Resources). Now we’ll explore a critical third component to affordability/affordology: that of Return. 

This exercise will help you make two critical financial determinations:

For one, you’ll note in the previous discussions we didn’t address a major funding component of college in this day and age: the loan. Before counting loans as a resource, we must know whether that loan will count as “good debt” or “bad debt.”

For two, even if a student has plenty of available cash resources and thus doesn’t need loans, it still helps considerably when choosing colleges to understand the tipping point at which the cost of a college is worth it or not.

The Algebra of Return 

Remember those word problems from Algebra I? If you’re like me, you used to groan mightily when asked to calculate how many miles into a trip two trains traveling opposite directions at different speeds would meet.

Despair not at the “uselessness” of this seemingly random skill you possess. Your particular conundrum—how much can you fork out for college and still achieve a positive monetary return—can be set up and solved in a similar fashion:

A student departs for Appalachian State University. The student must give up W years of earning $X in jobs that don’t require a degree while paying $Y for tuition and books. If the student’s potential income increases by $Z per year as a result of her degree, how long will it take the student to break even on this decision if W=4 X=25,000, Y=100,000, and Z=10,000?

Such problems solve easily, except that in your particular instance the numbers behind W, X, Y, and Z haven’t been provided. As such, you need to flesh these out for yourself. Follow along.

Step 1: Gather Meaningful Numbers 

In order to set up meaningful Return equations, you need to gather meaningful inputs. In particular you need to have on hand:

  • An anticipated post-college income
  • A proxy no-college income.

Step 1A: Anticipate Your Post-College Income

When researching your inputs, you can use one of two sets of numbers: general averages or career specific ones.

As for the first option, if you don’t particularly have a career path or burning monetary reason to go to college at this point, you could simply go ahead and look up the average nationwide wages of college graduates and proceed accordingly. Remember, however, that averages lie and you could quite possibly grossly overestimate your potential earnings as a graduate. Therefore, this filter may let you down. So you do need to all the more judiciously sort your options according to Rank and Return in order to avoid the unbearable loan burdens all too many graduates today suffer under.

If you do have a fairly good idea of your career goals, I highly recommend you find as specific wage and benefit numbers as possible. For safety’s sake, you may want to gear your numbers toward the low end of the scale, maybe somewhere in between starting and median wage for that job.

Step 1B: Approximate Your No-College Income

For sake of argument ask yourself: If you didn’t have a college degree where would you likely work? We’ll call this your “no-college career.” Now find out how much this option pays. Keep in mind, many good, high-paying jobs don’t require anything more than a high school diploma and maybe a little bit of training or certification.

Again, you could just go ahead and stick with the average earnings of a high school graduate, but I encourage you to refrain from assuming that not going to college necessarily leads to laboring in a ditch or making Taco Bell wages. Police officers, for example, often only need to obtain training measured in weeks, not years, and generally make about $55,000 annually plus some nice benefits.

Finding Wage Data 

Where does one find information on realistic wage data for this step?  Let me suggest four resources of great help in your search for numbers:

The Department of Labor Bureau of Labor Statistics has put together this very helpful manual of career data of all sorts, including wages and job requirements, which examines almost every profession imaginable. You’ll find it to be of fair value for our purposes, but of potentially great value if you’d like a broad exploration of the career options available to you. The Handbook lists income ranges and medians, so beware that if you’re going to use these numbers you once again subject yourself to the possibility of being on the lower half of that number, particularly as someone starting out in a given field.

  • Job Listings

How much can someone of a particular career orientation expect to make? One of the best ways to find out is to pretend you’re looking to fill that particular job and search job listings. Many big, national job listing websites are available for perusal including and These websites go even further than the Handbook, giving you the advantage of getting a feel for how much experience counts, wage fluctuations according to geographic region and number of openings.

  • Trade Groups

Most professions are represented by a trade group of some sort for purposes of lobby activity and public relations. These trade groups tend to have a pretty good feel for the trends in their industry. Often they compile surveys of their members and these provide great data mining for insider-reported trends, including employment prospects, legislative dangers, regulation burdens, hiring plans, operational practices and member wages. You also will generally find their public relations arm most helpful to you, as a prospective colleague, and I recommend calling them with questions.

  • Interviews and Observations

Of course, the best way to get information on a career is straight from the horse’s mouth. Who knows better the situation of pilots than a pilot? If you are interested in finding out about a particular career field you may find it well worth your while to interview someone already working there. Most people love to talk about their jobs and you’ll find an invitation to lunch will quite often yield not only the information you seek but also a cheerleader and friend.

Step 2: Solve for “X”

Armed with wage information, you can now set up some basic equations and solve for any number of Return-related metrics. For our purposes we’ll solve for breakeven. In doing so we can determine how long you must be in the workforce before the benefits of your degree outpace the total expenses.

Your basic breakeven equation would look like this:

Y= (C+L)/B



B=Annual Benefit of education

C=Grand total Cost of education

L= Lost wages during college years

This, however, doesn’t help us filter colleges for a dollar amount to shoot for. We must arrange our figures in a different way to solve for the maximum cost we should incur. To do so we must provide the Y value by pre-determining how long you want or are willing to be in the workforce before your college generates this positive return. The equation thus rearranged will then look like this:


Let’s now begin to solve for a cost that gets you out from under your college burden in a timeframe you can live with.

(For a worksheet to assist with this calculation, click here).
Step 2A: Plug in Your Education’s Annual Benefit (B)

Simply put, our annual (monetary) benefit of education is found by subtracting our no-college income from our post-college income.  We’ll call the resulting value “B” for “benefit.”

Step 2B: Plug in Lost Wages as a Result of Attending College (L)

Now simply multiply the time you plan to attend college, in years, by your anticipated no-college income or the rough equivalent of what you could have made over those four years had you worked instead. We’ll call the resulting value “L” for “lost wages.”

Step 2C: Determine Your Payoff Tolerance in Years (Y)

The question now becomes how long do you want to work after graduation before you see a return for your time and effort? Another way to ask this is how old do you want to be? If, for instance, you plan to graduate college at age 22 and you don’t want to be older than 30 before college pays for itself, then you would put the number “8” as your Y value and solve. Keep in mind, the “average” these days is around 14 years.
Step 2D: Solve For Cost

Now to determine the maximum cost you can pay for college according to the return filter, simply multiply B and Y, then from this subtract L. This will give you a number to shoot to stay under as you look at various schools and programs.

An Example

Let’s suppose John Q. Academic wants to go to college to get a degree and begin a career as an insurance actuary. He does the research and determines he would likely conservatively make around $70,000 annually, so he decides to use this is his post-college career income. If he didn’t go to college he would likely end up as a supervisor at his brother’s landscaping company and make $35,000 per year. He figures that during the four years he spends in school he would have made the equivalent of $24,000 per year working on the grounds crew based on his summer income of doing the same. John wants to work no more than five years before he breaks even because by age 27 he wants to be able start a family and buy a house knowing his excess income is helping to these ends.

Thus, we would first determine John’s annual benefit by simply subtracting his no college income from his post-college income. This works out to $35,000 per year (B=$70,000-$35,000). Then we would determine his lost wages during college by multiplying the number of years spent in college by his likely income had he hired on as a laborer. This works out to $96,000 (L=4 years x $24,000 per year).

John can now plug all of these numbers into our filter equation, C=BY-L. B ($35,000) annual benefit times Y (five-year payoff) minus L ($96,000 lost income). Thus John determines he can afford a maximum college cost of C ($79,000) in order for everything to work according to plan and to know that at any point after age 27 his college career is paying off positively.

About That Loan… 

You now have a Return-based number that is either higher or lower than your resource filter number. If the Return-based number is the lower of the two I would generally recommend you not take out a loan to cover your college expenses. Every penny of those loan payments will be pure expense – no return – and will all the more hinder your career options after graduation.

If the return-based number is the higher of the two, it may be prudent to take out loans to make up the difference. If you take out a student loan, borrow only what you need to cover the cost of education, up to but no further than your resource filter allows. As you apply and qualify for loans, then plug the appropriate numbers back into your resource grid accordingly. You’ll also have to be very mindful of the payment amounts and due dates and count those as an expense in addition to the other college expenses (i.e. books and dorms) if the loan requires payment during your college career.

Putting it all Together 

If you’ve done the three affordology exercises I’ve recommended (Rank, Resources, and Return) you now have quite a bit of personal context whereby to explore schools and make broader choices about your educational/training experience. So long as a particular course of action passes these three tests you have a much better shot at success than what the population has experienced at large.