Would You Rather Go to an Ivy League School, or Have $184,000?

The standard advise is that everyone should go to college if they are able, and the better the school the better you will do in life.  We hear about how a college grad will earn a million dollars more over their lifetimes.  We also hear that an Ivy League school such as Harvard will open doors and result in a bigger salary.

Unfortunately, the price of a college education has risen so fast in the last two decades that it is now questionable whether it is actually worth the money.  The cost of Ivy League schools in particular have risen dramatically to the point where graduates are leaving with student loans of more than $100,000.  Perhaps in the past it was worth the money to go to Yale if you had the money, but that may not be the case anymore.  Let’s look at the math behind going to Harvard or Yale and going to a state school and investing the savings.

Ivy League School:  In the first scenario, imagine that you go to Oxford or Yale and have a tuition cost of $40,000 per year.  Let’s say you have the money – no student loans are needed.  Let’s further assume that you take 5 years to graduate.   When you get out in five years, you start a job paying $2,000 per month more than you would have been paid if you’d gone to a state school instead.

State School:  Let’s assume you go to a state school at a tuition cost of $10,000 per year and that you invest the $2500 per month you would be spending on ivy league tuition in mutual funds while you are attending school and earn 8% per year (this is less than the long-term average rate of return for equities to account for returns perhaps being lower over any given 5-year period).  Once again, you take five years to graduate.  At the end of five years, you continue to reinvest the money you accumulated, but now the annualized rate of return is 12%, the long-term average, since you are investing for a longer period of time and are more likely to hit a period of high returns.

Here is the difference in what you would have in the bank from graduation onward if you went to the state school instead of going to the ivy league school:

Time                           State U – Ivy League Return

Graduation                         $183,700

10 Years                               $366,000

20 Years                               $1,520,000

45 Years                                $38.5 M

So, while you’ll make $1,080,000 more in salary over your working lifetime of 45 years by going to the Ivy League school and getting a better paying job, you’ll actually make almost $39 Million more by attending the state school instead and investing the savings since the return on the money you saved will more than make up for the lower salary.

Bottom line is that going to an Ivy League school is really like buying a new car.  It is a luxury and really amounts to an expense rather than an investment.  You can spend a lot less and still be ready to get a good job.

On average, it really won’t be worth the extra money for tuition.  If you can get a huge scholarship and reduce the tuition significantly, it might be worth attending Princeton instead of Ohio State University.  If you have millions of dollars anyway so an extra $40 million over a lifetime won’t make a big difference, then it might be worth it as well.  If you are coming from a middle-class family, however, and you’ll either be spending a fortune your family has saved or, worse yet, taking out loans to go, you are probably wasting your money.  Instead, save the money and go to a state school.  If you can graduate debt free you’ll be at a much better starting point for life.

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


  1. Does the math still work out similarly assuming you only have $10,000 per year to spend on education? Thus going to the Ivy League school leaves you with $150,000 in debt straight out of college (assuming 0% interest on a student loan until you graduate), BUT, on the flip side, you’d also leave the state school with zero in your nest egg? Given that this is more realistic than going to a state school and having an extra $30,000 per year lying around to invest during those 5 years, wouldn’t this be the better case study? I haven’t run numbers and am not quick enough with accruing interest to know how it would work out off the top of my head, but my guess tells me it wouldn’t be quite the disparity you show above (though I’m still guessing the state school grad comes out ahead?). Anyway, just curious…

    • If you invested the $10,000 per year that you would have spent on state school tuition and went into a trade or just started in the mail room and worked your way up, which would be $833.33 per month, you’d have $61,200 at graduation, assuming an 8% return. If you then invested it and let it compound at 12% over the next 45 years, you’d have a little over $13M in the bank. If you have an average salary of $80,000 over that 45 years, which is about what you would have with 2% annual raises and a starting salary of maybe $45,000, you’d only make $3.6M in salary. Yeah, even the tuition rates at state schools are starting to get unreasonable given the return on the money. Really going to college has more to do with what you want to do as a career than something to do to improve your finances. Note, you can find some great financial calculators here: http://www.bankrate.com/calculators.aspx?ec_id=m1026184&ef_id=UL-awAAAG-pltxJT:20140104231114:s

      • That wasn’t my question. You’re assuming that by going to a state school at 10,000 per year instead of an Ivy League at 40,000 per year that you’d just have the extra 30,000 lying around to invest. Hardly anyone has this situation. Really, someone could maybe work their way through college and pay for the 10,000 per year without loans, but they’d have nothing left to invest. So the better picture would be if you looked at that person leaving school with zero debt AND zero savings vs. the person in Ivy League leaving with $120,000 in debt (30,000 per year beyond the 10,000 they paid in cash, times 4 years). What do those two people look like at age 65?

        But to bring everything back into focus… This entire post is theoretical. The real world, over the course of decades, has shown that people with college degrees, as an average, simply do better. Just cause you can run some theoretical numbers doesn’t mean it works out that way in the real world given the twists and turns of 45 years of living life and making a living. There are way too many unknowns to just run numbers and stand by them as matter of fact in this manner. The world is far too complicated, and he best science is proven by the experiment of the real world that has shown that these types of number comparisons are such a small percentage of the picture, and that college graduates just fair better regardless of what theory says.

        Lastly, you’re assumption that someone with no education could make 45,000 out of high school working in the mail room is a joke. I have a 4 year engineering degree from Cal Poly. My initial salary, working as an engineer straight out of college, was less than 45,000! The “mail room” type positions at my office (which is a very successful company) would start at WAY less than 45,000 (maybe 2/3 of that) and would have next to no upward mobility prospects, salary or management wise. That person, without an education, would be in career purgatory. Not enough money to go anywhere in their “career”, or to afford to go back to school later in life once they have a family to take care of. And the same would be true in most fields. I’m guessing you must either live in a state like CA, or it’s been a long time since you entered the work field, or both. I don’t think your concept of how many people can get a job that pays anywhere neat 45,000/year without any secondary schooling is based in reality (let alone be able to grow their salary any significant amount from there). But that’s just my view on it, I guess.

      • I think you missed my point on the $45,000 starting salry – that was the person who got the four-year degree. My point was that if you started at $45,000 and got a four-year degree, and you got an average raise of 2%, your average salary would be something like $80,000 over your working lifetime. This means you’d make about $3.6M in salary over that time, before taxes. Compare this with the $31M you’d be making if you just invested the money over the 45 years and earned an average rate of return of 12%. The degree is not worth the cost from a financial standpoint. Let’s say I’m off by a little – we’re talking 10 times as much. That leaves a lot of room.

        Also, there’s another angle to analyze. Will a person with a college degree do better over a career than on who doesn’t on average, assuming both work at a regular job for a salary? Sure. If you think outside the box though, and start your own business or go into a trade like plumbing, however, you can make way more than the typical college grad after several years in the business. Many plumbers charge $100 to show up.

        I’ll work on a comparison of Ivy League with student loans versus state school and debt free and add it to a future post.

      • Ummm… I don’t think I did miss the point. You specifically made your entire response about being able to just start by investing the 10k instead of going to any college at all. “If you invested the $10,000 per year that you would have spent on state school tuition and went into a trade or just started in the mail room…”, and your entire response just launched from there ending with earning an average salary of 80,000 per year with that as your starting point. But whatever, it’s not worth belaboring the point.

        My point is that you just make a lot of assumptions in your posts about topics like these (I’ve given the same critique to you before). Maybe it’s for the sake of keeping posts simple, but my problem with it is that when you assume SOOO many things, you get yourself into a situation where you’ve ignored the fact that the prof is in the pudding and history tells us exactly the opposite of what your numbers, which are based on all those assumptions, tells us. The true test of a theory is to test it repeatedly. This is science. The the experiment field for financial success is the real world. And decades of “experiments” (i.e. Peoples lives played out) have shown overwhelmingly that people with college degrees flat out do better. Maybe it’s because the education teaches them more than just a trade. Just maybe they take an economics class while there that shows them how to invest whereas the 18 year old going straight into a trade doesn’t get it. Or maybe it’s any one of another 100 factors that your assumptions overlook. But the ultimate point if that the theory of JUST looking at numbers doesn’t hold up across the mass of the population. It’s just doesn’t.

      • I agree that there are a lot of factors and a lot of assumptions in the analysis. That might matter if the results were close, but they are not. We’re talking a factor of more than 10! Also, the point isn’t whether someone who goes to college and then gets a job will do better on average than someone who goes straight into a job with only a high school degree. Obviously jobs which require a college degree on average pay better than those that do not. Note that if minimum wages are increased to $15 per hour, McDonald’s will be hiring culinary school graduates rather than teenagers to cook.

        The point though is that a college degree is not worth the cost on a purely financial basis. You would be better off just investing the money you were going to spend on the degree, even if you go to a state school and graduate debt free. You would have ten times as much money when you were ready to retire if you invest it than you will gain in income during your working career. This is not to say people shouldn’t go to college, just that you’d make more money not going to college and instead living like a college student while you worked hard to put away $10,000 per year for four years.

        On your “data” and “science,” I wonder if you’re mixing up the cause and effect. I think the main thing that makes some individuals do better than others is their drive and ambition. I would say it is more likely that those who have the drive and ambition to succeed are more likely to go to college because they are looking for ways to increase their skills rather than college giving individuals who would otherwise never make it out of the lower income scales something that allows them to succeed. Particularly for people who start businesses, I think if you denied them admission to college they would still become very successful because they have the drive to do the hard work to be successful.

  2. Another question. What do the numbers look like for 4 years in school? I know many can’t accomplish this feat these days, but if one was truly motivated to get through with as little cost/debt as possible, it’s definitely achievable.

    • I made it through in 4 years while taking orchestra, which was a 3 hour class that counted as 1 credit. I took summer school my first year and normally took 18-21 credits a semester. On Tuesdays I went in at 8 AM and got home at 10 PM. It is doable, but takes a bit of effort. Four years of college would give you about $145,000 in your investment account if you went to the state school and were able to invest the savings. Over 45 years at 12%, that would be $31M in your investment account. You’d only have one more year of extra pay, so you’d only earn an extra $24,000 in salary. Note – I found a mistake in some of my previous calculations. The post has been corrected.

  3. This scenario is so difficult to look at. I’ve tried it myself, but there are so many different confounding factors like majors and whatnot. Bottom line though, is if you can graduate debt-free then you are better off than someone in a mountain of debt because no matter how much you are making you simply cannot catch up to a loan amount that is more than your salary after taxes, unless you are living at home with your parents and loans are your only expense.

    However, if your family does have a lot of money laying around, as you might have guessed it is FAR more effective to invest the money rather than spending it on tuition or room and board if you can prevent it.

    The scenario smallivy posted is basically of a millionaire family who’s son/daughter is going to college and they can pay the tuition up front for 5 years and then invest any theoretical savings. Of course investing wins because one of the most important rules/facts of investing is that you can never catch up to someone who started investing earlier than you.

    Andrew for your question, taking out loans for the ivy league school would never be better. Unless it was a different degree that got a job in a different league of the state-school. Especially 120k in loans. I mean if you are making 60-70k it would take a LONG time to pay those off if you had a house or family (keep in mind they are growing at ~6%). Since you can MAKE money off your money (at 8% or so fairly easily) the actual difference is about 14% return on investment for NOT getting loans vs having them. Thats where the real value comes in of not having loans. If student loans had no interest, or maybe even 3% interest, it wouldnt be so bad, but its hard to keep up with the current interest rates of student loans.

    Another thing to keep in mind is also various payback methods for student loans, as you can currently use income based repayment, where you pay back your loans as a percentage (either 10 or 15% of your income) for 15 years and then the balance is forgiven. That is a great option for someone who really worked hard and built up a big loan balance but wont have to ruin their entire life with payments. However, someone without loans will still have a big jump on that person regardless of relative income.

    Cliff notes:
    No loans is better than loans unless degrees are so different you can make 50k more than the other person and still have less loans than salary after taxes.

    • Thanks for reading and adding to the discussion. There is actually one place where you would do better with loans and the ivy league schools than with no loans and a state school that you touched on. If you were able to get a big enough salary difference by going to the ivy league school that you could pay for your loan with the difference, and yet you lived like the person who went to the state school and graduated with no loans (bought the same priced house, car, etc…), you would actualy be better off. This is because by simply graduating debt free but without a balance to invest (the person didn’t have the $2500 per month extra to invest while at school, but had enough to go without loans) the state-schooler would not have the investment income to close the salary difference with the ivy leaguer. Once the ivy leaguer paid off the loan in 10-15 years he would then make more during the rest of his working career because of the salary.

      This is similar to the argument that you should get a huge home loan, however. In both cases because you’re using a lot of leverage – money you don’t have – to increase your possible return, if everything works out, you’ll do better than the guy who didn’t use any leverage. With leverage, however, comes risk. If you get three years through your ivy league education and then drop out because of a health issue, or the jobs available don’t pay enough more, those loans will hamper your life for years to come.

      On the income-based repayment strategy, I agree that mathematically it makes sense, but ethically it is very wrong. I understand that some people may get into a situation where they are unable to pay back the loans and will never be able to pay them back. There are a lot of others, however, who choose to use student loans to attend expensive schools and/or have nice apartments, drive nice cars, and spend lots of other money while in college. It is unfair that these individuals can pay back a fraction of their loans and then have their loans forgiven after ten of fifteen years, and then being able to make as much money as they want and never repay the loans. I think if they make that life choice then they should face the consequences, which may include not buying a house for ten years or more while they pay off their loans. This idea that they can just pay a minimal amount that doesn’t really reduce the loan and then stiff the lenders just because it is taking them a long time to pay back the loans is just wrong. Realize it is taxpayers, many of whom paid back their loans, sacrificed to attend college debt free, or never went to college who are left holding the bag when these individuals default.

  4. Can I leave all of these posts with one more thought on the biggest caveat… What you make starting at age 18 or 22 (either as a tradesman or fresh out of college) is such a small piece of the picture. My situation is perfect proof. I didn’t make much more than someone without a degree when I first graduated. But four years into my career I was able to become licensed as an engineer and my salary shot up. The guy without the engineering degree can’t get licensed and therefore, by comparison, has far less opportunity to advance. This is where college blows other opportunities out of the water. As far as Ivy League vs state school though, I do still agree that a good state college degree is the way to go if you can graduate debt free instead of having a mound of debt. But I will never buy that the guy who works straight out of high school will be better off long term than the state schooler. There will be exceptions here and there, but on average, college grads will always be better off.

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