What is the opportunity cost of going to College? - FreeEconHelp.com, Learning Economics... Solved!

6/18/18

What is the opportunity cost of going to College?

The decision to go to College (or where to go to College) is going to be one of the most important of your life. Whether you decide to go to a local State school or a prestigious private liberal arts school is going to have long term impacts on your career outlooks and debt. It is important to consider all possible decisions and benefits and costs before you make this important decision. However, we would not be economists if we did not look at the opportunity costs associated with going to College (or University). Perhaps the largest opportunity cost will be the tuition of the College, but this is not going to be the only opportunity cost that we have to consider.



We have to remember that an opportunity cost is defined as the highest valued alternative. So in order to move forward we need to consider what alternatives there are available instead of attending College. Perhaps the most obvious would be going to work instead of going to College, but how much could one realistically earn with only a high school degree? In addition to the salary that is given up by going to College full time we would also have to consider the price of College itself. By looking at only these two factors we can get a good estimate for the opportunity cost of going to College. Let’s go through a brief example.

Imagine that Sam had the choice of going to the local state University cost $15,000 per year for tuition and another $10,000 for room and board. The total cost to attend this University would be $25,000 per year. Imagine that Sam could get a job flipping hamburgers at his local fast food restaurant for $35,000 per year. The opportunity cost of Sam going to University would be the sum of his cost to go to the University ($25,000) AND the wages that Sam would be giving up by going to university ($35,000) for a total opportunity cost of $60,000. Note that this is Sam’s opportunity cost for the first year, and if Sam attends the University for four years (and nothing changes like inflation, raises, scholarships, etc.) we would expect the total opportunity to be $240,000. The hope is that after Sam finished University Sam would receive a job that pays higher than the typical hamburger flipping job.

Imagine a different scenario where Sam to a private Liberal Arts College that costs $45,000 per year for tuition and another $15,000 for room and board. The total cost to attend this College would be $60,000 per year. Also imagine that Sam could get a job mopping floors at his local high school for $25,000 per year. The opportunity cost of Sam going to the private Liberal Arts College would be the sum of his cost to go to the College ($60,000) AND the wages that Sam would be giving up by going to College ($25,000) for a total opportunity cost of $85,000. Note that this is Sam’s opportunity cost for the first year, and if Sam attends the University for four years (and nothing changes like inflation, raises, scholarships, etc.) we would expect the total opportunity to be $340,000. The hope is that after Sam finished University Sam would receive a job that pays higher than the typical hamburger flipping job.

You can see from the above examples that the biggest contributors to the opportunity cost of the decision to go to College will be the cost of the College itself as well as the size of the salary given up (what you COULD be doing with your time).  In general, the cheaper the College and the worse the work opportunities (for example during a recession) the better the idea of going to College will be. However, the more expensive the College and the better the work opportunities the higher the opportunity cost will be to attend College.

1 comment:

  1. I am completely satisfied with this article which is based on college. Thank you for sharing this detail with us. christian college

    ReplyDelete