Go To College Or Become An Entrepreneur?

It’s a forgone conclusion for some Americans that after their senior year of high school, they will leave home and attend a four-year college. In the face of the rising cost of higher education and the high unemployment rate following the recession, many have begun to challenge that path. Detractors of college education insist the economic benefits of attending a four-year university do not outweigh the costs. Yet alternative career paths that do not require college education largely consist of low-skill physical labor.

However, some individuals who dropped out of college or stopped their education after high school have found success pursuing their entrepreneurial dreams. While not all of these individuals will become the next Bill Gates or Mark Zuckerberg, many of them are behind multimillion and billion dollar ideas. Even so, the average long-term return on investment of a college degree continues to be greater than a high school diploma.

 

Cost of College

The reality today is that some people don’t have the means or opportunity to attend college and others simply value the increased savings from foregoing college. The case for not attending college becomes appealing when looking at the numbers. In 2014, the average cost of tuition and fees for private universities rose 3.7 percent to $31,231. Even public college tuition, a more affordable option, rose 2.9 percent to $9,139 for in-state residents. The cost of attending college has grown faster than inflation, indicating the hikes in tuition are not equally compensated by an increase in real income.

 

Student Loans

For many individuals, attending college requires student loans to cover the cost of tuition and boarding if they live on campus. Student loan debt continues to be one of the largest crises facing young Americans. Cumulatively, student loans have amounted to $1.2 trillion with the average American incurring $33,000 in debt for their education. In addition to the loan principal, students also have to pay the interest incurred on their debt. Borrowers of Federal Stafford loans in 2014-2015 were subject to 4.66 percent and 6.21 percent interest rates for undergraduate and graduate studies, respectively.

As a result of ballooning student loan debt, borrowers have forgone savings and investment opportunities in real estate, cars and retirement. Furthermore, the average starting salary for a college graduate in 2014 was $45,473 – not much more than the average $33,000 debt load.

 

Case for Entrepreneurship

The burden of tuition and student loan debt is often cited in the argument for bypassing college in favor of the pursuit of entrepreneurial passions. Many of America’s most successful entrepreneurs do not hold college degrees. Notable multi-billion dollar companies Facebook (FB), Microsoft (MSFT) and Oracle (ORCL) were started by college drop outs. Sean Parker and David Karp, the founders of Napster and Tumblr (YHOO), respectively, didn’t even attend college. The success of a startup doesn’t solely depend on the individual’s education level. A passionate entrepreneur can succeed with a great idea, business savvy and dedication for hard work.

 

Case for College Degree

Even with the financial burdens associated with college, a four-year degree still holds greater long-term financial benefits over a high school diploma. The median annual salary for college graduates was $45,000 in 2013 compared to $28,000 for high school graduates. On top of a $17,500 difference in salaries, college graduates face lower rates of unemployment. Those with a bachelor’s degree or higher have an unemployment rates of 3.3 percent while high school graduates with no college coursework have a 7.3 percent unemployment rate.

The average salaries of college graduates depend on the major and level of degree obtained. Generally, STEM (for Science, Technology, Engineering and Math) majors have the highest starting salaries and return on investment. Engineering majors boast a 21 percent return on investment, with math, health and business majors close behind. Students majoring in education or hospitality should expect the lowest returns on their college degree. Meanwhile, the average yearly salary of a Master’s degree holder was $60,000 in 2012.

 

The Bottom Line

Historically, pursuing a college degree has often been the next step for students after obtaining a high school diploma. However, with rising tuition and mounting student loan debt, getting a college degree may not maximize one’s lifelong return on investment. For those with business savvy and a good idea, starting a business can outweigh the benefits of attending college. Many billionaires including Bill Gates, Larry Ellison and Mark Zuckerberg did not hold college degrees when they founded their companies.

It’s important to note that the success of the top 1 percent doesn’t necessarily apply to the average entrepreneur. Thus, for the majority, obtaining a college degree ensures higher probability of employment and greater starting salaries. STEM majors, in particular, receive the highest compensation and realize the greatest return on investment over their careers. Besides long-term financial stability, college provides many invaluable lessons and experiences most individuals never forget.