I’ve heard many people say that they’ve reached the top of their career ladder and can’t get promoted without a graduate degree. And while that may be true, I wanted to highlight the opportunity cost of pursuing that degree if you were to quit your current job (or go straight from undergrad to grad) and attend university for 2 years full-time. When considering this move, you have to take into account lost earnings, the cost of attending school, and what your (potential) future earnings will be after you graduate. Let’s find out which choice makes the most financial sense!

The cost of a graduate degree

Obviously, the cost of any degree varies drastically depending on your field, public or private university, in-state or out-of-state, and the type of program you pursue. So to keep things simple, let’s use an estimated cost of tuition to be $30,000 a year at a public university. Most master’s degrees take 2 years to complete, so tuition would come to $60,000. We’ll use this figure later to see how much this graduate degree really costs.

Current vs future earnings

The current national average cost to live requires an approximate $65,000 income. Unfortunately, $65,000 is also the national average salary for those carrying a bachelor’s degree, meaning most people who fall under that demographic are living paycheck-to-paycheck.

The average salary for those carrying a graduate degree is about $13,000 more than those carrying just a bachelor’s. That means future earnings may rise to about $78,000 per year once they graduate from their 2-year graduate program.

That begs the big question, “Is that $13,000 increase in salary worth the overall cost of a $60,000 graduate program?”

Number of years it takes for the graduate degree to break even

Here’s a summary of all the numbers used so far:

Annual salary for those carrying a bachelor’s degree: $65,000
Annual salary required to cover average living costs: $65,000
Annual salary for those carrying a graduate degree: $78,000 ($13K higher)
Total cost of an average 2-year public graduate program: $60,000

We also assumed that the average person carrying a bachelor’s degree is living paycheck-to-paycheck. So their net worth presumably doesn’t increase or decrease. So over a 2-year period, their net worth changes $0.

If they attend a 2-year graduate program, they’d very likely have to take out $60,000 in student loans. In order to cover regular living expenses for those 2 years, they’d have to dip into (more likely use all) their savings they magically saved while working full-time. For simplicity’s sake, let’s assume they use up $40,000 of savings during that time, bringing the total cost to attend a graduate program to $100,000.

Alright, so with a new annual graduate salary of $78,000, how many years will it take to pay off that $60K in student debt, plus the loss of $40,000 in savings?

First, we have to make another assumption about the student loan. If we take the average student loan interest rate of about 6% per year, that $60K balance will require a $666 monthly payment over a 10-year term to pay it all off. However, now that we have an additional $13K in gross salary every year, we can take that additional money to pay down that debt more aggressively.

However, that extra $13K was gross income. Subtracting federal and state taxes would bring that $13K down to about $10K, allowing the graduate to put an extra $833 per month to pay down the debt faster. At that rate, the $60K student loan would take about 4 years to pay off instead of 10, and the total cost of the loan including interest would come to $67,549.

All that said, the average person holding a bachelor’s degree lives paycheck-to-paycheck with a $65K annual salary. 6 years after they begin their graduate degree program will be when that graduate degree will start to pay off, thanks to a $13K higher annual salary of $78,000.

The more you make today, the less it makes sense to get a graduate degree

Despite what my math concluded above, those holding bachelor’s degrees and are already highly compensated will find it difficult for a graduate degree to make financial sense. For example, software engineers can easily make well into six figures straight out of undergrad school. And, generally speaking, attending a master’s program really doesn’t make you much more valuable aside from the fact that you might have more advanced fundamentals. Arguably, an extra 2 years worth of job experience looks better on your resume.

Therefore, for high income earners with just a bachelor’s degree, shoveling out $60K for tuition and losing out on a couple hundred thousand dollars of income during those 2 years of schooling is simply not going to make financial sense.

Why not do both?

If possible, the best financial way to accomplish this is by furthering your education while working full-time. Obviously, there’s a huge loss of free time to do this, but you get the best of both worlds -- a full-time job and a higher education. And if you’re fortunate enough to work for an employer who covers some of the cost of your education, deciding whether or not to pursue a graduate degree becomes a much easier choice!

I think that the biggest cost of attending a grad program while working full-time is going to be your health. While it’s certainly possible to further your education while working a full-time job, it may not be very practical. You may be miserable for 2-3 years of doing this. In the grand scheme of things, 2-3 years may not seem like much. But the years in which most people decide to pursue a graduate degree are likely during your healthiest years, as well as your prime earning years. Be sure to know your priorities and pick a route that makes the most sense for your health and finances.

Takeaways

All in all, the opportunity cost of quitting your full-time job to attain a graduate degree can vary wildly depending on a variety of factors. If you truly believe your career has stagnated and you’re unable to find a way to get out of the vicious paycheck-to-paycheck cycle, perhaps a graduate program can improve your finances. But know that it may take many years (6 years in my example above) before your graduate degree may start to pay off.

The intent of this article is not to discourage you from furthering your education. I merely want to highlight the opportunity cost of doing so. So if you’re considering this move yourself, I encourage you to crunch the numbers and make sure that making this huge decision to quit your job and go back to school makes financial sense!

The Opportunity Cost of Getting A Graduate Degree Instead of Working Full-Time