College tuition costs for undergraduates increase beyond the rate of inflation. Particularly in a recession-focused economy, it’s popular to question whether college degrees are worth spending the money. It’s hard to escape bias in opinions; successful college graduates see their circle of friends who have college degrees and are succeeding at a level higher than those they know without degrees, and those who have been successful without completing college often see their peers exceeding the success of those who hold a degree.
That’s why I like reading about studies. While they are often not perfectly executed, they do eliminate at least this one personal bias. The Brookings Institute just released a study that shows that a college degree is not only worth the investment, it’s a much better investment than even the stock market.
In today’s tough labor market, a college degree dramatically boosts the odds of finding a job and making more money. On average, the benefits of a four-year college degree are equivalent to an investment that returns 15.2 percent per year. This is more than double the average return to stock market investments since 1950, and more than five times the returns to corporate bonds, gold, long-term government bonds, or home ownership. From any investment perspective, college is a great deal.
The study even considers the cost of giving up four years of salary, considering a student who goes to college gets a later start on earning income. The total cost for a four-year degree within the study is about $102,000. The study finds that the increased earnings over a lifetime are worth the $102,000 in up-front costs that those who go to work right after high school avoid. According to the study’s calculations, a two-year Associate’s Degree provides an even better return than a four-year Bachelor’s Degree, but only due to significantly lower up-front costs, not an increased lifetime income.
Another calculation analyzed by the study is the net present value of a lifetime of earnings (age 22 through 64) for works whose highest education levels are some high school, a high school diploma, an Associate’s Degree, and a Bachelor’s Degree. The NPV for the earnings proceed in that order, less than $300,000, less than $500,000, more than $600,000, and more than $1,000,000 (as measured visually from the chart provided — the report from the Brookings Institute did not include a link to the full study).
The study doesn’t seem to take into account the cost of debt, however. Most students do not pay tuition up front. In addition to the costs of missing out on four years of salary, students who go into debt can take ten years to pay off student loan bills, racking up thousands of dollars in interest payments.
While it is possible for those without college degrees to succeed, the cost of a college degree is, on average, worthwhile. The relationship between the degree is not necessary based on cause and effect; the same external factors that drive one to complete a college degree might be the same factors that drive that person to earn a higher income throughout their lifetime. College degrees help in this regard, particularly in a low-employment environment when employers can afford to be selective about new hires. A Bachelor’s Degree, regardless of the field of study, is the ground floor. To compete in a tough job market, make sure you’ve invested in your education and walked away with the parchment to show for your work.
When I worked with a touring drum and bugle corps, the touring caravan included two semi-trailer trucks, one box truck, four buses, and three vans. One of the truck drivers mentioned to me that he saw no purpose in a college education — he could make a good living, $50,000 a year, as a truck driver. That was more than my salary as a program manager in a non-profit organization at the time. Without a college education, a truck driver may earn $50,000, but that won’t grow much over the course of his lifetime unless he goes into management — and the college degrees are favored for management jobs, even in the trucking industry. With a college degree, salaries may start less than $50,000, but on average, the lifetime potential income is much greater.
The study compares the $102,000 investment in college with the same cash investment in other sectors, like stocks, and shows that the return or a college degree, through higher income, is better than the other investments. It’s not a likely scenario because of the logistics of paying for a college degree — most families do not choose between paying for college and investing in lump sums. Nevertheless, the comparison is interesting because the expense of paying for college can be perceived as an investment in someone’s future.
Has your college degree proven to be worthwhile in your experience? Or if you do not have a college degree, are you successfully competing with those who have?
Brookings Institute via Fortune Magazine
Updated June 23, 2016 and originally published June 30, 2011.