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College Costs Well Worth the Investment, Better Than Stocks

This article was written by in Education. 12 comments.


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

Published or updated June 30, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 12 comments… read them below or add one }

avatar Apex ♦478 (Nickel)

I doubt many people think a college degree is not worthwhile for the average student. Given that less than half of the population graduates with a 4 year college degree that puts the average college graduate in better than the top 1/4 of people. For these people college is almost always worth it, unless they choose their major extremely poorly.

The more interesting question is to determine if its worth it for the bottom 10% of college graduates. Is it worth it for a person who is in the bottom 1/3 of students to go to college and get a degree? Is it worth it for the marginal student who is at the 50% of high school students to get a college degree? It probably depends on what degree the person gets but even then, is this person able to do well enough to make it pay off.

Obviously some students who performed in the bottom 1/3 in high school could get a work ethic epiphany or some other event that brings them up to the average college student or even better. For that person its probably a huge boon to go to college. I suspect that transformation is extremely rare.

The real question is for the person who is going to perform at the same level in college as they did in high school and are closer to the margin, is college the big payoff its promised to be. That is the real question. Studies that include the lawyers, and doctors, and engineers and top performing students from all fields doesn’t provide any insight into the impact college will have on the marginal student. In fact it provides misleading information by skewing the results higher than the marginal student can expect to achieve.

Someone needs to do a study that breaks out college results by degree and then by decile of graduating class using GPA. I know GPA isn’t the be all end all but its a good enough measure.

Once someone does that study then we can answer the question of at what point and what degrees are worth it.

Perhaps a given degree is worthwhile at all deciles, perhaps some are worth it at the top 8 deciles and not worth it for the bottom 2. Perhaps some degrees are worth it for only the top few deciles and not worth it for most others. Or perhaps all degrees are worth it at all deciles. I highly doubt that but that is the study that would provide some insight for a given person to decide if college might pay off financially for them.

Using averages to determine if a C- student will benefit from a degree in social work is not actually going to provide any useful insight.

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avatar wylerassociate ♦162 (Cent)

A college degree is well worth the investment but a bachelors degree in this economy isn’t going to get you anywhere. Now today’s college students need a masters degree in order to qualify for high paying jobs.

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avatar Apex ♦478 (Nickel)

This comment starts with a complete contradiction. First stating that a college degree is WELL WORTH the investment, then stating a bachelors degree will get you no where. Doesn’t sound very well worth it to me.

Then we learn that what is really needed is a masters degree. So we are to believe that while there are a million college grads with bachelors degrees that can’t get jobs, there are actually a million unfilled jobs that require masters degrees and alas the new grads with bachelor’s just don’t qualify.

If everyone follows that line of thinking in 2 years there will be a million more grads with masters degrees who won’t be any more employable than they are right now.

This comment leaves me with a sense of shock and awe.

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avatar qixx ♦1,880 (Half-Dollar)

The advantage of the bachelors at this point is to get a job, not necessarily the high-paying dream job. Getting a job (even if only at McDonald’s) because you have a bachelors is better than getting turned down because someone else is “more qualified”. The article does not argue for or against a masters degree.

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avatar Jack

I wish college cost $102,000 for four years. If you go to a top-shelf school, it’s closer to $250,000. How does the investment work out then?

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avatar Cejay ♦1,521 (Half-Dollar)

I too like studies since they deal in hard cold facts. Aside from the monetary gain I think the sense of personal accomplishment and the fact that we keep on learning is important. The psychological side was more important to me than the monetary side. But then I was a nontraditional student and I was doing the job of someone with a college degree. Just not getting the money for the job.
I would like to see a study on how much, if any, a degree decreases in value as you start college at a later age. Can anyone go to college without incurring some debt? I had to get a student loan and I was working with not a lot of debt to carry then. I also got the Hope Scholarship and a few grants.

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avatar DonnaFreedman ♦45 (Newbie)

I think the impact of a “top-shelf” school can be exaggerated. A Princeton University study I cited in my MSN Money column about graduating college with zero debt indicated that students who are accepted at elite institutions but choose to attend somewhere else wind up earning just as much as those who attend the top-shelf schools.
I can’t imagine taking on $250k in debt (or even $102k, for that matter) without a clear idea of how it would be paid back. How many recent grads who have even $40k in loans are still looking for work and not really knowing how they’re going to make those payments?
I got my degree in December 2009, at the age of 52. Until then I’d made a living as a newspaper reporter and then freelance writer. But I’m the exception, not the rule; not only are newspapers not doing a lot of hiring these days, I almost certainly wouldn’t be hired without a degree.
In my opinion, students should think very long and very hard about taking on too much debt — but they should go to college somehow, even if they have to shine on their top-shelf/”dream” schools. The high-school counselors who urge you to go for the “best” school you can get into aren’t going to be around to help you pay off those loans four years from now.

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avatar Money Reasons

I’ve been thinking about this a lot passively, and I think that it depends on the college, degree and employment opportunities in the market place.

That said, I honestly believe that I gained more from college than just a salary. It changed my way of thinking and I”m sure that I’m a better person for that. While it’s not talked about and not obvious and hard to prove, college can improve you for the better be exposing an individual to all types of influence in which the individual can align with those influences that they think represent them most truly.

Of course with the proliferation of the internet, the value of exposure of college has been reduced a little, but college still has great value in influencing minds.

So I do think that college is worth it, as long as you can afford it. To go into massive debt to go to college is like gambling, and anymore I’m not entirely sure the odds in their favor…

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avatar Janine

I did not get my bachelor’s until my mid-30s and it has made a large difference in my life. Yes I had to pay off my student loans but the types of jobs and increase in income more than made up for the expense in just a few years. Because I got my bachelor’s degree I don’t have to work as hard physically (now I work harder mentally) and I am able to afford things I could not before. I own a home, a car, take vacations, etc. without taking on debt. My daughter has seen the difference in our lifestyle and plans on going to college right after high school.

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avatar skylog ♦368 (Nickel)

good story Janine. i appreciate how you allowed your daughter to take you example and let her form her own plan!

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avatar Bret @ Hope to Prosper

Like most things in life, it depends on what you do with it. Most people going to college for fine arts degrees aren’t going to get the same return as people taking professional degrees and hard sciences.

I only have an AA, but it was a great investment. Junior college is a great deal. Plus, I work in the computer industry and have a computer science degree. I probably recouped my costs in salary in the first couple of years. I wish I had of got it done it when I was young instead of waiting until I was in my 30s. I lost a lot of money by waiting.

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avatar Jack632

I think a college education is an important part of any persons background. The relationships, the knowledge and life experiences are invaluable. I make a six figure salary and would not be qualified to even apply for a basic position in my career field without a degree.

I think it is important however to be smart about the type of degree you pick and how much you pay for it. Some AS degree’s are more reliable in getting a decent paying jobs than many BS/BA degree’s. Educating yourself before you go to school is vital to your success.

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