On average, college grads make two-thirds more than those with high school degrees. One study stated as a general proposition: “Current data indicates that college degree holders enjoy an 84 percent increase in earnings over their high-school-educated counterparts.”[1]
But that is not the case for everyone.
The question is this: “Could you do as well as a plumber or someone else with a certificate or license in a field that did not require a college degree”? Stated differently, “Is the increasingly high cost of college, and waiting four years or more before generating significant income worth it?
Several factors influence whether, and to what extent, a college degree is better than alternative pursuits. There is no chart, computer program, or algorithm that answers that question for every person with precision. So, the truth is – college is a gamble.
This article focuses on two important factors in making that assessment: cost and earnings.
A few economic points are certain: The higher the upfront cost of college, the more money you need to make after graduation to make college worthwhile. As an oversimplified example, assume just these facts:
- You leave college with $200,000 of debt ($50,000 of tuition a year as an out-of-state student).
- Your salary after graduation is $20,000 a year.
- That means if you used your income to pay back your debt without additional loans and payment of interest on those loans, it would take you 10 years just to pay back the debt. [200,000 ÷ 20,000 = 10]
Under those simple facts, you have no income left to pay for rent, a car, and a qualitative lifestyle. Obviously, your return on your investment is not acceptable. College would not be worth it from a financial and quality of life standpoint.
On the other hand, the lower the cost of college (the investment), and the higher the income upon graduation, the more likely college is worth it. So, let us change the facts:
- You leave college with $10,000 of debt.
- Your salary upon graduation is $50,000.
- That means instead of spending your hard-earned salary paying back the debt over several years, you can save or spend money $40,000 in Year 1 [50,000-10,000 = 40,000].
You then have even more cash flow in future years. All of which contributes more quickly to achieving a desirable quality of life.
These hypotheticals illustrate the point that when deciding whether college is worth it for you, consider two things (1) the cost of college as your investment, and (2) the salary you receive as your return on that investment. Other factors help refine the analysis, and future articles will address those areas. But what is described in this article is an essential starting point.
You can use this step-by-step approach:
- Identify your school(s) of choice.
- For each school, add up the costs of college, including tuition, fees, room and board, and living expenses over four years of college.
- Subtract from that cost, the income from work-study, summer jobs, grants, or gifts, if any, you can use to pay down that debt while still in school.
- The result is your projected debt upon graduation.
- Compare that debt with the annual income you are likely to receive from your chosen major through calculations like those in the above illustrations.
- Those calculations will give you a projected time frame for repaying the debt, and a time frame for retaining a portion of your income to fund your lifestyle.
Performing that analysis provides one measure of whether, and to what extent college is worth the invested time and resources. At the very least, you will gain a realistic view of time and value. You can perform a similar analysis for other jobs of interest, if any, that do not require a four-year college degree (e.g., musician, artist, electrician, plumber, auto mechanic, etc.).
As a final cautionary note, do not stop your analysis with just the first year after graduation. A college education, or any career, has benefits over one’s lifetime. You may, for example, have an entry-level professional job after college. But that may rise quickly in salary over time, at a much faster rate than someone working online in a factory where the salary remains roughly the same throughout the years. Research bears this out:
“Research demonstrates that the college wage premium approximately doubles over the typical individual’s work life (Deming 2023). As such, focusing narrowly on short-term labor market incentives may distort people’s decisions of whether or not to attend college.”[2]
So, for most of you, a college degree has far more potential upside than not having it. But no two students have the exact same circumstances. So, perform your own analysis. You will be better off having done it, no matter what you decide.
[1] Id.
[2] https://www.frbsf.org/economic-research/publications/economic-letter/2023/august/falling-college-wage-premiums-by-race-and-ethnicity/#:~:text=to%20attend%20college.-,The%20college%20wage%20premium%20over%20time,with%20a%20high%20school%20diploma.