Education and lifetime earnings

We know that all children need to go to school (including home school) and receive education. Then what is the relationship between education and lifetime earnings?

In 2011, the Center on Education and the Workforce of Georgetown University published a report titled The College Payoff—Education, Occupations, Lifetime Earnings.[1] They analyzed the census data and found that a person with a bachelor’s degree will earn $2,268,000 in a lifetime, or $56,700 per year, on average. For those less educated and only with a high-school diploma, the number is down to $1,304,000 in a lifetime, or $32,600 per year, on average. The difference is as large as 84 percent, even though college education only takes four to six years to finish. The difference is growing too. It was 75 percent in 1999, twelve years earlier. Given that the economy is becoming more knowledge and skill based, this education premium will only grow even greater. For those who studied even harder and earned advanced degrees, the payoff is also very clear as shown in Figure 6.

 

Figure 6: Lifetime Payoff by Degree Types

The education premium is large and keeps growing as one earns higher academic degrees and professional knowledge.

Worthiness of the college expenses

Is it worth going to college if we consider the tuition and other expenses? Now we know a college degree will increase your lifelong earnings. However, a college diploma does come with a price tag. You need to pay tuition, books, and food. According to the National Center for Education Statistics,[2] “For the 2011–12 academic year, annual current dollar prices for undergraduate tuition, room, and board were estimated to be $14,300 at public institutions, $37,800 at private nonprofit institutions, and $23,300 at private for-profit institutions.” For a four-year private college, one needs to pay an average of $151,200 out-of-pocket before finding a job and getting paid.

Then does it still make sense to go to college? Surely, we understand education is priceless. It will open the door of a new world for you. College life will also provide you a unique experience and a lifelong worldwide network. However, just from a financial perspective, is it worth the cost?

The very strict answer is it depends. If you spend tens of thousands of dollars on tuition but work on flipping burgers after graduation, it does not. However, for most people, if you select the right school and program, the return on investment is quite decent. A company called PayScale surveyed hundreds of US colleges and universities, examining the total cost of going to those schools, the alumni earnings, the majors the students took, the degrees they got, and whether they lived on or off-campus. They also studied whether they borrowed money or not. For most children and students, the results are quite satisfying. However, there are a lot of programs available that can help you financially achieve the college dream. If you can get financial aid, the return on investment will be much higher. To illustrate, we showed examples for some universities in Table 3.

Please note that these data only show twenty years of return. Consider that a typical college graduate will have forty-two years of working life (graduating at twenty-three years old and retiring at sixty-five), and the lifetime return will be much greater.

 

Table 3: Leveraging Financial Aid for Tuition

Showing the difference between self-paid tuition and financial aid for tuition.

 

[1] https://www2.ed.gov/policy/highered/reg/hearulemaking/2011/collegepayoff.pdf

[2] http://nces.ed.gov/fastfacts/display.asp?id=76