We've talked a lot about the value of a college degree, but lately I'm been focusing on posts and articles that try to ascertain the "profitability" of a degree -- basically the increased income from the degree less the cost of it (including lost income while studying.) This article is a perfect addition to the conversation since it summarizes an analysis of Census data from Georgetown University's Center on Education and the Workforce that determines the payoff from various graduate degrees (not schools, which we've discussed previously, but actual degrees).
They offer a general guideline for determining the profitability of a grad degree and whether or not it is worth the investment. Their summary:
When it comes to determining how much a degree is worth, the "starting-year salary" guideline is a good rule of thumb. Basically, prospective grad students should calculate what their expected salary at graduation, then borrow no more than that amount. According to the Student Loan Network, most federal student loans follow a 10-year repayment schedule, which means that students who limit borrowing to a year of salary can expect to dedicate about 10% of their paychecks to paying off their educational debts -- a manageable percentage. By contrast, they note, students who borrow 15% or more stand a much greater likelihood of defaulting.
Note they say to "borrow no more than" the annual starting salary. Hopefully you can borrow far less than it -- thus making the return on your grad degree investment even higher. For instance, my borrowing for all six years of school (undergrad and grad) was 12.5% of my starting salary. How did I pull this off? Several factors:
- I qualified for several government grants, leadership scholarships, and academic scholarships.
- I worked both during school and in the summers.
- I had assistantships as both an undergrad and grad student which were substantially more valuable than my other on-campus jobs.
- I attended good (not "great"), affordable schools.
- I lived on peanuts (not literally, but not far off.)
- I selected a higher-income grad degree (more on that in a minute.)
One thing to note, I got very little financial help from my parents. The money that I did borrow was from my grandmother, and I paid her back a few years after I graduated.
Using the data available noted above, here's what the piece lists as the most valuable grad degrees:
The big winners are health and medical preparatory programs, from which graduate or professional degrees can increase salary by 190%. Similarly, social sciences (134%), zoology (123%), molecular biology (115%), public policy (107%), biology (106%), biochemical sciences (101%), chemistry (93%), pre-law (81%) and physiology (78%) majors can all expect to get a major dividend from pursuing graduate or professional degrees.
They also list the least valuable grad degrees as follows:
The worst graduate major for salary improvement is meteorology, which only improved wage prospects by 1%. Only marginally better were studio arts (3%), petroleum engineering (7%), oceanography (11%), mass media (11%), advertising/public relations (12%), pharmaceutical sciences (13%), forestry (15%), computer engineering (16%), and miscellaneous education (16%).
So maybe this is "back in the day" information, but when I graduated with an MBA, my starting salary was 122% higher than what I was set to earn out of undergraduate school -- a pretty good investment IMO, especially considering my low level of debt. That's why I say a pretty small investment helped me make millions.
The key part of this research emphasizes a point that some readers brought up in a previous post -- that the degree you get (in this case it's a grad degree, but the same can likely be said for an undergraduate degree) is more likely to determine whether or not a college education was "worth it" or not than the school attended. Now if we can just find an analysis that includes both school attended as well as degree earned, then we'll be much closer to developing some sort of general guideline/decision-making process that really gets to the financial value of any given degree at any given school.
I don't think there is much value analyzing both schools and degrees for their total financial value. With tuition changing year-to-year the book's statistics would be invalid after just one year. Secondly, we already cracked the code which is study hard and get into the best state school available and learn (from the article above) the value of each degree when selecting a major.
Posted by: Luis | February 07, 2012 at 11:26 AM
More and more it is becoming important to choose a degree that you can more or less enjoy and make money. College is increasingly out of reach, so students must make it worth their while. I certainly wish I would have done things differently when I was in school.
Posted by: Melissa @ Little House in the Valley | February 07, 2012 at 12:00 PM
The data you quote definitely shows that in some fields, pursuing an advanced degree makes a lot of sense.
You definitely reach a point of diminishing returns, though. I have an accounting designation, and completed my MBA after my work agreed to sponsor me. A good investment for me as I wanted to take my career away from pure finance and accounting. But a PhD in Management? Unless I want to become a professor, it provides no real return in the business world.
I think a lot depends on where you are in your career path as well.
Through good fortune (and cheap tuition in the early 1990s), I was able to graduate from both my undergrad and MBA programs with no student debt. I know I was lucky, but I'm now working with my 15 year old to try to help him do the same thing!
Posted by: Kris | February 07, 2012 at 12:01 PM
I thought it was interesting that grad. degrees in petroleum engineering and computer engineering don't increase wages much. I would assume that is because you can get a relatively high salary with a BS in those fields and/or the jobs out there don't require or benefit much from grad school level training.
Posted by: jim | February 07, 2012 at 12:26 PM
I'm one of those "poor saps" who got a graduate (and undergraduate) degree in public relations/advertising/media. I did so because I love the subject matter and so I could teach. While I may not make that much more money as a professional, I can supplement my income by teaching.
Thankfully, I incurred zero student debt as an undergrad because I graduated from a state school (luckily, it also has one of the best programs in the country) after three years of community college and worked throughout college (up to three jobs a semester my senior year). My graduate degree was paid for by my work.
Honestly, the most valuable part of my degree was the connections and experience it provided me with. In my city, the media/PR industry is dominated by people that went to my alma mater. Not only did it provide a post-graduation network, but I was also more competitive for internships, which eventually led to my first job out of college. While I graduated the top of my class, I always felt that my experience was/is what makes me attractive to employers, and the only way to get that is through related jobs and internships.
Posted by: Lorena | February 07, 2012 at 12:28 PM
@jim
As a computer engineer I can say that a grad degree would not help me. A master's would have gotten me about a 10% increase in salary but would have taken me out of the work force for an additional 1-2 years. A PhD is almost a joke and it is incredibly sad. Most companies won't even hire you because they assume you are research oriented instead of business oriented. Obviously there are some research positions at tech companies, but not nearly enough to go around.
The only people I know from school that went to get a PhD in computer engineering wanted to be professors. They did it because they like teaching, not for the salary increase. Because state employee salaries are made public where I live, I know I make more than half of my professors do, and I graduated less than a year ago. Of course, they get summers off, so that's nice.
Posted by: SB | February 07, 2012 at 01:22 PM
SB, Yeah that makes sense. I happen to be an engineeer at a company that does hire comp. engr. with MS/PhD's. My friend went and spent a few years getting a PhD and by the time he got hired I was making as much as him with my BS and the years experience I had gotten while he was in school. He has a higher ceiling but few people go that route to research and you can go management with a BS.
Posted by: jim | February 07, 2012 at 01:50 PM
It's worth noting that many graduate degrees, especially in the hard sciences, are more like temporary salaried positions.
I received my PhD in Biology from a "brand name" university in the Boston area. My tuition (~$50K/year) was paid, as was a modest stipend ($26K to $30.5K during my stay, adjusted upward each year for cost of living), and health insurance. All amounts were paid for from grants to the grad program or to the professor whose lab I was in. Acceptance into the program guaranteed both tuition and stipend.
In our program we finished all class work in the first year, and only had to TA for two semesters total. The bulk of our time was spent working on independent research projects.
The stipend isn't much, but because we are students, they don't take out social security or medicare. It's not much, but it was certainly enough to live on in the Boston area, have enough to spend on some fun things, and save some.
This is typical for most biology PhD programs that I know of.
Posted by: Thomas | February 07, 2012 at 02:42 PM
Regarding the first article, there was a mention that students who have to pay back 15% or more of their earnings have a higher chance of defaulting- well I thought student loans cannot be defaulted nor discharged in bankruptcy...
-Mike
Posted by: Mike Hunt | February 07, 2012 at 09:46 PM
An MBA is nice. I am debating whether to go and get mine. If my company will pay for it, then why not.
Posted by: Jeff Crews | February 08, 2012 at 12:10 AM
I stayed put after undergrad and got my MS at the same school, mainly because they offered me several grants for tuition. During grad school I interned one semester so that helped, but in the end I did have to borrow all of $3K to get my MSEE. Sure, I probably gave up $70-$75K for those two years but a large part of staying was just to increase my personal knowledge in a subset of EE.
Also I figured I would be working for the next 40 years or so, so I felt like two more years of fun at the university was a worthwhile choice for the very minimal outlay. I did get a nominal bump for my first job, maybe 10-20%.
Posted by: Jclimber | February 08, 2012 at 06:58 PM
Mike - you can certainly default on your student loans. A default will negatively impact your credit score and make you ineligible for future federal student loans (if you've defaulted on federal student loans). That doesn't change the fact that the loans are still non-dischargeable in bankruptcy.
Posted by: P | February 08, 2012 at 09:53 PM
As one who will be attending grad school for writing soon, I find this list somewhat discouraging and two-dimensional. It's true that money makes the world go round- but its also true that it takes all types. To determine the "value" of graduate degrees by something as cold and indfferent as starting salary just seems overly simplistic. Following your passions and interests is far more important than trying to make the biggest buck right out of grad school. If money-making and passion correspond than I have no complaint, but if lists like these discourage aspiring students from their chosen field of study than I perceive the need for a reimagined scale of degree value.
Posted by: jeff@moneychoices | February 09, 2012 at 11:37 AM
jeff - I think the post was meant to discuss the profitability of various grad degrees. It does, however, switch to the word "valuable" near the end, which was probably a mistake.
I don't think anyone is arguing that people shouldn't do what they have a passion for, but if that passion doesn't make a decent salary, at least you will know upfront and can plan accordingly with the amount of loans to take out, etc. The list would also help for people who are on the edge between two professions they had a passion for and this could be the deciding factor
Posted by: SB | February 09, 2012 at 12:43 PM