College Degree Worth an Extra $550k

CNN Money says a college degree can still pay off big -- to the tune of several hundred thousand dollars. A summary of their thoughts from a new Pew Research Center analysis:

Typical college grads earn about $650,000 more than their peers who just have a high school diploma over the course of a 40-year career.

A worker with a bachelor's degree earns about $1.4 million, on average, while a high school grad makes about $770,000.

After accounting for the time and cost of higher education, the gain is about $550,000 -- assuming one went to a four-year public university in one's home state.

Earnings, however, vary widely by major and field.

A few thoughts here:

• IMO, for the average person in the "average" field, a college education is still a good deal. That said, it's not as good as it once was.


• There are a whole lot of caveats to that first statement. Major selected and field entered are two of the biggest.


• The gap is narrowing, probably because the cost of college is getting out of control and yet incomes aren't going up as fast.


• What matters WAY MORE than whether or not you get a college degree is how you manage your career during your 40+ working years. What you do or don't do during that time can meant the difference of MILLIONS of dollars.


• If you want to make as much money as possible, you need to do it all: get a lucrative college degree (like an undergrad engineering degree or an MBA) in a lucrative industry (where pay is generally higher than other industries -- think "oil versus education") in a lucrative field (doing something your industry values -- marketing, finance, etc. -- varies by industry) and then work as hard as you can to maximize that earning potential over the course of your career.


• This isn't to say that you can't earn a high salary in almost any field. You can. It's just easier to do in some than in others.


• Someone will probably make the "a career isn't all about money" statement. This is true. There are many non-financial issues associated with working. But the "do what you love and the money will follow" is a bunch of bunk as well. IMO, do what you like is a better balance.

The whole issue of college, the value of it, and so on is in my mind a lot these days as my kids are in the first years of high school. It won't be long until they choose their paths and there's a lot to consider between now and then.

Comments

[Matt]

I remember an article talking about STEM
Sciences, Technology, Engineering, Medical being the fields with the best future prospects and salaries.

Makes sense to me.

[Jon]

"'do what you love and the money will follow' is a bunch of bunk"
So happy to hear someone say that, for a change.

[SS]

Private jet owners have an average income of $9 million/year, so I'm going invest in a jet instead.

[WorkSaveLive]

The gap is certainly getting closer and frankly I think their estimation above is WAY off.

If somebody made $770,000 over the next 40 YEARS, that means that person makes (on average over the next 40 years) $9.25/hour.

Sure, if they're assuming the AVERAGE person makes minimum wage if they don't have a college degree then they're right. But I'd go out on a limb and say that AVERAGE person won't be making minimum wage if they don't earn a degree.

[Kurt @ Money Counselor]

That whether advanced education is worth the cost has become a legitimate topic of debate in the U.S. bodes very ill for the country's future, imo.

[Daisy]

I think education is important just for the sake of the knowledge and confidence it can give.

[Old Limey]

I can vouch for the article.
Getting my BS and MS in aeronautical engineering established the path for my whole life and after 20 years of retirement I can say that I have no regrets whatsoever. I would do it again if I had the chance.
An engineering degree also helps in many other ways. It gives you the mathematical skills that are enormously helpful in investing and managing money, and understanding the technical analysis of markets. With the help of pretty simple "How to ----" books I have also been able to do electrical wiring, install new plumbing, install gas lines, sprinkler systems, pond and spa equipment, and to fix most things that need fixing in our home. In the old days I used to also do most of my car repairs but that went away when cars became a lot more complicated. One other thing I don't mess around with is the inside of my computer.

I don't know about the financial impact of my degrees, however I do know that in 1999, 6 years after retiring, my investment gains for that one year equalled my gross salary for 32 years of working, but that was a very exceptional year for those with the analytical skills to select the right sectors and to know when to get out of those sectors in March 2000.

[Apex]

@SS,

That made me laugh. But your sarcasm gets a deeper problem with these kinds of studies. 1. The don't prove causation, only correlation and 2. The results of the average are easily skewed and do not represent the results of a number of people and possibly not even the typical case.

People who get college degrees might just have a higher work ethic and would thus be likely to out earn others with or without a degree. The degree helps them do that but I would be willing to bet they would still out earn the others even without the degree, just probably not by as much.

Secondly you have lawyers, doctors, company executives, etc as well as some extremely high earners in every field. Their earnings are so far beyond the typical that they vastly skew up the average for those with a college degree. Good lawyers, doctors and execs should easily be making 200K average over their lifetimes and every field has a certain number of people making that kind of money, some will even make far more than that. Over 40 years, that's 8 million but the average in this article was only 1.4 million. The impact of such high earners on the average is disproportionate. A much better measure would have been to use the median but the article uses the word average so if they used the word correctly it means they didn't use the median. I suspect the median would show a smaller gap.

I would also like to see how they accounted for the time value of money to only take 100K off for the cost of college, plus the future time value of that money over 40 years, plus the loss of 4 years of working income if you hadn't gone to college. I highly doubt you can account for all of that using future value of money calculations over 40 years with only 100K. Maybe the person who did that math didn't have an accounting degree. :)

[Apex]

One further point. If college is such a clear winning choice then why not break this out be decile. Show what the top 10% of college grads earn, then the next 10%, etc, until you get to the last 10%. That would be a very valuable study and one I have never seen done. Does the last 10% of college grads out earn the median without a degree? Do they possibly earn even less than the average? I would be willing to bet that they do. Maybe even the bottom 20% or more don't stack up very well. Keep in mind that if you earn less than the median that means more than 50% of people without a degree would be out earning those 10% with a degree who earn the least.

That type of data would eviscerate this meme that college always pays. And it would be more valuable information for prospective students than this misleading promotional material that implies a degree is worth 550K.

[Nick]

I get nervous when I see statements like the the one made by CNN - a blanket statement - for many of the reasons you point out. An under-water basket weaving degree that you go $200,000 in debt to get is pretty dumb. But smart college and major choice to secure a marketable degree in a field you love is something I definitely endorse. And working through college to pay for in-state tuition (at least for undergrad) is the way to go, IMO.

[JP]

@Matt - The 'M' in STEM stands for Math, not medical.

[MC]

I'm actually old enough to remember the arguments over whether finishing high school was "worthwhile" for all students...! Arguments "against" attending college will sound just as ridiculous in 10 years or so.

Like it or not, college graduation is the new standard educational expectation for the middle class. Feel free to ignore this, but don't expect to come out ahead without that degree.

[Apex]

@MC,

I'll take that bet.

[jim]

WorkSaveLife commented : "If somebody made $770,000 over the next 40 YEARS, that means that person makes (on average over the next 40 years) $9.25/hour."

They are doing a net present value calculation, they are not summing all the wages over 40 years.

[jim]

I think that this kind of analysis is mostly useless.
The question is far too dependent on major and field for any kind of national average to be meaningful.
At worst it could be misunderstood and give prospective students the idea that they can go major in some low demand obscure degree like German American Ethic Studies and that this will then net them a good paying job somehow.

However most college degree holders do have jobs that legitimately require college and legitimately pay more than work you can reasonably expect to get with just a high school diploma. It should take little argument that doctors, engineers, nurses and other professionals made a good investment with their degrees. Theres around 20-30 million people working in those areas and that represents most of the people with degrees who are working.

[jim]

Here is the Pew study that CNN cites.
http://www.pewsocialtrends.org/2011/05/15/is-college-worth-it/6/#fn-7679-18

The Pew study goes into a LOT more detail. They break it down by fields. They factor in unemployment rates which are lower for people with degrees. They figure the cost of college including financial aid.

e.g. They point out that getting a bachelors in education is only worth $80k more than a high school diploma. While an engineer makes $1.2M more than an average high school grad.

[BD]

@Jon - Agreed.
I was getting really sick of certain finance bloggers who kept repeating that mantra like a bunch of parrots. I felt like screaming at them "If that were true, I'd be a millionaire five times over right now, instead of living under the poverty level for the past 7 years".

[Old Limey]

@Jon & @BD
I couldn't agree more.
When I started my 5 year apprenticeship in 1951 in England I wore overalls every day and rotated through all of the various workshops necessary in the construction of airplanes. It wasn't any fun standing all day at a workbench and using hand tools or machine tools to make lots of the same part each day. However I knew that better things were to come. Finally after working in each of the manufacturing areas, and as my education continued one day/week and every evening I eventually started rotating through the various analytical departments where I could dress nicely, stay clean, work under an experienced engineer, and learn about each segment of aircraft design before entering the last phase where I could pick the department that I enjoyed the most.

By the 70's and 80's everything had changed dramatically. I remember when we hired the first female engineers that didn't know the difference between a chisel and a hacksaw but they had a great degree from great schools like MIT and fitted in easily into a world where the computer had become our primary tool. Later on after I received my MS degree part-time I gradually moved into what I enjoyed the most of all which was writing computer software that took all the drudgery out of engineering analysis, as it used to be done in earlier days. It was particularly gratifying to work during a period where my first computer in 1956 was a huge IBM vacuum tube type mainframe that was always overheating and my last one in 1992 was the fastest one in the world at the time, a Cray XMP supercomputer based in Colorado that I was using remotely from California.

[Terry]

Apex is onto something significant. I would even guess that the bottom quintile of college grads obtained a negative return on their investment and actually became worse off by going to college.