The Profit of a Degree

Growing up in the world today, there is a high likelihood that at some point you were told that you have to go to college in order to get a good job and in order to make money later in life. One’s parents probably at some point used it as an argument for you to do well in school so you can be successful later in life. However, how much of a difference does college actually make, after factoring in the additional costs that college incurs, mainly tuition and considering the fact that the person attending college likely isn’t working during their time in college.

In order to answer this question, a number of aspects have to be looked at. A good place to start is by looking at the cost of attending college. Between 2011-2012 the average tuition of attending a four year institution was $23,066 (as a quick reference Whitman College recently published its tuition for the 2015-2016 year having set simply the tuition at $45,770). Taking this value and multiplying by the four years of attendance (making the assumption that the tuition will not increase dramatically during the four years) the value of tuition for college comes out to $92,264 (with the Whitman College value coming out to $183,080). This value for the tuition must then have the lost wages that could have been obtained through working with the high school diploma during these four years. The median income for a high school graduate in 2012 was $30,000. Once again taking this value and multiplying by four to get the full duration of college accounted for the value of wages comes out to $120,000. The total monetary loss of attending college (tuition and lost wages) for four years comes out to $212,264. *As a note, room and board was not included in the cost analysis due to the universal necessity of room and board and making the assumption that the cost difference between the two would not have as dramatic of an impact as the impact of tuition and wages.

The data in this figure is described in the surrounding text.

Graph showing the median incomes based on degree for young adults ages 25-34. Source: http://nces.ed.gov/fastfacts/display.asp?id=77

Now to calculate the expected income for a college graduate. For simplicity’s sake, the starting median salary will be used over the duration of the graduates time in the workforce. For a bachelor’s degree in 2012, the median income was $46,900. Since it is a bachelor’s degree, the assumption that the average graduate will be graduating around the age of 22. With the retirement age in the United States officially being 65 years old, this gives the average college graduate 43 years in the work force and a total income during this time being $2,016,700 (in 2012 dollars). Taking this time in the workforce and applying it to the high school graduate, the income comes out to be $1,290,000 (+212,264) for a total of $1,502,264 after factoring in the wages and gain from not attending college. Subtracting away the high school income from the college income, the college graduate earns on average $514,436 more over their time in the workforce. This means that by attending college, a high school graduate could expect their lifetime income to increase of around 34% despite the early loss of no wages and having to pay tuition for four years.

Turns out that your parents were right about attending college, it does have a substantial impact on the earnings potentials later on in life. The calculations performed here are likely low points for the actual difference between the earnings for a high school vs college graduate. Recently the Federal Reserve Bank of San Francisco ran their own calculations for this analysis and came out with a value of $830,800 for the difference in lifetime income between high school and college graduates.

Works Cited:

“Income of Young Adults.” National Center for Education Statistics, n.d. Web.
“Is It Still Worth Going to College?” Economic Research. N.p., n.d. Web. 27 Mar. 2015.
“Tuition Costs of Colleges and Universities.” National Center for Education Statistics, n.d. Web.
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2 thoughts on “The Profit of a Degree

  1. taylorqjohnson says:

    This is a very interesting comparison between the benefit of attending college and the benefit of not going through college. I wonder if there is any way that you could factor in other implicit costs (for example, not being able to spend as much times with friends/family from back home while in college) into your analysis.

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    • There are a number of other implicit costs you could find between going to college and not going, you mentioned a couple in your comment. The biggest issue I found was the varying degrees of value for these from person to person. In the end I decided to ignore them, and make the assumption that the implicit costs of going to college (from a relationship standpoint) would be largely canceled out with the implicit benefits (new friendships/connections) and so I could ignore these aspects.

      Factoring in these aspects would have to be done on a personal basis instead of having a blanket statement like I have crudely calculated within the blog post itself.

      Like

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