Unless your tuition is $830,800, college is still a good bet, study suggests

Is going to college still worth the cost? Yes. Next question.

The Federal Reserve of San Francisco has just issued a report that says in spite of the student loans and tuition increases, a four-year college degree still results in more money than the alternative.

At its lowest value in 1980 individuals with a four-year college degree earned about 43% more on average than those with only a high school degree. In 2011, the latest data available, college graduates earned on average about $20,050 (61%) more per year than high school graduates. That’s roughly about the same as it’s been for the last 30 years.

College graduates start with higher annual earnings that high school graduates and experience more rapid growth in earnings, the Federal Reserve study said. “This evidence tells us that the value of a college education rises over a worker’s life,” the authors said.

Of course the earnings potential of a college degree hasn’t been in that much dispute, certainly not as much as the cost-reward has. Even so, college is still the better deal.

If we assume that accumulated earnings between college graduates and nongraduates will equalize 20 years after graduating from high school (at age 38), the resulting estimate for breakeven annual tuition would be about $21,200. This amount may seem low compared to the astronomical costs for a year at some prestigious institutions; however, about 90% of students at public four-year colleges and about 20% of students at private nonprofit four-year colleges faced lower annual inflation-adjusted published tuition and fees in 2013–14 (College Board 2013). Although some colleges cost more, there is no definitive evidence that they produce far superior results for all students .

Although other individual factors might affect the net value of a college education, earning a degree clearly remains a good investment for most young people. Moreover, once that investment is paid off, the extra income from the college earnings premium continues as a net gain to workers with a college degree. If we conservatively assume that the annual premium stays around $28,650, which is the premium 20 years after high school graduation for graduates in the 1990s–2000s, and accrues until the Social Security normal retirement age of 67, the college graduate would have made about $830,800 more than the high school graduate. These extra earnings can be spent, saved, or reinvested to pay for the college tuition of the graduate’s children.

The study includes an Excel spreadsheet to plug in your own numbers.

  • I didn’t get a medical or engineering degree. I don’t work on wall street. Once you take those people out of the pool, does college make sense for the rest of us? I know I won’t have my tuition costs recouped by age 40. Additionally, things have gotten much worse for college students/recent grads in the past five years that aren’t taken into account in this report.

    Essentially, college makes sense for technical degrees but English and journalism majors should think twice.

  • John Peschken

    The real problem is getting the money together to pay for it in the first place, and being burdened by debt after graduation. I don’t doubt college grads made 43% more on average, but averages can be skewed pretty badly by a few high numbers. As Scott points out, what your degree is in will be critical.

  • David

    The trouble is employers who think their jobs require a college degree and/or use it as a way to whittle down the candidate pool.

    edit for spelling.