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People are always saying that a college education pays off many times over, but how much more does a college grad actually earn during their lifetime?
A 2015 report by the Georgetown University Centre for Education and the Workforce suggested that most college graduates make at least $1 million more over the course of their working lives than people who do not have a degree. But other studies have been far more conservative.
In fact, one 2012 study carried out by Payscale found that only 9 schools actually provided graduates with a 30-year return on investment over $1 million. That study also found that there was a negative return on investment on degrees from 200 colleges. At these schools, it cost more to attend than graduates were able to make in additional income.
To get to the bottom of just how much more you’ll make during the course of your life because of your college degree, we look at the factors that might be skewing these statistics and balance those against the high cost of going to school.
It Depends on Your Degree
It’s common sense to assume that a Medicine or Computer Science grad will end up making more over the course of their career than someone with an Anthropology degree. While they might also spend more on their education, it’s likely that their return on investment from going to college is quite high.
In 2014, Pew Research Centre found that college graduates aged 25-32 make an average of $17,500 more per year than someone with only a high school diploma. But that’s on average and the study found that some graduates made around the same or less than those with high school diplomas.
For those who graduate with degrees in fields where it can be difficult to get a job after graduation, they might end up in careers that don’t actually require a college degree which means that their return on investment could actually be quite low.
There are also other graduates, like teachers for example, who go into fields where there is a high level of education required but where pay is low and stagnant. Because of low wages, their return on investment for their education is likely to be much lower.
Any studies that look at the average amount graduates make are going to skew the data to make it appear like a degree is more valuable than it will be for those who get low-value degrees and less valuable for those who get high-value degrees. To determine how much you’re likely to make, it’s best to check salary estimates that are specific to your field and college.
The Data is Outdated
Another thing that could be skewing the numbers upwards is that the data used to calculate the income levels is outdated. This data does not take into account how the economic downturn and the high unemployment and underemployment that many millennials experienced when they graduated from college will impact future earnings.
Instead, the Georgetown study looks at average incomes across age groups in 2013. However, what a 59-year-old is earning in 2013 does not necessarily correlate with what a millennial will earn at 59 years old some 20 or 30 years from now.
Since some economists think that the downturn could have long term effects on the careers and earnings of millennial graduates, it will be interesting to see what millennial’s actual return on investment will be 20 or 30 years down the line.
Add to this the fact that many millennials could have to return to school during their careers to keep their skills updated in the rapidly changing environment of today’s business and technological fields, the return on educational investment for millennial graduates could actually be far less than what it has been for previous generations.
The Cost of Student Loans
Another challenge with these studies is that they often don’t account for the increased student loan debt burden millennials are carrying when they graduate. These student loans don’t just cost borrowers money, but they also have an opportunity cost. For example, if the borrower had invested those funds in the stock market instead of putting them towards paying off student loans, they could have earned a significant return.
If you consider that the current average student debt load of college graduates is $35,000 and that it takes borrowers 10-20 years to pay their loans back, they will likely pay anywhere from $44,000-$55,000 on the student loans that they took out. But, if they had invested that money over the same period in the stock market, they could have ended up with over $500,000 in savings by the time that they retired if they had gotten an average return of 7%.
This amount doesn’t take into account any additional funds that parents or students put towards their degrees in cash while they were in school. If that amount was at least $28,000 and they also invested these funds in the stock market for their retirement then that would bring the total of what the student could have made by investing the money they put towards their education to over $1 million.
A College Education is Valuable
Ultimately, most studies find that a college education is valuable – the debate seems to be about how valuable it is. When it comes to calculating your own return on investment in regards to your college degree, it’s important to note that the return can be significantly larger for people who paid less for their education or who were able to avoid student loans. For that reason, students choosing a school might be better off looking for a college that is cheaper or which offers them better financial aid and scholarships.
Author: Dave Rathmanner