College Degrees No Longer Worth Cost

Most people have heard the suggestion that a Bachelors Degree today is roughly equivalent to what a high school diploma was worth 30 years ago. From a job market perspective this is certainly true, although more knowledge is probably always a good thing. The question isn’t whether or not a college education is a good thing to have – nobody would argue it’s better not to have a degree. The question is how much money is that degree worth to you over your working years vs. the actual cost of getting that degree.

We’ve heard numbers bandied about asserting that a college graduate earns roughly $1 million dollars more over the course of his or her lifetime, than a non-college graduate. However, when we investigated the claims we discovered that the oft-quoted number actually stems from a Census Bureau report. The report said the average high-school graduate earns $25,900 a year, and the average college graduate earns $45,400, based on 1999 data. The difference between the two figures is $19,500; multiply it by 40 years, as the Census Bureau did, and the result is $780,000. So, rather than $1 million, it’s actually about $780,000 – still a lot of money though. However, when you dig deeper into the numbers, a few things become apparent.

For instance, according to the IRS tax brackets, people earning $25,900 a year would be taxed at a 15% rate, whereas the college graduates that earn on average $45,400 would be taxed at a 25% rate. So after factoring the income tax paid, the difference between the two average salaries is closer to $12,000 a year. We multiply that by the 40 years and now we get a difference of $481,400 over the individuals lifetime.

Also, we must factor in the time value of money, because money earned now is worth more than money earned later – all things being equal. This serves to magnify the money earned by the non-college student that would presumably be working while the college student is studying. Since many students spend on average 5 years earning that degree, the additional money earned by the non-student has to be accounted for. In other words, the 40 year figure used by the census bureau is incorrect since a non-college grad will spend on average 5 more years actually working than a college grad.

Perhaps the biggest variable yet to be considered though is the heavy financial burden of student loans that are carried solely by the college graduate. This will add considerably to the debt-load of the student once they graduate, and it is not uncommon for students to be paying off student loans 20 years after graduating. With many student loans carrying credit card-like interest rates of 19% or more, the lifetime interest paid on these loans must be accounted for as well.

So what is the final number? Well, there is no magic answer for that and everybody’s situation will be different. However, it would appear that students that attend expensive private colleges are actually receiving a negative ROI on their education, while those that attend public universities probably come out slightly ahead of non-graduates. Ultimately, you have to decide if the education itself is worth it to you, because according to the numbers, the degree isn’t.

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