Is a College Education a Good Investment?

The costs of a college education keep increasing while wages earned after graduation are stagnating or decreasing.  Some students (and their parents) may wonder if getting a college education is a good investment.  The good news is that data from the Bureau of Labor Statistics and economic analysis show that a college education continues to be a good investment.  

The Bureau of Labor Statistics has published data on earnings and educational attainment for 2014:

$1,015,560           Lifetime earnings with a high school diploma

$1,212,120           Lifetime earnings with an associate’s degree

$1,728,480           Lifetime earnings with a bachelor’s degree

  

To put these figures into perspective, a person with a bachelor’s degree earns $712,920 more over a lifetime than a person with only a high school diploma.  So, what is the value of a college education?  It is $712,920 on average. 

We can do some further comparisons to help students understand the value of a college education:

                Completing one course is worth $17,823 over a lifetime.
                ($712,920 divided by 40 courses in a bachelor’s degree)

                Going to class for one hour is worth $371 over a lifetime.
                (17,823 divided by 48 hours in a semester course)

You can ask students, “Would you go to class if someone paid $371 per hour?”  Of course these are benefits of working over a lifetime of 30 years. 

Another interesting conclusion from the Bureau of Labor Statistics data is that college graduates are less likely to be unemployed.  In 2013, the unemployment rate for persons with a bachelor’s degree was 4.0% as compared to 7.5% for persons with a high school diploma. 

Another way of looking at the value of a college education is return on investment.  This takes into account the cost of a college education, lost wages while attending college, and future earnings.  According to economists Jaison Abel and Richard Deitz of the Federal Reserve Bank of New York, the rate of return for a bachelor’s degree has been about 15% over the last decade, and for an associate’s degree around 14%.  These economists note that since 1950, investing is stocks has yielded an average annual return of 7%; therefore college is a good investment because it has a higher return than investing in the stock market. 

While the average rate of return for a bachelor’s degree is around 15%, not all college majors are equal investments.  Here are some rates of return for different majors:

               

    Engineering                       21%
                Math and Computers        18%
                Health                                18%
                Business                           17%
                Communications               15%
                Technologies                     15%
                Social Sciences                 15%
                Sciences                            14%
                Architecture                        14%
                Liberal Arts                         12%
                Agriculture                          11%
                Leisure and Hospitality       11%
                Education                             9%

Again the good news is that all majors have a greater return than investing in the stock market and are well above the average for what economists consider a good return on investment.  In addition to the financial reasons for attending college, let’s not overlook personal growth, job satisfaction, quality of life, and the other less tangible rewards of becoming a college graduate. 
   

Students may wonder if going to college is worth it.  You can reassure them that it is still a wise investment.   You can increase their extrinsic motivation by saying, “Go to class today and do your homework because you are earning $371 an hour (over a lifetime.)”   

Notes:

Bureau of Labor Statistics are from:  http://www.bls.gov/emp/ep_chart_001.htm

“Do the Benefits of College Still Outweigh the Costs” by Jaison Abel and Richard Deitz: http://www.newyorkfed.org/research/current_issues/ci20-3.pdf