September 22, 2008

What is a college degree worth?

People with college degrees have higher incomes than people without college. The Census bureau lists median and mean incomes based on education levels.

Earnings based on education
high school diploma = median income $28,290, mean income $33,609
associates degree = median income $36,362, mean income $41,447
bachelors degree = median income $47,240, mean income $59,365

So the average college graduate makes $59k and the average high school graduate makes $33k. The college graduate makes 76.6% more on average. Looking at the median income levels its $28k for high school and $47k for college which is 67.8% higher. So by this measure college graduates make 2/3 more than those with just a high school diploma.

Lifetime earnings for either can be compared roughly by simply multiplying median income level by the total years someone is likely to work until retirement. To make it simple I'll ignore the impact of inflation.

High school diploma: If someone who is 18 years old right now works 47 years and retires at age 65 then with the median income of $28,290 from a high school diploma they will make $1.3M for their lifetime.

College Degree: With a college degree they will first have to spend 4 years in school and then probably have to repay a college debt. If you figure a rough $15k a year in college costs for 4 years then thats $60k cost for college. Financed over 7% and repaying over 10 years that would work out to $84k total payments including interest. So if someone goes to college, then repays college debt and then works from age 22 to retirement they will net $2.0M, less the $84k for college and you're at about $1.9M lifetime earnings.

A college degree nets the average worker over $600k or 46% more in lifetime earnings above what someone with a high school diploma earns.

These are just average figures and everyone isn't average. Each person should choose the education and career path that works best for them. But the point here is to point out the significant impact that a college degree can have on your earning potential and finances.

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