The Value of a College Education: Tuition Costs, Earning Power, and Unemployment Rates

The Value of a College Education: Tuition Costs,  Earning Power,  and Unemployment RatesIs a college degree worth the investment? We’ve talked in the past about the value of a high-end college degree. Today I want to take a step back and consider the value of a college education in general.

The cost of a college education

For starters, let’s take a look at the cost of a college education. According to CollegeBoard, a private four-year college in 2009-2010 costs an average of $26, 273/year. In contrast, the average cost of a public four-year college is $7, 020/year (presumably for in-state tuition/fees).

Adding it up, and ignoring possible inflation while you’re attending, students attending a public school can expect to pay around $30k for a four-year degree, whereas those at a private school are looking at a tuition bill somewhere north of $100k. Of course, there are also living expenses, though you’d likely incur those whether or not you were in college.

Earnings as a function of education

Next up, let’s take a look at the effect of education on your earning power. While there are obviously exceptions (e.g., Bill Gates, LeBron James, etc.), the general rule is that your earnings increase significantly with increasing education.

What follows is a breakdown of the 2009 median salary numbers of full-time workers aged 25 and over based on their level of education.

Level of educaton Median salary
Advanced degree $69, 056
Bachelor’s degree $53, 300
Some college/associates’s degree $37, 752
High school diploma, no college $32, 552
Less than high school diploma $23, 608

Simply finishing high school results in a 38% in median salary, whereas completing that bachelor’s degree results in a 41% increase over some college (or an associate’s degree), and a whopping 64% increase over just having a high school diploma.

Unemployment as a function of education

Finally, let’s set aside earning potential for the time being, and simply look at unemployment rates as a function of education. As you’ve no doubt heard, things are tough all over… Or are they?

What follows is a breakdown of unemployment rates as of February 2010 based on level of education.

Level of education Unemployment rate
Bachelor’s degree or higher 5.0%
Some college/associate’s degree 8.0%
High school diploma, no college 10.5%
Less than high school diploma 15.6%

While unemployment rates have been hovering around 10%, those with a college degree have an unemployment rate that’s right around half the national average.

While all of the numbers in the table above are higher than normal given the current state of the economy, a college education appears to provide a clear benefit when it comes to finding and/or keeping a job.

You make the call

So… Given the above numbers, what’s your take? Is a college degree worth the investment? In my book, the answer is yes — assuming that you’re qualified. That being said, it also pays to make smart decisions when it comes to selecting a major.

Source: BusinessWeek and CollegeBoard

20 Responses to “The Value of a College Education: Tuition Costs, Earning Power, and Unemployment Rates”

  1. Anonymous

    I’ll share my heartwarming story, knowing that it is not typical. I’m a military vet and I discovered when I got out that Pennsylvania gives a grant up to a certain percentage of your tuition for vets. I was also independent, since I had gotten married while in the service and I was out of high school for 5 years when I started. Since my income was the only one they counted, I received federal grants as well, so with a family, I got my 4 year degree in Computer Science for “free” (if you consider giving 5 years of your life to the Army 0 cost!). Anyhow, I’ve been programming professionally for over a decade now, so for me, both the military experience, and the college education have enabled me to make a decent income for my family.

  2. Anonymous

    A degree should sharpen the focus on one’s career. If a student pursues the courses majors in what he or she wants to do then there is a higher probability of success.

    Another point is like in everything else, never spend more than you have to. Consider a public school to a private school. Consider community college bridge programs. Consider the tenants of debt management (this applies to parents and students) all through one’s education. Parents – even if they have not saved enough to pay for their kids education – should actively counsel their kids on taking on too much debt while in school.

  3. Anonymous

    “I might also add that white collar jobs suck in terms of satisfaction and morale.”

    a generalization that is not true. I love my white collar job 🙂

    Whether or not a college degree is worth it really depends on type of degree, and where you are getting it (and how much you are paying for it). There are some fields where a degree is pretty much a necessity in order to advance (I hit the ‘glass ceiling’ with a bachelor’s in 3 years – went back for Master’s and doubled my salary shortly after that). Then there are degrees that are practically useless. I won’t offend anyone by naming those degrees, but I think we all know what those are (and may even know people who got them just for the sake of saying they are a “college graduate.” Whoop-tee-frickin’-doo.)

    #17 Charles – I like your toyota/lexus analogy (even though I don’t think it applies to all college degrees – maybe public vs. private degrees 😉 ). I work with a bunch of people who all drive either a Lexus or an Acura (and a few BMWs). And I think, my Honda is the same damn thing without the leather interior and wood paneling dashboard! And I didn’t throw away nearly as much money on my Honda as they did on their “luxury cars.” But then there’s the CEO – who drives an old (and I mean OLD) yellow VW bug – I LOVE it! It’s so refreshing to see someone else who does not derive his/her self worth from trying to impress others 🙂

  4. Anonymous

    We wouldn’t pay a single dollar to buy a 20-year-old set of encyclopedias, but we shell out thousands for education that will be just as obsolete in a shorter time span. Most of the stuff I know I learned on my own in the years after college in the Good Will Hunting style of autodidactic schooling. I have to keep learning just to keep up.

    A college degree is what economists call “framing.” Framing is how Marcel Duchamp was able to turn a urinal into a work of art. Simiarly, you take a moron and put “Harvard” on a resume, and you suddenly have a great employee and future leader for your company.

    A Lexus is a Toyota with a leather interior. They both achieve the same purpose. What people are buying with a degree is the same thing they are buying with a Lexus–STATUS.

  5. Anonymous

    Nickel, you’re 1000% right, I had skimmed the numbers & didn’t notice you had indicated that this was a median and not a mean. My fault! I’ve seen these statistics listed as the latter many times, I had just assumed you had as well.

    And I agree with Samurai that education IS priceless; but my view of higher education is that actual learning has become secondary to “playing the game.” Regurgitating information on cue & cramming facts into your head for a semester (only to forget everything you learned immediately after the final exam) is not my idea of learning. I have met many, many college graduates who don’t have an original, creative thought in their head; all they know is conformity. Do what you’re told, memorize this policy book from A-Z, don’t think outside the box, don’t make a mistake etc. Because of this conditioning, their prospects of getting a job in today’s market are getting thinner & thinner because they’re competing against so many people that are exactly like them. On the other hand, someone who has more of a creative background and either started a business or has actual real-world experience in their field of interest, is likely to be more appealing to most employers.

    I have a lot to say on this subject so maybe I’ll just save the rest for a future editorial. 🙂


  6. Nickel

    Blair: Th whole point of using the median (instead of the mean) is that it’s not skewed by extreme outliers. Plus, Gates never finished college, so his inclusion who skew things against getting a degree.

  7. Anonymous

    Unfortunately when the median salary figures are tossed out there by colleges & other educational organizations, they’re including the Bill Gates’s of the world & other billionaires & millionaires that end up skewing the averages in favor of those with college degrees.

    Like anything, it depends on what field you’re going into and what you plan on doing once there but a degree is by no means necessary for financial success; particularly if you’re in a field (as I am) that’s still too new to be covered in most formal classroom settings.

    I think Michael has the right idea; I wish I had been smart enough to help jumpstart my first business with the money my parents had saved for me instead of (stupidly) spending it towards two years of college to pursue a career that I ended up having no interest in. But you live and learn; from that mistake, I ended up finding what I truly wanted to do and have been on that path ever since.


  8. Anonymous

    Many years ago, it was a no-brainer to go to college, get ANY degree, and money would find you. Now, there are more degrees, certifications, etc. in the world of higher education with each carrying a wide variety of costs and benefits. It’s hard to say that a college education isn’t worth having, but there is merit to thinking more deeply about the value proposition.

    Also, many degrees obtained today simply will not pay off in the long run. The WSJ had a nice article about the increasing number of graduates from for-profit institutions that aren’t seeing the salaries expected, but are saddled with debt roughly equal to that of a traditional private college. Obviously not a good deal.

    Another issue to consider is that because of the advances in technology, even high school graduate workers are more skilled compared to earlier generations. This causes a narrowing of the gap between high school grads and 4-year college grads. It’s not the most important effect, but it is worth noting.

    The way that I see it for my kids, if they seem like they’ll be a good fit for college, we’ll send them. If not, we’ll give them a chance to start a business with their college savings. Either way, they’ll be get the education they need.

    Bottom line is that college still pays for most, but the percentage is shrinking, and education isn’t strictly an institutional phenomenon – entrepreneurship is as good a teacher as any.

  9. Anonymous

    These earnings figures ignore vital info. Student loan debt kills the extra earnings, and it is getting worse as the higher ed bubble keeps expanding. Meanwhile, the low earnings of mere high school graduates also includes people who are slackers and don’t work. A high school grad with a great work ethic can certainly earn more than the philosophy major living at home with the parents.

    The future is in skilled labor, and this includes blue collar trades. A good electrician or a plumber makes very good money. Considering these trades can be had without further education, it is a no-brainer. The only downside is a social one as blue collar trades don’t command the same respect as white collar professions even when the plumbers make more than the managers. (I might also add that white collar jobs suck in terms of satisfaction and morale.)

    I’ve written a lot on this topic on my blog. I am a college grad with zero student loan debt but work in a blue collar profession by choice.

  10. Anonymous

    For me, its about the second job or second career. A lot of places will just pass your resume off if you did not graduate college.

    A degree is a safeguard, an opportunity, a fallback option. But like you said, the degree matters. I have a lot of friends with great philosophy and english degrees from great colleges that are managing starbucks or take a desk job that they did not want. If I could go back, I would get a minor in business, just to pick up a few skills I could take to different markets.

  11. Anonymous

    Dan #7, your point is important.

    Student loan interest rates are also higher today than they were just a few years ago. When I was in graduate school students could consolidate at ridiculously low (sub-3%) interest rates. I have met more recent students whose consolidated rates are 5, 6, 7%, etc. That makes a gigantic difference when you’re talking about $100,000 – $200,000 in debt.

  12. Anonymous

    When I look at this problem, I take into consideration the opportunity cost of not earning wages for 4 years, which in this case could be $32552*4 = $130208. This makes the payoff period for college roughly 8 years if you go to a public university. ($30000+$130208) / $20748 = 7.72 yrs. I found it well worth it because of the increased earning potential after the 8 years, and because of the better quality of jobs, job security and job satisfaction, ect. I’m not sure if it would still be worth it if you went to a private university.

  13. Anonymous

    @Smarter Spend: I want to agree with you, but I can’t. You’re right when you try to consider that $200k 20 years from now will be less than it is today. But you’re wrong when you say “that’s going to be very little.”

    First things first, $200k in 20 years is probably worth $120k today. If we’re talking about student loan debt, that’s still a princely sum. (Hardly “very little” as you put it.)

    Second things second, if I leave college with $200k in loans today, and assume a 4% interest rate with a 20-year repayment, I’ll pay $90k in interest over the life of my loan. (Assuming I pay the entire balance in 2030 dollars, that’s about $170,000 in today’s dollars.)

    So, I disagree graduating with $200k today is “very little.”

  14. Anonymous

    I heard on the radio yesterday that practically all of the unemployed in Austin TX only had a high-school diploma (or less), I believe it was some city official who said that.

    Don’t interpret this to be racist, but any jobs in this area that don’t require a college degree are rapidly being filled with mexicans: roofers, construction, landscaping, fast-food, etc. Whether they are illegal mexicans or not, I don’t know. It is really, really easy for a company to get green-card/work-visas for the people they hire as long as they claim that nobody else in the area has those ‘skills’.

  15. Anonymous

    “There are lies, Damn Lies, then Statistics” – M. Twain.

    Anyhow, a pragmatic view: If you will get out of bed to go to school, you’ll probably get out of bed to go to work. Which means you probably won’t get fired and you will probably make more money than those that stayed in bed….no reason to waste money on a study.

  16. Anonymous

    Wow, I was going to get on here & post – but enoughwealth said it EXACLTY. As a former high school teacher I saw plenty of this correlation = causation mistake, and this leads to bad policy decisions. Simply making the case that college degree = the good life, we should deduce that if we get EVERYONE a college degree, we’ll all be high earners. The mistake is in not realizing that the diploma is simply a byproduct, an incidental marker that correlates with people who have drive & intelligence. Put another way, if college didn’t exist, the people making big money now would still make big money, becasue their personal attributes make them succed, not the piece of paper. I hope we don’t embark on a mission to get everyone a college degree, it’ll be a collosal waste of money & time.

  17. Nickel

    enoughwealth: I agree, it’s important to distinguish between correlation and causation. It’s quite possible (if not likely) that those numbers are tainted by other factors that correlate with the likelihood to seek out a higher education.

  18. Anonymous

    Education is the best investment.

    Even if you leave college with 200,000 loans, in 20 years, thats going to be very little. But on the other hand, you will be much more capable of finding a job and earning more.

  19. Anonymous

    I also think a degree is worthwhile, however I doubt that simply looking at the wages and unemployment rates of the different education levels is conclusive. After all, those that have the drive, background, support and intelligence to complete higher education courses would probably do better than average in their careers if they had chosen not to pursue higher education and gone straight into full-time employment or started their own business.

    Unless there is a study that compare a representative group of children split randomly and half made to pursue higher education and half prevented, you can’t easily isolate the effect of education. There are statistical techniques to do so, but simply looking at wage rates, unemployment rate etc. for those with and without degrees doesn’t cut it.

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