The roughly 3 million Americans who graduated from high school last spring have had to grapple with a big decision: whether to continue with their educations this fall. In today’s economic climate, a growing number of families are questioning the value of higher education. Will an investment in college pay off? Or will it simply be a high-cost ticket to the ranks of the unemployed?
We’ve just completed a study that draws on a variety of data to help answer those questions, and our research suggests that college is not only worth it; it’s probably going to be the best investment a person makes in a lifetime. Even though the cost of tuition, room, board and lost wages is substantial, and even though the job market remains tough even for college graduates, the evidence is unequivocal: Those with college degrees, on average, earn far more than those without them.
First, we looked at what we call the Class of the Great Recession — those young adults who graduated from college during the last three years. The results surprised us. We’ve all seen the headlines about how difficult it is for new graduates to find work in these tough economic times. But almost 90% of these young college graduates were employed in 2010, compared with only 64% of their peers who did not attend college but went straight on to look for work. Even more astounding, the college graduates are making, on average, almost double the annual earnings of those with only a high school diploma. And this advantage is likely to stick with them over a lifetime of work. For example, at age 50 a college graduate earns about $46,500 more per year than the average person with only a high school diploma.
A second way we assessed the value of higher education was to compare the rate of return for the investment in a college degree against other possible investment vehicles. By any measure, a college degree is a big investment that requires a lot of upfront time and money. When you add up the costs of tuition, books and fees, as well as the loss of earnings from going to school rather than working, the average cost of a four-year degree is about $102,000. Of course, this is an average; some schools cost far more, while others cost less.
Let’s assume that you’re a high school graduate and you have $102,000 to invest in your future. Is college your best bet? Or would you be better off putting the money into an alternative investment, like stocks or bonds, and earning the salary of a typical high school graduate over your lifetime?
By any financial measure, the investment in a college degree is the winning choice, with a rate of return of a whopping 15.2% a year on the $102,000 investment for those who earn the average salary for college graduates. This is more than double the average rate of return in the stock market during the last 60 years (6.8%), and more than five times the return to investments in corporate bonds (2.9%), gold (2.3%) long-term government bonds (2.2%) or housing (0.4%).
This high rate of return translates into large differences in earnings. Over a lifetime, the average college graduate earns roughly $570,000 more than the average person with only a high school diploma. In addition, statistics show that college graduates on average live longer lives than high school graduates and tend to have higher job satisfaction.
Some high school students may be reluctant to choose the college path because they believe their experiences will be different and these benefits won’t apply to them. But economic research concludes that many more students would gain from college than currently opt to attend.
We live in difficult economic times filled with challenging financial trade-offs. There is no guarantee with regard to any investment, but the evidence on education is clear: The more education you obtain, the better off your job prospects and future earnings.