In the U.S., college is a rite of passage for many. But with the cost of college rising sharply in recent years, you’ve got to wonder: Is a college degree really worth it?
Turns out, college continues to be a good investment—a fact that is consistent and convincing on virtually every measure of economic well-being and career attainment.
For starters, the earnings gap between Millennials (young adults ages 25 to 32) with and without a college degree has stretched to its widest level in nearly half a century. This is based on The Rising Cost of Not Going to College, a 2014 survey by the Pew Research Center, plus Pew's analysis of U.S. Census Bureau data.
Pew Research found that Millennials with a college degree who are working full time earn about $17,500 more annually than those with just a high school diploma ($45,500 vs. $28,000). This 38 percent earning advantage is double what it was in 1965, when the inflation-adjusted earnings gap between high school and college grads was just $7,449. It also continues well beyond early adulthood and first-time jobs.
While salaries across all education levels generally increase as workers age, a 2012 study from the Georgetown University Center on Education and the Workforce called The College Payoff found that adults with bachelor’s degrees enjoyed a significantly larger boost to their earnings levels over time. For example, college graduates ages 40-44 earn, on average, 50 percent more than when they first started working; in contrast, workers ages 40-44 with a high school diploma only earn, on average, 25 percent more after 20+ years in the workforce.
Over the course of a 40-year career, this can translate into significant money.
Today, college graduates can expect to bring in $2.3 million during their lifetimes versus $1.3 million for high school graduates only. In other words, bachelor's degree holders currently earn 74 percent more over the span of their working years than those with just a high school diploma.
The benefits of a college degree extend beyond earning power, however. College-educated workers also have lower out-of-work levels than their less-educated peers.
According to Federal Reserve Economic Data, the unemployment rate in March 2014 for college graduates ages 25 and older was 3.4 percent versus 6.3 percent for those with a high school diploma. Zoom in on newly minted college grads only and the numbers are even more startling. According to the Pew Research Center, 3.8 percent of Millennials with college degrees are without work, compared to 12.2 percent for those with a high school education only. Bottom line: Having a college degree has provided younger workers with a certain level of protection in our slow-growth economy.
In fact, the Georgetown study found that more than half of the jobs created during the economic recovery have gone to college-educated workers, even though this group represents just slightly more than a third of the labor force. In contrast, workers with a high school education or less lost more than 5.6 million jobs during the recession and have continued to lose jobs during the recent economic recovery.
Gains for college educated workers are expected to continue for the foreseeable future. Nineteen of the 30 occupations projected to grow the fastest between now and 2020 require some form of postsecondary education, according to the Bureau of Labor Statistics (BLS). Typically, those occupations also offer higher median wages.
As the BLS figures suggest, some fields of study are more relevant than others. Majors in engineering, math and science typically have an easier time finding jobs and are offered higher starting salaries than college grads with degrees in arts and humanities. However, regardless of major, 91 percent of college grads overall and 88 percent of Millennials say that college has been, or will be, worth the investment.
There’s no doubt that the cost of higher education is staggering, especially if you have more than one child heading for college. The College Board estimates that the average cost of tuition at a private four-year college is $29,056 per year and $8,655 for a public four-year college (in-state students). Add in room and board, books, transportation and other expenses, and you could end up spending upward of $200,000 for a college degree from one of the more expensive four-year colleges.
If that sounds like a ton of dough, it is. But that may be nothing when you compare it to the high cost of not going to college at all.
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The Northwestern MutualVoice Team is a group of professionals who share insights and opinions from experts and industry leaders across the enterprise. Our vision is to inspire others to take action and plan for their financial future through topics ranging from financial planning, retirement planning and distribution strategies, wealth accumulation and preservation, to leadership, philanthropy and innovation.
