Will you make more money with a college degree?

This is hard to tell because with every story of financial success shown, one can show financial failure as well. What I can tell you is that 2013 & 1940 medians appear to be higher for those with a college degree vs. a high school degree. But that difference currently is only 1.7 times for 2013 and 1.5 times for 1940 (1, 2, 3). Clearly there has been some growth between the two points over time, but still not much suggesting the population spread may be similar to each other.

The problem becomes with how to measure bottom-line concerning such an “investment” (and I use this term very loosely) because there are lots of ways to look at this problem. Many governments and other organizations tend to look at the over-all costs of the education vs. the long term total income output associated with the degree, but I have trouble with such a view. Since the medians for a college degree is typically higher logically the outcome would be that the long term income output will be higher as well. But this view doesn’t take into account the fact that the median income represents the 50% point, as such 50% of the people are not making the median but less than the median. So does it really pay off then for those people? Maybe and maybe not.

I honestly think the better approach is to look at things from more of an accounting perspective on this one (4). A college degree clearly is a non-transferrable intangible personal asset which actually does have a useful life span. That life span is only as relevant as the knowledge the degree contained is relevant and as such over time that knowledge will become obsolete in nature (case in point at one point many thought the sun circled the earth, but this was proven otherwise over time with careful observations). In general the life span of college degree is about 10 years (5). After this point the information the degree contains will be considered obsolete in nature and will require updating.

This means the cost of the college education can be amortized over the first 10 years after graduation against the first 10 years of annual income earned less the other annual living expenses (or net income). Since we don’t know exactly what the person’s income will be once graduated since it is possible to obtain work that does not require a college degree or through whatever means a person could obtain a very high paying job let us then proceed to look at the financial outcomes for various income levels to see the effects.

I will be making the following assumptions for these calculations- 1. The observed current growth rate of the wages for Bachelor degrees appears to be at a -1% rate (3), 2. The current observed inflation rate is at 2% making for a net resultant of -3% (-1%-2%) for overall income growth (2), 3. The annual expenditures assumptions will be based on Bureau of Labor Statistics data for consumer spending by educational attainment adjust to 2013 values and I am going to assume that even if you have a college degree that your living style is more dictated by your income than by the fact you have a degree(6). 4. Annual loan payment will be based on 6% APR over a 10 year period with the initial loan amount is based on current trends noted by the New York Federal Reserve Bank estimation on student loan amounts (7). Note- Any variation in the size of the loan, APR, and period will change the results of these calculations.

	Total Net Income (10 years summed, 2013 dollars)
	Less than high school graduate	High school graduate	High school graduate with some college	Associate's degree	Bachelor's degree
College Loan	($33,148.22)	$8,062.31	$13,349.11	$80,776.86	$187,608.72
w/o College Loan	$8,062.31	$48,640.95	$53,927.75	$121,355.50	$228,187.36

As one can tell by the table above it is clear that if one takes a college loan out that the potential total net income earned is significantly reduced than if you had not taken a college loan. In fact if you happen to take out a loan and end up working a job that is typically paid the amount of money associated with a person who has less than a high school degree (i.e. say a minimum wage job), you will be basically bankrupt (without the ability to bankrupt against the loan). 

When trying to determine if you will make more money with a college degree, the question really is about what kind of pay you will make once you get out. This fact tends to be very variable depending upon current market conditions associated with how many jobs are open for your degree when you graduate, the current unemployment rate for your degree, and the total number of possible college graduates in your degree (larger volumes of those with a similar degree can cause a supply demand issue with the labor if there is few jobs available for large numbers). When calculating such risks it helps to understand that in the first ten years of one’s post graduate state, that there is the possibility of having to work jobs which will not earn enough to pay for a loan. So knowing the loan specifics (like APR, and size of the loan) can dramatically affect the outcome of these possibilities. 

In general though, what these numbers are indicating is that when a taking out a student loan you must have already lined up a good outcome with regards to future work (i.e. you need to know where and how much you will be earning at the end of your studies), and if not then it is best not to take the loan.

Thus you will no doubt make more money with a college degree provided you land a job that has income associated with a college degree and you will make even more money without the student loan.

But with all things considered, one must remember and take into account that we have no laws that guarantee the current typical income associated with a college degree and as such through market actions it is possible that current social pay norm associated with a college degree can become over time the same as the minimum wage law requirements.

Citations 

(1) U.S. Census (1940). Table 2 - Wage or Salary Income in 1939, For Native White Males 25 To 64 Years Old Without Other Income, By Years of School Completed and Age, For The United States, Urban and Rural-Nonfarm: 1940. CPS Data on Educational Attainment: Educational Attainment. Data. Retrieved on 5-10-14 from http://www.census.gov/hhes/socdemo/education/data/cps/1946/p46-5/tables.html

(2) Bureau of Labor Statistics (2014). Consumer Price Index- All Urban Consumers. Series ID: CUSR0000SA0. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first decile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917100. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917200. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (third quartile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917400. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (ninth decile), Employed full time, Wage and salary workers, High school graduates, no college, 25 years and over. Series ID: LEU0252917500. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first decile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252918900. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over Series ID: LEU0252919000. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). ((unadj)- Median usual weekly earnings (second quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919000. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (first quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over Series ID: LEU0252919100. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (third quartile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919200. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(3) Bureau of Labor Statistics (2014). (unadj)- Usual weekly earnings (ninth decile), Employed full time, Wage and salary workers, Bachelor's degree only, 25 years and over. Series ID: LEU0252919300. Databases, Tables & Calculators by Subject. Data. Retrieved on 5-10-14 from http://www.bls.gov/data/  

(4) FASB (2012). Intangibles—Goodwill and Other (Topic 350). Financial Accounting Series, Accounting Series Update, No. 2012-02, July 2012. Retrieved on 5-10-14 from http://www.fasb.org/cs/BlobServer?blobkey=id&blobwhere=1175824275038&blobheader=application/pdf&blobcol=urldata&blobtable=MungoBlobs .
(5) U.S. Department of Education (2013). Repayment Plans. Retrieved on 5-10-14 from http://www.direct.ed.gov/RepayCalc/dlindex2.html .

(5)Central New Mexico Community College (2012). Updating Certificate or Degree. Retrieved on 5-10-14 from http://www.cnm.edu/student-resources/academicrecords/indexed/updatingcertordegree.html .

(6) Bureau of Labor Statistics (2013). Table 2010- Highest education level of any member: Annual expenditure means, shares, standard errors, and coefficient of variation, Consumer Expenditure Survey, 2012. Consumer Expenditure Survey. Combined Expenditure, Share, and Standard Error Tables. Retrieved on 5-10-14 from http://www.bls.gov/cex/csxcombined.htm .

(7) Federal Reserve Bank of New York (2013). Student Debt by Age Group. Retrieved on 5/12/14 from http://www.newyorkfed.org/studentloandebt/.