How a College Degree Pays for Itself: Financial Costs and Long-term Benefits

By Wendy Croix

Of the 699 people on Angelfire's "noted high school and elementary school dropout" list, 18 are billionaires. American entrepreneur Jim Clark, founder of "Netscape" and the first Internet billionaire dropped out at 17 to join the Navy. John Travolta, Charlize Theron, and Quentin Tarantino have done just fine without a high school diploma, too. In fact, for all educational groups below the bachelor's degree, the median income exceeds the mean or average--which means that some people succeed dramatically with little formal education.

Many people trust their luck, rolling the dice with their futures and playing the long shot like the super-achievers above. Others play the odds and bet on education.

Granted, the last few years have seen a drop in real earnings for holders of bachelor's and associate's degrees, thanks to the impact of inflation on wages. A degree isn't a guarantee. Still, undergraduate degrees remain excellent investments, and gains by those with advanced degrees have been staggering. According to 2003 Census Bureau statistics:

  • Associate's degree holders average $8,000 a year more than their high school educated friends.
  • Workers with bachelor's degrees make nearly $23,300 more a year than high school graduates.
  • Master's degree holders average $11,300 more a year than bachelor's degree holders.
  • Professionals with doctorates have annual incomes $37,265 higher than workers with bachelor's degrees.

The following estimates put ballpark figures on the possible costs and benefits from investing in various college degrees. The calculations use recent Census statistics--the biggest economic picture painted with the broadest possible strokes--to provide two frequently used measures of value:

  • The Net Present Value (NPV) of a degree indicates the total value today of the projected income gains after the cost of getting the degree is deducted. The greater the NPV, the better the educational investment. Any NPV greater than zero means that the educational investment pays for itself.
  • The Future Value (FV) measures the degree's total net payoff 40 years down the road, assuming a 40-year career span unless otherwise noted.

Both the NPV and FV calculations are based on averages drawn from the more realistic of the government's two income profiles. Thus, these numbers reflect the economic fortunes of all workers, not just those who worked year round. Using these statistics takes into account the link between both underemployment and unemployment and lack of education.

Smart Investment Move #1: Finish High School

A high school diploma is the best investment any student can make. A dropout can expect to earn $18,734 a year--the average income for all people with no high school diploma or GED. According to 2003 Census Bureau statistics, those who complete high school are looking at an average income significantly higher: $27,915. That's over $9,000 for staying in school an extra year or two. Over time, that annual $9,000 gain from a high school diploma mounts up.

Quick Fact: Census numbers reveal that Black and Hispanic males are the greatest dropout risks; most leave school during the senior year.


Crunching the numbers shows why students who didn't grab that diploma on schedule would be wise to complete it now. Assuming online study while the student keeps his or her job, below is the payoff, using the standard 40-year work life to calculate the diploma's value. First, the net present value of the diploma is the difference between the educational expense, currently estimated at $900, and the probable income gain. The future value of the diploma measures the work life cumulative gain expressed in today's dollars.

Return on Investment
High School Diploma vs. No Diploma
Net Present Value $156,600
Future Value $1,102,700


Getting a high school diploma is an easy way to make a million.

Smart Investment Move #2: Get an Undergraduate Degree

Undergraduate degrees remain good investments. Having a bachelor's degree as opposed to just a high school diploma results in the biggest earning hike and greatest payoff on an educational investment--unless the student earns a doctorate.

Quick Fact: Once costs are deducted, 10 years out, the value of a bachelor's degree over a high school diploma is enough to pay for today's average home in Evansville, Indiana; Fort Smith, Arkansas; Corpus Christi, TX or most anywhere in Kansas and Oklahoma.


The two-year associate's degree is also a solid investment, assuming the standard forty-year work life and online study. When averaging typical costs at campus-based and fully online colleges, outlay for an associate's degree runs around $26,400. Costs do vary widely, and these are loose ballpark figures. If costs and eventual income are typical, the return on an associate's degree will be as follows:

Return on Investment
Associate's Degree vs. High School Diploma
Net Present Value $111,600
Future Value $785,700


Students who take four to five years to finish (the typical time to completion of a working, big city community college student) still add another three-quarter million to their long-term educational payoff.

Quick Fact: African-American women have the most to gain from a bachelor's degree, says the Census Bureau, since they're the group most likely to be under-employed without an education.


Adding the bachelor's to the associate's degree is an even better investment. Since undergraduate degree credits cost the same, expenses for an additional two years in an online program should be as above. Here's the additional payoff:

Return on Investment
Bachelor's Degree vs. Associate's Degree
Net Present Value $235,200
Future Value $1,656,100


For bachelor's degree-holders, median income and mean income are virtually the same. With this degree, investors get what they pay for. Consequently, a high school graduate gets a big payoff by staying in school through the four-year degree.

Return on Investment
Bachelor's Degree vs. High School Diploma
Net Present Value $346,900
Future Value $2,441,800


The main determinant of the value of the bachelor's degree is the undergraduate major subject. Students looking for big bucks should get their degrees in engineering or computers. Business, too, pays well. The lowest payoffs are, unfortunately, in education, and women and minorities still make less than white males across the board.

Quick Fact: "In 1980, bachelor's degree-holders earned 60 percent more than workers with only a high school diploma. More than 20 years later, the income gap has increased to a nearly 88 percent disparity." Presidency 7.2 (Spring 2004)

Smart Investment Move #3: Get an Advanced Degree

In 2004, the cost of online MBA programs ranged from $6,000 to $107,000, reports the Amarillo Globe-News. Still, students must shop wisely. Vicky Phillips, founder and CEO of GetEducated.com, warns that "there are now more fake online MBA programs in the U.S. than real ones." (This is why World Wide Learn only features accredited schools and degree programs on its site.)

As with the bachelor's degree, major determines income. Nevertheless, the overall value of an advanced degree has never been higher. Since online graduate program costs vary dramatically, the following calculations use a very rough average of $22,000 for an online master's degree and $46,000 for a doctorate, based on a dozen representative programs in business, technology, health care administration, psychology, and education.

Return on Investment
Master's Degree vs. Bachelor's Degree
Net Present Value $216,000
Future Value $1,520,900


These numbers reflect the typical three- to four-year time-to-degree for master's study and assume a forty-year career. Nevertheless, finishing by age 30 (with a thirty-five-year work life) still yields an investment value of over $200,000 and a lifetime payoff over a million and a half.

The bulk of doctoral degree-holders complete their studies by age 35 and look forward to a thirty-year career life, according to the 2004 Survey of Earned Doctorates. Though they shorten the career span, doctoral degrees in well-paying professions have a spectacular payoff:

Return on Investment
Doctorate vs. Bachelor's Degree
Net Present Value $617,900
Future Value $$4,818,400


Given the value of an education, students should explore their financing and aid options, if the cost of study prevents degree attainment. Quality online universities work with their students to come up with funding packages tailored to fit individual needs and financial constraints. Shopping around can cut expenses, since even accredited program costs vary widely.

Ultimately, the value of any degree lies is in the hands of the holder. The graduate's work history and staying power, choice of major and school, and personal motivation are all up to the individual. Willingness to relocate for career advancement also helps.

Quick Fact: "Earnings for the group with more education are always higher, rise and fall more steeply, and peak at later ages than do earnings for the group with less education." Social Security Bulletin 66.1 (2005/6)


Because the payoff calculations in this article take into account underemployed and unemployed workers, graduates who get great jobs and keep them stand to make considerably more than the estimates above. Gains could run $7,000 more annually with an associate's degree, $9,000 more with a bachelor's, and $10,000 more with an advanced degree and full-time employment. The future value of the respective investments would gain an additional $850,000 for an associate's degree, $1,000,000 for a bachelor's, and $1,200,000 for an advanced degree. With these numbers in mind, a wager on education should easily beat rolling the dice.

Sources

  • Avalos, J. The Effects of Time-to-Degree Completion, Stopping Out, Transferring, and Reasons for Leaving College on Students' Long-term Retention, Educational Aspirations, Occupational Prestige and Income. UCLA, Ph.D., 1996.
  • Day, Jennifer Cheeseman and Eric C. Newburger. "The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings." Current Population Reports, Census Bureau (released 2002).
  • Doctorate Recipients from United States Universities: Summary Report 2004. Survey of Earned Doctorates.
  • Horn, Laura and Rachel Berger. "College Persistence on the Rise?".
  • "Lifetime Earnings, Social Security Benefits, and the Adequacy of Retirement Wealth Accumulation." Social Security Bulletin 66.1 (2005/2006).
  • Mandel, Michael. "The Continuing Decline in College Wages." Business Week Online. (Sep 1, 2005).
  • Ryan, Camille L. "What It's Worth: Field of Training and Economic Status in 2001." Current Population Reports, Census Bureau (released 2005).
  • Stoops, Nichole. "Educational Attainment in the United States: 2003." Current Population Reports, Census Bureau (released 2004).
  • Thomas, Scott L. "Deferred Costs and Economic Returns to College Major, Quality, and Performance." Research in Higher Education 41.3 (2000)

About the Author
Wendy Croix, Ph.D. is a freelance writer, cultural critic and university professor. In her twenty years as a professional educator, Wendy has guided hundreds of students toward the careers of their dreams.