For the average American, throwing your hat in the air can mean a significant bump in income.
If you recently graduated from college -- or forked over thousands for one of your children to do so -- you're well aware of the cost-inflation taking place in higher education. The College Board estimates that the average cost of tuition, room, and board at a public school has increased almost 140% since 1974, after taking inflation into account.
That's a massive increase, and it rightly causes many students and parents to wonder whether or not pursuing higher education is worth the investment. But after crunching the numbers from the latest Consumer Expenditure Survey from the Bureau of Labor Statistics, the verdict is clear: Education beyond high school is clearly worth the investment.
The figures below represent household income before taxes and the highest level of education that someone in the household has attained determines classification.
The difference between those who only complete high school and those who complete their bachelor's is striking: more than twice as much income.
What's more: the average out-of-pocket cost for tuition, room, and board at a four-year public institution is roughly $19,000 this year. The difference in income between a high school graduate and college graduate in one year alone -- $45,000 -- justifies the costs of going to a four-year public university.
Short vs. long-term concerns
Of course, there are caveats to the data above. For instance, the income of each group represents the mean, or average. That means that those who are high earners -- think CEOs -- disproportionately bring the average up. Those who are older do the same thing, as they are further along their career earnings arc.
Consequently, the recent graduate with her bachelor's degree is unlikely to be earning the average of $85,000. In fact, a recent study by National Association of Colleges and Employers found that the average starting salary for a graduate of the class of 2014 was just $45,000.
When you consider that those who enter the labor force right out of high school have been earning money for four or five years by the time their peers graduate from college -- and that they didn't have to take on so much student debt -- it's easy to see why skipping college altogether might make economic sense to some.
But that's taking the short-term view. Those who attended for-profit colleges and universities disproportionately caused the problems from student debt -- and enrollment at these schools has fallen off a cliff. The vast majority of students graduating from public and private nonprofit schools are able to pay off their student loans.
By the time the loans are paid off -- usually between 10 and 15 years after graduation -- these graduates are earning much higher salaries than their degreeless counterparts. The gap between the two only widens over time, creating substantial differences by the time retirement hits.
The cheap option too few realize
Fellow Fool Morgan Housel penned a brilliant article last year on how nonrich kids can graduate college without crippling debt. In it, he suggested a few key steps.
- Work for a year or two after high school to save up money and experience the real world.
- Go to a community college for your first two years to take care of all general education requirements.
- Transfer to a four-year public institution for your bachelor's.
I followed up Morgan's idea with a study into how many students actually took advantage of this much cheaper option. In the end, only about 14% of those who start college in any given year actually follow this path. That's despite the fact that this costs far less and results in the exact same degree.
There are lots of social pressures right now that might keep someone from attempting this path -- no one wants to feel "left behind" while his friends go off to college. It's important to acknowledge that reality.
At the same time, we need to take the long-term view: It's possible to get your degree (which will significantly increase your lifetime earnings) while incurring less debt than is normal (which will give you much more flexibility as a young adult).
In a sad irony, the desire to pay for college for our children is having another unintended consequence. It is depleting the retirement savings of many parents, meaning they'll be more dependent on their children in old age. That's why it's vitally important for your family to gather all of the information you can before making these life-altering decisions.
