AUDIENCE / This blog post is for students.
At some point, you may have heard someone say, “You don’t need college to be successful,” and then follow with examples of Bill Gates and Mark Zuckerberg, both of whom dropped out of college without graduating. Certainly, Bill Gates and Mark Zuckerberg appear not to have suffered from their decisions to leave college, but what about the rest of us? Is college a good investment? In this blog post, we look at this question through two different lenses: value and return on investment.
When I talk about the value of college education, I’m referring to the things that don’t show up in someone’s salary but that nevertheless enrich a person’s life. For instance, if you attend high school in a small town with a graduating class of 100 people and then go to a college in an unfamiliar place with 35,000 students, you will learn how to adapt and form new relationships with people who come from different backgrounds. After college, you will use these skills every time you start a new job, move to a new place, or travel.
Another way that you can think about the value of a college education is the enrichment that a diverse knowledgebase brings. Most college degree plans require students to complete courses outside of their majors — a History major may have to take a Psychology course, for example — which, in the moment, may seem to be irrelevant to the students’ main areas of study. At some point, however, that History major may have a conversation with their child’s pediatrician about attachment styles, and the History major will be able to engage in that conversation more knowledgeably because of what they learned in that Psychology class.
Return on Investment
In actuality, few people go to college for the sole purpose of learning — most people go to college because they believe a college education will help them get jobs that pay more than the jobs they could get without a college degree. What do the numbers tell us about return on investment for a college education?
College Wage Premium
When we think about the economic benefits of completing college, the core issue is the difference between what people can earn without college degrees and what they can earn with college degrees. The Federal Reserve Bank of New York calls this difference the “college wage premium,” which represents how much more you can expect to earn with a college degree than someone who does not have a college degree. According to the Federal Reserve Bank of New York, the most recent data tells us that the average college graduate earns 75% more than the high school graduate, which makes college a great investment even accounting for rising costs of college.
To take into account the rising costs of a college education, we can also consider what the return on investment looks like in addition to the college wage premium. If we think about the cost of college as an investment, what return will we get on that investment in the form of wages? As of 2019, the return on investment for college stood at 14% compared to 7% long-term return on stocks. This means that if you invested $100 in the stock market today instead of going to college, you would, in 40 years, have almost $1,500 dollars. If, however, you invested $100 in your college education today, in 40 years, you would have almost $19,000, depending on the interest payments you make on your student loans (See our blog post on Responsible Borrowing).
As a final note, we want to draw your attention to the fact that the information we’ve shared about economic returns on college is in averages. That means that some people see even greater returns on their college education investment than the average while some others don’t see much of a return at all. It’s all about your individual situation! That’s why we urge you to use the tools we shared in our blog post on Responsible Borrowing to consider what careers you’d like to target as well as how you will finance your education as you think through your college decision.
For more information about college, text ADVi at 512-829-3687. We’re happy to help!