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College grads earn $800,000 more, Fed study shows

College grads earn $800,000 more, Fed study shows
College grads earn $800,000 more, Fed study shows
Photo by Mark Wilson/Getty Images

Before retirement the average college graduate earns “about $830,800 more than the high school graduate,” according to research cited in the FRBSF Economic Letter from the Federal Reserve Bank of San Francisco, released Monday. The study takes into account the costs of a college degree and the loss of income during the time spent attending school.

The study also shows it takes less than twenty years to recoup college costs. By age thirty-eight, “college graduates continue to earn a return on their investment in the form of higher lifetime wages." The study assumes students earn their degree in four years.

Study period
Researchers began collecting data in 1968. They base their findings on more than forty years of research. “Over the entire sample period the college earnings premium has averaged about $20,300 (57%) per year,” the researches say. Over an earnings lifetime, college grads earn considerably more than their high school counterparts. “If we conservatively assume that the annual premium stays around $28,650, which is the premium 20 years after high school graduation for graduates in the 1990s–2000s, and accrues until the Social Security normal retirement age of 67, the college graduate would have made about $830,800 more than the high school graduate,” the study reports.

The college-bound and their parents may calculate the numbers based on their own college costs. For example, it would take twenty years after high school graduation for the student to break even assuming an annual tuition of $21,200. “This amount may seem low compared to the astronomical costs for a year at some prestigious institutions; however, about 90% of students at public four-year colleges and about 20% of students at private nonprofit four-year colleges faced lower annual inflation-adjusted published tuition and fees in 2013–14 (College Board 2013),” the study indicates. “Although some colleges cost more, there is no definitive evidence that they produce far superior results for all students.”

Study’s conclusion
The researchers found the answer to the question phrased in the title of the study, Is it still worth going to college? to be a resounding yes. They conclude, “These findings suggest that redoubling the efforts to make college more accessible would be time and money well spent.”

The study shows there is a huge return on investment for college. However, the amount of the college earnings premium for an individual student depends on his actual college costs. Two large factors are tuition and length of time taken to earn the degree. Taking an extra year to graduate from a lower cost school may cost more overall than attending and graduating from a more expensive college in four years or less. The likelihood of college success is something for parents and the college-bound to consider when making a college choice.