Is higher education worth the investment (RoI)?

Is opting for higher education a great idea? Consider this: Tuition fee and related expenses are increasing across colleges and degree courses. Read Average cost of studying abroad and Cost of MBA.

At the same time, wage hikes are becoming slower and less generous. Add to this the two or four years that keep people out of the job market, leaving them with no income. No surprise then that the return on investment (ROI) of a college degree has plateaued and it’s not seen as a great investment option anymore.

However, the arguments in favor of investing in higher education remain rather strong. Countless studies have found that a degree makes the graduate more likely to be employed, and remained employed, and earn a higher salary. College brings personal benefits, too, and the campus experience is itself uplifting and often leaves a lasting effect on character and personality.

In the U.S. in the past 20 years or so, the cost of a four-year degree from a public institution has doubled and that of a four-year private college degree and a two-year public college degree has increased by 50 percent. But that is not that alarming when you consider that the value of a college degree has increased 75 percent in the last 30 years.

 

Degree brings higher pay

According to studies by economists Michael Greenstone and Adam Looney, college graduates earn more than high-school graduates. While bachelor’s degree holders start with salaries of around $30,000 at 22 or 23 years of age, high-school graduates make only under $20,000 at the same time in their lives. By the time they are 30, college grads earn $50,000 but high-school grads only around $25,000.

In their 40s, college grads take home $70,000 while school grads have make do with around $30,000. Salaries of school grads in the 42-52 age group plateau around this figure before starting to drop. On the other hand, salaries of college grads (42-52 years) cross $75,000 and touch $80,000 and then start to decline, but do not fall much below $40,000 even after they have crossed 60. School grads see a decline to $10,000 to $12,000 in their 60s. Over a lifetime, college grads earn on average $570,000 more than school grads, and an associate- degree holder $170,000 more.

Figures show that each additional level of education leads to lower unemployment and higher earnings. In the US, around the year 2010, the unemployment rate was 14.6 percent among workers with less than a high-school diploma and 9.7 percent for high-school graduates, but only 5.2 percent for graduates ($1,025), 3.9 percent for workers with a master’s degrees ($1,257), 2.5 percent for those with doctoral degrees ($1,532), and 2.3 percent for those with a professional degrees ($1,529). Read how a master’s degree can help your career during and after recession.

Hamilton Project figures revealed that regardless of background, workers made more per hour/week with every additional level of college education. The data also showed that employment among white-collar workers had grown much faster than among middle-skill workers. Employment for workers with master’s professional, or associate degrees are likely to grow twice as fast as the overall job market.
 

ROIs from alternative investments

How do he ROIs from college degrees and various investments compare? Taking the average expenditure of attending four years of college around 2010 as $102,000, economists say the return works out to about 15.2 percent. This compares well the ROIs on other investment avenues: more than double the investment in the stock market (6.8 percent), more than five times in corporate bonds (2.9 percent, or five times), more than six times in gold (2.3 percent), about seven times in long-term government bonds (2.2 percent), and over 35 times in housing (0.4 percent).

A two-year associate degree in the US (average cost $28,000) brings a higher ROI of over 20 percent. However, this is because of the lower cost of earning an associate degree. But workers with an associate degree don’t earn as much as those with a college degree, so the higher ROI cannot be taken independently.
 

Risks

A statutory warning cannot be out of place here: this comparison of the ROI of a college education with the ROIs from the stock market or other investment options doesn’t take into account risks such as failure to complete college or failure to find a job. Of course, investments in the stock market also come with risks such as fall in the market values of companies and share prices.

A good number of students fail to complete their courses. According to a study, only 60 percent of students who enroll graduate. Some students manage to complete their degrees but don’t find jobs that pay enough to justify the cost of their education.

But statisticians point out that a comparison of ROIs from a college degree and investments from the stock market is unsatisfactory, particularly when the risks of college education are taken into consideration.

Investing in higher education is not the same thing as buying a high-performing mutual fund, a statistician says. Rather, it is the same as buying a single stock with all your money and some borrowed money. Only three-quarters of graduates earn more than the average worker with no college education, which means that one in four graduates didn’t decide well by going to college.

Moreover, in the aftermath of a great depression, the number of graduate jobs plummets but that of unskilled jobs increases. This means that optimistic predictions of an ever-increasing ROI of a college education may go wrong. For many graduates, the ROI for many will be lower than the historical average, and for many it will be negative.
 

Watch your loans

Just as the dangers mentioned, a big education loan can also affect the ROI from a college degree. An expert in education loans says students need to keep their loans below what they could reasonably earn in a year when they leave college.

For example, a student who expects to earn $20,000 a year right after college should keep the loan to around that figure. If she takes a loan of $50,000 to $75,000 and only manages to land a job that pays $35,000 a year, she will be in trouble. But, in the long run, a college degree, even if earned on a debt, could help a student do financially better.
 

Other benefits of higher education

There are indirect benefits too from a college education. Studies have found that college grads lead healthier lives and live longer than high school grads. College grads also have high levels of job satisfaction. Many people find college a life-changing experience.

Apart from the financial returns you also need to look at the unquantifiable benefits of higher education, such as the programs that increase your involvement with a community, the learning opportunities, and the relationships that college life prepares the ground for. It is just not the same thing as investing in stocks and bonds or buying real estate.
 

Top degrees

The ROIs from all college degrees are not the same, quite naturally, and the figure of 15.2 percent is only the average college ROI. According to articles in FT and Poets & Quants, engineering degrees top the list of higher education ROIs at 21 percent. Math, computers, and health record ROIs of 18 percent; business 17 percent; communications, technologies, and social sciences 15 percent; sciences and architecture 14 percent; and liberal arts 12 percent. At the bottom are agriculture and hospitality with 11 percent and education with 9 percent.
 

Top colleges

A PayScale study in 2015 also found that not all colleges bring the same or similar ROIs. The ROIs are higher for degrees from some colleges than from others. Brigham Young University (BYU) and Georgia Institute of Technology (Georgia Tech) were tied in a study for the best ROI. Both offered a return of 12.5 percent ROI on in-state tuition cost of $77,300 and $$86,700, respectively. Read BYU beats Harvard in RoI.

However, BYU was not in the top 15 when it came to the aggregate income graduates could expect to earn. Georgia Tech was in the eighth place. The top schools for 20-year net ROI was Harvey Mudd College in California with $985,300 and the California Institute of Technology (Cal Tech) with $901,400. Some of the top schools, including Ivy League institutions, did not reach the top ROI figures because of the high cost of attendance.

According to a study, the 20-year net ROI of a bachelor’s degree at a private school will increase 4 percent by 2025, while that of a degree at a public school will increase 17 percent. The median ROI from public colleges will exceed the median ROI from private colleges by 24 percent by 2025.
 

Delayed returns

An article in The Atlantic, using figures from the Hamilton Project and the US Bureau of Labor Statistics, says that despite the higher tuition and slower wage hikes, college is indeed worth it. If you feel that college is not paying off, you should wait a little, as higher education is an investment that appreciates in value until you reach middle age.

So, packing your bags for college may be the start of a journey to a better career with higher salary and lower unemployment. The true, or real, ROI may also include better health, higher life expectancy, and a happier family life. If researchers are to be believed, a bachelor’s degree may also increase your chances to enjoy a more successful love life. Now that should decide it for most of us.

MBA Crystal Ball helps applicants get into the best universities across the world. Drop us an email if you’re looking for professional admissions consulting: info [at] mbacrystalball [dot] com

Also read this:
– Average MBA salaries after 10 – 20 years
– Average Salary after MS in USA, Canada and Australia
– Average Salaries after MiM degree
 
References: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12