The Value of a College Degree – Truly Priceless?

Borrowing from a popular credit card commercial format, we toss out a longstanding fundamental belief about higher education.

Four years in-state tuition and fees: $17,360.00

Books and Supplies: $3,960.00

Computer Fees: $4,160.00

Room and Board: $31,200.00

Earning a College Diploma: Priceless

The Financial Benefits of a College Education

In general, most insist that you simply cannot put a dollar figure on a college diploma. It is truly a priceless commodity leading to greater future earnings and a better chance to pursue something one truly loves as a career option.

That said, in recent years, eyebrows have been raised. College costs have been soaring and critics have begun questioning the value of a college diploma.

For years, the generally accepted figure associated with earning a college diploma has been $1 million. Those calculated additional earnings a college graduate earns in his lifetime above and beyond of a classmate with just a high school diploma continue to be used as the rationale for earning that coveted diploma.

However, that generally accepted $1 million figure has recently been called into question by a gentleman named Charles Miller. According to his analysis, the value of a college diploma may actually be significantly less than the popular dollar figure generally tossed around.

A Much Lower Return?

Miller, the former head of the Commission on the Future of Higher Education, raises some interesting dialogue with his set of calculations. He, in sum total, insists that higher education just might have gotten too expensive for what it produces and is certainly too costly for the typical student.

To arrive at that conclusion, he first insists that the calculation procedure used to determine the $1 million figure contains too many false assumptions. For example, Miller rails against one fundamental criterion used in creating the million dollar figure.

When computing the $1 million in additional earnings, estimates are based on an assumption that students finish college in four years. Miller correctly notes that other college graduation data utilizes six years as the standard for earning a degree. So the first significant way that Miller’s numbers are adjusted is to take away two years of earnings for the average college graduate.

Miller also notes two other major calculation adjustments. First, current procedures typically report lifetime earnings in the “present value” of the dollar totals, rather than adjusting for inflation over time. Second, most calculations do not isolate the benefit of those who have only a bachelor’s degree.

Using his assumptions, Miller contends that the lifetime earnings differential for a bachelor’s degree over a high school diploma is a much more modest figure: $279,893.

Easy to See Why Concerns Are Being Raised

There are numerous folks who insist that Miller has low-balled the calculations. In their eyes, he has done everything he can to reduce the value.

Still, the difference is a rather significant number. Certainly, $280,000 in additional earnings is nothing to sneeze at.

However, if we do assume that this more modest differential is somewhat accurate, then the current cost of a college degree does raise interesting questions. Four years of in-state tuition at a local university will set a student back at least $60,000, especially if some time is spent living on campus.

As a monetary investment that number still seems reasonable. We certainly can advocate spending $60,000 knowing full well we can one day expect to pocket $280,000 as a result. Add in the ability to better control one’s career choice and the investment seems to be a no-brainer.

But what of those private schools, of those topping $50,000 per year? Four years of expenses will top the $200,000 mark.

Under such a scenario the monetary piece becomes suspect. In such an instance, the rate of return falls to less than 2% return on the money invested if figured on a per year basis.

With those numbers it is easy why folks are concerned with the skyrocketing costs of a college education. If the costs keep rising, the rate of return ultimately diminishes.

As President Obama has stated on multiple occasions, we must find ways to make college more affordable.

So Where Do We Stand?

Interestingly, Miller’s strong push has at least one agency acknowledging that the $1 million figure may not be entirely accurate. In responding to Miller’s criticisms, the College Board acknowledged that $1 million in additional earnings is misleading.

At the same time, the College Board noted a thought many concur with: there is a very high individual return from a higher education.

According to the Board, a public college graduate will break even by the age of 33. At the higher priced schools, the private colleges, the Board offers a break even point at age 40.

Given those assertions, it is easy to see why education does in fact pay off. Of course, if costs do continue to rise, those pay back ages would rise as well. Pushing them back another ten years would make the dollar return a far more questionable discussion point than as it currently stands.

Without a doubt, students must be mindful of the debt they are incurring as they earn that diploma. They must also have an excellent understanding of potential future earnings: a career in social work or a job as a teacher will not necessarily produce additional earnings towards the $1 million mark.

Great Experience

Ultimately, college can be a great place to spend four years. Students often get their first chance at learning to be on their own. At the same time, you still have a safety net, a “shelter where you can develop yourself.”

At the university level, you will also meet many interesting people and have access to adults who are willing to help you learn new things. Once in the world of work, there will be far fewer people willing to help you become successful.

So independent of the financial figures, college can be a great place to learn about you and about society. College is a place where students get a safe chance to mature even as they pursue a degree and a potential career.

And if you manage the financial piece appropriately, you can expect the opportunity to earn additional funds even as you work in your preferred field. Just don’t go around thinking that a bachelor’s degree is going to make you a millionaire.