Personal Finance

Is Going To University A Good Investment?

This past week the St Louis Fed listed the positive outcomes of a college education. There is no doubt that higher education should put a person on a track for a better job, better salary, and increased wealth.

The St Louis Fed stated:

Income DifferencesPooling all available data (47,776 families), we found that the average family with a four-year degree (grads) earned approximately 69 percent more than the average family without a degree (nongrads). The average family with a postgraduate degree (postgrads) earned twice as much as their nongrad counterpart. Importantly, these estimates controlled for the age of the family, so we were comparing outcomes at similar stages of life.Wealth DifferencesWhat about wealth? College graduates - both grads and postgrads - accumulated much higher amounts of wealth over their lifetime than nongrads. On average, grad families accumulated 201 percent more, while postgrad families accumulated 242 percent more than their nongrad peers.These boosts are remarkable, and it’s clear why going to college is such an imperative for individuals and families across the U.S. However, these average returns mask a considerably wide range of outcomes.

Understand in this topic is based on averages and generalities. Few know that John D.Rockerfeller, Henry Ford, David Murdock, and Richard Branson did not graduate high school. Add to this list Bill Gates and Mark Zuckerberg who left Harvard without a degree. Many people do not belong in college - and can make the same salary / wages by acquiring money making skills. The following BLS table illustrates the wage gaps based on education.

Upper Limit of earnings before taxes
# of workers (in thousands) 1st quartile 2nd quartile - median 3rd quartile 9th decile
Total, 25 years and older 103,755 $613 $922 $1,461 $2,271
Less than a high school diploma 6,797 $428 $563 $755 $1,023
High School Graduates, no college 25,525 $513 $713 $1,037 $1,518
Some college or associate degree 27,434 $592 $808 $1,196 $1,704
Bachelor’s degree only 27,602 $798 $1,169 $1,793 $2,676
Advanced degree 16,397 $1,011 $1,533 $2,296 $3,423


A college graduate gains a platform of skills to apply at work. But it is hard to find a balanced post on this subject which discusses potential drawbacks as well as the benefits.

Time. Most institutions offer a 4-year program. [Consider that the average student takes almost 6 years to achieve a 4 year degree]. During college while students are generally racking up debt - those who go directly to the job market are making money. With a six year headstart and based on median earnings, it will take almost 10 years after graduation for a college grad's lifetime earnings to catch up to a high school grad. And this does not take into consideration student loan repayments or adjustments for disposable earnings.

Bad Investment.Over 30% of students who start college do not graduate. How many investors would invest when there is a 30% chance of losing everthing invested. The students who drop out could be saddled with debt, and likely did not learn enough skills to benefit their income.

Paying Back the Loan. The loan payback period can be 10 to 30 years. The average student loan payment was $393 per month in 2016. This reduces the disposable income of a college grad $100 per week after loan payments.

Above graphic source: Comet

Taxes. The more you make, the more the goverment takes in taxes. Most data does not discuss disposable income. Because each state is different, it is impossible to do an exact calculation of the difference in the tax rates. But as an example, the earnings difference between a high school and college graduate narrows the median pay gap around $100 per week to adjust for disposable income. Even so, the average income of college grads is 50% higher than high school grads,

Final Thoughts

The real difference between a high school grad and college grad is wealth building. Do you have to go to college to become a good investor?

I suspect the real reason high school grads do worse in wealth building is because high schools do not properly prepare one for adulthood [only do a good job in preparing one for a higher education]. All high school graduates should be armed with some jobs skill and comprehension of personal finance.

And 1.8% of college graduates work for minumum wage relative to 2.5 % of high school grads [and 4.7% for high school dropouts]. Imagine, going to college, incurring education debt - and then working for minimum wage.

Before investing in higher education, one should carefully analyze the options - results are not guaranteed.

Other Economic News this Week:

The Econintersect Economic Index for July 2018 improvement cycle continues and remains well into territory associated with normal expansions - although this month it forecasts slightly weaker growth. There are continuing warning signs of consumer over-consumption, but the relationship between retail sales and employment improved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.