College: What You Pay, and What You Get
Getting a college education now costs more than ever before, and it looks like that trend won't slow down any time soon. The College Board reports that the average costs (including tuition and fees) to attend college for the 2013-2014 school year are as follows:
- Public 2-year school, in-state: $3,131 (2-year total: $6,262)
- Public 4-year school, in-state: $8,655 (4-year total: $34,620)
- Public 4-year school, out-of-state: $21,706 (4-year total: $86,824)
- Private 4-year school: $29,056 (4-year total: $116,224)
Using data reported by the U.S. Bureau of Labor Statistics (BLS), we can compare College Board's tuition data with information from average earnings in 2012 for full-time workers by type of degree. The BLS reports weekly earnings, so we'll multiply those figures by 52 to get an average annual salary.
- High school diploma: $33,904 ($652/week)
- Associate's degree: $40,820 ($785/week)
- Bachelor's degree: $55,432 ($1066/week)
Clearly, earnings go up depending on your level of degree attainment. Perhaps the next question we should ask is this: how quickly can you pay off your college education?
Associate's Degree Return Rates
Doing some simple math using the figures above, we can see that associate's degree holders, who pay an average of $6,262 for their 2-year degree, earn an average of $6,916 more per year than those with only a high school diploma. That means that, on average, it takes only one year of employment for a person with an associate's degree to earn back the cost of their tuition.
Keep in mind, however, that if you took out loans to go to school, you'd also need to pay back the accumulated interest. Federal Student Aid reports the average student loan debt for a 2-year public university to be around $9,900. This results in an average of $200 per year in interest over the course of 10 years (www.studentloans.gov).
Bachelor's Degree Return Rates
For bachelor's degrees, the time to payback drops a bit. On the one hand, the BLS reports an average yearly difference of $21,528 between earnings of those with bachelor's degrees and those with high school diplomas. On the other hand, you're not likely to get out of a 4-year school without paying around $34,620, which means it will take you about a year and a half to pay back that tuition cost. That time lengthens depending on the type of school you attend - for out-of-state public schools, you're looking at about 2.5 years, while it'll take over five years for private schools.
Once again, if you took out student loans, you'd need to pay back the interest, too. According to Federal Student Aid, the average loan debt for a student who attended a public 4-year university is $26,000. This comes out to roughly $700 per year in interest payments.
Results May Vary
Of course, none of this takes into account scholarships, and these are average prices, after all, so the actual time to payback could be significantly longer or shorter depending on the specific cost of your school and the amount you need to repay in student loans. Still, the numbers seem to confirm at least some part of conventional wisdom: the more time you spend in school and the more seemingly prestigious the institution you attend, the longer you're going to spend paying for it.
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What if, instead of banking on a degree, you bank on a bank? Many people fall well below the average income data cited above, and current unemployment rates for college graduates can seem pretty frightening. So maybe you feel that taking the money you'd spend on college and investing it instead could produce higher yields. Are you right?
Savings Account Interest Yields
Let's start with typical savings accounts first. These days, interest rate yields are lower than ever, with the site MoneyRates.com reporting an average Annual Percentage Yield (APY) of 0.18% in its Best Savings Accounts 2014 report. Despite this low average, some of the higher-earning accounts averaged 0.883%.
Using this information, if you were to take the $34,620 that a 4-year in-state public education would cost you and invest it for the same amount of time, you'd end up with $34,870.16 at the end of that time using the average rate of 0.18% APY. If you earned interest on the higher end (0.883% APY), you'd end up with $35,860.31. At best, that puts you $1,240.31 in the plus column after four years. On average, it would take those with a bachelor's degree only about a week and a half of working to make the same amount.
Stock Market Returns
But what if you want to get a little more risky? You could always invest that money in the stock market. According to the investment experts at Bankrate.com, the average annual compounded interest rate was 7.1% over the course of ten years ending December 31, 2012. Using this 7.1% rate, investing the cost of a 4-year public in-state university will give you $45,989.08 at the end of four years. That's a profit of $11,369.08, which is certainly substantial, but represents less than a quarter of what you'd make in a year with a bachelor's degree (assuming your salary is similar to the average). Since you'll probably spend more than three months of your life working, you'll quickly earn more money from holding a degree than you will from other investment strategies.
Payoffs Beyond the Obvious
There are plenty of non-monetary benefits that come along with achieving a college diploma. According to the Education Pays 2013 report by College Board, a college education has benefits beyond increased salaries over time. People with higher education degrees are more likely to be civically engaged, have lower smoking rates, are less likely to be obese and are less likely to be impoverished.
And even for students who don't care to participate in a typical 4-year liberal arts curriculum, college can be a solid investment. As you can see above, 2-year community colleges are by far the most affordable in the world of higher education, and they also give you the best return on earning potential in comparison to what you spend for your degree.
Finally, any education beyond high school introduces students to a way of thinking about and interacting with the world that makes them not only better workers but also more well-rounded people.
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