Will College Make You Richer?

College will definitely make you richer. College graduates earn almost twice as much as high school grads. According to data from the U.S. Bureau of Labor Statistics they’re unemployed less, they make more over time and even college debt doesn’t threaten their improved financial status. While the college earnings boost isn’t as big for women as it is for men, it still puts them above their less educated counterparts.

1. College Grads Have Higher Weekly Earnings

College students age 25 and older earn almost twice as much as people who never attend college.

Looking a bit deeper, weekly earnings rise for each education level, starting at the bottom with high school dropouts at less than $400 a week, high school graduates at about $500 a week, people with some college at about $700 a week and college graduates at about $900 a week.

High school dropouts make on average less than $400 a week. That’s less than $20,000 a year. To put that in perspective, a person who earns $20,000 and has no other financial commitments at all can afford an $85,000 house. In California, going by the median cost of $243 per square foot, that house would be 18 feet to a side. That’s about the same size as a potato chip truck. Once other bills enter into the equation, high school dropouts can’t afford any house at all.

High school graduates do a little better, generally earning about $500 a week. That’s $26,000 a year. After taxes they might be able to afford a house 21 feet to a side. Two high school graduates living together might have a household income of $52,000 per year. If they live on the typical American budget of $63,000 a year, they’ll rack up $11,000 in debt per year, leaving no wiggle room to save for a house.

College dropouts earn about $700 a week. That translates to about $36,000 a year or a household income of $73,000 annually. In this bracket, home ownership seems like more of a reality. With no other expenses, people in this group can afford a $336,000 home. While that still may not stretch far in hard-to-afford California, in other areas of the country it doesn’t look too bad. The median home price in Pennsylvania for example is $152,000. But again that’s if they spend nothing on gas, groceries or bills.

Unsurprisingly, college graduates do best of all. The average college graduate earns about $900 a month or about $47,000 a year, leading to a household income of $94,000. Without any bills or other monthly spending, a family of two college graduates would be able to afford a $450,000 house, which is fairly competitive even in California, where it would fetch 1,800 square feet. In Pennsylvania the median price per square foot of home is $109. That means the average college grad family in that chunk of the nation’s heartland can score a house of 4,000 square feet. That’s twice as large as the typical American home. However, that’s if the couple has no other monthly bills. Assuming $2,000 in monthly obligations, their house shrinks to $145,000. That’s 600 square feet in California and 1,330 square feet in Pennsylvania.

2. College Grads Have Less Unemployment

College graduates also tend to get jobs easier and keep them easier.

Looking at weekly earnings alone only tells part of the story. Just as earnings potential rises with more education, so unemployment shrinks.

High school dropouts have the highest unemployment rate at about 6.5%. For high school graduates, the rate shrinks to less than 4%. For those with at least some college the rate is about 3%, and college grads face only a 2% unemployment rate.

Saying high school dropouts make less than $20,000 a year and college grads make about $47,000 a year only makes sense looking at averages. High school dropouts are three times more likely to be unemployed than college graduates, making no income at all. Those with high school diplomas are still twice as likely to have a $0 annual income as college graduates.

3. College Graduates Make More Money Over Time

College graduates who make more can save more, giving them a bigger pile of cash over time. Their weekly earnings will also increase over their lifetimes, making their financial positions even better.

Of course if college grads are making more, they’re also more likely to save more. On a $94,000 household income, college grads who can save $1,000 a month starting at age 25 and invest it at 8% interest can amass $3.3 million by retirement age. High school graduates with a household income of $52,000 a year may not be able to save at all, but even they can save something. Assuming a high school educated couple saves $100 a month and invests at the same rates, they can still pile up over $300,000 by age 65.

Savings aside, college graduates earn more each year. By contrast, the earnings of high school dropouts have historically gone down every year. Over time, not only will college graduates be able to save more, but they’ll also see their weekly earnings go up over their lifetimes. Adjusted for inflation, high school dropouts will see their weekly paychecks drop.

4. College Graduates Have More College Debt

While college grads do carry a typical $30,000 in debt, their increased earning potential more than makes up for it.

One argument against higher schooling is that college tuition has skyrocketed. While this is true and while examples of stratospheric college debt are a popular share for the media, the typical American college graduate walks with about $30,000 in debt. There’s no doubt that amount of debt would be a lot for a high school dropout or even a high school graduate. However at current federal student loan rates of around 5%, college grads earning the typical $47,000 and paying $1,000 a month can pay that off in less than three years.

5. Not a Two Way Street

While women who graduate from college don’t earn as much as men, they’re gaining fast. The chart below shows how women of different ages fare compared to men when it comes to earnings. The pink dotted line is the one to pay attention to. It shows that women older than 15 earn only about 80% of what men make. This is up from about 63% 30 years earlier.

Unfortunately for women, even women with college degrees don’t make as much as men. This trend is changing however, with the earnings of college educated women growing about twice as fast as the earnings of college educated men. Even so, women only earn on average about 80% of what men earn, college educated or not.

Sources

U.S. Bureau of Labor Statistics Data
Zillow.com
Don’t Cry for Stanford Undergrads – Reuters