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"On average, a four-year degree is the equivalent of an investment that returns 15.2% a year." - http://finance.fortune.cnn.com/2011/06/30/a-college-degree-ret

by joedev 14y ago

"On average, a four-year degree is the equivalent of an investment that returns 15.2% a year." - http://finance.fortune.cnn.com/2011/06/30/a-college-degree-returns-more-than-the-stock-market/ http://finance.fortune.cnn.com/2011/06/30/a-college-degree-r... Stay in school kids.

anamax 14y ago
No one gets an "average" degree, so it doesn't much matter what the average is. Some degrees are good investments. It depends on both the person and the degree.
aik 14y ago
Interesting, but it doesn't necessarily take into account the opportunity cost due to the very significant time investment. But more importantly, you know there's something wrong with the system when so many feel they have to try to justify the cost. Meaning, I think many realize that the investment is in the credential, not the learning that takes place due to the institution. I long for the day when a sufficient alternative will come to satisfy the average student (I'm working on this myself...)
- tgrass 14y ago
  The opportunity cost does not have to be more than one's liesure time. I worked thirty hours a week as a waiter in engineering undergrad and was a part time single dad. I averaged 17K a year. This is not unusual.
  - randomdata 14y ago
    Opportunity is opportunity. If you weren't in school, you could have worked 30 hours per week as waiter plus the time you were studying. Realistically, if we assume you work for minimum wage, you're going to be around $200K short by the time you finish a four year program, and that does not include any costs associated with actually going to school, which could easily run you another $100K+, depending on the circumstances. Perhaps nothing you cannot overcome with the right program and a solid plan, but if you're going to college just because that's what people out of high school do, you should probably think long and hard about it.
    - tgrass 14y ago
      This is incorrect. It is unlikely the average individual will work more than forty hours, so the opportunity cost is realistically the difference: 10 hours. At 7.25 an hour, pre-tax annual that's a mere $4k, for a four year degree that's $16K. Out of undergrad I went from a possible annual income of $20K (qualified for nothing but waiting tables) to $50K. The opportunity costs were paid for in the first six months.
      - randomdata 14y ago
        It is unlikely the average individual will work more than forty hours Unless you were only working for 10 hours at your course, this is false. You could have a 40 hour per week job plus the 30 hour per week job at night. You were working anyway. Minimum wage is actually $10/hr. here, so that skews things slightly, but let's assume $20K per year anyway since you mentioned it. It's been a while since I've done the math, so I was actually off by a bit. It turns out to be about $108K by the time you graduate given the current state of things. However, if we assume you live to be 80, it actually works out to be about $640,000+ that you lost out on by not working for those four years. In your case, you are definitely ahead, but can the average student claim the same? I'm not confident that they can. More importantly, were you really stuck at $20K for the rest of your life? If you had the chops to go to college, it seems like you probably had the chops to find yourself in better standing anyway. The first four years of my career didn't pay much more, but I leveraged that experience to move to a six figure income soon after.
      - solson 14y ago
        The concept of opportunity cost has nothing to do with the "average individual" it is the cost of the "next best alternative usually forgone". I did not go to college, during most of my "college years" (18-22) I worked a total of 50-80 hours at as many 3 different jobs. That was my next best alternative. I still work 50-70 hours, between different jobs and businesses and transitioned from working class to upper middle class. In retrospect, I can see, for me, the opportunity cost of attending college would have been very high...
        14y ago
- joedev 14y ago
  If you read the study you'll find it does take into account opportunity costs.
rmc 14y ago
How much of that is due to having more knowledge, and how much is classism? i.e. having upper class parents is probably a very high return aswell. Also that only really works once. If spent 40 years, doing 10 4 year degrees, by this logic, I'd be a multibillionare right? Something is wrong with this theory.
- tyree732 14y ago
  > Also that only really works once. If spent 40 years, doing 10 4 year degrees, by this logic, I'd be a multibillionare right? Something is wrong with this theory. I can't imagine that the authors claimed anything more than that.
- DrJ 14y ago
  it would only work 3 times, Bachelor, Masters, PhD. Also if your income is 0, then however high the multiplier is, the result is still 0.
- joedev 14y ago
  "having upper class parents is probably a very high return as well" True, which is why the studies account for factors such as family education and family income in order to attempt to isolate the impact of the one factor being measured: the subject's education level.
randomdata 14y ago
I'm not a fan of this kind of interpretation because it treats everyone as an equal. People derive joy from different things in life. Some people work to live and will only do the bare minimum to get by in order to fulfill their real joys. Those people are less likely to go to college, and are less likely to earn high incomes, because the passion isn't there. Others live to work. These people love what they do. They go to college because they love it. Then they work really hard to be the best when they enter the workforce, because they love it. The money follows to these people, because they've worked really hard to earn it. If you forced someone in the former group to go through college, their income coming out is not going to rise. They are still not going to put forth the what it takes to be a higher earner. It's not in their nature, and that's okay. As they say, correlation does not imply causation. Your earning potential is essentially given to you at birth, plus the luck factor. On a macro level, college isn't going to have any effect on your earnings.
- joedev 14y ago
  "Your earning potential is essentially given to you at birth" Interestingly the data shows otherwise. Factors such as parents' education, where one lives, age, race, family structure, IQ are measured and factored in. Two stats techniques are commonly applied. Ordinary Least Squares (OLS) is more traditional while Instrument Variables (IV) is a newer approach which attempts to account for statistical errors such as omitted and unknown variables in order to more strongly determine causality. If you like stats check out this review of the literature: http://emlab.berkeley.edu/users/card/papers/return-to-schooling.pdf http://emlab.berkeley.edu/users/card/papers/return-to-school... which concludes that studies "Taken as a whole, however, the findings from the recent IV literature are remarkably consistent with Griliches' (1977) assessment of a much earlier set of studies, and point to a causal effect of education that is as big or bigger than the OLS estimated return, at least for people whose schooling choices are affected by the supply-side innovations that have been studied so far." There are real economic reasons why governments invest in their citizens' schooling. It's not just because it sounds like a nice idea. The increased income potential of someone going to school pays off for a government higher earnings which is a primary indicator of an economy's health.
SeoxyS 14y ago
People treat college like it's a checkmark to check off. If try get through four years of it they will make good money for the rest of their lives. False. College is about learning. If you just scrape by and don't learn anything from it, you'll be no better off four years later. In fact, you will probably be worse off, with six figures of debt and no salary.

by joedev 14y ago

anamax 14y ago

No one gets an "average" degree, so it doesn't much matter what the average is. Some degrees are good investments. It depends on both the person and the degree.

aik 14y ago

Interesting, but it doesn't necessarily take into account the opportunity cost due to the very significant time investment. But more importantly, you know there's something wrong with the system when so many feel they have to try to justify the cost. Meaning, I think many realize that the investment is in the credential, not the learning that takes place due to the institution. I long for the day when a sufficient alternative will come to satisfy the average student (I'm working on this myself...)

tgrass 14y ago
The opportunity cost does not have to be more than one's liesure time. I worked thirty hours a week as a waiter in engineering undergrad and was a part time single dad. I averaged 17K a year. This is not unusual.
- randomdata 14y ago
  Opportunity is opportunity. If you weren't in school, you could have worked 30 hours per week as waiter plus the time you were studying. Realistically, if we assume you work for minimum wage, you're going to be around $200K short by the time you finish a four year program, and that does not include any costs associated with actually going to school, which could easily run you another $100K+, depending on the circumstances. Perhaps nothing you cannot overcome with the right program and a solid plan, but if you're going to college just because that's what people out of high school do, you should probably think long and hard about it.
  - tgrass 14y ago
    This is incorrect. It is unlikely the average individual will work more than forty hours, so the opportunity cost is realistically the difference: 10 hours. At 7.25 an hour, pre-tax annual that's a mere $4k, for a four year degree that's $16K. Out of undergrad I went from a possible annual income of $20K (qualified for nothing but waiting tables) to $50K. The opportunity costs were paid for in the first six months.
    - randomdata 14y ago
      It is unlikely the average individual will work more than forty hours Unless you were only working for 10 hours at your course, this is false. You could have a 40 hour per week job plus the 30 hour per week job at night. You were working anyway. Minimum wage is actually $10/hr. here, so that skews things slightly, but let's assume $20K per year anyway since you mentioned it. It's been a while since I've done the math, so I was actually off by a bit. It turns out to be about $108K by the time you graduate given the current state of things. However, if we assume you live to be 80, it actually works out to be about $640,000+ that you lost out on by not working for those four years. In your case, you are definitely ahead, but can the average student claim the same? I'm not confident that they can. More importantly, were you really stuck at $20K for the rest of your life? If you had the chops to go to college, it seems like you probably had the chops to find yourself in better standing anyway. The first four years of my career didn't pay much more, but I leveraged that experience to move to a six figure income soon after.
    - solson 14y ago
      The concept of opportunity cost has nothing to do with the "average individual" it is the cost of the "next best alternative usually forgone". I did not go to college, during most of my "college years" (18-22) I worked a total of 50-80 hours at as many 3 different jobs. That was my next best alternative. I still work 50-70 hours, between different jobs and businesses and transitioned from working class to upper middle class. In retrospect, I can see, for me, the opportunity cost of attending college would have been very high...
      - 14y ago
joedev 14y ago
If you read the study you'll find it does take into account opportunity costs.

rmc 14y ago

How much of that is due to having more knowledge, and how much is classism? i.e. having upper class parents is probably a very high return aswell. Also that only really works once. If spent 40 years, doing 10 4 year degrees, by this logic, I'd be a multibillionare right? Something is wrong with this theory.

tyree732 14y ago
> Also that only really works once. If spent 40 years, doing 10 4 year degrees, by this logic, I'd be a multibillionare right? Something is wrong with this theory. I can't imagine that the authors claimed anything more than that.
DrJ 14y ago
it would only work 3 times, Bachelor, Masters, PhD. Also if your income is 0, then however high the multiplier is, the result is still 0.
joedev 14y ago
"having upper class parents is probably a very high return as well" True, which is why the studies account for factors such as family education and family income in order to attempt to isolate the impact of the one factor being measured: the subject's education level.

randomdata 14y ago

I'm not a fan of this kind of interpretation because it treats everyone as an equal. People derive joy from different things in life. Some people work to live and will only do the bare minimum to get by in order to fulfill their real joys. Those people are less likely to go to college, and are less likely to earn high incomes, because the passion isn't there. Others live to work. These people love what they do. They go to college because they love it. Then they work really hard to be the best when they enter the workforce, because they love it. The money follows to these people, because they've worked really hard to earn it. If you forced someone in the former group to go through college, their income coming out is not going to rise. They are still not going to put forth the what it takes to be a higher earner. It's not in their nature, and that's okay. As they say, correlation does not imply causation. Your earning potential is essentially given to you at birth, plus the luck factor. On a macro level, college isn't going to have any effect on your earnings.

joedev 14y ago
"Your earning potential is essentially given to you at birth" Interestingly the data shows otherwise. Factors such as parents' education, where one lives, age, race, family structure, IQ are measured and factored in. Two stats techniques are commonly applied. Ordinary Least Squares (OLS) is more traditional while Instrument Variables (IV) is a newer approach which attempts to account for statistical errors such as omitted and unknown variables in order to more strongly determine causality. If you like stats check out this review of the literature: http://emlab.berkeley.edu/users/card/papers/return-to-schooling.pdf http://emlab.berkeley.edu/users/card/papers/return-to-school... which concludes that studies "Taken as a whole, however, the findings from the recent IV literature are remarkably consistent with Griliches' (1977) assessment of a much earlier set of studies, and point to a causal effect of education that is as big or bigger than the OLS estimated return, at least for people whose schooling choices are affected by the supply-side innovations that have been studied so far." There are real economic reasons why governments invest in their citizens' schooling. It's not just because it sounds like a nice idea. The increased income potential of someone going to school pays off for a government higher earnings which is a primary indicator of an economy's health.

SeoxyS 14y ago

People treat college like it's a checkmark to check off. If try get through four years of it they will make good money for the rest of their lives. False. College is about learning. If you just scrape by and don't learn anything from it, you'll be no better off four years later. In fact, you will probably be worse off, with six figures of debt and no salary.