The Federal Reserve Bank of San Francisco released a report recently citing the long-term difference in earnings between an American with a college degree and one with only a high school diploma is approximately $830,000 over the course of an adult lifetime.
That figure is estimating both individuals working until the age of 67. Assuming the high school graduate begins working full-time immediately, he would have a four-year head start on the college graduate, but still end up averaging about $20,300 per year less in income.
As reported by Forbes.com, the report’s summary statement reads:
“Although other individual factors might affect the net value of a college education, earning a degree clearly remains a good investment for most young people. Moreover, once that investment is paid off, the extra income from the college earnings premium continues as a net gain to workers with a college degree. If we conservatively assume that the annual premium stays around $28,650, which is the premium 20 years after high school graduation for graduates in the 1990s–2000s, and accrues until the Social Security normal retirement age of 67, the college graduate would have made about $830,800 more than the high school graduate. These extra earnings can be spent, saved, or reinvested to pay for the college tuition of the graduate’s children.”
The report was done by Mary C. Daly and Leila Bengali, who factor in the cost of a degree for a college graduate, stating that the annual tuition of about $20,000 can be recouped by the age of 40. Daly is the senior vice president and associate director of research in the Economic Research Department at the federal reserve bank. Bengali is a research associate in the same department.
The authors’ data runs through 2011 and is adjusted for inflation. The findings are tracked using a tool known as the consumer price index (CPI-U) and a survey know as the Panel Study of Income Dynamics (PSID). THe PSID began in 1968 and has collected more than 40 years of data on long-term residents of the United States, including their labor market income and their top education level.
In conclusion, the authors state:
Although there are stories of people who skipped college and achieved financial success, for most Americans the path to higher future earnings involves a four-year college degree. We show that the value of a college degree remains high, and the average college graduate can recover the costs of attending in less than 20 years. Once the investment is paid for, it continues to pay dividends through the rest of the worker’s life, leaving college graduates with substantially higher lifetime earnings than their peers with a high school degree. These findings suggest that redoubling the efforts to make college more accessible would be time and money well spent.