Given this, I thought it’d be a good time to follow-up on last month’s discussion of the lifetime earnings of high income folks with a discussion about how college choices impact lifetime earnings.
And no, your parents didn’t ask me to do this… Really.
The Right Data Source: A Longitudinal Study
Unfortunately, looking at the financial impact of college choices gets tricky.
You don’t want to look just at starting salaries for college graduates (though that’s interesting as shown here.) You don’t want to just average everybody together by comparing salaries of college graduates to folks who didn’t go to college. Finally, you want to somehow adjust for factors other than college that impact income.
Maybe predictably, not much truly high-quality data exists. But fortunately, some does including a National Institute of Health study, Field of Study in College and Lifetime Earnings in the United States from researchers Chang Hwan Kim, Christopher R. Tamborini, and Arthur Sakamoto.
And what that study shows? Well, some pretty fascinating and actionable stuff…
College Can Pay Big Dividends
For example, a bachelors degree can and should result in a substantial bump in lifetime earnings.
The present value lifetime earnings of a man who holds only a high school diploma averages about $680,000. In comparison, the present value lifetime earnings of the average, male bachelors degree holder averages about $930,000.
The same numbers for women run $339,000 for a high school diploma holder and $557,000 for a four-year college degree.
Note: A table of data from the aforementioned study appears here. Note that the table reports on the gross, or total, lifetime earnings for men and women… the net lifetime earnings which adjust for other factors that might affect the earnings (race/ethnicity, birth year, region of birth, high school type, years since the highest degree, college preparation courses, math/science AP courses, and year of the survey are controlled for)… and then the present value of the net lifetime earnings.
Clearly, college can make a difference.
And a fair conclusion here? You ought to get a bachelors degree if you can and want to do so.
And then if you can’t get a bachelors degree or simply don’t want to do that? Well, consider some other good way to bump your earning potential. A skilled trade (like an electrician). Or an in-demand technical field (like programming.) Or one of the other good vocational options that surely is available… if you look hard enough.
Earnings Vary Substantially Across Fields of Study
Another important point the lifetime earnings data by field of study shows? Lifetime earnings vary massively by field of study. You really must stay alert to this.
The present value lifetime earnings of man with a “STEM” bachelors degree in science, technology, engineering or math averages about $1.15 million dollars. And for a woman? About $800,000.
In comparison, the present lifetime earnings of a man with a bachelors degree in education runs about $650,000. And a woman with the same degree averages about $442,000.
You don’t have necessarily pick the highest earnings field of study. (I didn’t.) But you want to include those differences in earnings in your analysis.
Note: I don’t have a good source to point you to, but my understanding is even within the “STEM” category, large differences in earnings appear between those graduates who major in technology and engineering and those who major in science and math.
Graduate Degree Return on Investment Tricky
An important point about graduate degrees: You need to be careful here about the economics.
In some fields, you enjoy a nice bump in the present value of the lifetime earnings. The average woman holding a business bachelors degree enjoys present value lifetime earnings of about $630,000 according to the aforementioned study while a woman with graduate business degree (so like an MBA) enjoys lifetime earnings of nearly $870,000.
That’s a big difference.
But graduate degrees in other fields return more meager profits or even no apparent profits. Both a bachelors degree and a graduate degree in science, technology, engineering or math produce average present value lifetime earnings of around $800,000 for women.
Men enjoy higher averages and wee bump for a graduate “STEM” degree: roughly $1.15 million for a bachelors degree and roughly $1.2 for a graduate degree. But that wee bump doesn’t seem that compelling…
Also, the traditional professional schools? Gosh, those choices seem complicated.
Law school? That seems tricky these days.
Medical school? In spite of the complaining you hear from some doctors (like my brother), yeah, that’s still an outstanding choice in terms of the present value of lifetime average earnings. But you would want to stay alert to the earnings of different specialties.
Final Caveats About the Lifetime Average Earnings Data
Let me throw out four final cautions about the economics.
The first caution goes like this: The study discussed in this blog post doesn’t include the cost of the education. But surely both a student and her or his family will want to carefully consider that issue too.
Someone who keeps college costs low by starting at community college, finishing at a public university and then choosing a field like engineering (or accounting!) may get an awfully good return.
In comparison, someone who ends up with a physician’s or attorney’s salary but only after seven or eight years of expensive private college and medical or law school may not…
And now a second caution: The research data and results described in this blog post aggregate the data. A lot. Accordingly, recognize that within each of the big groups of earners, tons of variability exists.
A field of study like, for example, business might include majors (accounting, finance, industrial engineering, human resources, marketing and operations research) with lifetime earnings both way above or way below the averages.
A graduate degree category might combine only vaguely similar degrees. (The business graduate degrees might include fifth-year masters programs in accounting, MBA degrees from elite schools, and then PhD degrees for people who intend to do research.)
And an occupational category like law might include lots of people earning way less than the average and lots making way more. (Check out this blog post about bimodal lawyer salaries if you or your parents are even considering law school.)
A third caution: Don’t make the mistake of thinking you can’t earn a great income unless you go to college. That’s simply not true. Further, don’t make the mistake of thinking that a college degree guarantees you a great income. That’s also not true. Lots of overlap appears when you look the income folks earn with and without a college degree.
Finally a fourth caution: You need to be careful about picking a field of study you can successfully complete and then which leads to a career that you can successfully pursue. No, no, you and I don’t want to set the bar too low. And we don’t want to accept any old career in life. But we do need to play to our strengths.