How Long Does It Take Bachelor’s Degree Graduates to Surpass Earnings of Their High School Graduate Peers?

by Damon Runberg

March 25, 2019

At the Oregon Employment Department we develop an infographic labeled “Education Pays” It highlights the average hourly earnings of workers in the United States based on their level of education. It also shows the annual average unemployment rate by level of education. As would be expected, the graphic illustrates that average earnings rise and unemployment rates decrease as educational attainment increases. As tuition rises at higher education institutions across the state many are asking whether or not the costs of a higher education degree are worth it. It is a legitimate concern when looking at tuition trends for Oregon’s public universities. Inflation adjusted tuition and fees rose around 35 percent for Oregon’s public universities between the 2005-06 school year and 2015-16. During that same period wages for Oregon workers only increased by around 9 percent.

If the cost of attendance continues to rise at a significantly faster pace than wages, it will result in an even higher financial burden on parents and/or result in more financial debt for students. According to Steve Clark, Vice President of University Relations and Marketing at Oregon State University, increases in tuition for Oregon’s public universities is largely a reflection of lower relative state funding allocated to higher education per student. Today, student tuition dollars are the principal component of the operating budget of higher education institutions across the state. For instance, tuition accounts for roughly 65 percent of the operating budget for Oregon State University, while around 22 percent comes from state funding. According to Mr. Clark, nearly two decades ago a much larger share of the cost of instruction at public universities was coming from state dollars, roughly two-thirds of university budgets.

As students take on an increasing financial burden to cover the costs of their education it is only natural to ask how long it will take for someone who earns a bachelor’s degree to make up the costs of attendance at one of Oregon’s public universities. First, let’s break down these costs.

We will use University of Oregon (UO) as our example. The current cost of tuition, fees, and supplies for four years at UO is roughly $52,200. It is important to note that the cost of attendance is dramatically higher for nonresident students who pay $146,500 for four years at UO. For this analysis we will focus exclusively on the costs of tuition, fees, and supplies. Living expenses (rent, food, utilities, etc.) must be paid by everyone, whether they are in school or not.

Additionally, many students have costs associated with financing their education. Interest accrues on student loans, which increase, sometimes dramatically, the cost of attendance. This analysis will ignore the accrued interest from student loans, but it is important to remember that if a large portion of education costs are financed than the point at which “education pays” would be farther into the future.

The more complicated analysis is looking at the wages and earnings of those with a bachelor’s degree compared with those with a high school diploma. The Bureau of Labor Statistics estimates the weekly earnings of full-time, wage and salary workers by educational attainment using the Current Population Survey. These earnings figures are also broken out by quartile in order to see the spread of these wages. Unfortunately there is no dataset that captures lifetime earnings by age by education attainment. However, by using data from the Current Population Survey we were able to develop very general estimates, largely replicating techniques used by Georgetown University.

As you might expect, workers with higher educational attainment generally make higher wages. For this analysis we focused on wages for workers in the first quartile, think entry-level workers, as we wanted to see realistic wages for workers soon after graduating. Nationally, earnings for first quartile workers are around 53 percent higher for those with a bachelor’s degree than a high school graduate. For recent graduates that equates to roughly an additional $14,600 earned each year for someone with a bachelor’s degree compared with their high school graduate peers.

How many years does it take for the lifetime earnings of a bachelor’s degree graduate to surpass their high school graduate peers when taking into account tuition and fees, as well as the four years of lost earnings while in school? Here are a few basic assumptions: First, we are assuming bachelor’s degree students enrolled straight out of high school (roughly 19 years old). There are many non-traditional students who have a gap year or a mid-career shift where they pursue higher education later in life, but we are focusing more on the traditional student who begins college around 18 to 19 years of age. Second, we are assuming that those who were in school pursuing a bachelor’s degree posted no earnings while in school. Obviously, many individuals work a job (or several) while in school to help pay for the cost of attendance or other living expenses. However, without good information on earnings or hours for these student workers they were excluded from the analysis.

When most college students graduate at around 22 years of age their working high school graduate peers already have lifetime earnings of around $111,600. However, the lifetime earnings gap between these bachelor’s degree graduates and the high school graduates is even larger when you take into account tuition and fees, which would be closer to $164,000.

It is true that education pays, but for traditional college students who enroll in college after high school graduation and complete their bachelor’s degree in four years, that payoff is farther into the future than many imagine. Lifetime earnings of these traditional college graduates who received a bachelor’s degree do not surpass lifetime earnings of their high school graduate peers until roughly age 34. By around age 34 both groups have average lifetime earnings of roughly $480,000.

Obviously, our working life does not end at age 34. At that age we are really just beginning to enter our prime earning years. Lifetime earnings for those with a bachelor’s degree (and who began their career in the first quartile) really begin to compound moving later into one’s career. By age 55 lifetime earnings are nearly 30 percent higher for those who received a bachelor’s degree than for those with only a high school diploma (~$330,000). The lifetime earnings gap is likely even larger as there is some evidence that lifetime earnings for those with a bachelor’s degree is not perfectly linear, rather there is an acceleration of wage gains mid-career for many of these higher educated workers. Their wage ceiling is higher.
As mentioned earlier, tuition and fees are significantly higher for non-resident students who pay out-of-state tuition. The extra $94,300 a non-resident student pays to attend the University of Oregon pushes the “pay off” age for these students farther in life. The average non-resident student who receives a bachelor’s degree can expect to exceed the lifetime earnings of their high school graduate peers by around age 40, roughly 18 years after graduation.

Education pays, but it is a long-term investment. It takes time to overcome the tuition and fees, as well as the lost wages while enrolled in school. Most college graduates won’t see their lifetime earnings exceed those of their high school graduate peers until there are in their 30s. This is still a very smart investment, but don’t expect to see “education pay” upon graduation.

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