Try this fun exercise: Calculate the net present value (NPV) of your degree, to date. I did it and was pretty shocked to see exactly how quickly my education paid for itself.
Here’s a simple exercise. Using publicly available data*, some assumptions**, and then some Net Present Value Calculations, the short answer is EDUCATION IS WORTH IT.
Some College: 2,094,666
High School: 1,977,456
HS Drop Out: 1,625,364
Also, as shown in link (a) below, education level is strongly correlated with unemployment. Using the numbers in (a), if you divide the wage by the unemployment rate, you get a ‘safety score’ – meaning a rating of how safe a job is relative to its pay. Here’s how they stack up:
Some College: 137
High School: 108
HS Drop Out: 50
Using this “risk adjusted” methodology, the high education levels REALLY look a lot better, as their low unemployment rates mean that you have a higher likelihood of actually reaching that NPV (because you’ll actually have a job!)
1) Student attends public colleges.
2) If student completes ‘some college’ or an associates degree, they paid 2-year public tuition.
3) High school drop outs dropped out after grade 10
4) Once education is complete, person immediately enters workforce at (a) level earnings equal to their education level and continues until they are 65
5) Some college = one year at a public 2-year school
6) Masters and Doctorate programs tuition rates are average public tuition rates (see (c) column 2) from current year with an assumed 4% growth rate in tuition payments per year (growth rate based on historical analysis)
7) Professional program tuition is based on the public medicine program (see (c) column 6) from current year with an assumed 4% growth rate in tuition payments per year (growth rate based on historical analysis)
8) Bachelors program tuition is based on the public undergrad tuition (see (b)) in the most recent year and assuming a 5% growth rate in tuition payments per year (growth rate based on historical analysis)
9) Discount rate used for NPV calculation is 0%, as annual opportunity costs were taken into consideration each year. These opportunity costs were based on the salary a person could have earned if they had not entered the current year of school. For example, a person taking their first year of grad school has an opportunity cost that year of the salary they would have been paid if they had just completed a bachelors degree and immediately entered the workforce.
10) All dollar values are in 2007-2008 dollars