If you’ve ever wanted a good reason not to go to college, I’ve got two of them.
Usually unemployment causes people to flock to campuses to update and improve their skills. During the recession, the opposite occurred, college graduation rates decreased. The phenomenon confused some economists, so the St. Louis Fed researched the factors causing the attendance drain. What they presented were two very scary scenarios that ought to make you afraid to go to college.
High School Graduates Better Off Than College Dropouts
College dropout rates are high. One in two students that begin college, will dropout without a degree. Given that two in three high school graduates start college, the number of dropouts is very high. If you doubt your ability to finish a degree, you might be better off not trying. The St. Louis Fed found that the average high school graduate has higher earning potential than college dropouts.
The graph to the right shows the trajectory of average high school earning potential in red and that of college drop outs in blue. You’ll notice that college dropouts never really catch up to high school graduates in lifetime earnings. There a three reasons for this occurrence.
Dropouts forgo a number of years of earning before entering the labor force whereas high school graduates begin at 18. Dropouts will pay a number of years of inflated college tuition, further stunting wealth creation. Finally, college dropouts have roughly the same starting salary potential as a high school graduate. As a result, the average high school graduate should out earn the average college dropout over lifetime earnings.
You Better Earn More Than $40,000 When You Graduate
Congratulations! Now that you’ve graduated you’ll find your degree opens doors and usually leads to a higher salary compared to the average high school graduate. Your business degree programs you have invested in will finally pay off. However, did you ever think about all the costs you racked up to graduate.? How a high school graduate started working four years before you and didn’t pay the enormous tuition you paid?
The good news is that the average college graduate out earns a high school graduate by such a large factor that the higher wages outweighs the costs of tuition and absence from the workforce. Here’s the kicker though. Since we don’t all earn the average salary of a college graduates, what salary do we need to earn to out earn a high school graduate?
The graph on the right shows the potential lifetime time earnings of college graduates as indicated by the white band. That band depicts the trajectory of lifetime earnings at different starting salaries. The top of the graph shows a starting salary of about $73,000. The bottom of the white band, aka the section that doesn’t ever reach the earning potential of a high school graduate, has a starting salary of $40,000.
This time we are looking at college graduates. That means four years out of the labor force and nearly $100,000 in tuition costs. You may earn nearly twice that of a high school graduate, but you start your career digging yourself out of a hole.
Overall, I’d like to see everyone go to college and thrive in a career that they enjoy. However, if you are shouldering the full burden of tuition costs; you should know that you are better off graduating college or not attending. You also need to work hard and land a career that earns enough to make the benefits worth the costs.
Going to college is worth the effort, but you need to weigh the costs seriously.
Get all the financial wisdom of My Family Finances sent to your email daily! Subscribe to My Family Finances by Email