Afraid of College? The Two Biggest Reasons Why Americans Don’t Get a Four-Year Degree

06/09/2012
By

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 graduate who holds an accounting, business or leadership degree, what salary do we need to earn after you graduate high school?

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.

Why?

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.

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18 Responses to Afraid of College? The Two Biggest Reasons Why Americans Don’t Get a Four-Year Degree

  1. From Shopping to Saving on 06/10/2012 at 12:35 am

    I always wonder what would have happened if I just started working after I got my HS diploma. I know I would have gotten more experience, but the business degree was worth it to me. I got a lot of work experience in college as well as networking opportunities. I get what you are trying to show us though..basically if you are in college, don’t drop out… you’re better off just finishing.

    • John on 06/10/2012 at 6:12 am

      You got it. If you are going to go, finish. It also is about coming up with financial aid and funding. Most of the issue with lifetime earnings has to do with paying the costs of tuition. If you aren’t shouldering the burden on your own, you are more likely to reap the benefits.

  2. Squirrelers on 06/12/2012 at 12:12 am

    I’m of the belief that one should move forward with a college degree as being minimum level of education. I don’t see this as being a legit option to consider, ending education at high school or mid-college that is.

    Interesting how college dropouts might be earning less than high school grads w/no college. Comparing both to college grads, it becomes clear that both of the aforemention paths are not ideal.

    • John on 06/12/2012 at 6:17 am

      It would be ideal for everyone to go and get the degree that works for them. However, with a dropout rate of nearly 50%, there seems to be a lot of people who made the college decision without thinking it through.

  3. Young And Thrifty - Saving Generation Y on 06/16/2012 at 10:26 am

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  5. Wealth Artisan on 06/21/2012 at 7:29 pm

    Great Write Up!

    While I believe that college is important, I would not say that college is an absolute requirement. Each year, colleges continue to increase tuition to a point where only certain degrees make sense.

    Many degrees just don’t make sense (financially) to pursue. I can’t fault anyone for doing what they love, but if your degree isn’t necessarily a requirement, or you can do what you love by studying independently and starting your own business, then I think many people would be better off going that route. Just my $0.02 :-)

    Thanks,
    Timothy

    • John on 06/22/2012 at 6:15 am

      Seeing as 50% of those that start college, drop out. I’d definitely say that there are too many people who start college.

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  7. Donald on 06/22/2012 at 7:36 pm

    JC, what another great post! TOP quote” You may earn nearly twice that of a high school graduate, but you start your career digging yourself out of a hole.” This is oh so true, I pray that many people find other methods to generate income outside of their J-O-B! You rock dude!

    • John on 06/23/2012 at 12:42 am

      Thanks Donald. It really goes to show how important it is to find ways to lower tuition costs.

  8. [...] talked about the odds of succeeding after college and how high tuition costs could risk putting college graduates at a disadvantage to high school students. Today, it’s all about class and income [...]

  9. [...] Research has shown that the high cost of tuition is impeding college graduates’ ability to out-earn high school graduates. Additionally, those who do not obtain a degree have less earning potential than if they had never started a college program in the first place. [...]

  10. M Storti on 06/28/2012 at 8:37 am

    I am so sad when I read about the rising costs of higher education and the burden of student debt. I graduated from a private university in 1982 for a total cost (room, board, tuition and books) of less than $16,000 and with no debt. In 1991, I completed a masters degree for about $5,000. In 2004, I completed a teaching license 18 postgraduate credits for about $5,000. I currently earn $37,000 a year as a FT teacher in a private school. I have worked in several different fields before education and had my own business for awhile, but could not afford private health insurance and went back to work for benefits. My husband earns a solid salary but has been in and out of work 3 times during the current recession. He has earned an MBA in Finance.

    Our first child will enter college in 3 years and the cost to attend my alma mater is now $43,000 annually, which is over 10x my cost. We have been unable to save much for college and we are terrified of this monumental task ahead of us. A state school is a given and we are trying to place college credits and scholarship opportunities in his path. Why is no one halting the spiraling costs of a college education? The inflation of tuition vastly exceeds the average rise in income during the same time period. What is driving these increases? When I had the opportunity to teach in a college, the salary was no better than working in a non-profit.

    So what is the answer here?

    • John on 06/29/2012 at 1:56 pm

      It’s great that you recognize the need to abate cost. Luckily with three years to go, you have lots of choices ahead. There are summer college programs that offer classes at a discount, community college for the first two years and scholarship. What you need to do is look into the options and devise a plan. You probably won’t get through cost free, but if you can get even 25% off an education, you have a good chance of finding long-term financial benefit.

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