The difference between graduating from college compared with obtaining only a high-school diploma is enormous, according to a new economic letter from the Federal Reserve Bank of San Francisco.
The paper’s authors, Mary C. Daly and Leila Bengali, found that the average college graduate earns $US800,000 more by retirement than the average high-school graduate. Daly and Bengali wrote that their examination of the cost of a college degree comes in response to increasing debate over whether attending college is worth the cost.
It also comes amid still-sluggish overall job growth, which is especially true among recent college graduates (those with a bachelor’s degree between the ages of 22 and 27). According to the Federal Reserve Bank of New York, 44% of recent college graduates in 2012 were “underemployed,” or working in a job that typically does not require a bachelor’s degree.
But Daly and Bengali found, using U.S. survey data, that the average college graduate paying an annual tuition of $US20,000 will recoup those costs by the time he or she is 40 — or even sooner.
The authors used a few main data points to come to this conclusion.
First, using data from the Panel Study of Income Dynamics (a study that has been ongoing since 1968), they measured the difference among earnings premiums of four-year college graduates, high-school graduates, and people who have only completed “some college.”
In 2011, the latest data available from the study, four-year college graduates earned about 61% more per year than high-school graduates. The gap between people with a four-year degree vs. only completing “some college” was smaller, but still significant:
The chart above, however, combines the earnings of all college graduates. To check whether there was any change in value over certain groups, or “cohorts,” graduating in different decades, the researchers compared the earnings of graduates from the 1950s-60s, 1970s-80s, and 1990s-2000s.
They found the value of a college degree has actually increased over time, into the 2000s:
“The main message from these and similar calculations is that on average the value of college is high and not declining over time,” the authors wrote.
There’s one caveat to this paper: One of the findings that led its authors to posit that attending college is so valuable is predicated on the calculation that most college graduates will recoup the cost of college by the time they are 40. But this forecast assumes an average tuition of about $US21,000.
This number works for about 90% of students at public universities who are paying that amount or less, according to the paper. But only 20% of private non-profit colleges reported paying less than $US21,000 in tuition. According to the College Board, the cost of tuition at private colleges in the 2013-14 academic year averaged about $US30,094. For out-of-state students at public universities, the average cost was $22,203.
Daly told Business Insider this doesn’t necessarily incentivise going to a public school over a private one — there are many dimensions by which people choose a college to attend. It does mean, however, that it could take the average private-college graduate a few years longer to “break even” on the cost of college.
“What I think of it as is there are many more opportunities at public than private that fit that cost description,” she said.
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