Is a college education worth a million dollars?

Summary:  One of the sad aspects of modern America is our gullibility.  We’ll believe the most preposterous statements if they feed our shiny prejudices.  Such as educators telling us that a college education is worth a million dollars.  This is the 4th in the FM site’s series about education (at the end are links to the other chapters).

A BA or BS is worth a million dollars of incremental lifetime earnings!  So say the educators of America.  This post links to the sources of this urban legend, and a few articles providing more sophisticated analysis.  But its obviously false, on several levels.

  • The million-dollar figure is an average, not a median.  See the following graph to see the range of returns.
  • It ignore the cost of college, and the income stream that money could yield by itself with no further work.
  • It ignores the role of race, gender, and class — big factors influencing lifetime income.
From a report by the American Enterprise Institute (see below)
From a report by the American Enterprise Institute (see below)


The first three articles provide excellent analysis about the benefits of a college education.  The next two are a nice summaries.  The last is an interesting rebuttal.

  1. The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings “, US Census Bureau, July 2002 — Source of the “million dollar” number.
  2. Education Pays“, Sandy Baum and Jennifer Ma, CollegeBoard, 2007 – “The Benefits of Higher Education for Individuals and Society”
  3. How Much Is That Bachelor’s Degree Really Worth?“, Mark Schneider, American Enterprise Institute, May 2009
  4. Is your degree worth $1 million — or worthless?“, Liz Pulliam Weston, MSN Money, 28 September 2007
  5. Afterword and other posts on this topic

Other valuable articles; no excerpt provided.  The first is a good summary analysis; the second summarizes the debate.


(1)  The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings “, US Census Bureau, July 2002 — This is the primary source of the “million dollar” number.  This report considers the effect of our obsessions — race and gender — but ignores factors in our blindspot of class.  Excerpt:

Does going to school pay off? Most people think so. Currently, almost 90% of young adults graduate from high school and about 60% of high school seniors continue on to college the following year. People decide to go to college for many reasons. One of the most compelling is the expectation of future economic success based on educational attainment.

This report illustrates the economic value of an education, that is, the added value of a high school diploma or college degree. It explores the relationship between educational attainment and earnings and demonstrates how the relationship has changed over the last 25 years. Additionally, it provides, by level of education, synthetic estimates of the average total earnings adults are likely to accumulate over the course of their working lives.

… Over a work-life, individuals who have a bachelor’s degree would earn on average $2.1 million — about onethird more than workers who did not finish college, and nearly twice as much as workers with only a high school diploma. A master’s degree holder tops a bachelor’s degree holder at $2.5 million. Doctoral ($3.4 million) and professional degree holders ($4.4 million) do even better.

Footnote #6: Though medians provide a measure of central tendency less sensitive to outliers, and so are often used in describing earnings data, means present fewer computational difficulties, both in modeling the synthetic work-life estimates and in creating statistical procedures to test these estimates.

(2)  Education Pays“, Sandy Baum and Jennifer Ma, CollegeBoard, 2007 – “The Benefits of Higher Education for Individuals and Society” — Excerpt:

Among students with top test scores, virtually all students from the top quarter of families in terms of income and parental education enroll in postsecondary education, but about 25 percent of those in the lowest socioeconomic quartile do not continue their education after high school.

… Gaps in postsecondary enrollment rates by income and race/ethnicity are persistent. Moreover, black and Hispanic students, as well as low-income students, are less likely than others to complete degrees if they do enroll. Students from rural areas and male students also have relatively lower levels of participation in higher education.

Gaps between individuals who participate and succeed in higher education and those who don’t have a major impact on the next generation. The young children of college graduates display higher levels of school readiness indicators than children of parents who did not graduate from college. For high school graduates from families with similar incomes, students whose parents went to college are significantly more likely to go to college themselves than those whose parents did not go to college.

… During their working lives, typical college graduates earn over 60% more than typical high school graduates, and those with advanced degrees earn two to three times as much as high school graduates.

Table 1.1: Median Earnings and Tax Payments of Full-Time Year-Round Workers Ages 25 and Older, by Education Level, 2005

  • Professional degree.. $100,000 gross; $74,500 after-tax
  • Doctoral degree:……….$79,400 gross; $59,500 after-tax
  • Master’s degree:………..$61,300 gross; $46,600 after-tax
  • Bachelor’s degree:……..$50,900 gross; $39,000 after-tax
  • Associate Degree:………$40,600 gross; $31,500 after-tax
  • High School degree:……$31,500 gross; $24,900 after-tax
  • No degree:………………..$23,400 gross; $18,800 after-tax

All of the differences in earnings reported here may not be attributable to education level. Education credentials are correlated with a variety of other factors that affect earnings including, for example, parents’ socioeconomic status and some personal characteristics.

Taxes paid include federal income, Social Security, and Medicare taxes, and state and local income, sales, and property taxes.

(3)  How Much Is That Bachelor’s Degree Really Worth?“, Mark Schneider, American Enterprise Institute, May 2009 — Excerpt:

Many claim that a college degree is worth a million dollars, but like so many other “facts” about higher education in the United States, it is not quite right. Indeed, using a set of reasonable assumptions that factors in school selectivity, the cost of a college education, and foregone wages, I show that the million dollar figure is grossly inflated, and may be three times too high.

Key points in this Outlook:

  • Many claim that college graduates earn a million dollars more in a lifetime than high school graduates.
  • In fact, there is great variation in the lifetime earnings of students graduating from different types of colleges or universities.
  • Once we account for tuition payments and discount earnings streams, the payoff of a college degree falls dramatically, but the return is still substantial.

(4)  Is your degree worth $1 million — or worthless?“, Liz Pulliam Weston, MSN Money, 28 September 2007 — Opening:

With college tuitions heading toward the stratosphere this year, you might well be wondering whether a degree is still a good investment, especially if you’re facing the prospect of going into debt to pay the tab.

And if, as we all know, some bachelor’s and master’s degrees are much more lucrative than others, which are the best investments? To find out, I sat down with my handy-dandy financial calculator to play with some numbers.

It would be an impressive understatement, by the way, to call these figures a rough estimate. I had to make too many assumptions and leave out too many factors for these numbers to be anything other than a parlor game for those who might be interested.

But what they told me supported both common sense and what I’ve observed in the employment marketplace. For example:

  • Associate’s degrees are a slam dunk. These two-year degrees seem to result in a massive payback, compared to their relatively low cost, for a high school graduate.
  • Ditto, usually, a bachelor’s degree. Any bachelor’s degree you get at a public university is likely to pay off handsomely, as well. If you’re attending a private college, though, you might want to steer clear of education degrees.
  • Some degrees are a step back. Thinking of a master’s degree in a liberal arts or social sciences field? Let’s hope you’re in it for the love of learning, because on average there doesn’t seem to be any financial payoff.
  • Professional degrees rule. There’s a reason why people borrow tons of money to attend law and medical schools. The return for a professional degree is huge.


Please share your comments by posting below.  Per the FM site’s Comment Policy, please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For information about this site see the About page, at the top of the right-side menu bar.

For more information

To read other articles about these things, see the FM reference page on the right side menu bar. Of esp relevance to this topic:

Posts about America’s education system:

  1. College education in America, another broken business model, 3 July 2009
  2. The secret about our universities (seldom even whispered among Professors), 5 July 2009
  3. Women dominating the ranks of college graduates – What’s the effect on America?, 7 July 2009
  4. A better answer to “why women outperform men in college?”, 8 July 2009
  5. Is a college education worth a million dollars?, 10 July 2009
  6. What should a student learn from college? Why go to college?, 1 November 2009

12 replies »

  1. Also, graduate degrees are really skewed by field. If you look at mean, someone like me (Ph.D. Computer Science) really pushes up the average for doctoral degrees (you should call it a professional degree really). I really REALLY wish those studies were far more split by dicipline.
    Fabius Maximus replies: See the second page of reference #4 (“Is your degree worth $1 million — or worthless?“, Liz Pulliam Weston, MSN Money, 28 September 2007). It provides those numbers.


  2. In times like these where we see real paradigm shifts through out the economy and everyday life, I wonder which degree has prepaired those who have earned them for the next few years??

    Suceeding in collapsing economy and market is real difficult. Most people with degrees have discovered they have no control over their lives or work opportunities these days. Perhaps it was all illusitory in the first place. Nothing of the sort was communicated in any classes I took to achieve a MBA. Of course academic work is really a series of special case theories, not the real world.

    Excluding schools where the elite send their children to establish relationships for future leadership of the country and the world, it seems to me that degrees are just entry tickets to some minimal opportunity.

    It seems best to become an expert in an emerging technology and be ruthless with competitiors. You are much better off not waisting your time with a degree in this case. What would have happed to Bill Gates business if he postponed growing his business to get a degree?

    Maybe he could have been the 1,000,000th most highly paid person in the world.
    Fabius Maximus replies: All great points. But the number of opportunities — entry level, for people without capital — are few for people without degrees. Gates was already worth a million $ (I’ve heard, family money), so his ability to take risks and start a biz were far beyond that of most Americans. He’s not a valid role model. It’s like recommending that everybody learn golf, to become Tiger Woods.


  3. It’s well known that members of yacht clubs are worth approximately 153 times as much as the national average. Wouldn’t this suggest that using that GI Bill to learn to sail would be a great investment?
    Fabius Maximus replies: Brilliant, a 4th objection to these studies. They show a correllation between college degrees and lifetime income. That does not show causation. Many other circumstances — nature, nurture, and class — are at work, unexamined by the studies mentioned in this post.


  4. I often joke to my wife that colleges are simply the most expensive dating clubs on the planet. How many of us question the rationality of such outrageous expenditure, and then shrug, saying, “Oh well, hopefully, he/she will meet a nice girl/boy suitable for marriage.”?
    Fabius Maximus replies: Anyone believing that is probably mistaken, based on the odds. For the most recent generation (the cohort born 1975-1979), only 37% of men were married by age 25, and 50% of women. Folks with college degrees marry later; women with advanced degrees marry much later. Source: census data.


  5. Your analysis proves hopelessly naive. A college education is worth countless millions if your college roommate is the future secretary of defense. In that case, your future career is assured, you can screw up and continue to fail upward, and when you finally leave government service in a storm of hatred and investigations for corruption and incompetence, a fabulously lucrative career as a consultant awaits you.

    Depend upon it: going to the right Ivy League college with the right people is what makes Washington D.C. the modern-day Versailles.
    Fabius Maximus replies; Do you have any data to prove that Ivy League graduates have fantastic excess lifetime earnings beyond those of folks with similar demographics and education at other institutions? This would support your theory of large networking. Probably Harvard has a meaningful networking return; but I doubt its the meal ticket you imply.

    The series of events you describe — strong bonding with roommate, roommate succeeds, provides opportunity later in life to you which are able to accept — certainly happens, but does this occur on with a statistically significant frequency? Or is this like getting a job in the right Hollywood diner or mailroom — hoping that lighting will strike?


  6. Oh god ‘credentialism’ ram rampant. You need a piece of paper to clean toilets. That’s what you get when Uni’s become businesses, selling worthless pieces of paper (that you only need a checkbook and a pulse to get) but gives you an entry point into the working population.

    How about an apprenticeship with real technical training? Like Germany?
    Fabius Maximus replies: It’s amazing how much of Germany’s social system looks superior to ours (at least from a distance). Their apprenticeship program looks far better than anything we have. Comared to their health care system, ours looks like something designed by a child or idiot.

    Yet they have little interest in having children. Their fertility has dropped to levels guaranteeing ethnic extinction, unless it improves. Is there a connection?


  7. Countries with better (Skandinavia) or same social security have higher birth rates. In Germany, third generation immigrants have low birth rates, almost the same as Germans of the same educational level.
    IMHO something else contributes, but I don’t know what.

    The maintenance of the apprenticeship system is a result of German industrial structure and the industrial structure a result of the available workforce in the 19th and beginning 20th century.

    Media coverage is usually about large companies and it is completely misleading. The backbone of the German (export) industry are medium sized companies (50-5000 employees); they are often still familiy owned, highly flexible and, because they do not have to bother with share holders, at the same time better in developing long-term business strategies, and cultivate a low media profile. These companies depend on broad spectrum of skilled workers, which can not all be trained in-house. Hence, a work force with a relatively uniform training for each profession is good for medium sized (and of course small) companies.
    Fabius Maximus replies: Do you have any evidence for your opening sentence? Do Scandinavian states have better social security than France or Germany? How much of the recent blip in fertility results from high levels of immigration at last manifesting itself in the national aggregate data? Most European nations don’t report data by ethnicity or national origin, so answering these questions is difficult.


  8. @FM From an offical statistics of the Statistische Bundesamt: The number of kids per women without German citizenship decreased from 2.5 in 1970 to 1.6 in 2006. For German women it was 1.3 kids in 2006. Sections 1.4 and 1.8 in this.

    So immigrants do not solve the problem as their birth rate has decreased, too. (At the moment I can’t find a more detailled analysis with breakdown in generations of immigrants, but it exist somewhere on one of my computers). Education and number of kids in section 2.4. With higher education the German women have more often no kids and less likely 2 or more compared to women with low education.

    Social system: Scandinavic countries have better school system than Germany (PISA studies), better health care and more opportunities for single parents to rise kids. The benefits for unemployed depend on country, some are better, some worse than in Germany.
    Fabius Maximus replies: Section 1.4 does not show anything like that; it gives aggregate data only: children by nationality, and by nationality of parents. Section 1.8 does, but the lack of data by ethnicity makes drawing conclusions difficult. It does mention that the population of foreigners is shifting, from high fertility ethnic groups (e.g., Turks) to low — lower than German! — eastern european groups. How much of the fertility decline that explains is unknown.


  9. @FM – In the text section of 1.8 there are my numbers. If you check the distribution of foreigners in Germany, it becomes clear that the birth rate of Turkisk women must be in strong decrease: graph. Russians and other eastern European immigrants with very low birth rate do not really contribute to “German” foreigners. The main players are Turks and people from former Yugoslavia.
    Fabius Maximus replies: Yes, I said that your numbers were in section 1.8. Second, I was quoting the report’s text about the changed distribution of foreigners. Third, I don’t see how the chart “Number of Foreigners in Germany in 2006” shows that the birth rate of Turkish women is decreasing. Last, this is getting way off-topic for a post about the value of a college education in America. No more, please


  10. Suceeding in collapsing economy and market is real difficult. Most people with degrees have discovered they have no control over their lives or work opportunities these days…Nothing of the sort was communicated in any classes I took to achieve a MBA. Of course academic work is really a series of special case theories, not the real world.
    Yes, you are correct in saying that academic study in no way prepares one for the “real world”—that is, a job. Even people with relevant professional degrees have to be trained extensively by their employers before they can be useful. I have seen this first-hand many times; the wise employer does not expect someone with a freshly baked B.S. in Computer Science to walk in and start systems programming on the first day, or during the first 3 months—these new grads are only unformed raw material that may turn out to have the characteristics of good workers. Of course, technical competence is necessary, but so much more is needed—ambition, self-discipline, honesty, and regard for others, to name just a few. These are not taught in any academic course of studies.
    So what have the graduates of a 4 year college curriculum learned? Too little, and the wrong stuff, I think. If you desire a technical or professional education, a 2 year degree should get you the necessary background. I think there is a place for the traditional 4 year Bachelor’s degree, but it is not to turn out narrow specialists, or to grant meaningless credentials (the M.B.A. would be a prime example of the latter—and it’s even a graduate degree). The 4 year degree should signify that its holder has a good grasp of the history of our civilization, of the arts and sciences, and of the great ideas that have had a formative effect on our thinking. Most importantly, a college graduate should possess the ability to think analytically and to write and speak coherently. (I speak hypothetically because there are few colleges or universities today that even pretend to have such requirements.)
    Does such an education grant its holder a pecuniary advantage over his lifetime? I would argue that it does; while it is not a guaranteed ticket to any particular career, a traditional “liberal” education has the great benefit of making one adaptable. As Mr. Watson points out, these are chaotic times, and survival is the key to making any money. It has always been true that if you take a course of study aimed at getting a job in what is considered to be the “hot” field today, you may very well find that by the time you get the degree, that field is no longer so “hot”. Or you may find that after you have been working in your chosen field for 20 years, it is suddenly no longer in demand. But if you have only prepared yourself for one kind of work, you are sunk. During chaotic times (and we have entered a period that will become increasingly chaotic) being able to jump in whatever direction survival requires is a characteristic of prime importance.
    A motivated, liberally educated man has a great advantage over those more narrowly educated: he can understand changes in his environment as they become manifest, draw the appropriate conclusions, and talk his way into a new career. I’ve done it.


  11. “Now for something completely different” . Though related.

    Some videos of Richerd P Feynman’s lectures are now available on the web. Goto Terrance Tao’s site and follow the links. And see a great mind at work live.
    Note: An essay by Feynman is discussed in one post on this site, here.


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