Tuition Growth and the Value of a College Degree
Antony Davies, Ph.D.1
Research Fellow, Mercatus Center, Capitol Hill Campus
Associate Professor of Economics
Duquesne University
Pittsburgh, PA 15282
[email protected]
Thomas W. Cline, MBA, Ph.D.
Associate Professor of Business and Economics
Alex G. McKenna School of Business, Economics, and Government
Saint Vincent College
Latrobe, PA 15650
JEL Classifications: G12, I21, I22, I28
Keywords: Costs, Human Capital, Rate of Return, Student Financial Aid, State and
Federal Aid, Economic Impact, Education
1
Corresponding author. Address correspondence to Economics Department, Duquesne University, 600
Forbes Avenue, Pittsburgh, PA 15282
Abstract
Much dispute over the value of a college degree arises from the mistreatment of tuition as
an expense rather than as an investment. Using tools typically employed in the evaluation
of financial investments, this paper compares the cost of a college education to the
expected return from holding a college degree. For each of the past twenty-seven years,
we look at information available to 18-year-olds at the time that they would choose
between entering the workforce and pursuing a college degree. We measure expected
differences in earnings, earnings growth, unemployment, and labor participation to
determine the ex ante expected value of holding a college degree. We find that, although
tuition and fees have been growing at better than twice the rate of inflation, the expected
monetary return from holding a college degree has been growing even faster. The result
is that, for the median student, the expected value of a college degree, net of tuition and
fees, has almost doubled in present value terms.
1. Introduction
Numerous studies have found evidence of moderate to high returns to higher
education. These studies agree in direction, if not magnitude, across countries. Among
these are studies of earnings and education data from Norway (Alstadsæter, 2004), China
(Heckman and Li, 2003), Taiwan (Chuang and Chao, 2001), Germany (Daly et al., 2000),
Australia (Miller et al., 1995), Canada (Doiron and Riddell, 1994), the United Kingdom
(Hough, 1994), and the United States (Cohn and Hughes, 1994).2 These and other studies
employ one or more of three methodologies for assessing the value of education: (1) the
so-called “short-cut” method, (2) the Mincer method, and (3) the internal rate of return
method.
The short-cut method gives the rate of return per year of education as
r
ln Em  ln Em  s
s
(1.1)
where Em is the mean earnings for people with m years of education, and r is
(approximately) the growth rate per year of education.3
The Mincer method (Mincer, 1974) employs a simple linear regression model
wherein the log of wages is regressed on years of education, years of work experience,
and other wage determinants.4 The value of the coefficient attached to years of education
is taken as the rate of return per year of education (cf. Psacharopoulos, 1994).
The internal rate of return method employs the traditional IRR function wherein
the present discounted value of the earnings due to the education are set equal to the
present discounted costs. The resulting discount rate is the internal rate of return.
2
See Cohn and Addison (1998) for a detailed summary of other studies.
3
Groot and Oosterbeck (1992) use formula (1.1). The exact measure is  ln Em  ln Em  s  1
4
For details of econometric issues involving the Mincer approach, see Card (2001).
1/ s
1 .
This paper expands on the previous literature by examining (1) differences in total
compensation (i.e. wages plus benefits) versus wages alone, (2) differences in expected
wage growth over an average worker’s career, and (3) differences in the probabilities of
unemployment and labor force participation for high school versus college graduates, and
by (4) calculating expected return in terms of breakeven, internal rate of return, and net
present value measures, and (5) computing the relative risk of a college degree as an
investment. Also, this paper shows the earnings the median high school graduate and
median college graduate could expect to earn, ex ante, over his/her career. By employing
the data in an ex ante fashion, our estimates of the value of a college degree are based
only on information that was available to students at the points in time that they would
have made the decisions to enter the workforce or to go on for higher education.
2. Issues in Measuring the Value of Education
Previous studies have identified issues involving measuring the value of
education: private vs. social returns, selection bias, male vs. female and white vs. black,
and survey data collected from firms vs. households. This paper focuses on the
individual’s decision to pay for a college education in light of the individual’s
expectation of the financial rewards that accrue to the education. As such, I look at
private returns – i.e. the net return of higher education to the individual.5 Selection bias
presents a significant problem when evaluating the impact of education on earnings.
Specifically, one can argue that those with traits that would, a priori, result in higher
earnings (e.g. greater intelligence, self-discipline, etc.) will be more likely to attend
college. A partial counterargument is that the value lies not solely in the education, but
partially in the degree-as-signal (Belman and Heywood, 1997; Altonji and Pierret, 1996).
5
See, for example, Sanders 1992.
Thus, there are three possible arguments: (1) that the value of a degree lies in increased
labor productivity due to the education, (2) that the value of a degree lies in the signal
that the degree conveys, and (3) that the degree has no signaling value and that those who
obtain degrees would have earned more regardless of the education.
We find the last argument untenable, as the argument requires irrationality on a
massive scale – that every year millions of students would spend multi-billions of dollars
on a product that imparts no value. We do not distinguish between the first two
arguments, as the purpose of this analysis is to examine the financial value of a college
degree, not a college education. While of interest from a causal perspective, from a
financial perspective the student’s decision to pursue a degree hinges on the fact of the
degree’s value, not on the source of the degree’s value. To draw an analogy, a stock that
is guaranteed to yield a constant 10% annual return is a good investment. While
interesting from a managerial perspective, why the stock earns a guaranteed 10% return is
irrelevant to the investment decision.
Using earnings data for different age cohorts for each year from 1977 through
2003, we construct estimates of the earnings an 18-year-old could have expected to earn
both with a college degree and with a high school degree only over the course of his/her
career. The two anticipated earnings streams represent the reasonable expectations of 18year-olds at each year from 1977 through 2003.
While studies have shown marked differences in earnings for males vs. females
(Oaxaca 1973; Paglin and Rufolo 1990) and blacks vs. whites (Card and Krueger 1993),
the focus of this paper is on earnings of college graduates vs. high school graduates
aggregated across gender and race. Psacharopoulos and Patrinos (2002) argue that, in
measuring earnings, household survey data is preferable to firm survey data as, when
surveying firms, there is a bias toward surveying larger organizations that, by extension,
will tend to be located in urban environments. Analyses in this paper are based on
household survey data reported by the Bureau of the Census.
3. Financial Benefits of a College Degree
In 1976, tuition and fees at the average private 4-year college were less than 20%
of median household income, and tuition and fees at the average public 4-year college
were less than 5% of median household income. By 2003, tuition and fees had risen to
over 45% of median household income for 4-year private colleges and 11% for 4-year
public colleges.6 Over the past thirty years, tuition and fees inflation has averaged just
under 8% annually for both public and private institutions.7
We identify four economic benefits to a college degree: (1) Starting
compensation. In 2003, the average 25-year-old full time worker with a college degree
earned annual wages of $58,500 versus $33,500 for the average 25-year-old full time
worker with a high school education.8 Over the period 1991 through 2003, wages and
salaries have averaged only 72% of employee compensation.9 Adding in employer-paid
benefits, the difference in compensation for the 25-year-old college graduate versus the
25-year-old high school graduate in 2003 was almost $35,000. (2) Wage growth. Since
1977, the median income for full time workers with college degrees rose 1.1% more per
“Trends in College Pricing,” The College Board, Washington, DC, 2003; 2003 Statistical Abstract of the
United States, Table 683; 2002 Statistical Abstract of the United States, Table 652.
7
In 1976, the average tuition cost at 4-year private and public institutions was $2,534 and $617,
respectively. By 2003, these figures had risen to $19,710 and $4,694. Cf. “Trends in College Pricing,” The
College Board, Washington, DC, 2003.
8
2006 Statistical Abstract of the United States, Table 686.
9
Bureau of Labor Statistics, series CCU110000100000D and CCU120000100000D.
6
year than for full time workers with high school diplomas.10 This difference in growth
rates caused the earnings gap between high school and college educated workers to more
than quadruple (in real terms) over the past thirty years. (3) Likelihood of unemployment.
Since 1970, college graduates have experienced unemployment rates (2.3%) that are less
than half those of high school graduates (6.1%).11 (4) Likelihood of labor participation.
Factors that cause workers to drop out of the labor force include work-preventing injuries
and prolonged unemployment. It is more likely that a college-educated worker would be
able to compete for a job with a high school educated worker than is the reverse. Because
college educated workers are less likely to be employed in manual labor jobs, they will
also be less likely to suffer on-the-job injuries. In addition, because of the difference in
the range of jobs for which they are respectively suited, the likelihood of a given injury
being work-preventing for a high school graduate is greater than the likelihood of that
same injury being work-preventing for a college graduate. Due to these factors, one
would expect the likelihood of labor participation to be greater among college-educated
workers than among high school educated workers. Over the period 1976 through 2003,
86% of college graduates, but only 75% of high school graduates, were labor force
participants.12
For the median 18-year-old at time t, let mtc, s and mth, s be, respectively, the median
compensations at year t for college educated workers and high school educated workers
who are s years older than the 18-year-old at year t. Let ptc , pth , utc , and uth be,
10
Current Population Reports, P60-203, Bureau of the Census, Table C-8, 1997.
1995 Statistical Abstract of the United States, Tables 662 and 663; 2000 Statistical Abstract of the United
States, Table 678; 2002 Statistical Abstract of the United States, Table 598.
12
1995 Statistical Abstract of the United States, Table 629 and 630, 2000 Statistical Abstract of the United
States, Table 647, 2002 Statistical Abstract of the United States, Table 564, and 2006 Statistical Abstract of
the United States, Table 580.
11
respectively, the probabilities of labor participation (for college and high school educated
workers) and unemployment (for college and high school educated workers) at year t. At
year t, let ft ,cs and ft ,hs be the annual compensation the 18-year-old can expect to earn s
years in the future, after completing a college degree, and with a high school diploma,
respectively. For the 18-year-old at year t who chooses to pursue a college degree, the
expected stream of future compensations is given by
c
c
c

mt , s pt 1  ut   4  s  47
ft ,cs  

0  0  s  3
(1.2)
where we assume, conservatively, that the student does not work while in college and
does not work after age 65. Similarly, at year t, the 18-year-old can expect to earn
ft ,hs  mth, s pth 1  uth   0  s  47
(1.3)
for each year, s, of his/her career if s/he skips college and goes directly into the labor
force. Intuitively, (1.2) and (1.3) imply that the 18-year-old forms his/her expectation by
(a) looking at workers older than s/he, and (b) assuming that, when s/he reaches the same
age as those workers, s/he will be earning (in terms of purchasing power) the same
amount as those workers are earning now. Thus the expectations in (1.2) and (1.3) are
measured in constant (year t) dollars. Unlike other studies in which earnings are
compared ex post, (1.2) and (1.3) represent the median ex ante earnings the student can
expect at the time the student makes the decision as to whether or not to attend college.
College vs. High School Earnings Gap
Combining these four economic benefits to a college degree, one can measure the
expected earnings gap, or the difference between what the median college graduate and
the median high school graduate can expect to earn. In 1977, the median 18-year-old with
a high school diploma could expect to earn total compensation (in 1977 dollars) of
$700,000 over the course of his/her career – i.e.
47
f
s 0
h
1977, s
 $700, 000 .13 By comparison,
the median 18-year-old anticipating attaining an undergraduate degree and then entering
the workforce could expect to earn total compensation of $1.1 million. The anticipated
career-spanning benefit of the college degree in 1977 was the difference of $400,000 (in
1977 dollars). By 2003, the median 18-year-old with a high school diploma could expect
to earn total compensation of $1.5 million (in 2003 dollars) over the course of his/her
career. But, with a college degree, that same worker could expect to earn $3.4 million.
Thus, by 2003, the anticipated career-spanning benefit of a college degree had increased
almost five-fold to $1.9 million. Table 1 shows the expected compensations as perceived
c
c
h
h
by the median 18-year-old in 1977, f1977,0
, and f1977,0
. Table 2 shows
,..., f1977,47
,..., f1977,47
c
c
expected compensations as perceived by the median 18-year-old in 2003, f 2003,0
,
,..., f 2003,47
h
h
and f 2003,0
.
,..., f 2003,47
[Insert Table 1 here]
[Insert Table 2 here]
Evaluating College as an Investment
We employ the three typical methods for evaluating a financial investment: (1)
breakeven point – the number of years required for the income generated from an
investment to pay for the investment (assuming no time-value adjustments), (2) internal
rate of return – the effective interest yield the investment generates, and (3) net present
13
Note that there are two relevant time adjustments here. Because we use earnings of various age-cohorts
as of 1977, the median 18-year-old anticipates earning career-spanning compensation of $700,000 as
measured in 1977 dollars. However, because the money will be earned over time, there is an additional
present value calculation necessary to account for the real (not nominal) time value of money.
value – the amount of cash-in-hand today that, if invested at current interest rates, would
yield a stream of payments over time identical to the income stream generated by the
investment. While previous studies have used IRR in valuing a college degree, IRR is
inappropriate when comparing investments of different magnitudes. For example, a $100
investment that yields an IRR of 50% would be considered by most to be inferior to a
$10,000 investment that yields an IRR of 25%. As the cost of education has changed
significantly, the net present value is a more appropriate measure for comparing the value
of a degree over time. Looking at these three measures for evaluating an investment, we
find that despite increases in tuition, the value of a college degree has been steadily
rising.
Breakeven point. In 1977, the cost of tuition and fees for four years at an average
4-year college plus foregone income from delayed entry into the workforce totaled almost
$47,000 for private institutions and $39,000 for public institutions.14 A student who
graduated college at age 22 could expect to earn enough additional income as a result of
the degree to completely pay off the investment approximately 9.6 years after
matriculation.15 By 2003, the average cost of four years’ of tuition and fees plus foregone
earnings had risen to $167,000 at private institutions and $106,000 at public institutions.
But, the additional income the college graduate could expect to earn had risen even faster
so that the average college graduate could expect to pay off the investment within 9.1
years of matriculation (see Figure 1).
14
We assume throughout that the college student completes the undergraduate degree in four years,
generates no income while attending college, and receives no aid. We do not include the cost of room and
board as the student would be incurring this cost regardless of whether or not the student was in school.
15
The breakeven was 10.0 years using private institution prices and 9.1 years using public institution
prices. Because our earnings figures do not distinguish between those who receive their degrees from
private vs. public institutions, we do not estimate the value of degrees awarded from private vs. public
institutions, but rather the value of degrees using private vs. public prices.
Let the expected tuition and fees for one year of college at year t + s be Tt+s. Let
the year t + s cost of attending college (tuition, fees, and foregone compensation) be:
Cost of attending college in year t  s  Ct  s
Tt  s  ft ,hs  0  s  3

0  s  4
(1.4)
The ex ante expected breakeven period, bt, for the sequence of expected net cash flows
associated with attaining a degree is:
bt 1
bt :   ft ,cs  Ct  s   0
(1.5)
s 0
[Insert Figure 1 here]
Internal Rate of Return: In 1977, the median student could expect the increased
compensation from holding a degree to yield the equivalent of a 15% real rate of return
on the price of a private college education and 17% on the price of a public education. By
2003, the median student could expect the real return to be 16% on the price of the
private education and 21% on the price of the public education. Over the past 27 years,
the rate of return on an investment in a college degree has averaged 2.3 times the return
on the Dow Jones Industrial Average and 1.7 times the return on the NASDAQ (see
Figure 3). For an anticipated career (including years of college) of n years, we calculate
the ex ante internal rate of return, rt, as:
n 1
f t ,cs  Ct  s
s 0
1  rt 
rt : 
s
0
(1.6)
[Insert Figure 2 here]
[Insert Figure 3 here]
Net Present Value: In 1977, the average 18-year-old could equate the increased
earnings over time resulting from a degree less the cost of the degree to $160,000 cash-
in-hand (in 1977$), or a net present value of $472,000 in 2003$.16 Specifically, if we took
two identical 18-year-old high school graduates in 1977, gave one of the equivalent of
$472,000 (in 2003$) and sent him into the job market, gave the other nothing and told her
to go to college and pay her own way, by the end of their careers, the two would have
been equally well off financially. By 2003, the net present value of a degree had
increased to over $800,000 (in 2003$). The ex ante expected net present value (NPV) at
age 18, is given by:
n 1
NPVt  
s 0
ft c s  Ct  s
1  r 
s
(1.7)
where r is the long-term riskless real interest rate. As we have accounted for risk via
incorporating the probabilities of labor participation and unemployment, and have
accounted for inflation by using current wages of older workers as forecasts for the 18year-old’s future earnings, the appropriate discount rate is the long-term riskless real
interest rate. For the discount rate, we use the average return (over the period 1977
through 2003) on 20-year Treasury Bills (7.3%) less average inflation (4.3%).
[Insert Figure 3 here]
Relative Risk: An asset’s beta as defined in the Capital Asset Pricing Model
(CAPM) gives us a traditional measure of a firm’s risk relative to the market as a whole.
Using our estimates of the internal rate of return on a college degree from 1977 through
2003 as the return on the “security” (rt), 1-year constant maturity Treasury Bill rates as
the riskless rate ( r ), and the annual growth in the S&P 500 from year t – 1 to year t as the
16
The net present value figures reported are the averages obtained from using private and public tuition and
fees figures. The differences in net present values using private and public costs are approximately ±3% of
the reported averages.
market return ( rt m ), we estimate the “beta” for a college degree via constrained OLS
applied to the CAPM:
rt  r    rt m  r 
(1.8)
We obtain a beta of 0.16 using the average cost of private colleges and 0.23 using the
average cost of public colleges. This indicates that the risk associated with an investment
in a college degree is significantly less than the risk associated with an investment in the
market as a whole. One might argue that since wage income comprises the lion’s share of
GDP, the beta on the returns to a college degree should be close to one. This argument
suffers from aggregation bias. During recessions, high school graduates bear a greater
unemployment burden than do college graduates. In fact, over the period 1970 through
2001, the standard deviation of annual unemployment rates for high school graduates was
2.7 times that for college graduates. Thus, one should expect the risk associated with an
investment in a college degree to be strictly less than overall market risk.17
4. Conclusion
We look at twenty-seven years of data on earnings, employment, and the cost of
higher education. We find that, while the cost of higher education has been rising at more
than twice the rate of inflation, the benefit to holding a college degree – in terms of
increased compensation and decreased likelihood of unemployment – has been growing
faster. By using income data for various age cohorts at a single point in time as a proxy
for an 18-year-old’s expectations of future earnings, we attain ex ante estimates of the
expected value of a college degree. Employing typical measures of financial return, we
find that the ex ante expected value of a college degree net of tuition, fees, and foregone
17
Note that we are assuming, with probability one that the student who attempts college actually graduates.
This makes our analysis conditional on the (in most cases, not unrealistic) presumption of graduation.
compensation has risen, in real terms, by approximately 70% since 1977. Put in
perspective, for the median college degree today to be financially equivalent (in net
present value terms) to the median college degree in 1977, the cost of a 4-year college
education today would have to rise by more than $300,000.
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Expected Breakeven on Tuition, Fees, and Foregone Compensation
@ Age 18
Years from Matriculation
11.0
10.5
10.0
9.5
9.0
8.5
8.0
7.5
Private College Costs
2003
2002
2001
2000
1999
1998
1996
1997
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1983
1984
1982
1981
1980
1979
1978
1977
7.0
Public College Costs
Figure 1. Expected Years, from Matriculation, to Recover Cost of Tuition, Fees,
and Foregone Compensation
Real IRR on Tuition, Fees and Foregone Compensation @ Age 18
(2003$)
24%
22%
20%
18%
16%
14%
Private College Costs
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
12%
Public College Costs
Figure 2. Expected Real Internal Rate of Return on Cost of Tuition, Fees, and
Foregone Compensation
Average Nominal Rates of Return (1977 through 2003)
30.0%
25.0%
20.0%
15.0%
10.0%
Cost of Public
College
Cost of Private
College
NASDAQ
DJIA
S&P 500
AAA Bonds
20-Year
Treasury Bills
0.0%
6 Month CDs
5.0%
Figure 3. Comparison of Annual Returns on Financial Instruments to Annual
Return on Cost of Tuition, Fees, and Foregone Compensation
Age
Year
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
High School Graduates
Expected Compensation Present Value
(1977$)
at Age 18
$7,903
$7,903
$8,745
$8,490
$9,586
$9,036
$10,427
$9,542
$11,269
$10,012
$12,110
$10,446
$12,951
$10,846
$13,793
$11,215
$14,059
$11,099
$14,326
$10,980
$14,593
$10,859
$14,860
$10,735
$15,127
$10,610
$15,394
$10,483
$15,661
$10,354
$15,928
$10,223
$16,195
$10,092
$16,461
$9,959
$16,478
$9,679
$16,494
$9,406
$16,510
$9,141
$16,526
$8,884
$16,542
$8,633
$16,559
$8,390
$16,575
$8,154
$16,591
$7,924
$16,607
$7,701
$16,624
$7,484
$16,491
$7,208
$16,358
$6,941
$16,225
$6,685
$16,092
$6,437
$15,960
$6,198
$15,827
$5,967
$15,694
$5,745
$15,561
$5,530
$15,429
$5,323
$15,296
$5,124
$15,115
$4,916
$14,934
$4,715
$14,753
$4,523
$14,572
$4,337
$14,391
$4,158
$14,210
$3,987
$14,029
$3,821
$13,848
$3,662
$13,667
$3,509
$13,486
$3,362
College Graduates
Expected Compensation Present Value
(1977$)
at Age 18
-$2,700
-$2,700
-$2,700
-$2,621
-$2,700
-$2,545
-$2,700
-$2,471
$18,032
$16,021
$19,379
$16,716
$20,725
$17,357
$22,071
$17,946
$22,498
$17,760
$22,926
$17,570
$23,353
$17,377
$23,780
$17,179
$24,207
$16,978
$24,634
$16,774
$25,061
$16,568
$25,488
$16,360
$25,915
$16,149
$26,342
$15,937
$26,368
$15,488
$26,394
$15,052
$26,420
$14,628
$26,446
$14,216
$26,472
$13,815
$26,498
$13,426
$26,524
$13,048
$26,550
$12,680
$26,576
$12,323
$26,602
$11,976
$26,389
$11,534
$26,177
$11,108
$25,964
$10,697
$25,752
$10,300
$25,539
$9,918
$25,327
$9,549
$25,114
$9,193
$24,902
$8,850
$24,689
$8,519
$24,477
$8,199
$24,187
$7,866
$23,898
$7,546
$23,608
$7,237
$23,319
$6,940
$23,029
$6,654
$22,739
$6,379
$22,450
$6,115
$22,160
$5,860
$21,870
$5,615
$21,581
$5,379
Table 1. Expected future value streams for the median 18-year-old in 197718
18
Expected compensation is median wages for full-time workers adjusted for the probability of employment across
the following reported age cohorts: 18-24, 25-34, 35-44, 45-54, 55-64, 65+. Median wages within the age cohorts
are interpolated. Negative figures for ages 18 through 21 reflect the average cost of tuition and fees for 4-year
private colleges. Data sources: Current Population Reports, Bureau of the Census, Series P-60, Nos. 120, 127, 134,
142, 149, 156, 159, 166, 168, 174, 180, 184, 188, 189, 197, 200; Statistical Abstract of the United States, Bureau of
the Census, 1995 (No. 742), 1996 (No. 728), 1997 (No. 734), 1998 (No. 754), 1999 (No. 758), 2000 (No. 752), 2001
(No. 677), 2002 (No. 666), 2003 (No. 695), 2004-05 (No. 679), 2006 (No. 686). Wages for 1998 through 2003 are
reported in the original data set as averages. We estimate the median figures for these years by multiplying the
reported figures by the historical ratio of median to average wages for the years 1993 through 1997. Present values
are calculated by discounting at the estimated riskless real interested rate (3%).
Age
Year
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
High School Graduates
Expected Compensation Present Value
(2003$)
at Age 18
$20,230
$20,230
$21,364
$20,741
$22,497
$21,206
$23,631
$21,626
$24,764
$22,003
$25,898
$22,340
$27,032
$22,639
$28,165
$22,901
$28,612
$22,587
$29,059
$22,271
$29,505
$21,955
$29,952
$21,638
$30,399
$21,321
$30,845
$21,004
$31,292
$20,688
$31,739
$20,372
$32,185
$20,057
$32,632
$19,743
$32,822
$19,279
$33,012
$18,826
$33,201
$18,383
$33,391
$17,949
$33,581
$17,526
$33,771
$17,111
$33,960
$16,706
$34,150
$16,310
$34,340
$15,923
$34,530
$15,545
$34,579
$15,114
$34,629
$14,695
$34,679
$14,287
$34,729
$13,891
$34,778
$13,506
$34,828
$13,131
$34,878
$12,767
$34,927
$12,413
$34,977
$12,068
$35,027
$11,733
$35,002
$11,383
$34,976
$11,044
$34,951
$10,714
$34,926
$10,395
$34,900
$10,085
$34,875
$9,784
$34,850
$9,492
$34,825
$9,209
$34,799
$8,934
$34,774
$8,668
College Graduates
Expected Compensation Present Value
(2003$)
at Age 18
-$19,710
-$19,710
-$19,710
-$19,136
-$19,710
-$18,579
-$19,710
-$18,037
$47,072
$41,823
$50,278
$43,370
$53,483
$44,791
$56,688
$46,093
$58,875
$46,476
$61,061
$46,798
$63,248
$47,062
$65,434
$47,271
$67,620
$47,428
$69,807
$47,535
$71,993
$47,596
$74,180
$47,613
$76,366
$47,589
$78,553
$47,526
$78,862
$46,323
$79,171
$45,150
$79,480
$44,006
$79,790
$42,891
$80,099
$41,803
$80,408
$40,742
$80,717
$39,708
$81,027
$38,699
$81,336
$37,715
$81,645
$36,756
$82,130
$35,897
$82,614
$35,057
$83,099
$34,236
$83,584
$33,432
$84,069
$32,647
$84,553
$31,879
$85,038
$31,128
$85,523
$30,393
$86,007
$29,675
$86,492
$28,973
$86,965
$28,283
$87,438
$27,609
$87,912
$26,950
$88,385
$26,306
$88,858
$25,676
$89,331
$25,061
$89,804
$24,460
$90,278
$23,873
$90,751
$23,299
$91,224
$22,738
Table 2. Expected future value streams for the median 18-year-old in 200319
19
See footnote 18.
Expected Net Present Value of a Degree @ Age 18 (2003$)
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
$1,000,000
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
NPV @ Public College Costs
NPV @ Private College Costs
Figure 4. Expected Net Present Values of a College Degree for 18-Year-Olds at the
indicated date