In today’s difficult job market, many bright students are turning to grad school. Historically, graduate school has repaid students’ investment handsomely—and, for some, that may still be the case. But students should recognize that rising education costs and long years of study make inroads into the value of that investment.
On average, grad schools pays off. Over the past 20 years, graduates with master’s degrees have earned about 1.17 times the amount earned by graduates with bachelor’s degrees only. Those with professional degrees have, historically, earned between 1.4 and 1.9 times that of those with bachelor’s degrees—averaging about 1.6 times as much.
Averages, however, don’t tell the whole story. A lot of variation exists among different degrees. Unemployment rates vary across professions. And the passage rate for important exams (the bar, for example) vary from university to university. And an advanced degree even from an excellent university is no guarantee of lucrative work in one’s own field, as George Leef points out here.
Moreover, there is an opportunity cost of attending graduate school—several years of forgone income. And there is the cost of attendance itself.
StudentLoan.com provides very basic (and, yes, flawed) estimates of return-on-investment for various degrees. The calculations fail to account for opportunity cost and for the potential earnings of those with only high school diplomas—as if the alternative to college is making no money at all. But their estimates of the cost of a degree and starting salaries provide a starting point for comparison. The table shows the earning options of a student based on the level of education he or she achieves in various fields. (A note for economists: these are only rough estimates. I didn’t discount the future or assume anything about inflation or debt. Nor did I account for raises or promotions in any profession; I recommend that additional statistical work be done. For the purpose of simplicity I am also assuming, as many analysts do, that everyone is college material.)
As the first table below shows, it takes time—often a lot of time—to recoup the money and years spent on earning a graduate degree. For example, let us suppose that a high school graduate could be a home care aide and start at $21,014 a year. With a bachelor’s degree in psychology, that graduate could become a social worker and earn $29,281. But given the amount spent on college ($109,172) and the income forgone ($21,014 for four years), the social worker will be age 47 before he or she recoups the lost income.
Interestingly, by getting a Ph.D. in psychology and becoming a social psychologist, the higher salary ($50,461) means that the additional cost ($242,00) will also be recouped at age 47.
But woe to the lawyer who chooses public defense! A public defender with a law degree will have to wait till age 59 before breaking even. From a financial standpoint, it would be better to get that political science degree and cover one’s costs by age 37—or become a paralegal with a two-year degree and be made whole by age 32.
Fortunately, there are two variables that students can control that will make a considerable difference in their net earnings over time: receiving scholarships (or tuition remission) and working at least part time while completing an education. By reducing the cost of your education or earning while studying, you can shorten the years to the break-even point.
In considering whether to get an advanced degree, you should certainly recognize that the cumulative earnings by the end of your career will be significantly higher if you do. But earning such a degree limits your flexibility to change career paths—both because you have already made a large investment and because of the narrow scope of the degree.
Now let’s look at debt. Students must consider the amount of debt that might accompany a graduate degree. In some fields—law and medicine, for example—borrowing to cover at least some of the cost of a degree is common. But many students earning doctorate degrees don’t need to borrow; in order to attract bright students, prestigious programs will grant tuition waivers and even pay (a little) for students to work as teaching or research assistants.
The following table shows the percentage of students borrowing for advanced degrees and the average amount of debt per borrower in different degree programs. The data come from Finaid.org, a comprehensive source of student financial aid information published by Mark Kantrowitz.
It provides the amounts borrowed for graduate education only and the combined totals for undergraduate and graduate education. The cumulative amounts may seem low—they are not all that much greater than the amounts students borrow for their undergraduate education. The chief reason is that graduates with a bachelor’s degree and no debt are 1.7 times more likely to enroll in graduate and professional school than bachelor’s degree recipients who graduate with some debt.
A student must weigh many factors before deciding whether to pursue formal education beyond a bachelor’s degree. Foremost should be interest in the field and intellectual curiosity—as well as having the patience to spend several more years in a classroom setting. But, as this essay reveals, there are also economic considerations—those discussed here, and more. What is the state of the job market? Is a B.A. or B.S. enough to pursue a particular career? How much will graduate school cost? How much income is forgone by pursuing more education? In sum, the decision to get an advanced degree shouldn’t be cut and dried. Each student must weigh the pros and cons carefully before choosing a path. Economic, intellectual, and social factors should all play a role.