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Is higher level education really worth the money?

I was reading an interesting blog post today about how difficult it is for students to fund their education.  This got me thinking about whether higher level education is really worth it in today’s economy.  So, being an accountant, I decided to calculate it. 

Using statistics from Human Resources and Skills Development Canada, the average income for a University graduate is $48,600 and the average income for a high school graduate is $25,500.  These numbers are from the year 2000, but we’ve all heard the news stories about how income hasn’t really grown much since then. 

According to the blog post that I referenced above, a year at university will cost around $17,000 for everything if you’re “frugal.”  If a student were working full time instead of going to school, let’s assume that they would earn the average pay of $25,500 noted above.  This would work out to be about $22,000 after tax depending on province of residence.  So, the cost per year of university including lost income is $39,000 ($17,000 + $22,000). 

If the student finances the cash outlay of $17,000 per year over 10 years with a 5% loan and they don’t start paying interest on that loan until they graduate, they will pay just over $17,000 in interest costs on the loan.  For a 4 year degree, our total cost is then $39,000 (tuition & lost income) x 4 years plus $17,000 in total interest.  This makes the total cost for the education $173,000.  Yikes.
Using the HRSDC statistics noted above, a university graduate will start to earn $23,100 more per year than a high school grad.  After tax, this works out to be a difference of about $18,000.  The tax rate in this bracket is a little higher, but the graduate would have some tuition tax credits being carried forward. 
If we take the total cost of higher education and divide it by the income differential, the result is that it takes just under 10 years for a university student to break even.  That’s a long time, but if you’re spending 40 years in the workforce, it doesn’t sound so awful.  So, is higher level education really worth the money?  I would say yes.
July 28, 2012

2 responses on "Is higher level education really worth the money?"

  1. This is my first time sorting through your posts. I have to say this one made me smile. While I am not an accountant this is precisely the kind of math problem I enjoy, but may never actually follow through with. I have questioned the value of university. One thing that you didn’t consider that I often think about is whether a young person could get ahead financially by saving for a home and beginning investing while still living at home in the 18- 22 years age range (perhaps working more than one job). I have a university degree and know that it has just helped me to think more critically as I make no money and I would probably have a hard time finding a job if I needed to.

    • Interesting point. Perhaps I will ponder that for a future post. 🙂 Lately I have been thinking a lot about the trends in higher education. I am hoping that by the time my kids get there, the model will look very different than it does now. Thanks for your comment!

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