This seems like a reasonable question to ask given that you are now enrolled in college. One way to answer this would be to look at the expected future earnings of a college graduate and compare it to the expected earnings of someone with a high school education. To answer this question, you must look at the statistics regarding average income disaggregated by education. Be aware of the fact that you will have to make some assumptions before you can begin to answer these questions. Also be sure that you realize that you will need to defend your assumptions.

To begin, you will need to calculate the stream of future earnings for someone with less than a high school education, a high school graduate, and a college graduate. the problem is that these earnings are in future dollars, so you need to develop a way of converting them to current dollars which will allow for a comparison of the current costs and the current value of the expected gain in future income. Stated somewhat differently, will the current value of the added lifetime earnings be greater than the cost of the education?

At its core, this is very much like the question concerning future college costs-the key to both these questions is the realization that we are talking about money at two distinct points in time which means this is a compound / present value-future value problem. In fact there are two separate problems rolled into one. First there is the problem of estimating the future income of college and high school grads given current income figures and our estimate of the income growth rate. Once we have estimated the future incomes we then can use present value framework to estimate how much these streams of income are today-what we need to put away today to be certain that we would be able to duplicate the earnings stream with the earnings from our investment of the funds.

To answer the question we will use a spreadsheet, although there are many financial calculators preprogrammed to do this work. In the table below, you are provided with a rather simplistic approach to the problem, but one that captures the essence of the issue. The figures in the columns for current college and current high school are the average earnings of year-round workers with these levels of education. After we have decided on how many years to work, our next step is the specification of a growth rate which we will simply assign a value of 4 percent per year-a number that we would need to justify if we really needed the greater precision. If we program into cell D5 in the spreadsheet the future value formula [= b5*(1+D$3)^(a5-1997)] and drag it down we will reproduce the future value of earnings column for the college graduate. Following the same procedure we can obtain the fourth column if we plug into E5 the following formula [ = E5*(1+E$3)^(a5-1997)]. Note: the $ is included so that when you drag the formula down that C3 does not change. This would allow us to change the figure in cell C3 and it would change all the calculations in the column.

The difference is hard to miss. If earnings grow at an average annual rate of 4 percent, the average income of a college grad will be approximately $280,000 while that of a high school grad will be $143,500.

But what is the present value of these two earnings streams? How much must we set aside today to be able to duplicate these earnings streams through the year 2037? Once again we have used a spreadsheet to generate the present values which would be based on interest rates which we would have to defend. If the interest rate, the rate at which money will accumulate is 6 percent per year, then the present value of the expected 2017 earnings of a college graduate would be $42,482. What this means is that if we took this $42,482 and invested it today at a rate of 6 percent per year, this would grow to equal $128,535 by the year 2017. Similarly, we would need $21,643 to be put aside so that we would have the earnings of the high school graduate by the year 2017.

If we add these annual figures up we arrive at the following sums. The actual earnings of the college graduate over his lifetime would be nearly $6 million, almost twice the lifetime earnings of the high school graduate. How much are these streams of earnings worth today? The college stream of earnings could be duplicated by investing approximately $1.767 million, while the high school stream could be duplicated with approximately $.9 million. One of the potential interpretations of these figures is that a potential student should be willing to pay the difference in the present values as tuition since the college education will produce an earnings stream that is larger by this amount.