Is your degree worth $1 million -- or worthless?

By Liz Pulliam Weston

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.

The calculations

I started with a set of Census Bureau figures -- average pay rates for specific degrees, last collected in 1996. As a proxy for real lifetime earnings, it's not perfect, but it does reflect the wide range of pay scales for each degree, from those just starting out to those ready for retirement.

What I was looking for was the "present value" of the increase in future income that could be expected with various educations. A dollar paid in the future is worth less than a dollar today, but it does have value. Compute the values of all those future dollars and you get a lump-sum figure that can be compared with the cost of an education to see whether the investment in tuition was worthwhile.

Professional investors do these calculations all the time to determine whether to put their money on the line. It's also the process used to determine the payout amount when a lottery winner opts for a lump sum rather than 20 or more years of annual payments.

Normally, a net-present-value calculation would subtract the upfront investment cost. Since education costs can vary so widely, I'm presenting the numbers without that subtraction. You can do your own math, depending on how much you think your education will set you back.

• Video: Getting punished by saving for college.

Mileage may vary

The College Board tells us that four years' worth of tuition, fees, books and supplies at a public university currently cost about $20,000, while the private version will set you back $80,000. Add in room, board, transportation and other costs, and the total tab spirals to about $50,000 for public schools and $110,000 for private.

Your mileage may vary, of course:

• People often don't pay the "rack rate" for college; most get discounts of some kind, typically in the form of financial aid.

• At the same time, loans taken out to pay for school will increase the cost, since you have to pay them back with interest. The higher the rate, the bigger the cost: A $20,000 loan at 8% will cost nearly $30,000 to pay back over 10 years.

• You typically can't know in advance how much interest you'll pay, since rates on student loans are set after you graduate, and your payments commence.

Big bang for associate degree

Now that you know all that, here's what I came up with (using a "discount rate" of 5% for you detail bugs who care) for the increase in lifetime income from a two-year degree:

Associate degree
Payoff hits triple digits for some
Average	$116,550	Liberal arts	$63,667
Business	$92,908	Social science	$79,013
Computers	$148,695	Science	$104,521
Engineering	$192,660

As you can see, the average increase in income from an associate degree, compared to what a high-school graduate would get, is about $116,550 today. Subtract the average cost of tuition and books at a two-year school -- about $2,500 -- and you're way, way ahead. AA degrees in engineering and computers have the biggest payoff.

Continued: Bachelor's vs. masters

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