Economics 101: College vs. Apprenticeship

An article in last weekend's newspaper analyzed the payback of a college degree - Does It Pay to Go to College? by Scott Burns, reminded me of the cost-benefit analysis I've been intending to do. I have a college degree in electrical engineering and have benefitted from the boost in earning power. However, I'd like to take a close look at the economic value of a degree in today's world.  This is particularly important for homeschoolers as they consider their highschool plans.  Many are convinced their kids must attend college and spend a lot of time preparing transcripts and effectively letting the college admissions officer establish their high school curriculum.  For some, this may be the path God intends but we need to carefully assess what we are doing and why, particularly as we seek to finish strong in the home stretch of our children's home education.  Certainly, a rarely challenged cultural assumption in modern America is that "you must go to college" or be forever lost as a second class citizen trapped in life long poverty. Let's put a pencil to this assumption. References and links are appended below for the figures I will use.

Let's compare the costs and income for two different situations of your typical college age student - Mr. Worker works at an entry level job full time while Mr. Student attends university full time in the fall and spring while working at an entry level job for 3 months in the summer. It's assumed the parent pays room/board in both cases so there's no cost difference since both live at home. Mr. Student attends a major public university as an in-state residence, so the average annual cost for tuition, fees, and books is $7000. Mr. Student's parents have been financially responsible and productive over the years and have a sizeable savings, no debt, and an annual income typical for upper middle class Americans. God has financially blessed their frugality and wisdom and Mr. Student does not qualify for financial aid at the public in-state university.

Mr. Worker is an apprentice in a trade and nets $10 an hour*, 40 hours a week, 50 weeks a year, so averages $20,000 income each year. Mr. Student makes $10 an hour, 40 hours a week, 12 to 13 weeks a year so averages $5,000 income each year.

Mr. Student's parents pay an average $583 each month for 4 years for a total of $28,000 for his 4 years at the university. Mr. Worker's parents contribute $583 month to a typical mutual fund account averaging an 8% annual return (8% is a low estimate of the average long term annual gain for a low risk U.S. mutual fund). At the end of the 4 years, the total value of these monthly payments is 0 for Mr. Student (the college has it all) and $33,000 for Mr. Worker (amount contributed each month plus interest).

Since Mr. Worker is living at home, he saves all his income in a typical mutual fund account averaging an 8% annual return. Saving $1666 a month for 4 years in the account results in a balance of $94,000. Mr. Student saves his 3 months of income each year (which is 1/4 of Mr. Worker's) in an equivalent account with an 8% annual return, which results in a balance of $24,000. Note that in both cases the parents are paying all living expenses and they are assumed to be the same.

So at the end of 4 years, Mr. Student has a college degree and $24,000 in cash, while Mr. Worker has 4 years experience in his trade plus $127,000 in cash (his income plus his parent's contribution). Both students move out of their parents' home and begin their career using what they've learned in 4 years. They keep their cash in the investment accounts earning an average of 8% annually. Mr. Student has $103,000 less money than Mr. Worker. He must earn more than Mr. Worker does in order to catch up and surpass him. How much more and for how long?

The $103,000 growing at 8% annually grows to $229,000 in 10 years. If Mr. Student saves an extra $1,250 each month (in the 8% account), he will reach the $229,000 in 10 years. $1,250 monthly is $15,000 a year, so if Mr. Student's after-tax salary exceeds Mr. Worker's by 15,000 each year then Mr. Student is better off financially.  Note that Mr. Student will likely be in the 25% tax bracket, so he must earn $20,000 extra, before taxes, to net the $15,000 to save and invest.

Beyond this, it gets difficult to compare directly since we don't know how fast their respective salaries will grow, the effective tax rates, probability of layoffs, etc. But you can roughly assume that the financial head start Mr. Worker has is equivalent to an extra $20,000 the first year. If Mr. Student's job is with a Wall Street investment bank, or he is drafted as the starting point guard for the Los Angeles Lakers, he will easily make $20,000 more than your typical tradesman or small-business owner. But realistically, he will be hard pressed to exceed Mr. Workers salary by $20,000, especially since Mr. Worker will have 4 years work experience rather than earning a starting salary.

Here are a few representative starting salaries for recent 4-year college graduates:
Accounting $46,039; Engineering $49,715; Educational Services $30,291; Oil & Coal Products $53,611; Aerospace $54,410; Retail Trade $34,932.  So even if Mr. Student starts work as an accountant, he will have less overall net worth 10 years after graduation than Mr. Worker would even though Mr. Worker's annual income after 4 years of apprentice work had risen only to $26,000.

Further, we have considered only the least expensive college scenario. If Mr. Student lives out of town, room and board cost must be added. If he attends a private university, average tuition is triple that of a public university. If either of these are the case, Mr. Workers financial head start will likely be insurmountable. For example, average room and board cost alone is about $7000 a year. If Mr. Worker's parents paid that amount to his fund (instead of added spending for room/board), he'd have an additional $33,000 saved. His then $136,000 head start grows to $302,000 in 10 years. Mr. Student needs $1,650 a month extra or $20,000 a year.  Also consider if Mr. Student requires 5 years to complete his 4 year degree, which is typical. Mr. Worker is then ahead by another $20,000 plus interest.  If Mr. Worker makes more than an entry level wage of $10 an hour, which he should if his apprenticeship trade is in-demand, his advantage is further increased.  And what if Mr. Student attends several years and fails to earn his degree?  What if Miss Student earns her degree and works 3 or 4 years full time then stays home with children or works part time?  In each case, the young adult that worked and saved instead of attending college would have a great financial advantage over the college student.

Further, note that Mr. Worker's savings balance in the 4 year scenario ($127,000) is about the same cost as an average starter home**. He could buy his home free and clear never having any debt. He is then set to save what would have been rent or a monthly mortgage payment into his own investment account, while Mr. Student would need to borrow over $100,000 to buy the same home. At age 22, Mr. Worker has a home free and clear and is already saving for retirement while Mr. Student ponders 30 years of mortgage payments.

In conclusion, college is a good economic value for some but probably not for most. Going to college to learn something you enjoy and gain training to fulfull a calling is a good reason to go. Just blindly planning to go because everyone says you have to, may not be financially wise and may put the young adult at a considerable economic disadvantage compared to other vocational paths.  Count the cost and consider your options.


For further consideration:
...alternatives for getting the degree - distance learning and credit for knowledge already gained

...vocational learning and entrepreneurship

... investing your savings wisely to build your assets and beat inflation

October 12, 2007  HSLDA's regular magazine, "The Home School Court Report" Sept/Oct 2007, has a cover story on apprenticeship.

March 14, 2011 Why Less School Earns Students More Money

Copyright © 2007

*net income after social security tax and income taxes.  At low income, the federal income tax impact is negligible.
**about $19,000 of the $127,000 is investment gain.  The net impact of federal income tax on this gain is estimated to be $2000 when the money is withdrawn to buy the house, leaving $125,000 to spend on the home.

Scott Burns Does It Pay to Go to College?

Average college costs

Expected Financial Contribution (what Parents would pay, for estimated financial aid)

Savings and investment calculator

Average starting salaries



You make a lot of good points in this post. I too read Scott Burns. He recently cited a study that showed that wages in this country have been stagnating since the 1980s. When you consider the level of debt these kids are coming out of college with, and the wages they are likely to earn in all but the most exclusive fields, it does not make sense to go to college unless 1) what you want to do with your life can only be done via a degree, i.e. neurosurgeon, and 2) you've got the money saved up and won't be graduating with a boatload of debt.

We've homeschooled our kids all the way through (two left at home now doing high school). #1 did not want to go to college and has worked full-time since she finished high school. She lives on her own, has a savings account and has almost paid off her car (it's her second; she paid cash for the first.)

#2 did not heed our warnings, went to a Christian university, took five years to get through because of a double major, and now, almost six months after graduation, is about to start paying back his enormous college debt (we don't even know how much, but tuition and room and board at his college is currently in the mid 20s). He was encouraged to borrow the money by the church and the college, as well as his grandparents, who co-signed a loan for him because we wouldn't. His bride went to the same college and took out loans for four years. Sigh.

We, too, were led to live debt-free by God via Larry Burkett. It's an amazing feeling. We tried to teach financial freedom to our kids. So far, one listened and one didn't. Keep spreading your message!

College decision

Thanks Barbara, I only analyzed one scenario to simplify the comparison.  When student loans enter the picture, the college decision is economically even worse.  In that case the college graduate not only starts with less savings, they start out with a negative savings that grows even more negative due to loan interest.
To be fair, there are some that may qualify for financial aid and can go to college basically free.  However, there is still the time/earnings lost by not working those 4 or 5 years so even this graduate will be economically behind the diligent working apprentice.
So again, college makes economic sense in a few cases but not in most.
Thanks again for stopping by to read and comment.  -Mark

Another Twist

Another twist would be some form of 'college at home'; where you can earn college credit without leaving home (except to take tests, etc.) which could provide a 'happy medium'. The book 'college without comprimise' discusses this.


Mr. Worker won

I'd like to point out some additional things as well. Mr. Worker could very well decide to obtain a college education as well, but do so with a much more mature and money savvy view on life. Much of the courses Mr. Worker would take could be finished at his local community college, while he lives in his own house. Mr worker would also have a means for income while not attending school. Then, when Mr worker gets a degree, it might be from a less pristine school, but Mr. Worker already has established contacts in life and will have no problem using that degree to boost his own income.

That is exactly what I did. I became a Journeymen electrician at 23. During my 4 year apprenticeship I stayed with my Mother and took online and evening classes (dirt cheap) , which were transferable to my state university. Knocked out most my generals and Calculus 1 and 2. Then I quite my job and went to my state university and got my engineering degree in two years.

Another thing, I was an Electrician Journeymen with actual skills when I attended college. The labs were cake. Some of my professors avoided me because they knew I knew that much of what they were teaching was a waste of time. I had more realistic hands-on practical engineering skills than most of my them.

Now I'm right back where I first started working, but I'm in charge now and enjoy a salary that nearly doubles my previous Journeymen income.

But that was my plan all along. The youth of today have a horrible misconception of college. They think it's going to make them wealthy and successful. YOU make YOU wealthy and successful. It doesn't matter which route you take, just get a plan and stick to it. The key is sticking to your plan and finishing it, most people don't.


Thanks Bobby, a little experience goes a long, long way for a young adult in college. With a couple years working experience they have some money saved and a better idea of what the really want to do in life. The college experience, if needed, is then much more serious and helpful. Thanks for your story.

Does College Pay?

Are you aware that the unemployment rate for college grads is half that of non-grads?

Unemployed College Grads

Dan, if someone gains skills in college, they will be more employable than the non-skilled. Apprenticeship can be a better way to gain skills and does not involve huge debt up-front. Here's a recent Wall Street Journal article about the plight of many recent college grads:

The bad news for this spring's college graduates is that they're entering the toughest labor market in at least 25 years. The worse news: Even those who land jobs will likely suffer lower wages for a decade or more compared to those lucky enough to graduate in better times, studies show.

Andrew Friedson graduated last year from the University of Maryland with a degree in government and politics and a stint as student-body president on his résumé. After working on Barack Obama's presidential campaign for a few months, Mr. Friedson hoped to get a position in the new administration. When that didn't pan out he looked for jobs on Capitol Hill. No luck there, either. So now, instead of learning about policymaking and legislation, he's earning about $1,250 a month as a high-school tutor and a part-time fundraiser for Hillel, a Jewish campus organization. To save money, he's living with his parents....

Apprenticeship can work but ...

When industries change, when economies shift, skilled labor jobs can disappear, and then it is good to have the proof of a college degree to be able to shift industries. A bachelor's degree in any major can get you in the door of a variety of fields. A bachelor's degree in a scientific or technical field can get you in the door of even more. An apprenticeship can get you to the top of the field you were an apprentice in, and other directly related fields, only.

If you have a trade that

If you have a trade that makes $20 - $40 an hour, and you really don't have to worry about your job being outsourced. Plumbers, Carpenters, Auto Mechanics, or Electricians are always needed. So, why would I want to go to college? My job makes more than what 3/4 of the college graduates make. I also work for myself so I have a lot of freedom to plan my day out the way I want, or not go to work if I don't feel like it. My customers are at my mercy. If something goes wrong in their home or car and they don't know how to fix it, who are they going to call? I can go on vacations 2 or 3 times a year for however long I want. So again, why would I want to waste my time going to college? In response to the comment about being stuck in one field only. I can buy, or change into another business if I don't want to do the job I am doing now. My trade and skill set can be interchangeable with several other jobs. I am a manager of my business so I don't have to go college to get a manager or CEO position. Good Luck in College LOL.

At this point college

At this point college definitely doesn't pay and there are several good reasons why: the educational system doesn't have a good selection system, everybody is accepted to college as long as it can afford it, most students make student loans to go to college and engage into debt for decades after graduation, the quality of education has dropped, the labor market is unadapted to what school's output and the list can go on.

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