How a university degree can earn you an extra $1.2m

Students currently cramming for end-of-year university exams might be tempted to question whether it's all worth it.

Certainly in financial terms it is.

Imagine two people finishing high school this year - one of whom chooses to go to university, while the other opts to move straight into full-time employment.

At first, the university attendees are dining on two-minute noodles while worrying about their accruing student debt. Meanwhile, their former school friends are enjoying the fruits of paid labour.

The chart above uses 2016 census data released last week which found the median weekly income for someone with no non-school qualifications was $836. We've assumed, for simplicity's sake, that a high-school graduate can start earning that straight away, and that their earnings are consistent for the rest of their life.

For the students, university fees are set to rise in 2018. Fees vary between degrees, of course, but the federal government has placed a fee cap of $50,000 on a four-year degree. For ease, we have used this figure, and also assumed that the student isn't working while studying.

After four years, our worker has earned nearly $175,000 while our student is $50,000 in the red.

However, it doesn't take long to see that lead erased once the student starts earning the median weekly income for those holding a degree or higher, which is $1436. (Again, this is simplified by the fact we are using career-long median earnings, while most people's income grows during their twenties.)

And from there, Australia's one-in-four degree holders go on to enjoy the benefits of their increased income until the new retirement age of 67 and beyond.

The career earnings of our school leaver are $2,130,128 while our university graduate accrues $3,310,240 - a difference of $1,180,112.

In fact, the benefits may well be much more, with increased superannuation contributions also enjoying the effect of compound interest, which we haven't aimed to capture here. Degree holders are also less likely to face periods unemployed, even though this calculation assumes each person works full-time their entire career, something that's relatively rare.

You don't need to earn a degree to boost your earning power, though.

The data shows diploma and certificate holders enjoy a financial advantage of $460,000 and $355,000 respectively over those who don't pursue further study.

Consider that motivation enough to get back to the books.

This story How a university degree can earn you an extra $1.2m first appeared on The Sydney Morning Herald.