For some reason I’ve been thinking a lot about college recently. I have no idea why. After all, I graduated almost 20 years ago, my oldest child is not even 3 years old, and none of my family or friends work at a college/university.
However, I do get my 2 kids’ 529 account statement every month, and each time I look at the statement I wonder if we’ll have enough saved to send our kids to college. After all, college is an absolutely enormous investment. You spent a lot of money to send your kids to college and you hope the result is worth it.
Why go to college?
I LOVED my college experience. I loved the people I met, the personal growth I experienced, and I really enjoyed learning new things. I got a lot of non-quantifiable benefits out of those 4 years.
However, from a purely financial sense, finishing college results in just two things:
- an education
- a college degree
I think of these as separate things because you can get one without the other. There are lots of self-taught software engineers who are wildly successful, and we all know people who somehow got a degree but seem to have learned nothing in college but how to get drunk 5 nights a week.
I’ve always felt that both are needed to get the right start out of college. The degree is what goes on your resume and helps you get your foot in the door while the education is what helps you do (and hopefully succeed at) the job.
But if we’re going to think of college as an investment then we have to analyze two components – the cost and the return.
In a previous article I analyzed whether or not a college degree is worth the time and money. The analysis clearly shows that yes, indeed, a college degree is an excellent investment. By the 11th year out of college you’ll have “caught up” to people who didn’t attend college, and by the time you reach retirement age (roughly 40 years out of college) you’ll be worth almost $4,000,000 more than somebody who didn’t attend college.
But here’s the thing – those numbers are based on the average salary for a college graduate and the average salary for a high school grad.
Related: Is a college degree worth the time and money?
Starting income for college grads vary wildly
The average starting salary for college graduates varies depending on the person’s choice of major. Jobs requiring a degree in STEM (Science, Technology, Engineering, and Math) fields tend to be more lucrative than jobs in the liberal arts, such as History and English Lit.
If you’re looking for the best return on your college investment, you’re better off avoiding liberal arts degrees and picking a higher paying STEM degree instead.
However, the Sept 12, 2016 issue of the Wall Street Journal had an article titled, “Good News, Liberal-Arts Majors: You Do Just Fine”. The point of the article was that liberal arts majors might have lower starting salaries, but they largely catch up by the middle of their careers. Here are some tables from the article that show average salaries per major for different amounts of time after graduation:
| Liberal Arts Majors | |||||||
| Year | English Lit | History | International Relations | Philosophy | Political Science | Psychology | Average |
| 1 – 5 | $39,000.00 | $41,000.00 | $44,000.00 | $42,000.00 | $43,000.00 | $38,000.00 | $41,166.67 |
| 6 – 9 | $54,000.00 | $56,500.00 | $59,000.00 | $62,000.00 | $60,000.00 | $49,000.00 | $56,750.00 |
| 10 – 20 | $69,000.00 | $72,000.00 | $74,000.00 | $82,000.00 | $77,000.00 | $60,000.00 | $72,333.33 |
| 20+ | $73,000.00 | $81,000.00 | $119,000.00 | $97,000.00 | $89,000.00 | $69,000.00 | $88,000.00 |
| Tech and Vocational Majors | |||||||
| Year | Accounting | Business Management | Civil Engineering | Computer Science | Hospitality Management | Nursing | Average |
| 1 – 5 | $47,000.00 | $45,000.00 | $56,000.00 | $63,000.00 | $39,000.00 | $57,000.00 | $51,166.67 |
| 6-9 | $60,000.00 | $57,000.00 | $72,500.00 | $83,000.00 | $49,500.00 | $65,000.00 | $64,500.00 |
| 10-20 | $73,000.00 | $69,000.00 | $89,000.00 | $103,000.00 | $60,000.00 | $73,000.00 | $77,833.33 |
| 20+ | $84,000.00 | $81,000.00 | $108,000.00 | $116,000.00 | $70,000.00 | $75,000.00 | $89,000.00 |
Note: I added the “Average” column and the Year 6-9 row for each table. For some reason the WSJ data skipped the years 6-9, so I just assumed those years were the average of years 1-5 and 10-20.
A few things jumped out at me. First, the difference between the average starting English Literature salary ($39,000) and the average Computer Science salary ($63,000) is huge – $24,000/year, or 61.5% higher. The average Tech and Vocational Major starting salary ($51,166.67) is $10,000 higher than the average Liberal Arts Major starting salary (41,166.67). And, as the title of the article suggests, by 20+ years of experience the liberal arts majors have almost entirely caught up, with a mere $1,000 difference between the average tech/vocational majors and the liberal arts majors.
In addition, the non-STEM vocational degrees (Accounting, Business Management, Hospitality Management, and Nursing) tend to have lower ceilings on their income in later years. For example, the average accounting major starts at $47,000 right out of college and maxes out at $84,000 after 20+ years of experience. That’s a 78.7% increase in salary over their lifetime. A History major, on the other hand, goes from $41,000 to $81,000, for a 97.6% increase. And International Relations majors go from $44,000 to $119,000, for an astounding 170% increase in salary over their working lives.
The value of those early years
Of course, we aren’t going to stop our analysis there. After all, financially savvy readers will immediately point out that money earned when you’re 1 year out of college will be worth a LOT of money by the time you turn 65. A dollar saved and invested for 40 years will be worth $21.72 (assuming an 8% annual growth rate).
With this in mind, I analyzed of some of the STEM majors vs. the Liberal Arts majors. I’m using the average annual salaries for each major for each of the age ranges given in the table above (1-5 years, 6-9, 10-20, and 20+ years of experience). Here’s the first table:
| Year | Computer Science | English Lit | Cumulative incremental value of Comp Sci |
| 1 | $63,000.00 | $39,000.00 | $18,000.00 |
| 2 | $63,000.00 | $39,000.00 | $38,880.00 |
| 3 | $63,000.00 | $39,000.00 | $61,430.40 |
| 4 | $63,000.00 | $39,000.00 | $85,784.83 |
| 5 | $63,000.00 | $39,000.00 | $112,087.62 |
| 6 | $83,000.00 | $54,000.00 | $144,544.63 |
| 7 | $83,000.00 | $54,000.00 | $179,598.20 |
| 8 | $83,000.00 | $54,000.00 | $217,456.05 |
| 9 | $83,000.00 | $54,000.00 | $258,342.54 |
| 10 | $103,000.00 | $69,000.00 | $306,549.94 |
| 11 | $103,000.00 | $69,000.00 | $358,613.94 |
| 12 | $103,000.00 | $69,000.00 | $414,843.05 |
| 13 | $103,000.00 | $69,000.00 | $475,570.50 |
| 14 | $103,000.00 | $69,000.00 | $541,156.14 |
| 15 | $103,000.00 | $69,000.00 | $611,988.63 |
| 16 | $103,000.00 | $69,000.00 | $688,487.72 |
| 17 | $103,000.00 | $69,000.00 | $771,106.73 |
| 18 | $103,000.00 | $69,000.00 | $860,335.27 |
| 19 | $103,000.00 | $69,000.00 | $956,702.09 |
| 20 | $116,000.00 | $73,000.00 | $1,068,068.26 |
| 21 | $116,000.00 | $73,000.00 | $1,188,343.72 |
| 22 | $116,000.00 | $73,000.00 | $1,318,241.22 |
| 23 | $116,000.00 | $73,000.00 | $1,458,530.52 |
| 24 | $116,000.00 | $73,000.00 | $1,610,042.96 |
| 25 | $116,000.00 | $73,000.00 | $1,773,676.40 |
| 26 | $116,000.00 | $73,000.00 | $1,950,400.51 |
| 27 | $116,000.00 | $73,000.00 | $2,141,262.55 |
| 28 | $116,000.00 | $73,000.00 | $2,347,393.55 |
| 29 | $116,000.00 | $73,000.00 | $2,570,015.04 |
| 30 | $116,000.00 | $73,000.00 | $2,810,446.24 |
| 31 | $116,000.00 | $73,000.00 | $3,070,111.94 |
| 32 | $116,000.00 | $73,000.00 | $3,350,550.89 |
| 33 | $116,000.00 | $73,000.00 | $3,653,424.97 |
| 34 | $116,000.00 | $73,000.00 | $3,980,528.96 |
| 35 | $116,000.00 | $73,000.00 | $4,333,801.28 |
| 36 | $116,000.00 | $73,000.00 | $4,715,335.38 |
| 37 | $116,000.00 | $73,000.00 | $5,127,392.21 |
| 38 | $116,000.00 | $73,000.00 | $5,572,413.59 |
| 39 | $116,000.00 | $73,000.00 | $6,053,036.68 |
| 40 | $116,000.00 | $73,000.00 | $6,572,109.61 |
The first three columns are pretty self-explanatory – we had the number of years of experience, then the average Computer Science and English Literature salaries for that level of experience. The final column is the cumulative incremental value of the Computer Science degree. Each year I take the additional income that the Computer Science degree earned, subtract 25% (to account for taxes), add it to the previous year’s total, and then assume an 8% return on investment.
So for the first year we have:
Difference in income = $63,000 – $39,000 = $24,000
Subtract taxes (assuming 25% tax rate) = $24,000 * 75% = $18,000
For the second year we have:
Take previous year’s total and assume an 8% investment return = $18,000 + 8% = $19,440
Difference in income = $63,000 – $39,000 = $24,000
Subtract taxes = $24,000 * 75% = $18,000
Cumulative return for the second year = $18,000 + $19,440 = $37,440
Let’s go ahead and jump down to year 40 – we see that the average Computer Science graduate is worth $6,112,107.08 MORE than the average English Lit major.
I was actually shocked at how big a difference this was! In my previous article I’d calculated that the incremental value of a college degree over a high high school degree (once you factor in the time and money required to get a college degree) is worth $3,939,949.68.
That means that the difference between getting a Computer Science degree and getting an English Lit degree is actually LARGER than the difference between getting a college degree and not getting a college degree at all!
Other majors
Of course, the Computer Science vs. English Lit comparison shows the highest earning STEM/vocational degree vs. the lowest paying Liberal Arts degree. What if we do the analysis of Computer Science vs. a higher paying History degree?
| Year | Computer Science | History | Cumulative incremental value of Computer Science |
| 1 | $63,000.00 | $41,000.00 | $16,500.00 |
| 2 | $63,000.00 | $41,000.00 | $34,320.00 |
| 3 | $63,000.00 | $41,000.00 | $53,565.60 |
| 4 | $63,000.00 | $41,000.00 | $74,350.85 |
| 5 | $63,000.00 | $41,000.00 | $96,798.92 |
| 6 | $83,000.00 | $56,500.00 | $124,417.83 |
| 7 | $83,000.00 | $56,500.00 | $154,246.26 |
| 8 | $83,000.00 | $56,500.00 | $186,460.96 |
| 9 | $83,000.00 | $56,500.00 | $221,252.83 |
| 10 | $103,000.00 | $72,000.00 | $262,203.06 |
| 11 | $103,000.00 | $72,000.00 | $306,429.30 |
| 12 | $103,000.00 | $72,000.00 | $354,193.65 |
| 13 | $103,000.00 | $72,000.00 | $405,779.14 |
| 14 | $103,000.00 | $72,000.00 | $461,491.47 |
| 15 | $103,000.00 | $72,000.00 | $521,660.79 |
| 16 | $103,000.00 | $72,000.00 | $586,643.65 |
| 17 | $103,000.00 | $72,000.00 | $656,825.14 |
| 18 | $103,000.00 | $72,000.00 | $732,621.16 |
| 19 | $103,000.00 | $72,000.00 | $814,480.85 |
| 20 | $116,000.00 | $81,000.00 | $905,889.32 |
| 21 | $116,000.00 | $81,000.00 | $1,004,610.46 |
| 22 | $116,000.00 | $81,000.00 | $1,111,229.30 |
| 23 | $116,000.00 | $81,000.00 | $1,226,377.64 |
| 24 | $116,000.00 | $81,000.00 | $1,350,737.85 |
| 25 | $116,000.00 | $81,000.00 | $1,485,046.88 |
| 26 | $116,000.00 | $81,000.00 | $1,630,100.63 |
| 27 | $116,000.00 | $81,000.00 | $1,786,758.68 |
| 28 | $116,000.00 | $81,000.00 | $1,955,949.38 |
| 29 | $116,000.00 | $81,000.00 | $2,138,675.33 |
| 30 | $116,000.00 | $81,000.00 | $2,336,019.35 |
| 31 | $116,000.00 | $81,000.00 | $2,549,150.90 |
| 32 | $116,000.00 | $81,000.00 | $2,779,332.97 |
| 33 | $116,000.00 | $81,000.00 | $3,027,929.61 |
| 34 | $116,000.00 | $81,000.00 | $3,296,413.98 |
| 35 | $116,000.00 | $81,000.00 | $3,586,377.10 |
| 36 | $116,000.00 | $81,000.00 | $3,899,537.27 |
| 37 | $116,000.00 | $81,000.00 | $4,237,750.25 |
| 38 | $116,000.00 | $81,000.00 | $4,603,020.27 |
| 39 | $116,000.00 | $81,000.00 | $4,997,511.89 |
| 40 | $116,000.00 | $81,000.00 | $5,423,562.84 |
We still see a huge difference of $5,423,562.84.
And what if we pick Civil Engineering (the lesser paying of the 2 STEM majors) against International Relations (the highest paying of the liberal arts majors listed)?
| Year | Civil Engineering | International Relations | Incremental value of Civil Engineering |
| 1 | $56,000.00 | $44,000.00 | $9,000.00 |
| 2 | $56,000.00 | $44,000.00 | $18,720.00 |
| 3 | $56,000.00 | $44,000.00 | $29,217.60 |
| 4 | $56,000.00 | $44,000.00 | $40,555.01 |
| 5 | $56,000.00 | $44,000.00 | $52,799.41 |
| 6 | $72,500.00 | $59,000.00 | $67,148.36 |
| 7 | $72,500.00 | $59,000.00 | $82,645.23 |
| 8 | $72,500.00 | $59,000.00 | $99,381.85 |
| 9 | $72,500.00 | $59,000.00 | $117,457.40 |
| 10 | $89,000.00 | $74,000.00 | $138,103.99 |
| 11 | $89,000.00 | $74,000.00 | $160,402.31 |
| 12 | $89,000.00 | $74,000.00 | $184,484.49 |
| 13 | $89,000.00 | $74,000.00 | $210,493.25 |
| 14 | $89,000.00 | $74,000.00 | $238,582.71 |
| 15 | $89,000.00 | $74,000.00 | $268,919.33 |
| 16 | $89,000.00 | $74,000.00 | $301,682.87 |
| 17 | $89,000.00 | $74,000.00 | $337,067.50 |
| 18 | $89,000.00 | $74,000.00 | $375,282.90 |
| 19 | $89,000.00 | $74,000.00 | $416,555.54 |
| 20 | $108,000.00 | $119,000.00 | $441,629.98 |
| 21 | $108,000.00 | $119,000.00 | $468,710.38 |
| 22 | $108,000.00 | $119,000.00 | $497,957.21 |
| 23 | $108,000.00 | $119,000.00 | $529,543.79 |
| 24 | $108,000.00 | $119,000.00 | $563,657.29 |
| 25 | $108,000.00 | $119,000.00 | $600,499.87 |
| 26 | $108,000.00 | $119,000.00 | $640,289.86 |
| 27 | $108,000.00 | $119,000.00 | $683,263.05 |
| 28 | $108,000.00 | $119,000.00 | $729,674.09 |
| 29 | $108,000.00 | $119,000.00 | $779,798.02 |
| 30 | $108,000.00 | $119,000.00 | $833,931.86 |
| 31 | $108,000.00 | $119,000.00 | $892,396.41 |
| 32 | $108,000.00 | $119,000.00 | $955,538.13 |
| 33 | $108,000.00 | $119,000.00 | $1,023,731.18 |
| 34 | $108,000.00 | $119,000.00 | $1,097,379.67 |
| 35 | $108,000.00 | $119,000.00 | $1,176,920.04 |
| 36 | $108,000.00 | $119,000.00 | $1,262,823.65 |
| 37 | $108,000.00 | $119,000.00 | $1,355,599.54 |
| 38 | $108,000.00 | $119,000.00 | $1,455,797.50 |
| 39 | $108,000.00 | $119,000.00 | $1,564,011.30 |
| 40 | $108,000.00 | $119,000.00 | $1,680,882.21 |
The Civil Engineer still ends up making $1,680,882.21 more than the liberal arts major.
This scenario is particularly interesting because the average International Relations major actually makes MORE money than the Civil Engineering major from years 20-40. However, by the last year that the Civil Engineering major makes more money (year 19), the Civil Engineering major has already made a compounded $416,555.54 more than the International Relations major. At an 8% return this is $33,324.44/year, which more than the $11,000 in additional income that the International Relations major makes from year 20-40. The International Relations major will never catch up.
Conclusion
The conclusion here is pretty obviously – starting salary matters a LOT. Picking a major with a higher initial salary is most likely to set you up for the greatest lifetime wealth accumulation. That is true even if another major results in higher income later in life. The impact of high earnings early in your career is shockingly powerful, and the difference in wealth accumulation between high paying and low paying first jobs out of school results in a bigger wealth disparity than going to college vs. not going.
Of course, money isn’t the most important thing. There’s no use slogging your way through a high paying major if you hate it. The best case scenario is to pick a major that you enjoy and that will result in a high paying job. And if you like two majors equally and are trying to pick between them, you should favor the major with the higher starting salary.
Questions for readers
Did starting salary have an effect on your choice of college major? Did you save the money you made in your first job? Would you have saved more money if you’d had a higher salary? If you could go back in time would you have made the same choice of major?