Salary Breakeven for Private vs. Public College Graduates

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Bachelor of Arts English DegreeI had lunch today with a few friends and the topic of private versus public college came up, a topic they recommended I put on my blog (so to appease them, I did!). As the graduates of private colleges, we were all curious what the difference in salary between graduating from a private college, paying $30,000+ a year for tuition/room/board/etc, and graduating from a public college, paying $10,000 a year for room, board, etc. The impetus of the conversation was that one friend knew someone who was graduating as a radiation oncologist and did a similar analysis between doctors and typical engineers (his analysis said it took twenty years for the doctor, a radiation oncologist, to “catch up” to an engineer, after accounting for typical raises, college loan debt, and other factors). So what’s the break-even point between private and public college graduates?

The answer …?

Not enough available data. (sorry)

Too Many Factors

The reality is that there are far too many private colleges and universities in too many fields, it’s impossible to say “the average starting salary of a private college or university graduate is…$X,” so no one does. Since we don’t have public data to work with (I have no idea where my friend’s friend got his numbers), let’s play with the numbers we do have, or can make up, and see what happens. Assuming all other factors are equal, the question comes down to servicing the loan. The privately educated graduate’s salary has to be greater than the publicly educated graduate’s salary by the amount of the loan payments.

$6,440/Year Breakeven

If the privately educated graduate has to service a $75,000 student loan at 5.00%, then his minimum monthly payments are $402.50 a month assuming a 30 year payback period (standard payback period after you consolidate your loan). That works out to be $4830 a year. If you assume the student is in the 25% tax bracket, his salary has to exceed the publicly educated graduate by $6440 a year. If the graduated has $100,000 in loans, he or she would need a pre-tax salary difference of $8592 a year. If the debt were only $50,000, then the pre-tax salary difference falls to $4296 a year.

I am greatly simplifying this problem, in reality the difference is going to be less than $6,440 because the graduate with a higher salary is going to see their salary grow faster assuming the same percentage raises. If public student gets paid $40,000, then five years of 4% raises puts him at 48,666 a year. If private student gets paid $46,440, five years of 4% raises puts him at $56,501. The original $6440 difference has grown to a difference of $7835, or almost $1,400! However, given that this isn’t a mathematical proof and absolute correctness doesn’t really add much, I opted to skip that analysis.

According to, a graduate of a 4-year private non-profit institution has about $21,957 in debt versus a 4-year public student graduating with $17,277; a difference that is much less than the $75,000 and $0 I assumed above. Assuming a debt burden difference of $4680, the salary difference is only $402.08 a year (pre-tax). Four hundred bucks a year is not a big difference.

College Important, Public/Private Irrelevant

At the end of the day, whether your school is public or private has no impact on your salary. It’s far more important to take the set of possible majors your interested in and compare it with the best paying jobs to determine what you want to study, then work from there to figure out where you want to go to achieve that.

College is still important though, according to the Census Bureau, bachelor’s degree holders earn an average of $2.1 million lifetime while high school graduates earn on average about $1.2 million lifetime. So stay in school, you’ll end up a millionaire!

Before you go, here’s a eye popping stat – The average amount of debt held by someone graduating with a degree in Medicine is a staggering $113,661 ($125,819 when you add in their undergraduate debt), no wonder it takes twenty years to break even!

(Photo: hmocopymonkey)

{ 21 comments, please add your thoughts now! }

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21 Responses to “Salary Breakeven for Private vs. Public College Graduates”

  1. Beth says:

    You know, I’ve always wondered about this issue. Our post-secondary system is very different here in Canada. I always wanted to go to Yale or Harvard, but the cost for international students was also so prohibitive I never applied.

    • Jim says:

      I was surprised how little I could find about it but it makes sense, there’s simply too much variance in the quality of education, the network of students and alumni, and the 2309482039423 other factors that affect salary. Having a degree and not having a degree is a clear difference (2 or 4 years of academic study), but how good is one college over another when you take up everything? Not sure.

      • Beth says:

        Up here, if you have a university degree rather than a college diploma, you’ll get paid more and advance faster in your career. Mind you, “college” up here means a very different thing then down in the States.

    • saladdin says:

      Hey Beth,
      Do you guys have Federal grants for school based on income like we do?

      I’m interested in the difference between the two post-secondary systems if you care to expand.

      I thought John Candy was funny. Rick Moranis not so much.


  2. Yarchitect says:

    In my field I see no evidence that graduates of private college get paid any more than graduates of public schools. Unfortunately, many graduates are woefully unprepared for work in “real life” regardless of whether they have gone to top tier Ivy League schools or local public universities.

    I find the overall debt obligations of public vs. private very telling. Perhaps it shows that those who have parents who can afford it go to private schools, while it’s public for the rest.

  3. Jim says:

    The bigger reason that it takes a Dr. longer to catch up to an engineer is that they have 4 more years of school and then another 3-8 years training in internship and residency. Thats 7-12 years that the engineers are making full times salary and the Dr. is either making nothing in school or lower wages as a resident. The engineer is making over $200k in the 4 years that the prospective Dr. is in med school. Thats a $200k income differerence whole that the Dr. has to overcome.

    Lifetime earnings of a Dr. are still easily double that of an engineer with a B.S.

    • Jim says:

      That is also true, the opportunity cost of that time. You also start getting into demand, there are fewer Dr. because it takes so much more education – most people won’t want to do it because it takes so long (even if they are intellectually capable).

  4. saladdin says:

    The job is the key. In my area, someone who graduates from the local community college in 2 years can be a RN making 60k a year.

    Here that makes you “rich”.


  5. Modder says:

    Couple of thoughts:

    Firms that pay Very High Salaries (i-banks, consulting, PE etc) usually hire from the top 5% of people across the top 20 schools or so.

    So if you think you have the chops for a career like that you need to be in the top 20 AND be in the top 5% of your class. If you can’t make that cut – might as well go to a state school.

    This is also true for grad school (b-school, law school etc). However, for folks who went to the top 20, the top 80% of the class still make a Very Nice Living that easily pays for the grad school costs. If you can’t go to a top 50 school – might as well not bother spending any serious $. You have to be very lucky to make that money back within a reasonable amount of time. Go to night school and have your employer cover the tuition. Its a “all or nothing” game.

    Med school is a different animal – highly regulated / artificial. Jim’s logic above applies nicely.

    • Jim says:

      Excellent point, I think the top % of each class is treated differently than the balance of the class. However, I wonder how much that matters after 3 years? 5 years? I bet it’s impossible to gauge though because the top 5% of each class is going to be the best of the best, you can’t go four years and “fake” being good if you truly aren’t good so it’s not like someone will sneak into a firm and end up sucking.

    • Dave says:

      I think you hit on a great point – when I was looking at grad schools (MBA), I did a comparison to cost of the school vs. starting salaries. Basically if you weren’t going to a top 10 or 15 school, your starting average salary was $65-75K. It didn’t matter if it was a private or public school, so I chose the school that was most conveneint for me to get to after work. If you can make it into a top level school, you will definitely come out with a much higher starting salary.

      One other point – most top level schools (Harvard, Yale) have huge scholarship endowments so lots of people who matriculate there don’t pay anywhere near the “advertized cost” that you see – just another wrench to throw into the works…

      • Modder says:

        I went to a top school, so I can speak from experience.

        Jim: Everyone in my company was at the top end of their class either in undergrad or in grad school. If you progress down the career path and stay in the company, your salary grows much faster than it would in a regular job. So in my case, yes – being in the top % of the class has a lasting effect.

        Dave: Scholarships are quite common for undergrad, but very rare in b-school etc. In fact my grad school dean would say that they could easily afford scholarships but as a policy refused to hand them out to make sure graduates are motivated to succeed. And he was right – my grad school loans were in the range that Jim mentions for med school and I paid them off in 3 or 4 years.

        • Beth says:

          That’s interesting. I’ve never come across that in Canada. I was in the top of my class in grad school, but I’ve never had an employer ask about my marks. What got me a job was my internship experience.

    • Jim says:

      Modder makes good points. I think that “top 20” may be the key in certain situations like business school or law school at the high end firms. But the key words are “top 20” not “public” versus “private”. There are public schools in many top 20 lists.

  6. As a medical resident and having a brother who recent started medical school, I can tell you that besides the student debt burden, it makes no difference whether you go public or private.

    I have buddies who went to Yale or Harvard Med and I had buddies who went to their State Medical Schools. We were all good students who got into good residencies. The only difference is my Yale buddies can brag about their diploma and the extra $80,000 worth of tuition it cost them.

  7. Modder says:

    Yes, there are Top 20 public schools but if I am not mistaken their tuition rates for grad school in particular are often on par with the private schools (more true for biz, law, less for engineering).

    I am just amazed at the growth rates of tuition costs. Kind of feels like a big bubble. Not sure if the bubble bursting will result in plummeting tuition rates or just many, many grads who never really break even on tuition, which in turn will lead to dropping enrollment and then dropping tuition rates….

    I went to undergrad back home in Europe. Total tuition bill: $0. Only cost was room, board & beer. Guess where I will be sending my kids 🙂

    • Jim says:

      A lot of the top 20 public schools have high tuition for out of state students but very affordable tuition rates for in-state students. Going to a state institution when you’re outside of the state often costs as much as private.

      I’ll gladly pay for beer if the education were free. 🙂

      • Eric N. says:

        If only that were true for in-state Californians now that our “budget” has passed. At the rate we’re going, there won’t be any cost difference whatsoever between Berkeley and Stanford in the future. The horror. 🙁

  8. Patrick says:

    I used to work at a local research laboratory during and right after college and made a decent salary. I graduated from the University of Maryland ( a public university ) and paid in state tuition. Soon after I started working there, a guy just graduating from Harvard with an Engineering degree started making the same amount of money as I was. I have no clue what his grades were, but the laboratory had some fairly strict standards on gpa requirements to work there. I probably paid about 1/10 the amount he did, but ended up at the same job.

  9. I agree with the general sentiment here. I went to law school. If you’re not graduating from a Top 20 school and/or not in law review (top 5-10%), you are pretty much grouped together, and have no shot at working at the prestigious firms for the big bucks.

    You have to find jobs at medium/small firms, learn your trade (and the business) from there, and hope your vastly inflated student loans won’t sink you in the meantime =)

  10. Phil says:

    I have a BS ChE degree from a well respected public university. In 20 years, my observations are these;
    + After a couple of years in the field, you don’t get asked where you went to school, except in social settings. If you go to an accredited school and perform well in your job, how much you paid to get the degree does not matter.
    + My experience with “big name” school graduates (MIT, Yale, Penn, etc.) has been mixed at best. Once you get through the ego’s many bring with them, you find that they aren’t any better, on average, than any other with a similar degree. In fact, that ego is often very telling of someone who will fail because it keeps them from continuing to learn, especially from those around them who came from a “lessor named” school.

    My advice, unless name recognition is the only thing in your chosen field (poly-sci for example), safe the money and go to the less expensive, but still accredited, public school!

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