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The difference is astonishing! Graduates of American public universities accumulate $1.3 million more wealth over their private university peers over their lifetime?
- JC Guedon
- 3 days ago
- 5 min read
Many parents planning to send their children to study in the United States keep a mental ledger.
That ledger often includes two types of schools:
One type is prestigious private university with a well-known name and an expensive price tag.
The other is a public university with more affordable tuition.
The usual intuition is:
If parents sell everything they own to send their child to a prestigious private university, the child will certainly earn more after graduation. Surely, over the course of a lifetime, it will not be a losing investment, right?
However, a recent data analysis circulating online calculated a very interesting set of figures that may overturn our intuition.
The author of the article says:
Graduates of American public universities accumulate more wealth over a lifetime in total than a classmate who attends a prestigious private university.
Hearing this, did your heart sink?
Don’t worry. The story is only half finished.
The author then calculated another set of figures:
Forty years later, the public-university graduate who initially appeared to “earn less” would actually have accumulated $1.3 million more in wealth than the prestigious private-university graduate.
Does that sound a little counterintuitive?
Behind this is not a simple question of “which school is better,” but a story about “time” and “compound interest.”
Today, the editor will walk everyone through this analysis.
01 How Did the Author Calculate It?
To make the comparison fairer, the author first established several assumptions. You can treat it as a thought experiment:
Suppose there are three children with roughly the same intelligence and abilities. Each of their families has prepared a $400,000 education fund for them.
After graduating, all three children choose to work in Denver, United States, a city with a moderate cost of living.
After beginning work, all three consistently save 10% of their annual income and make steady investments. The average annual return of the U.S. S&P 500 Index is approximately 8%.
The only difference is which educational path they choose and how they manage the $400,000 education fund.
The three children choose the following three paths:
First, the Trade-School Path
The child does not attend a four-year university and instead uses part of the money to learn a skilled trade, such as becoming an electrician. The remaining money is invested beginning at age 18.
Second, the Elite Private-University Path
The child attends a highly selective elite private university, spending the entire $400,000 over four years.
Third, the Public Honors Path
The child attends the public flagship university in their home state and enters its honors program, such as the Morehead College at the University of Georgia or the Schreyer College at Pennsylvania State University. Over four years, the child spends only $150,000. The remaining $250,000 is also invested beginning at age 18.
Three paths, three different lives. What differences do you think there will be in the wealth accumulated by these three children after 40 years?
02 The Astonishing Reversal After 40 Years
After adjusting for inflation and converting the wealth into today’s purchasing power, the author announced the results:
The child who followed the trade-school path: Total wealth of $3.22 million
The child who followed the public honors path: Total wealth of $2.31 million
The child who followed the elite private-university path: Total wealth of $1 million
The author found that the prestigious private-university graduate who “earned the most” unexpectedly became the “poorest” after 40 years. Why?
Earning More Does Not Mean Keeping More
Although the prestigious private-university graduate earned $1 million more, if the original $400,000 in tuition had been invested rather than spent on tuition, it would have grown into an astronomical amount after nearly 40 years of compound growth.
The $250,000 Saved Can Compound
The $250,000 saved by following the public-university path is invested beginning at age 18. After 40 years, that money becomes $1.48 million. The additional $1.23 million was not earned through the child’s hard work. It came from “the money working on the child’s behalf.” The earlier it begins, the longer the money’s “working life,” and the more work it can do.
The Income “Premium” Provided by a Prestigious University
Compared with public-university graduates, prestigious private-university graduates do indeed earn more, making approximately $165,000 more in total over the course of their careers. However, the original $250,000 investment produced $1.48 million in value.
$165,000 vs. $1.48 million. The difference is nearly ninefold. In the author’s view, the “golden reputation” of a prestigious private university has great difficulty making up for this numerical gap.
03 Controversies Sparked by the Analysis that shows Graduates of American public universities accumulate more wealth
This analysis also sparked considerable discussion on overseas forums. The editor has summarized several important points of controversy:
Most Target Schools for Investment Banking and Consulting Are Private Universities
One commenter pointed out: “In certain high-income industries, such as investment banking and consulting, it is very difficult to enter unless you graduate from a target school. These schools are basically all private, apart from the University of Michigan and the University of Virginia, which are public universities.”
In other words, if you want to enter an MBB consulting firm or one of the nine major investment banks, the return on investment of attending a target school must be recalculated.
The Analysis Underestimates the Saving Ability of Private-University Graduates
One commenter complained: Is the author looking down on the saving ability of private-university graduates?
The commenter believes that how much a person saves should not depend only on a “percentage of income.” It should also depend on how much remains after spending.
Suppose two people maintain the same standard of living and spend $135,000 each year, for example. Denver’s personal income tax rate is 4.4%, and it is a flat tax rate, but this calculation does not take it into account:
A private-university graduate earns $220,000 annually. After spending $135,000, the graduate can save $85,000 rather than the $22,000 used in the analysis.
A trade-school graduate earns $150,000 annually. After spending $135,000, the graduate can save $15,000.
According to this commenter’s calculation, the private-university graduate can save $70,000 more each year than the trade-school graduate. If this difference is multiplied across several decades, the result produced through compound growth would be completely different.
Conditions Differ Between Countries
This analysis depends on two important assumptions:
Blue-collar workers can earn high incomes through their labor.
The average annual return of a broad stock-market index remains stable at 8%.
It is difficult for both conditions to exist simultaneously in countries outside the United States.
Furthermore, the true value of higher education is not only earning money but also “holding on to money.” The ability to delay gratification and the level of cognitive ability developed through higher education can help children truly keep wealth in their own hands.
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