Education Insights THE VALUE OF A MASTER S DEGREE IN EDUCATION Teachers earning a master s degree in education early in their career increase their lifetime income by Mak Kaboudan, Ph.D. Contents About the Author Total Financial Benefits of Earning a Master s Degree in Education Detailed Comparisons Scenario 1: Earning potential from receiving a master s degree at age 30 Scenario 2: Earning potential from receiving a master s degree at age 40 A Master s Degree Continues to Pay Off During Retirement Retirement Benefits: Teacher A, B, and C Scenarios Is the long-term pay off worth the short-term debt? There are a number of reasons that teachers decide to pursue a master s degree. Not only does it reinforce a commitment to education, but it can also have a substantial impact on a teachers lifetime earning potential, particularly if completed early in their career. A recent analysis conducted by University of Redlands School of Business Professor Mak Kaboudan confirms that for teachers who earn a master s degree from the University of Redlands at age thirty, or even at age forty, their increased income would not only pay for the cost of the master s degree after ten years, but their lifetime income could increase by more than $650,000. Below is a quick look at the total financial benefits a teacher might expect from earning a master s degree. More information and conclusions from this analysis can be found on the pages that follow, including: Income comparisons based on receiving a master s degree at age 30 and age 40 Income comparisons during retirement Return on investment for taking a loan to finance a master s degree
About the Author Mak Kaboudan is a professor at the University of Redlands School of Business, specializing in the areas of computational methods, business statistics, economic forecasting, econometrics and analysis. Currently, Dr. Kaboudan writings are in the field of computational economics and finance. His research includes work on applications of neural networks and genetic algorithms for predicting exchange rates, stock prices, sunspot numbers, home prices and the S&P Case/Shiller index. He has won numerous awards and published extensively on a variety of topics throughout his career. His consulting experience includes electricity forecasting, econometrics, and the development of a five-year economic plan for the country of Kuwait. He holds a B.S. from Cairo University, an MBA from Marshall University, an M.A. from West Virginia University, and a Ph.D. from West Virginia University. About Our Master s Degrees in Education The University of Redlands School of Education offers five graduate degree programs at the master s level with an emphasis on school counseling, college counseling, curriculum and instruction, educational administration, and higher education. Each master s degree program is based on a foundation of common graduate courses which provide the basic knowledge and skills necessary to perform: graduatelevel research; assessment, evaluation and writing; curriculum and program development; and personal and professional reflection. For more information, visit redlands.edu or call 1-888-999-9844. University of Redlands Education Insights THE VALUE OF A MASTER S DEGREE IN EDUCATION 2
A Quick Look: Total Financial Benefits of Earning a Master s Degree in Education $3,007,053 $2,983,438 $2,328,757 Total Salary Total Retirement Teacher A Teacher B Teacher C Teacher A: Bachelor s Degree Only Total Salary: $1,533,688 Total Retirement: $795,069 Total Income Benefits: $2,328,757 Teacher B: Master s Degree at Age 30 Total Salary: $1,885,122 Total Retirement: $1,121,931 Total Income Benefits: $3,007,053 Enhanced Benefit Value from A: $678,296 Teacher C: Master s Degree at Age 40 Total Salary: $1,861,507 Total Retirement: $1,121,931 Total Income Benefits: $2,983,438 To make our calculations, we established the following conservative assumptions. (Actual results may be higher according to one s age, income, salary and employee benefits at the time he or she received a master s degree.) Here you can see a comparison of the total financial benefits for a teacher without a master s degree (Teacher A), a teacher who receives their master s at age 30 (Teacher B) and a teacher who receives a master s at age 40 (Teacher C). Although not adjusted for inflation, it s estimated that both teacher with a master s degree would earn over $650,000 more during their lifetime than a teacher without a master s degree. The following assumptions were made to arrive at these conclusions: At the start before earning master s degree each teacher was earning $40,000 per year. The difference in salary between those who obtained a master s degree and those who didn t was calculated at a conservative 5%. Teachers without a master s degree are eligible for annual salary increases for 10 years only, while those with a master degree are eligible for 20 years of pay raises. Teachers earning a master s degree borrowed $25,000 (cost of a master s degree from the University of Redlands) and paid it back over 12 years at 3% interest. Teachers A, B and C will retire at age 60 and survive to age 80. Again, the figures presented in this analysis have not been adjusted for inflation. Enhanced Benefit Value from A: $654,681 University of Redlands Education Insights THE VALUE OF A MASTER S DEGREE IN EDUCATION 3
The Value of a Master s Degree from the University of Redlands: Detailed Comparisons A master s degree is one of the safest and surest investments a teacher can make in his or her career, particularly as it relates to total earning potential. As stated earlier, teachers earning a master s degree can expect to earn over $650,000 more in their lifetime than teachers without a master s degree enough to cover the cost of a house in many parts of the country. In the pages that follow, we dig a little deeper into the comparisons of teachers earning potential based on when they receive their master s degree and how that impacts not only their earnings during their years of teaching, but also during retirement. We also take a look at the financial impact of securing a student loan to finance a master s degree in education from the University of Redlands. University of Redlands Education Insights THE VALUE OF A MASTER S DEGREE IN EDUCATION 4
Scenario 1: Earning potential from receiving a master s degree at age 30 $80,000 $75,000 $70,000 Difference in annual income between A and B through the age of 60 $65,000 Income $60,000 $55,000 $50,000 $45,000 Teacher A Teacher B $40,000 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 This shows the difference in income between Teacher A, who does not have a master s degree, and Teacher B, who has earned a master s from the University of Redlands at age 30. Annual pay raises are estimated to be 3% for 10 years for the teacher without a master s degree. However, a teacher with a master s degree would receive an 8% increase the first year after completing their degree (3% plus a 5% increase for receiving their master s) and then an annual 3% increase until their 20th year of teaching. The 30-Year Difference By the age of 60, a teacher who earned their master s degree at age 30 will make about $350,000 more than a teacher without a master s degree. Year Teacher A s Without Master s Teacher B s With Master s Difference 2012-13 $40,000 $40,000 0 2013-14 $41,200 $43,260 $2,060 2014-15 $42,436 $44,558 $2,122 2015-16 $43,709 $45,895 $2,185 2016-17 $45,020 $47,271 $2,251 2017-18 $46,371 $48,690 $2,319 2018-19 $47,762 $50,150 $2,388 2019-20 $49,195 $51,655 $2,460 2020-21 $50,671 $53,204 $2,534 2021-22 $52,191 $54,800 $2,610 2022-23 $53,757 $56,444 $2,688 2023-24 $53757 $58,138 $4,381 2024-25 $53,757 $59,882 $6,125 2025-26 $53,757 $61,678 $7,922 2026-27 $53,757 $63,529 $9,772 2027-28 $53,757 $65,435 $11,678 2028-29 $53,757 $67,398 $13,641 2029-30 $53,757 $69,420 $15,663 2030-31 $53,757 $71,502 $17,746 2031-32 $53,757 $73,647 $19,891 2032-33 $53,757 $75,857 $22,100 2033-34 $53,757 $75,857 $22,100 2034-35 $53,757 $75,857 $22,100 2035-36 $53,757 $75,857 $22,100 2036-37 $53,757 $75,857 $22,100 2037-38 $53,757 $75,857 $22,100 2038-39 $53,757 $75,857 $22,100 2039-40 $53,757 $75,857 $22,100 2040-41 $53,757 $75,857 $22,100 2041-42 $53,757 $75,857 $22,100 Total $1,533,688 $1,885,122 $351,434 University of Redlands Education Insights THE VALUE OF A MASTER S DEGREE IN EDUCATION 5
Scenario 2: Earning potential from receiving a master s degree at age 40 $80,000 $75,000 $70,000 Difference in annual income between A and C, through the age of 60 $65,000 Income $60,000 $55,000 $50,000 $45,000 Teacher A Teacher C $40,000 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 In this example, Teacher C has earned his or her master s degree at age 40 10 years later than in the previous example. Here we compare their potential earnings during their years teaching to Teacher A, who did not receive a master s degree. The 40-Year Difference By the age of 60, a teacher who s earned a master s degree will make over $325,000 more than a teacher without a master s degree not as much as if he or she had received their degree at age 30, but still a considerable amount more than not receiving one at all. Year Teacher A s Without Master s Teacher C s With Master s Difference 2012-13 $40,000 $40,000 0 2013-14 $41,200 $41,200 0 2014-15 $42,436 $42,436 0 2015-16 $43,709 $43,709 0 2016-17 $45,020 $45,020 0 2017-18 $46,371 $46,371 0 2018-19 $47,762 $47,762 0 2019-20 $49,195 $49,195 0 2020-21 $50,671 $50,671 0 2021-22 $52,191 $52,191 0 2022-23 $53,757 $53,757 0 2023-24 $53,757 $58138 $4,381 2024-25 $53,757 $59,882 $6,125 2025-26 $53,757 $61,678 $7,922 2026-27 $53,757 $63,529 $9,772 2027-28 $53,757 $65,435 $11,678 2028-29 $53,757 $67,398 $13,641 2029-30 $53,757 $69,420 $15,663 2030-31 $53,757 $71,502 $17,746 2031-32 $53,757 $73,647 $19,891 2032-33 $53,757 $75,857 $22,100 2033-34 $53,757 $75,857 $22,100 2034-35 $53,757 $75,857 $22,100 2035-36 $53,757 $75,857 $22,100 2036-37 $53,757 $75,857 $22,100 2037-38 $53,757 $75,857 $22,100 2038-39 $53,757 $75,857 $22,100 2039-40 $53,757 $75,857 $22,100 2040-41 $53,757 $75,857 $22,100 2041-42 $53,757 $75,857 $22,100 Total $1,533,688 $1,861,507 $327,819 University of Redlands Education Insights THE VALUE OF A MASTER S DEGREE IN EDUCATION 6
A Master s Degree Continues to Pay Off During Retirement Retirement Benefits: Teacher A, B, and C Scenarios $56,097 $16,343 (29%) Difference $39,753 Difference in retirement annual income between A and B or C Teacher A Teacher B & C The benefits of receiving a master s degree continue to pay off when these three teachers retire. Assuming that all three of these teachers retire at age 60 and live until 80, both teachers with a master s degree (teachers B and C) will earn about $327,000 more over the twentyyear retirement period than the teacher without a master s. They re earning exactly the same retirement income because their salaries reached the same maximum before they retired. (The annual incomes in this table are just under 74% of the last income each teacher earned.) Difference in annual retirement income Year A s Without Master s B s or C s With Master s Difference 2042 $39,753 $56,097 $16,343 2043 $39,753 $56,097 $16,343 2044 $39,753 $56,097 $16,343 2045 $39,753 $56,097 $16,343 2046 $39,753 $56,097 $16,343 2047 $39,753 $56,097 $16,343 2048 $39,753 $56,097 $16,343 2049 $39,753 $56,097 $16,343 2050 $39,753 $56,097 $16,343 2051 $39,753 $56,097 $16,343 2052 $39,753 $56,097 $16,343 2053 $39,753 $56,097 $16,343 2054 $39,753 $56,097 $16,343 2055 $39,753 $56,097 $16,343 2056 $39,753 $56,097 $16,343 2057 $39,753 $56,097 $16,343 2058 $39,753 $56,097 $16,343 2059 $39,753 $56,097 $16,343 2060 $39,753 $56,097 $16,343 2061 $39,753 $56,097 $16,343 Total $795,069 $1,121,931 $326,863 University of Redlands Education Insights THE VALUE OF A MASTER S DEGREE IN EDUCATION 7
Is the long-term pay off worth the short-term debt? Many teachers are understandably concerned about the cost of obtaining a master s degree, particularly given the current economic environment. However, our calculations show that the long-term pay off is well worth the loan you may need to pay for your degree now. This table shows that even if a teacher finances the total cost of their master s degree* at an annual interest rate of 3%, annual payments on the loan are nearly offset by the increased income. As the table here shows, the annual payments on the loan are $222.59 a month, yet the first year income boost is $2060 or $171.67 a month. This means that Teacher B would have to pay only $69.74 monthly for the first year and even less as each year passes. After the 10th year, a master s degree would show a profit with positive cash flows. Loan payment schedule for Teacher B Year Difference Annual Payment Out of Pocket 2013-14 $2,060.00 $2,896.82 $836.82 2014-15 $2,121.80 $2,896.82 $775.02 2015-16 $2,185.45 $2,896.82 $711.37 2016-17 $2,251.02 $2,896.82 $645.80 2017-18 $2,318.55 $2,896.82 $578.27 2018-19 $2,388.10 $2,896.82 $508.72 2019-20 $2,459.75 $2,896.82 $437.07 2020-21 $2,533.54 $2,896.82 $363.28 2021-22 $2,609.55 $2,896.82 $287.27 2022-23 $2,687.83 $2,896.82 $208.99 2023-24 $4,381.17 $2,896.82 -$1,484.35 2024-25 $6,125.30 $2,896.82 -$3,228.48 Although a specific loan payment schedule is not shown for Teacher C, the pay off would be even quicker since he or she earned a master s degree at age 40 when he or she was at a higher income level than a teacher at age 30. In fact, the increased income in 2023-24 (after obtaining a master s degree in 2022-23) and over the next four years would pay for the cost of obtaining the master s degree for Teacher C. * Current cost of obtaining a master s degree in education from the University of Redlands is approximately $25,000. University of Redlands Education Insights THE VALUE OF A MASTER S DEGREE IN EDUCATION 8