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Here's how much it will cost you to spend an extra year in college

Taking an extra year or two to complete a college degree is nothing out of the ordinary in the U.S. — as it happens, only 39% of four-year college students actually finish school in four years, while 59% of students take an extra year or two.

Research published Wednesday by the Federal Reserve Bank of New York shows how costly it can be to stretch out your college years past the four-year mark— to the tune of $65,000 of lost lifetime earnings for every year you delay graduation. On Tuesday, the New York Fed released a report showing how valuable a college degree is.

Not only do students who stay in school longer wind up paying more upfront (net college tuition in the U.S. is about $8,890 per year), but delaying their entry into the job market can cost them tens of thousands of dollars in future earning potential.

“Entering the job market a year or two late damages students’ lifetime earnings profile,” researchers Jaison R. Abel and Richard Deitz wrote. “In addition to giving up one or two years of college-level earnings while in school, students miss out on a year or two of experience and the extra push that gives their wages over their working life.”

“The earnings wedge”

Source: New York Federal Reserve

The later you graduate from college, the harder it will be to catch up to your peers in the job market.

A typical 22-year-old who finishes his or her bachelor’s in four years would earn an average salary of $37,500 at an entry level gig, according to the Fed. By the time they hit 25, they will have bumped their salary up to $45,500.

If that same student were to wait a year to graduate and start at the same entry-level salary, they would only be making $43,000 by 25 — losing out on $2,500 per year in earnings. A six-year graduate would only earn $40,000 by age 25, forfeiting $5,500 worth of potential earnings.

It may not sound like much, but when Abel and Deitz looked at the cost of these lost earnings over a lifetime, they found that the later graduates never really catch up to those who finished in four years.

Taking a longer view compounds the financial loss. An extra year of school can cost more than $85,000 by the the time college graduates reach retirement. Two years can cost $174,000. When applying a 5% discount rate to account for inflation, the authors estimate that students can lose $65,000 over their lifetime for each additional year they spend in school and out of the workforce.

Because of these lost earnings, the longer you stay in school, the less likely you are to see long-term gains on your educational investment — the thousands of dollars you shelled out for tuition, fees and other college-associated expenses.

Lower return on investment

Source: New York Federal Reserve

In a separate report by the same researchers, the Fed calculated the average return on investment college graduates can expect. Four-year graduates average a 14% return on their college investment, Abel and Deitz found. That rate of return drops to 11% for five-year graduates and 8% for six-year graduates.  Inserted the wrong chart before.

There are plenty of reasons a student may choose to delay their graduation date.

They can change majors, transfer schools, take time off for medical reasons, or simply decide to spend a semester working full-time to avoid financing the rest of their school years with student loans.

It seems unrealistic to expect everyone to follow the same standard four-year path to earning a college degree. But, if anything, the Fed’s report may help some students make a more educated decision before they push off their studies.

In addition to lost earning potential, there’s another risk late graduates may face — more employer scrutiny. Millennials are already viewed as a skittish bunch by employers today (the average American 25-year-old has already held six different jobs). If your employer wants to know why it took you six years to finish a bachelor’s degree, be ready to defend yourself. Chances are they’ll be more willing to give someone the benefit of the doubt if they had good reason to prolong college (for example: taking a year off to take a skill-boosting internship or to get ahead of student loan debt).

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