Is a college education still a sound investment?

Is a college education still a sound investment?
Study considered the average annual return on a degree versus a high school diploma.
MAR 18, 2024

With the cost of college education adding a significant financial burden to millions of Americans each year, particularly in some highly specialized sectors such as health care, is it still prudent to continue formal education after high school?

While recent studies have highlighted the negative impact of student loan debt on retirement savings, often right up to the pre-retirement years, researchers from New York University and Rutgers University have looked at the return on investment for college education and found it to be generally positive.

Using data from the Census Bureau’s American Community Survey (2009–2021) of 2.9 million individuals with college degrees and 2.9 million individuals with high school diplomas only, between the ages of 18 and 65, the study considered the lifetime wage differentials between the two groups, and factors including tuition and other expenses, financial aid received, job earnings during college, and the opportunity costs that come with deferring full-time entry into the workplace.

Based on median earnings, the study revealed that those earning a degree gained by more than 9% for men and almost 10% for women compared to those with only a high school diploma.

“Our cost-benefit analysis finds that on average a college degree offers better returns than the stock market,” said study co-author Liang Zhang, a professor of higher education at the NYU Steinhardt School of Culture, Education, and Human Development. “However, there are significant differences across college majors and the return is higher for women than men.” 

The majors with the best returns were engineering and computer science (13% or more) while business, health, and math and science majors all produced double-figure returns. Conversely, arts and humanities returned around 8%.

WOMEN, MINORITIES

And while a recent study by Bankrate.com found that men dominate in achieving the top 20 most lucrative bachelor’s degrees, this latest research shows that women benefit from higher returns on investment compared to men, overall and for specific majors. Those from racial minority groups also gained more from a college degree compared to those whose education stalled after graduating high school.

“Our findings suggest that selecting majors with high returns is a sound financial decision, but at the same time, if a student has decided to pursue a major with a lower return, they may want to consider pursuing additional training or education to improve their labor market prospects,” Zhang said.

The study was published last week in American Educational Research Journal and was conducted by Liang Zhang from New York University, Xiangmin Liu from Rutgers University, and Yitong Hu from New York University.

Latest News

Farther debuts AI investment proposal tool for advisors to win clients
Farther debuts AI investment proposal tool for advisors to win clients

"Im glad to see that from a regulatory perspective, we're going to get the ability to show we're responsible [...] we'll have a little bit more freedom to innovate," Farther co-founder Brad Genser told InvestmentNews.

Are you optimally efficient?
Are you optimally efficient?

Taking a systematic approach to three key practice areas can help advisors gain confidence, get back time, and increase their opportunities.

Advisor moves: Father-son duo leaves Raymond James for LPL, RayJay adds Merrill Lynch alum in Florida
Advisor moves: Father-son duo leaves Raymond James for LPL, RayJay adds Merrill Lynch alum in Florida

Meanwhile, Osaic lures a high-net-worth advisor from Commonwealth in the Pacific Northwest.

Beacon Pointe adds six RIAs in two-month acquisition spree, boosting AUM by $2.7B
Beacon Pointe adds six RIAs in two-month acquisition spree, boosting AUM by $2.7B

The deals, which include its first stake in Ohio, push the national women-led firm up to $47 billion in assets.

RIA moves: RWA Wealth Partners strengthens leadership as $8B Procyon widens Northeast footprint
RIA moves: RWA Wealth Partners strengthens leadership as $8B Procyon widens Northeast footprint

The Dynasty Financial partner firm's latest deal in Connecticut adds roughly $600 million in client assets.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.