A university education has traditionally been seen as a way to raise the ladder of the economy. However, an analysis by economists at the Federal Reserve Bank of New York shows that the cost of a degree may not necessarily be worth it.
The value of university education has been increasingly questioned in recent years, especially as tuition fees steadily rise and millions of Americans are working on student loans. As a result, there are only four American adults who say it’s very or very important to get a four-year university degree to earn a four-year university degree, according to the 2024 Pew Research Poll.
Certainly, if you go to university, you will remain strong. Another study by the New York Fed found that in recent years a typical college graduate earned a bachelor’s degree annual income is around $80,000, and for those with only high school diplomas, it is $47,000, a 68% premium.
However, a recent survey by the Fed Bank suggests that university degrees have not been rewarded by at least 25% of university graduates in recent decades.
Of course, not everyone goes to university primarily to earn a high income. After all, education can be a unique reward. But how you navigate your university career or whether you chose to attend at all is one of the most important financial decisions that a person makes.
It’s when your diploma may not be able to do much.
When might a university degree not worth it?
Naturally, the more students need to spend on out-of-pocket expenses, the lower the typical return on investment. According to a New York Fed research, the average college student pays a pocket of about $30,000 over four years of university. However, students can face quite high costs if they choose to live on campus or are forced to miss financial aid and pay the full school.
According to the New York Fed, a typical university graduate sees a return on investment (ROI) of around 12.5%. This rate has changed little over the past 30 years and exceeds the revenue of most other investments, including the stock market.
Despite this reward, certain factors can lower university grades. For example, researchers found that living on campus reduces the return on investment by about $30,000 (increasing the price of a university from $180,000 to $207,000) to around 11%. A 1.5% drop in ROI may seem nominal, but it can be converted to hundreds of thousands of dollars of lost dollars.
“This extra cost and associated returns are comparable to attending a costly school about twice the average price,” researchers and economists Jason Abel and Richard Deitz said in the study.
Of university graduates, 25% believe that they actually have little return on investment. The group earned less than $10,000 in 2024 than the median high school graduates. Their return rate was only 2.6% compared to an average of 12.5%.
Another factor that can reduce the value of a university degree is the time it takes to obtain it. A typical bachelor’s degree program runs for four years, but in some cases, it may extend the timeline if the student has not completed the course load. That could have great financial implications.
Taking an extra year or two to get your degree is “a significant addition to the cost,” the New York Fed discovered. There is a direct cost that students have to pay additional tuition fees, but there is also a higher “opportunity cost.” For example, students starting their careers can miss out on years of work experience and earn less money over their lifetimes.
“Overall, we estimate that if it takes five years to complete a university, the median return will be pushed to about 9%, and if it takes six years it will be pushed to 7%,” the researchers found.
Graduates in five years rather than four will boost your total college costs from $180,000 to $272,000, and six years will cost you $364,000.
What are the main questions for students?
Another important consideration when deciding whether going to college is a healthy investment is the student major. After all, certain fields tend to lead to higher incomes.
According to data from the New York Fed, so-called STEM majors tend to earn the most in both the early and mid-career periods. For example, bank data shows that the central wage is $122,000 for education majors, compared to $55,000.
Areas of research with the highest returns include engineering, business and health sciences. This return is the worst for those who major in art, liberal arts, leisure, hospitality and education, which were ranked last.
“Some of that may come down to the choices people make for the work they want, but one important consideration is the university major, something students have direct control,” writes Abel and Dietz.
