College Degree Still Sound Investment, Despite Rising Tuition

Earning a college degree is still a sound investment, although the rate of economic return varies across college majors and student demographics, according to a new American Educational Research Association (AERA) analysis of 5.8 million Americans.

Dr. Liang Zhang“Our cost-benefit analysis finds that on average a college degree offers better returns than the stock market,” said study coauthor Dr. Liang Zhang, a professor of higher education at New York University’s Steinhardt School of Culture, Education, and Human Development.

Zhang noted, however, that there are significant differences across college majors and that the return is higher for women than for men. College graduates from racial minority groups also tended to have slightly higher returns than the white graduates, although the gaps were not as large as the gender gaps.

The study — published by the peer-reviewed American Educational Research Journal of AERA — estimated the lifetime rates of return of a college degree, analyzing the current and future economic benefits and costs to graduates. It relied on 2009–2021 data from the U.S. Census Bureau’s American Community Survey for 2.9 million individuals with college degrees and 2.9 million individuals with high school diplomas only, between ages18 and 65.

Comparing individuals who completed a bachelor’s degree to those who only finished high school, the researchers Zhang, Dr. Xiangmin Liu from Rutgers University, and Yitong Hu from New York University found that earning a degree provided a rate of return on investment of 9.88% for women and 9.06% for men, based on median earnings. A college education, in other words, is expected to yield an annual rate between 9% and 10% throughout an individual’s career.

Across 10 fields of study, engineering and computer science majors experienced the highest median returns, exceeding 13%, followed by business, health, and math and science majors, up to 13%. Biology, agriculture, and social science majors garnered returns up to 9%, while education and humanities and arts majors had returns of less than 8%.

“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,” said Zhang.

“From a public policy perspective, if certain majors are deemed essential to society but have low returns, policymakers may consider increasing financial aid for students in those majors or increasing pay levels for workers in related occupations,” he continued. “This can help ensure that the social benefits of these majors are recognized, even if their individual returns are lower.”