In general, the economic benefits of a college education still far outweigh the high cost. However, college does not pay off for everyone, according to a new study by the Federal Reserve Bank of New York.
Many factors, including how much financial aid is offered and how much students have to pay out of pocket, as well as the choice of major, future earnings potential and how long it takes to graduate, determine the actual return on investment, the Fed researchers found.
Overall, “majors providing technical training — that is, quantitative and analytical skills—earn the highest return, including engineering, math and computers,” the Fed researchers wrote in the blog post on April 16.
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“While expensive schools and on-campus living may seem to make college a risky bet, our estimates suggest that even a relatively high-cost college education tends to yield a healthy return for the typical graduate,” the Fed researchers said.
“Taking five or six years to complete a degree also still generally pays off. However, as many as a quarter of college graduates appear to end up in relatively low-paying jobs, and for them, a college degree may not be worth it, at least in terms of the economic payoff,” according to the Fed researchers.
‘College continues to get more expensive’
Meanwhile, studies consistently demonstrate that college costs continue to rise faster than the growth of financial aid. This means families and students are bearing a greater share of the financial burden of higher education.
College tuition costs have indeed risen significantly, averaging a 5.6% annual increase since 1983, outpacing inflation and other household expenses. And families now shoulder 48% of college expenses with their income and investments, up from 38% a decade ago, according to a report by J.P. Morgan Asset Management.
“College continues to get more expensive and even though we’ve made aid more accessible by making the FAFSA [The Free Application for Federal Student Aid] shorter and more digestible, it’s not enough,” said Tricia Scarlata, head of education savings at J.P. Morgan Asset Management. (The new Free Application for Federal Student Aid was meant to improve access by expanding aid eligibility.)
In fact, these days, more students are opting out. Both bachelor’s degree and associate degree earners fell for the third consecutive year in 2023-24, according to a recent report by the National Student Clearinghouse Research Center.
“Today’s students want shorter-term, lower-cost credentials that lead to faster employment opportunities,” Doug Shapiro, the National Student Clearinghouse Research Center’s executive director said in a statement.
“It is certificate programs, not associates or bachelor’s degrees, that are drawing students into colleges today,” Shapiro added.