Costs, Debt, and Career Paths

The job market is evolving rapidly — faster than I can even keep up. Last year I left careers in finance, healthcare and digital publishing to jump into the world of higher education, which allowed me to see first-hand how quickly things are evolving in this industry.

For example, did you know that Gen Z is actively moving towards blue-collar careers due to the rising cost of education and increasing student loan burdens? These factors (and many more) have people questioning whether higher education is still worth it.

A World Economic Forum survey last year showed that many Americans believe a college degree is no longer relevant (and too expensive), and found that only 37.1% of 25-44 year-olds in the U.S. have a bachelor’s degree. Additionally, about 33% of students drop out before completing their degree.

Rising university tuition fees

The cost of higher education has risen over the past few decades. According to the College Entrance Examination Board, the average annual tuition fee for four-year public colleges and universities for the 2022-2023 academic year is $11,260 for in-state students and $29,150 for out-of-state students (an increase of 2.5% and 3%, respectively, not adjusted for inflation).

For private universities, the average tuition fee is a staggering $41,540 per year. This figure doesn’t include additional costs like room, board, and textbooks, which can add thousands of dollars to the total cost.

That means a traditional four-year degree can cost anywhere from about $44,000 to over $160,000 (depending on where you go and what degree you earn).

The impact of student loans

As a result of these rising costs, student loan debt is a significant financial burden for many graduates. According to the Federal Reserve, total student loan debt in the United States will reach $1.73 trillion in 2023, with the average borrower carrying about $37,000 in debt. Looking ahead to the first quarter of 2024, this figure will decrease slightly, with student loan debt at $1.6 trillion.

This debt can have long-term effects, impacting students’ ability to take financial actions such as buying a home, starting a family or saving for retirement.

Evaluating the ROI of a College Degree

Despite the high cost, many people still believe that a college degree is a worthwhile investment. In fact, a study conducted by the New York Fed last year showed that the average ROI on a bachelor’s degree is about 14 percent, which is significantly higher than the ROI of something like an index fund in most years.

Additionally, a recent report from Inside Higher Ed found that roughly 83% of colleges offer a minimum financial return, meaning that graduates earn enough to recoup their college investment within 10 years. This percentage is even higher for public universities.

The key to understanding its value is to evaluate the ROI, which involves comparing the cost of earning a degree with the lifetime economic benefits.

Revenue Premium

One of the main arguments in favor of higher education is the earnings premium it brings. According to data from the U.S. Bureau of Labor Statistics (BLS), the average weekly wage for someone with a bachelor’s degree is $1,305, compared to $781 for someone with only a high school diploma. Over a 40-year career, this translates to a difference in lifetime earnings of more than $1 million.

Unemployment rate

Higher education also correlates with lower unemployment rates. According to the U.S. Bureau of Labor Statistics (BLS), as of May 2024, the unemployment rate for those with a bachelor’s degree or higher is 2.0%, compared to 4.1% for those with only a high school diploma. This job stability can be an important factor in a degree holder’s long-term economic security.

Factors that impact ROI

While a college degree may seem financially advantageous due to the income premium and low unemployment rate, it is important to remember that the ROI of higher education is not uniform across all fields of study and institutions. There are several factors that influence the economic return of a degree.

Research Field

Your choice of major will greatly affect the ROI of your college degree. STEM (science, technology, engineering, and mathematics) fields generally have higher starting salaries and higher lifetime earnings than arts, humanities, and social science majors.

For example, a report from Georgetown University’s Center on the Education and Workforce found that engineering majors earned an average annual salary of $85,000, compared with $49,000 for those with arts degrees.

Type of institution and reputation

The type and reputation of the educational institution also plays a key role in determining the return on investment. Graduates of prestigious universities such as Harvard and Yale often enjoy better job opportunities and higher salaries.

In fact, according to the most recent data from Harvard Business School, the average base salary for a Harvard MBA graduate is $175,000, with signing and performance bonuses adding up to a significant increase in the total compensation package.

Additionally, graduates from the Yale School of Management have an average base salary of $175,000, with regional variations and even higher average salaries in certain parts of the US.

However, these institutions also tend to have higher tuition rates. For the 2024-2025 academic year, Yale University undergraduate tuition is $67,250, with a total cost including housing and food of $56,550 and a total cost including housing, food, and other fees of $82,866.

Therefore, it is very important to weigh the increased costs of attending a top school against the potential earnings benefits, not to mention how difficult and time-consuming it can be to apply and get into these types of schools.

Geographic location

Where you live affects both the cost of your education and your potential earnings: For example, universities in urban areas tend to have higher tuition fees, but graduates can also find higher-paying jobs in these areas.

On the other hand, attending a cheaper college in a more rural area may limit your job prospects but will reduce the overall cost of your education (depending on where you go).

For example, I went to two different universities. I started at Ohio University in Athens, Ohio, which is what they call a “college town,” but it’s in the middle of nowhere and there aren’t many job opportunities unless you work at the university.

However, I earned my undergraduate degree and MBA from Cleveland State University, and while it was a lesser known institution, it was centrally located in downtown Cleveland and surrounded by local, national and international employers, so I had far more options.

Conclusion

The return on investment of higher education is a complex and multifaceted issue. While a college degree often translates to increased personal income and lower unemployment in the economy, the financial benefits vary widely based on factors such as field of study, type of institution, and geographic location. Additionally, rising tuition costs and student loan burdens cannot be ignored.

It is important that anyone considering higher education do thorough research and carefully evaluate the potential financial outcomes. Exploring alternative educational pathways may provide realistic options for achieving financial success without the significant costs associated with a traditional four-year degree.