The job market is evolving rapidly, faster than I can possibly keep up with. Last year, I left my career in finance, healthcare, and digital publishing to dive into the world of higher education, and I saw firsthand how quickly things are evolving in this industry.

For example, did you know that Generation Z is actively moving toward blue-collar careers due to the rising cost of education and the increasing burden of student loans? These factors (and many others) are causing people to question whether higher education is even valuable anymore.

Just last year, the World Economic Forum conducted a study that showed that many Americans now consider college degrees to be less relevant (and too expensive). It also showed that only 37.1% of 25- to 44-year-olds in the United States have a bachelor’s degree. In addition, about 33% of students drop out before completing their degree.

The rising cost of college

Over the past few decades, the cost of higher education has skyrocketed. According to the College Board, the average tuition for a four-year public university in the 2022-2023 academic year was $11,260 for in-state students and $29,150 for out-of-state students (an increase of 2.5% and 3%, respectively, before adjusting for inflation).

At private universities, the average tuition was a staggering $41,540 per year. These figures do not include additional costs such as room, board, and textbooks, which can increase the total cost by several thousand dollars.

This means that for a traditional four-year degree, you can expect to pay anywhere from $44,000 to over $160,000 (depending on where you study and what degree you are pursuing).

Impact of student debt

Because of these rising costs, student loans have become a significant financial burden for many graduates. According to the Federal Reserve, total student loan debt in the United States was $1.73 trillion in 2023, with the average borrower owing about $37,000. This number dropped somewhat when looking at the first quarter of 2024, where student loan debt was at $1.6 trillion.

This debt can have long-term consequences and affect students’ ability to take financial actions such as purchasing a home, starting a family, or saving for retirement.

Assessing the ROI of a college degree

Despite the high cost, many still believe that a college degree is a worthwhile investment. In fact, a study by the New York Fed last year found that the average return on investment for a bachelor’s degree is about 14% – which in most years significantly exceeds the return on investment of an index fund.

In addition, a recent report from Inside Higher Ed found that about 83% of colleges earn a minimum return, meaning their graduates earn enough to recoup their college investment within ten years. That percentage is even higher for public institutions.

The key to understanding its value is to evaluate the ROI, which compares the cost of earning a degree with the financial benefits it provides over a lifetime.

Yield premium

One of the main arguments in favor of higher education is the higher income it brings. According to the U.S. Bureau of Labor Statistics (BLS), people with a bachelor’s degree earn an average of $1,305 per week, compared to $781 per week for people with only a high school diploma. Over a 40-year career, that represents a difference of more than a million dollars in lifetime earnings.

Unemployment rates

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

Factors that influence ROI

While higher incomes and lower unemployment rates suggest that a college degree can be financially beneficial, it is important to remember that the ROI of a college education is not the same across all majors and at all schools. There are several factors that affect the financial return of a degree:

Research area

The choice of major has a significant impact on the ROI of a college degree. STEM (science, technology, engineering, and mathematics) fields generally offer higher starting salaries and higher lifetime earnings than majors in the humanities or social sciences.

For example, a report by Georgetown University’s Center on Education and the Workforce found that the median annual salary for engineering students is $85,000, while the average salary for arts graduates is $49,000.

Type and reputation of the institution

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

According to recent data from Harvard Business School, the median base salary of Harvard MBA graduates is $175,000, with additional signing and performance bonuses significantly increasing their total compensation package.

Additionally, graduates of the Yale School of Management report a median base salary of $175,000, with regional differences in certain parts of the United States showing even higher average salaries.

However, tuition fees at these institutions are also higher. For the 2024-2025 academic year, the tuition fee for an undergraduate degree at Yale is $67,250, with the total cost including room and board being $56,550, with the total cost including room, board, and other fees being $82,866.

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

Geographical location

Where you live can affect both the cost of education and potential earnings. For example, colleges and universities in urban areas tend to charge higher tuition, but graduates may also find better-paying jobs there.

On the other hand, attending a less expensive college or university in a more rural area may limit your job prospects but may lower your overall education costs (depending on where you study).

For example, I went to two different colleges – I started at Ohio University in Athens, Ohio. It’s what I would call a “college town,” so it’s in the middle of nowhere, and unless you work for the university, there aren’t many job opportunities there.

However, I completed my undergraduate and MBA at Cleveland State University. Although it is a lesser-known university, it was located in the heart of downtown Cleveland, surrounded by local, national and international employers, so I had many more opportunities there.

Diploma

The return on investment in higher education is a complex and multifaceted issue. While a college degree often leads to higher incomes at the individual level and lower unemployment rates at the economic level, the financial benefits can vary greatly depending on factors such as field of study, type of college, and geographic location. In addition, the rising cost of tuition and the burden of student debt cannot be overlooked.

For those considering a college education, it is important to do thorough research and carefully consider the potential financial consequences. Exploring alternative educational paths can also provide viable options for financial success without having to bear the seemingly enormous costs of a traditional four-year degree.