College degrees pay off financially, study finds
By Ryan General
Earning a college degree still pays off financially, even as the return on investment varies by major and some demographic groups, a new study shows.
Key points:
- College degree holders, on average, enjoy an annual return on investment (ROI) of 9.88% for women and 9.06% for men, surpassing the returns from the stock market.
- Engineering and computer science majors lead the pack with median returns exceeding 13%, while fields like education and humanities fall on the lower end with returns at less than 8%.
- Female and minority graduates tend to experience slightly higher returns than their male and White counterparts, respectively.
The details:
- A recent analysis of 5.8 million Americans published in American Educational Research Journal concluded that despite rising college costs and shifting job markets, a college degree remains a viable investment.
- The study, co-authored by Liang Zhang from New York University and Xiangmin Liu and Yitong Hu from Rutgers University, utilized data from the U.S. Census Bureau’s American Community Survey spanning from 2009 to 2021.
- It considered factors such as wage differentials, tuition expenses, financial aid, job earnings during college and opportunity costs associated with delaying full-time employment.
- While college degrees offer superior returns compared to the stock market, disparities exist across majors, with higher returns seen in STEM fields and lower returns in education and humanities. Despite robust early returns, a slight decline in ROI was noted over time, due to escalating college expenses outpacing earnings growth for graduates.
- Female graduates generally yield higher returns than male counterparts across all majors and minority graduates also experience slightly higher returns than white graduates.
What the researchers say:
- Zhang emphasizes the importance of selecting majors wisely, suggesting additional training or education for fields with lower returns and advocating for targeted financial support for essential but less lucrative majors.
- “Given the substantial gap in returns across college majors and the anticipated job growth in the information technology and health sectors, these trends will likely continue before reaching a new equilibrium,” Zhang explained. “That would have a profound impact on higher education as an industry and on individuals who are making decisions about where and what to study.”
Why it matters:
- Public skepticism toward the value of a college degree in the U.S. has grown due to rising tuition costs and a changing workforce. Recent declines in college enrollment underscore the urgency of addressing affordability and making the value of higher education more apparent to the public.
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