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Skeptical of the four-year college degree? It’s still your best bet to make money.
Backlash against college as a common stop on the road to adulthood has mounted over the past decade. Critics say four-year degree programs saddle most students with five-digit debt without a clear path from classroom to career.
Nearly half (46%) of all families surveyed in November and December 2020 by Gallup for the Carnegie Corporation of New York said they would prefer their children attend alternatives to four-year institutions — even when there were no financial barriers.
But when you compare the value of a four-year degree with other credentials — a high school diploma, certificate programs and associate degrees — it still puts workers at an advantage in the labor market and leads to higher lifetime earnings, on average.
Bachelor's degrees are typically a good investment
If a college degree is an investment, it’s a good one, according to the New York Federal Reserve. The annual return on a typical four-year degree is around 14%, it calculates, well above the threshold of “good” returns for stocks (around 7%) and bonds (3%).
In dollar terms, graduates with a bachelor’s degree will earn on average about $78,000 annually, compared with a high school diploma earner who receives around $45,000 annually, according to 2019 data from the New York Federal Reserve.
However, “on average” doesn’t mean that the return on your education, or college earnings premium, will always be a gain. Where you attend school, how much debt you take on, what you study and where you live after school all help determine your return. Many of those factors are influenced by your race, ethnicity and gender.
Your ability to repay debt affects your degree's value
Student loan debt is difficult to avoid and even more challenging to repay. College costs rose 117% from 1985-86 to 2018-19, according to federal data. Wages, meanwhile, didn’t keep pace, growing only 19% during the same period, according to the Federal Reserve Bank of St. Louis.
However, loans are still the primary vehicle for families without wealth to obtain college degrees. In order to make your degree worth it, you have to earn enough to justify it. That means carrying debt that won’t put you underwater — a manageable student loan payment is around 10% of your discretionary after-tax income.
To get the best return and be able to repay debt, graduation is crucial — many borrowers who default will have debt but no degree.
“That’s the worst-case scenario — you're incurring some of those costs but with very, very little benefit,” says Jonathan Rothwell, principal economist at Gallup.
Demand for your major matters
What you study in school will affect the type of job you can get, your earnings and your ability to repay debt.
Average earnings at mid-career are highest among those who hold a bachelor’s degree in fields like science, technology, engineering and math, or STEM ($76,000), business ($67,000) and health ($65,000), according to a 2015 data report from Georgetown University’s Center for Education and the Workforce.
The same report found the lowest median mid-career earnings among those whose bachelor’s degrees were in fields like arts, humanities and liberal arts ($51,000), as well as teaching and serving roles such as social work ($46,000).
To estimate earnings, graduation rates, typical student debt loads and other factors at individual schools, use the Education Department’s College Scorecard tool. You can search and compare earnings as well as debt by fields of study.
Where you live after graduation also matters
Where you live after attaining your degree also affects its value, according to the results of a May 2020 study for the Thomas B. Fordham Institute, a conservative nonprofit think tank.
“In general, college degrees are a good investment, but the return in terms of cosmopolitan areas is phenomenal,” says John Winters, associate professor of economics at Iowa State University, who conducted the study.
In cities, bachelor’s degree holders earn $95,229 on average, an 86.2% premium compared to a worker with a high school diploma and a 55.7% premium compared to an associate degree holder.
Winters says that’s primarily because cities have a higher concentration of jobs in fields that often demand workers have four-year degrees, such as tech, finance and marketing. Workers in these fields earn higher wages, which leads to a greater return on investment for degrees.
However, Winters’ findings also mean it’s less critical to have a four-year degree if you want to live in a smaller metro or rural area. Bachelor’s degree holders in nonurban areas have mean earnings of $67,893, which puts their wages at a 46.4% premium compared to high school diploma holders and a 29.6% premium compared to associate degree holders.
Degree attainment doesn't guarantee equity
In some ways a college degree can exacerbate income and racial inequalities, such as student debt and ability to repay that debt, says Marshall Anthony Jr., a senior policy analyst at Center for American Progress, a public policy research organization.
“A college degree doesn't usually work the same for everybody,” Anthony says
Black borrowers tend to take on greater amounts of debt — about $25,000 more, on average, than white borrowers, according to federal data.
In 2016, among those with a bachelor’s or higher degree, Asian full-time, year-round workers ages 25-34 had higher median annual earnings ($69,100) than their white peers ($54,700), and median earnings for both racial/ethnic groups were higher than those of their Black ($49,400) and Hispanic ($49,300) peers, according to the most recent available data by the National Center for Education Statistics.
Higher debt and lower wages also mean Black borrowers will accrue more interest over time: Four years after graduating from college, Black graduates have $52,726 in student loan debt compared to White graduates at $28,006, according to a 2016 Brookings Institution study.