By Kritika Agarwal and Graham Andrews
In a new study, economists at the Federal Reserve Bank of New York looked at the costs of a college education and then compared those costs against what students earn after graduation. They found that a college education offers a 12.5% rate of return for the typical graduate, a rate that is “well above the threshold for a sound investment.”
The study analyzed both the direct and opportunity costs for college students – direct costs are “tuition, fees, books, and supplies but do not include room and board, as those costs must be incurred whether one attends college or not” while the opportunity costs are what students “must give up while attending college … forgone wages that could have been earned by working instead of attending school.”
The analysts found that, despite public perceptions, the direct costs of college have declined over the last 15 years because of falling net tuition prices and more scholarships and grant aid; opportunity costs, however, have risen because “tight labor market conditions [have] boosted the real wages of those without a college degree.” The study estimates that, taken together, the average total cost of a college degree was $180,000 in 2024 ($30,000 in direct costs and $150,000 in opportunity costs when completing a college degree in four years).
Direct “Out of Pocket” Costs Have Fallen Since 2010
The study found, however, that wages for college graduates have risen faster than wages for high school graduates and that college graduates continue to “earn a substantial wage premium in the labor market” that keeps growing over time and is currently near its all-time high. A typical college graduate earns almost $32,000 more per year than a high school graduate, the study noted. When taken over an individual’s entire career, the college wage premium adds up substantially, leading to a 12.5% rate of return on the investment in a college degree.
Wage Premium for College Degree Nears All-Time High
The study did also find that there are some students for whom a college degree carries a lower rate of return and that certain majors have higher rates of return than others. But college, of course, has value beyond improved economic outcomes. A report from the American Enterprise Institute published last year found that a college degree also delivers several health and social benefits. College graduates are more likely to “volunteer, vote, and participate in their communities” and their “life expectancy at age 25 is seven years longer” compared to those who hold high school diplomas or less.
The Federal Reserve’s study confirms, yet again, that the answer to whether college is worth it remains a firm “yes” for the vast majority of students. As AAU Board Chair and Princeton University President Christopher Eisgruber has written, college is an “investment opportunity of a lifetime.”
Kritika Agarwal is senior editorial officer at AAU; Graham Andrews is research analyst at AAU.