When is going to college not worth the money?

Getting a college education has traditionally been seen as a way to move up the economic ladder. But an analysis by economists at the Federal Reserve Bank of New York shows that the cost of a degree may not always be worth it.

The value of a college education has increasingly come into question in recent years, especially as tuition costs steadily climb and millions of Americans grapple with student loans. As a result, only one in four U.S. adults say it’s extremely or very important to have a four-year college degree to get a well-paying job, according to a 2024 Pew Research poll. 

To be sure, the case for attending college remains strong. Another study by the New York Fed found that in recent years the typical college graduate with a bachelor’s degree had annual income of roughly $80,000, versus $47,000 for people with only a high school diploma —a 68% premium.

Yet a recent study by the Fed bank suggests a college degree hasn’t paid off for at least 25% of college graduates in recent decades. 

Of course, not everyone goes to college chiefly to earn a high income — education can be its own reward, after all. But how you  navigate your college career — or whether you choose to attend at all — is among the most important financial decisions a person will make. 

Here’s when a diploma may not deliver much of a bang for the buck. 

When might a college degree not be worth it?

Not surprisingly, the more a student must spend on out-of-pocket expenses, the lower their typical return on investment. The average college student pays about $30,000 out of pocket for four years of college, according to the New York Fed study. However, students could face significantly higher costs if they choose to live on campus, or if they miss out on financial aid and are forced to pay a school’s full price. 

The typical college graduate sees a return on investment (ROI) of roughly 12.5% according to the New York Fed. That rate has remained mostly unchanged over the past three decades, and still exceeds the returns on most other investments, including the stock market, which over time offers long-term return of about 8%.

Despite that payoff, certain factors can lower a college grad’s ROI. For example, the researchers found that living on campus increased the price tag for college by nearly $30,000 – from $180,000 to $207,000 – reducing the return on investment to about 11%. The 1.5% drop in ROI may seem nominal, but it can translate to hundreds of thousands in lost dollars.

“This extra cost and the associated return are comparable to attending a more expensive school that is roughly twice the average price,” the researchers, economists Jaison Abel and Richard Deitz, said in the study. 

Among college graduates, 25% actually see little return on investment. This group was making less than $10,000 more in income than the median high school graduate in 2024. Their rate of return was only 2.6% compared to the average of 12.5% — meaning they see much less of a payoff.

Another factor that can reduce the value of a college degree is how long it takes to obtain. The typical bachelor’s program runs for four years, but in some cases students might extend the timeline if they haven’t completed their course load. That can have major financial implications.  

Taking an extra one to two years to get your degree adds “considerably to the cost,” the New York Fed found. There’s the direct cost students have to pay for the additional tuition, but also higher “opportunity costs” — for example, a student who starts their career later misses out on years of working experience and can end up earning less over their lifetime.

“All in all, we estimate that taking five years to complete college pushes the median rate of return down to about 9% and taking six years pushes it down to 7%,” the researchers found.

Graduating in five years, rather than four, pushes up the total cost of college from $180,000 to $272,000, while taking six years would cost $364,000.

How much does a student’s major matter?

Another important consideration in deciding if going to college is a sound investment is a student’s major. After all, certain fields tend to lead to higher incomes. 

So-called STEM majors tend to earn the most, both in the early and mid-stages off their career, according to New York Fed data. For instance, a computer engineering major stands to make a median wage of $122,000 mid-career, versus $55,000 for an education major, according to the bank’s data.

Among the fields of study with the highest returns are engineering, business and health sciences. The return is lowest for those majoring in fine arts, liberal arts, leisure, and hospitality and education, which ranked last.

“While some of it may come down to choices people make for the jobs they wish to have, one significant consideration is college major, something over which students have direct control,” Abel and Dietz wrote.