Education vs. Stocks: As student loan debt mounts and the stock market reaches new highs, Americans are asking, “Is a college degree still worth it?” However, researchers at the Federal Reserve Bank of New York, Jaison R. Abel and Richard Deitz, caution against the growing belief that college isn’t valuable. Despite challenges, recent graduates fare much better than peers without degrees, who face higher unemployment and lower wages.
This perspective directly addresses widespread uncertainty about higher education’s value—a sentiment fueled by rising tuition costs, concerns over AI’s effect on new graduates, and broader economic volatility.
Why College Is a Top Investment Choice
To understand these findings, it’s important to consider why college remains a leading investment choice—even when compared to traditional investment vehicles.
To put things in perspective, consider this: over the long run, the S&P 500 returns less than 7%, and bonds usually return less than 2%.
Comparing College Returns to Market Investments
The college premium has remained strong. Education’s financial return has stayed at 12% to 13% for three decades after increasing in the 1980s and early 1990s. As education costs rise, benefits have also grown, though some describe the stability of premiums as “stagnation.”
“The college wage premium has plateaued at a high level—the median graduate earns about 70% more than a similar worker without a degree,” Abel and Deitz told Investopedia. “That’s a large benefit, though continued increases each year aren’t likely.”
Such headlines appeared in the mid-1990s before the premium surged again. Recently, the median wage for college graduates with only a bachelor’s was $79,000. For high school graduates, it was about $47,000. That’s a premium of over $32,000 a year—nearly 68% more. This gap is near record highs.
The wage premium has grown mainly because high school graduates’ salaries have fallen by more than 25% in real terms since the early 1970s, while college graduates’ incomes have risen by about 5%.
At New York University, researchers using 2024 data from 5.8 million Americans estimated that the annualized return from a degree is about 10% for women and 9% for men, based on median wages.
The Impact of AI on Recent College Graduates
Alarmist stories claim AI threatens college grads’ jobs. Abel and Deitz disagree. “Currently, AI is unlikely to have a broad impact on recent graduates’ job markets,” they said. Weak job demand in computer science predates the widespread adoption of AI. They instead cite “other macro factors, like tech sector weakness since 2022, and overall cooling job demand.”
Understanding the True Cost of a College Education
Contrary to belief, out-of-pocket education costs have fallen recently. The average four-year college price was about $21,000 in 2024. Most students received nearly $15,000 in grants, aid, and tax benefits.
Education vs. Stocks: Factoring in aid, the average net cost for a four-year degree was about $30,000 in 2024. Federal Reserve data show these expenses have dropped recently after rising until the mid-2010s, with tuition declining when adjusted for inflation.
Factors Affecting the Returns of a College Education
Keep in mind: your major and how quickly you graduate can hugely impact your investment return. Taking five years cuts typical returns to 9%, and stretching it to six years lowers returns further, down to 7%.
Longer schooling means more than extra tuition; it delays workforce entry and career growth. The table below shows major disparities.
The Bottom Line
Stock market investments can yield high profits, but they involve timing risks. College remains steady. It has historically driven economic mobility, enabling working-class families to achieve middle-class stability and beyond.