Generally speaking, investing in yourself is a smart idea. More education usually leads to more opportunities, better jobs, and higher income. However, many students have no idea how to think about investment in financial terms especially when it comes to college tuition and the overall cost of college.
Return on Investment matters as it relates to college tuition and the total cost of attendance
For example, does it make sense to spend $100,000 and take on tens of thousands in loans in order to get a degree in social work, a profession in which jobs often pay very poorly? Students in all professions need to consider the concept of “return on investment” or ROI. In my opinion, I think it’s just plain foolish to take out heavy loans to get an undergraduate education.
The average student loan balance in this country is about $40,000, and most undergraduates can expect to graduate with about $20,000 in loans. I think this seems like a decent investment for most students.
But I have one client with relatively meager resources who insists that he will do whatever it takes if he gets into a very selective college. It’s a long story but despite this young man’s lack of money to pay for college he will not be eligible for need-based aid. So in order to attend a $90k-per-year college, he’d have no alternative but to take out a large loan amount.
If this young man put himself in hock to the tune of, say, $200,000 to pay for Princeton, would he get his return on investment? Well, it depends on what field he decides to go into. But somehow I don’t see him as an investment banker or a management consultant. He’s more a “save the world” sort of person who loves the arts and literature. I see him becoming a professor, perhaps. But with all the debt, how would he ever pay it all off on an assistant professor’s salary? And we’re not even including potential graduate school debt in the calculation.
A 2025 Federal Reserve of New York study on college ROI
The Federal Reserve of New York released a study in 2025 ‘Is College Still Worth it?’ As shown in the chart below, the math still works for the median student to go to college with a ROI of around 12%. The high ROI comes from the wage premium that many college graduates earn explained in this section of the report:
College graduates earn a substantial wage premium in the labor market compared to those with only a high school diploma, and this premium tends to grow over one’s career…. In recent years, the median college graduate with just a bachelor’s degree earned about $80,000, compared to $47,000 for the median worker with only a high school diploma. This means a typical college graduate earned a premium of over $32,000 per year, or about 68 percent—near its all-time high.
Return on Investment of College Tuition
Sources: U.S. Census Bureau and Bureau of Labor Statistics, Current Population Survey March Supplement (IPUMS); the College Board; U.S. Department of Education, National Center for Education Statistics.
However the New York Fed also released a second report in 2025 called ‘When College Might Not Be Worth It’ which came to the conclusion that college may have not been worth it for about 25% of students. A large negative factor is when it takes 5 or 6 years to complete your undergraduate degree so your input costs increase and you lose a few years of wage earning ability. However, another big reason is that some college graduates just do not earn the average wage premium compared to high school graduates. If you are paying the full college tuition cost at a private university or out-of-state public university, then you need to be making a decent amount of money in the long-term for your college investment to be economically worth it.
And, as shown in the chart below from the NY Fed study, some majors like Education make it very difficult to justify the high cost of these institutions.
Median ROI based on Major
Sources: U.S. Census Bureau, 2023 American Community Survey (IPUMS); the College Board; U.S. Department of Education, National Center for Education Statistics.
Colleges are businesses and they are happy to take your money to fill seats. They may even encourage you to take out more loans But you need to think carefully about this concept of ROI: Return on Investment. A few years ago, The Chicago Tribune had a similarly titled article as the NY Fed study that leads with a story of a young woman who took out $60,000 in loans to go to fashion school and learn about merchandising. She can’t get a job. She waits tables. Now waiting tables isn’t horrible but the woman is drowning in debt and has a good case of buyer’s remorse.
And keep in mind that there are myriad ways to keep college tuition costs low and avoid taking out too many loans. Of course, you may not be able to have it all (i.e., your dream college with no debt burdens). But you can still make great investments in your own education, increase your earning power and live a more fulfilling life–without mortgaging your future.
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