Is Investing in Your Education More Lucrative Than Stocks? Here’s What the Data Shows

With student loan debt rising and stock markets reaching new highs, many Americans are questioning whether a college degree is still worth the investment. However, Jaison R. Abel and Richard Deitz, researchers at the Federal Reserve Bank of New York, have found in the data reason to be skeptical of narrative coalescing in the mid-2020s that college just isn’t worth it.

“College is still worth it, at least, for most people,” Abel and Deitz told Investopedia. “Even though some recent graduates may be having difficulty finding a good job right now, they are in a much better position than similarly aged workers without a college degree, who tend to have higher unemployment and lower wages.”

Their findings challenge the growing skepticism about the value of higher education in an era of soaring costs, concerns about AI affecting employment rates for recent graduates, and economic uncertainty.

College as the Ultimate Blue-Chip Investment

Abel and Deitz’s research reveals that the typical college graduate earns a return that easily surpasses the benchmark for a sound investment. Their study found that graduating from college, even after accounting for opportunity costs (the income you don’t make while in class), as well as tuition, books, and other fees, has meant a median return 12.5% annually over a lifetime, a rate that makes higher education a sound investment even from a purely financial standpoint.

To put this in perspective, the S&P 500 has provided long-term real returns of under 7%, and bonds have had real returns averaging under 2% annually.

How College Beats the Market

The college premium has proven remarkably durable. After rising significantly in the 1980s and early 1990s, the financial return from college has held between 12% and 13% for the past three decades. This consistency stems from a simple economic reality: while college costs have risen, so have the benefits. It has also led to headlines about the rate of increase leveling out over time—often using words like “stagnation” to suggest a negative trend.

But as Abel and Richard Deitz pointed out to Investopedia, “The college wage premium has plateaued at a remarkably high level—the median college graduate earns about 70% more than a comparable worker without a college degree. That’s a very big advantage. It is not clear that we should expect the college wage premium to increase year after year continually.”

Indeed, similar headlines could be found in the mid-1990s, before the premium headed upward again. In recent years, college graduates with only a bachelor’s degree earned a median $79,000 annually, versus about $47,000 for workers with only a high school diploma. This means a typical college graduate earned a premium of over $32,000 per year, or about 68% more than those with only a high school diploma. That difference is near its all-time high.

Still, it’s worth noting why the wage premium has been increasing: wages for those with only a high school degree have shrunk significantly since the early 1970s (by more than a quarter in real terms, or after inflation). Meanwhile, salaries for college graduates are up only about 5% over the same period.

Other studies confirm these findings. A June 2025 study from researchers working with a different data set at the Federal Reserve Bank of San Francisco put the college wage premium even higher, at about 75%. Meanwhile, researchers at New York University, analyzing data from 5.8 million Americans in 2024, found that earning a degree had an annualized rate of return of about 10% for women and about 9% for men, based on median earnings.

Is AI Taking the Jobs of College Graduates?

Recent headlines have raised concerns about “alarms” in the job market, suggesting that “AI is competing with college grads” and taking away their jobs. But Abel and Deitz were skeptical. “It is unlikely that AI is having widespread effects on the labor market for recent college graduates right now,” they said. For example, even “weakness in the demand for recent college graduates in computer sciences,” they noted, “has been happening for the past few years, before AI was widely accessible.” They pointed instead to “other macro factors, such as weakness in the tech sector that started in 2022, followed by a cooling of labor demand more generally over the past few years” as the more likely culprits.

The Real Cost of College

Contrary to popular perception, the out-of-pocket costs of college have actually fallen in recent years. The Federal Reserve Bank of New York analysts noted that while the average published tuition at four-year colleges (public and private combined) was around $21,000 per year in 2024, the average student received nearly $15,000 in grants and other forms of aid from federal and state governments and the colleges themselves, as well as tax benefits.

Taking financial aid into consideration, the average net price of college, assuming it takes four years to earn a degree, was about $30,000 in 2024. The Federal Reserve research shows that, after increasing through the mid-2010s, the direct out-of-pocket costs of college have declined as tuition has actually fallen in recent years, after adjusting for inflation.

When the Investment Doesn’t Pay Off

Still, the rates of return depend on many factors, including the major you choose and the time it takes you to graduate. Taking longer than four years dramatically increases costs and reduces returns. 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 problem isn’t just additional tuition—it’s the compounding effect of delayed entry into the workforce and missed years of career advancement. The chart below has the differences by major.

This means that, for about a quarter of college graduates, college doesn’t appear to pay off much financially, according to the Fed’s analysis.

The Bottom Line

While stock market investments offer the potential for spectacular returns, these outcomes are far from guaranteed and require timing your investments right. Meanwhile, higher education remains a far surer investment, which is why it has been one of the most powerful engines of economic mobility in America, historically serving as the primary pathway for working-class families to achieve middle-class stability and beyond.