College Tuition vs. Investing: Is It Worth It?

With the cost of college rising each year and questionable career prospects awaiting college graduates, some people are wondering if a college education is still worth it. If you took all of the money you would spend on a college degree and invested it, would you come out ahead? Are college loans worth it?

One of the ways to figure out if a degree is worth the money is to calculate the return on investment (ROI) of a college education. The ROI is a metric that measures the effectiveness of the return on an investment but also compares it to other investments during a similar time period.

ROI is calculated by dividing the benefit or return by the cost of the investment. The result is expressed as a percent or a ratio. In this article, we look at the return on investment for college degrees based on a few different factors and compare them to other investments.

The Best Schools for Return on Investment

The value of a college degree can be hard to quantify. In addition to the tangible value of your future income, there are many intangible benefits, including learning, independence, improved social skills, and general skills such as working with teams and developing good working habits. Because intangible skills can't be quantified into a dollar amount, we must examine the numbers that can be quantified to determine the ROI of an education.

According to the most recent study by popular career website Payscale, not all degrees and colleges are created equally. The study, last reported in 2023, looked at more than 1,500 schools across the country. All calculations noted from the study for the purpose of this article assume the option of on-campus housing and no financial aid.

Colleges with the Highest ROI Percentages

If we look at specific universities, the ROI for a college degree is a compelling investment. The United States Merchant Marine Academy's Service Academy ranked at the top with the best 20-year ROI at more than 23% and with the total cost of a four-year degree coming in at $20,000.

Both SUNY Maritime College's in-state program and Brigham Young University-Idaho rounded out the top three with an ROI of 13% and 14%, respectively. However, the four-year cost of tuition for SUNY Maritime College was $108,000 versus $50,100 for Brigham Young University-Idaho.

Colleges with the Highest Income Earned

If we look at the total income earned by graduates minus the cost of education, the results are a bit different. Harvey Mudd College and the Massachusetts Institute of Technology (MIT) come in first for the total amount of income earned after 20 years, at $1.38 million and $1.34 million, respectively The U.S. Merchant Marine Academy also ranks high, claiming the third spot with a 20-year net return of $1.31 million.

The U.S. Military Academy came in fourth with a $1.27 million return. The United States Naval Academy ranked #5 with $1.22 million while Brigham Young University-Idaho ended up in the 116th place with only around $611,000 earned over 20-years.

Note that these are the best-case scenarios. Other schools, including Ivy League heavyweights Harvard and Yale, do not reach the top spots thanks to a high cost of attendance.

The Best Majors for Return on Investment

Of course, looking at the ROI of a college degree by school has some flaws. An art major has very different career prospects from an engineering major. Let's take a look at how various majors factor into the ROI.

According to the National Association of Colleges and Employers (NACE), the undergraduate majors with highest starting salaries (broadly defined) in the U.S. for 2022 are:

• Computer Science - $75,900
• Engineering - $73.922
• Math & Natural Sciences - $66,760
• Social Sciences - $61,173
• Business - $60,695
• Agriculture & Natural Resources - $57,807
• Communications - $55,455
• Humanities - $50,681

Benchmark Investments

The safest investment in general for most retail investors is a U.S. Treasury bond. Because these investments are so safe, the return paid by the U.S. government is very low. Over the last 20 years, this would have resulted in just around a 3% ROI (through the end of 2022). Compared to the average college degree, an education would fare much better, yielding about double.

Some stellar investments have beat a college degree investment several times over. For example, an investment in Apple (AAPL) stock in the year 2002 would have returned around 30,000% over the last 20 years, while Microsoft (MSFT) returned 820%.

The benchmark for the market return is the S&P 500 index. Over the same period, the S&P 500 returned 325%—higher than the average degree, but far from matching the ROI from the top degrees at the best schools.

However, college degree holders earn far more, on average, than those with less education (and those with MAs or PhDs even more). And, if you earn more from your work, you can invest more over time, as you also gain experience and training on the job. If the stock market collapses, an educated individual has a far likelier chance of remaining employed or finding a new job.

Understand Your Personal ROI on a College Degree

No college experience or career is exactly the same, so your best bet is to estimate your own ROI based on the school and degree of your choice. However, that number does not tell my whole story.

After earning a bachelor’s degree at CU, I went on to earn an MBA from the University of Denver. That private school's MBA cost about 33% more than my in-state cost of attendance at CU. While some people might argue that I had a better use for $90,000, I was debt-free two years later, and my income has had several large jumps, which I attribute to my MBA.

Right after I graduated from my MBA program, I found a new job that would never have happened without the networking I did at school. It brought me a modest $5,000 raise, but over 20 years that covers my entire cost of attendance plus an extra $10,000. Any raise over that increases my ROI. Three years later, I received a 40% raise when I accepted a job—one that I would not have been qualified for without the MBA. If I stay at the same salary as today and never get another raise, that is an 889% ROI on my MBA.

Of course, my results are better than some and worse than some. Your results will vary.

The Bottom Line

While we all want to be like Warren Buffet and beat the S&P for nearly our entire career, Buffett is not the average investor. You can safely invest in the S&P 500 and bring in a steady return, but your growth potential is fairly limited.

If you are like most people, your career is going to be your primary income source for most of your life. A college degree does increase income and lower the chances of unemployment—both valuable factors to consider when weighing a college degree against a market investment.

If you’ve made it this far, you know that all degrees are not created equally. If you go to a quality school and earn a business, engineering, or computer science degree, you will beat the market. And, if you work hard and do well, your income will continue to increase. A college degree may not beat the market on its own, but coupled with hard work, your return on investment has unlimited potential.