If you made a $200,000 bet on the markets, you’d likely keep tabs on how well it performed. Since that’s how much a private college education can set you back, the Federal Reserve Bank of New York decided to evaluate the payback for a college degree.
In a report released on Tuesday, the New York Fed made a case for college as a solid investment, noting that graduates have been getting about a 15 percent return on their bachelor’s degrees for more than a decade.
What you study affects how much you can wring out of your education, however. Engineering majors got the best return, at 21 percent, followed by those who majored in math and computers, at 18 percent, and health majors, who also yielded an 18 percent return. Business majors came in fourth, but their return was still above average, at 17 percent.
Undergraduate business degrees have been the most common type awarded since the 1980s, according to the U.S. Department of Education, accounting for about one-fifth of all U.S. bachelor’s degrees in the 2011-12 school year. The fields of engineering and computer science (the Education Department reports degrees in slightly different groupings than the Fed used in its report), despite yielding the best returns, accounted for only about 8 percent of degrees that year.
So why don’t more students pursue the college degrees with the best payout? They’re not easy to come by, for a start. “Not all majors are feasible for every college student. For example, recent research has shown that graduating with a math or science major is more difficult than pursuing other fields of study,” note economists Jaison R. Abel and Richard Deitz in the report. They go on to say that the economic reward for those specialists could have a lot to do with how skilled they were to begin with, rather than how much they got out of the degree.
College graduates have found relative success despite rising tuition, declining pay, and a poor job market because wages have sunk for those with only a high school diploma, the report says. Even education majors, with the slimmest return at 9 percent, outpaced the 7 percent historical return on stocks, the study notes.
“When we put all the pieces together, the good news for college graduates is that the return to college remains high on average, regardless of one’s college major. However, the bad news is that college students are paying more to go to school and are earning less upon graduation. At this point, it is not clear whether these trends will continue,” write Abel and Deitz.
College graduates who find themselves applying their computer science skills to an underpaid retail job can take heart that it wasn’t all a waste. Even grads who were underemployed—meaning that they worked in a job that doesn’t require a bachelor’s degree—saw a 12 percent return over their lifetime. For underemployed business majors, the rate of return was 14 percent.
To determine whether college is financially worth it, the study looked at the wage difference between college and high school grads going back to 1970. Abel and Deitz used a model to predict what each of those groups would earn in their lifetime, and then factored in both the real cost of college and the opportunity cost—earning potential missed while in school—to calculate the return on investment.