Personal Finance Essentials
Today’s High Cost of College Means Teens Must Obtain an Economic Return on Their Investment
Your Teen’s College Major Could Be Worth $1 Million More or
Leave Them Worse Off Than if They Never Went
A college degree is one of the most expensive purchases most Americans will ever make. Treating it as anything other than a major financial investment – one that must generate an adequate return – is a mistake that can ruin your life.
The True Cost of a College Degree
To earn a college degree, you must accumulate 120 credits. Most students do this by taking five courses per semester, each worth three credits, across two semesters per year – a four-year timeline. But only 28% of students actually graduate in four years. The average full-time student earns just 22 credit hours annually, not the 30 needed to stay on pace. The reasons: failed courses, changing majors (80% of students change their major at least once), and school transfers (37% of students transfer, losing an average of 43% of their previously earned credits in the process).
For the 2024–2025 academic year, attending a public in-state college cost $30,834 all-in, according to the Education Data Initiative. But college costs rise an average of 6.1% per year. Accounting for that inflation, here is what a degree actually costs:
• Public in-state degree in 4 years: $135,088. In 6 years: $215,620.
• Public out-of-state degree in 4 years: $241,268. In 6 years: $385,099.
• Private college degree in 4 years: $295,892. In 6 years: $381,480.
These figures still understate the real cost. Every extra year in college delays your entry into the workforce – and the compounding impact of two lost years of income and investment time can amount to nearly $600,000 less in retirement savings.
Your Major Determines Your Return on Investment
Five years after graduating, engineering graduates earn an average of $73,000, while psychology graduates earn an average of $40,000, according to the New York Federal Reserve. At most colleges, both degrees cost roughly the same to obtain. That gap in earning power represents a radically different return on the same investment.
In the 1960s, when few people held degrees and the entire four-year degree cost just $5,425, almost any credential produced a strong ROI. Today, nearly two-thirds of high school graduates attend college, and the average degree costs more than $150,000. The average graduate salary of $68,516 is only 0.3 times the average cost of the degree. The ROI calculus has changed dramatically.
One in four undergraduate degrees and 43% of master’s degrees actually leave students worse off financially than if they had not pursued them at all, according to the Foundation for Research on Equal Opportunity. This is not a reason to abandon ambition – it is a reason to choose your field carefully and ensure your degree leads to sufficient economic reward.
Understanding Real-World Costs
Choosing the right career requires understanding what your life will actually cost. The average new car costs $52,589 after taxes and fees. The average wedding costs $35,000. The average home costs $419,200. Raising one child from birth to age 17 costs $300,000 for a middle-class family. Every dollar spent on college must ultimately be repaid from the income your degree produces.
Most people select a career they find appealing and then passively accept whatever salary that field offers. The smarter approach is to first determine the lifestyle you want, calculate its cost, and then select a career that provides the income to support it. More than 300,000 schoolteachers quit in the 2022–2023 school year – with compensation cited as the number one reason, according to McKinsey. Before you commit to a major, research what people in that field actually earn 10 and 20 years into their careers.
