A recent study from the Federal Reserve Bank of New York shows that going to college can provide a better financial return than investing in the stock market — but only under specific conditions.
According to the research, the median college graduate sees a 12.5% return on their education investment, compared to a historical average of about 8% for stocks. But experts, including personal finance author Suze Orman in her recent blog post, caution that not all college paths lead to this outcome.
Here’s what to consider before making the leap.
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You Have to Graduate — Not Just Enroll
The study’s headline figure assumes a student earns a bachelor’s degree. If a student drops out before finishing, they may still carry the debt without the earnings boost that typically comes with a diploma.
Orman warns this is one of the biggest mistakes families make: “Attending school and taking on debt for school without finishing can be a double whammy,” she writes. “You may lack the skills to work in a higher-paying job, and you still have to pay back the loans.”
Time Is Money — Finish in Four Years
The return on investment drops the longer it takes to graduate. Orman states that students who take five years to finish reduce their return from 12.5% to 9.3%, and six years drops it to just 7%. That delay doesn’t just add tuition — it also costs a year or two of full-time earnings.
“Going to college doesn’t ensure a good return on your investment,” Orman says. “Only graduating tilts the odds in your favor.”
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Don’t Overpay — Know the Net Price
The sticker price of college is not what most families typically end up paying. Financial aid, grants, and tax benefits often reduce the cost significantly. In 2024, the average net cost of a four-year degree was around $30,000, according to the New York Fed. But not all schools offer the same aid.
Every college is required to publish a “net price” that shows the average out-of-pocket cost after aid. Picking a school with a generous aid package — and avoiding private loans when possible — can make a huge difference in long-term ROI.
Orman advises families to avoid choosing schools based on reputation or emotion alone. “I don’t want to hear about dream schools,” she says. “The best schools are the ones that are so eager for a student to attend that they offer a generous financial aid package.”
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Keep Borrowing Within Reason
College financing expert Mark Kantrowitz suggests that total borrowing should not exceed what a student expects to earn in their first year after graduation. That’s a benchmark Orman strongly supports, noting that manageable debt levels are key to a strong start after college.
Even though direct college costs have declined slightly in recent years, opportunity costs — such as lost wages during college — have increased. The Fed estimates that skipping four years of work amounts to around $150,000 in lost income, which adds to the total cost of attendance.
The Bottom Line
College can be a better investment than stocks, but it comes with real risks. To make it worthwhile, Orman advises that students need to graduate on time, limit debt, and choose schools that offer strong financial aid.
“Graduating with the smallest amount of debt is how you set yourself up for lifetime financial success,” she says.
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