To Certain Gen Z Adults, College Seems Less Likely to Pay Off

A college education is often believed to be a pathway for upward economic mobility. It certainly can be, but the financial boost is not guaranteed. The human capital theory of education is that college is an investment: You pay a cost upfront and it pays off later. Just like with any investment, though, there are risks. For example, the financial benefits of college may not outweigh the costs, or the financial returns could be smaller compared with the return for other groups.

In this post, I looked at those financial risks for younger adults who are part of the Gen Z generation, those born in 1997 and later. Less than half of some groups of Gen Zers—those who went to college but didn’t graduate, women, and Black and Hispanic adults—believed the lifetime financial benefits of college would outweigh the costs, according to my analysis of data from the Federal Reserve’s 2022 Survey of Household Economics and Decisionmaking. They simply saw college as less likely to pay off than their counterparts did.

Recent Changes Spark Questions about College’s Value

Gen Zers experienced great upheaval in the higher education space during 2020 and into 2021. During the early shutdowns, quarantines and social distancing of the COVID-19 pandemic period, the oldest college-enrolled Gen Zers had an experience vastly different from other generations’. Most classes moved online, and the social aspect was severely diminished, yet tuition didn’t markedly change, leaving many students (and parents) to question whether college was financially worth it.

Additionally, the student loan moratorium (or pause on payments) followed by the debate on student debt forgiveness and finally the implementation of the Saving on a Valuable Education (SAVE) Plan (an income-driven repayment plan that lowers many borrowers’ monthly payments) led to increased scrutiny of the financial benefits versus financial costs of college.

Indeed, college undergraduate enrollment dropped 8.9% between spring 2019 and spring 2023, and enrollment at community colleges fell 19.5%, according to statistics on college ranking website BestColleges.com. While the drop in total college enrollment was not just a COVID-19 pandemic phenomenon, it accelerated during those years. Today, when prospective students weigh their options, they may ask, “Is college worth it?”

What Does Gen Z Think about the Value of College?

Before answering this question, let’s step back and ask what that value is. The average financial returns vary for graduates of different races and generations. In 2019 research, Lowell Ricketts, William R. Emmons and I looked at college income and wealth premiums, or the return on a bachelor’s degree over the income and wealth of those without one. We found:

• In terms of income, a four-year college degree was financially worth it on average. Younger generations of degree holders had significantly greater income than their peers of the same generation who didn’t have a degree.
• But in terms of wealth, or what a family owns less its debts, the college premium was declining noticeably. In fact, for families headed by younger Black Gen Xers and older Black millennials, the wealth premiums weren’t significantly different from zero. (Gen Zers were too young to include in our calculations at the time.)

What do Gen Zers think? The 2022 Survey of Household Economics and Decisionmaking asked adults who had gone to college about the financial benefits and costs. Almost half (49%) of 18- to 25-year-olds who had attended college thought the benefits outweighed the costs, while 19% thought the costs were larger than the benefits. (The rest saw the benefits as being about the same as the costs.)

But, as the figure below shows, some Gen Zers were less likely to expect that the investment would pay off, including those who went to college but didn’t graduate, women, and Black and Hispanic Gen Zers. In these groups, less than half believed the lifetime financial benefits of college would outweigh the costs.

While it’s possible that younger generations have more negative perceptions or scrutinize the financial benefits of college more, adult Gen Zers’ overall results in 2022 weren’t significantly different than those of younger millennials at the same ages—18 to 25—in the 2013 Survey of Household Economics and Decisionmaking.

The Shape of the Higher Education’s Future

Overall, only about half of young adults believed the lifetime financial benefits of their higher education would be worth the costs. This is no better than a coin flip.

If prospective students delay or forgo college because they don’t believe it will be worth it financially, the U.S. could have a less educated workforce, which could slow economic growth and productivity (PDF). Moreover, higher education was one of the biggest factors protecting workers, economically speaking, during the pandemic. Educated workers were more likely to be able to stay employed and to be able to work remotely. In the event of a downturn, those who are more highly educated may still have an advantage.

Among those in the demographics explored above, the biggest “risk” factor was dropping out of college. Less than 1 in 5 of the Gen Zers who left before getting a degree believed college paid off financially.

To lower their risk, what could prospective college students consider? They could make a better-informed decision by looking at the graduation and retention rates for the specific college or university they are considering and the average financial outcomes for those graduates (and for their chosen major or career). They can also shop around for different loan options and repayment plans and consider each school’s offered financial aid package. By gathering quality information, young adults can better mitigate some of the risk and make the best financial decision for them.