Young & Invested: Is University still worth it?
Weighing in on the argument for higher education amidst rising costs.
Welcome to my new column, Young & Invested where I discuss personal finance and investing for Gen Z and Millenials.
This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try and build wealth. Tune in every Thursday for the latest edition.
Is University still worth it?
Whether you’re a young adult looking to enter higher education or a parent/grandparent wondering about the viability of financing an education – the cost of going to university has become a contentious topic. Whilst the merits of attending have been an ongoing conversation, a sinking number of domestic enrolments have revealed structural flaws within our higher education system.
Gone are the Whitlam days of free tuition as enrolees are now faced with some of the highest fees we’ve seen, which begs the question – is university still worth it? A question I found myself asking many a time whilst pulling a string of all-nighters through exams.
Having graduated with both a Bachelors and Masters degree despite considering not attending university at all, I believe I have found the answer. It lies in your personal definition of ‘worth it’. Whether it’s higher earning potential, knowledge expansion or simply FOMO because all your friends are going, this article considers several measures of how to determine if its ‘worth it’.
Money talks
Future income as a return on the cost of your investment is arguably the most traditional method to quantify the utility of attaining a degree. Whilst this is not the most holistic approach it is an important, quantifiable measure to determine the worth of a university education.
Data from the Australian Bureau of Statistics (“ABS”) comparing median weekly earnings by educational qualification found that that there is an increase in earnings as the level of educational qualification increased.
In 2024, the median weekly earnings for an individual with a Bachelors degree was ~$1,600 per week whilst those with only a high school qualification were almost 40% lower at $1,000 per week. From a financial perspective, these figures indicate that going to university for a Bachelors degree will generate higher levels of income. On that measure it can be considered a ‘worthwhile’ investment in yourself.
Alternatively, some critics suggest that the money spent on university would perhaps be better invested in the financial markets. Consider a $30k principal (approximate average cost of a Bachelors degree) with no further investment, a 50-year time horizon and a return of 5% results in a future value of $344k. Conversely, a Bachelors degree holder that earns ~$600 more a week than someone with only a high school qualification could exercise frugality and invest the additional $600 repeatedly. Using the same time horizon and rate of return, with a monthly investment of $2,400, this exercise would net ~6.2 million in future value.
Interesting, a study from the United States on internal rates of return (“IRR”) for college majors found that a degree still offers better returns than the stock market amidst rising tuition costs. The findings concluded that the IRR was between 9 – 10% compared with the average return of 7.6% on the S&P 500 over the last 50 years. Naturally, this IRR varied across majors depending on salary prospects but maintained the trend overall.
However, the notion of investing a university fee principal into markets lacks nuance. If we consider the average university enrolee at 17 or 18 years old, it is unlikely they have the adequate funds to pay a course fee out of pocket, therefore would not have the choice to put that amount into the market. Consequently, I believe it is irrational to consider university tuition as an opportunity cost for putting the same funds into the market.
Rather, the noteworthy opportunity cost is the income loss due to the significant time commitment that university demands. ABS data finds that the median salary for fulltime working 15 – 19 year olds is $41k, and for 20 – 24 year olds is $62k.
It is estimated that ~30% of full-time domestic undergraduate students work more than 20 hours per week with average annual earnings of only $16k. For those entering university directly from high school, the difference between these figures is the consideration range for the income loss incurred during years of study.
The above data is relevant to recent high school graduates however mature aged students are a different conversation, as they often forge their full-time salary to attend, meaning their opportunity cost is more significant.
Better money in elsewhere?
The traditional view (backed by extensive research) is that higher education increases earnings. However, there are situations where this is not the case.
Given the prevalence of trade industries in Australia, it is often touted that individuals can earn more through the trade pathway rather than university. A survey conducted of 3000 Australians aged 25 found that those who worked a trade generally earnt 16% higher salaries compared to their university educated counterparts. However, it was noted that evidence suggested higher-qualified workers have stronger wage growth over their careers.
These findings build on the societal backdrop of the university vs TAFE argument we often have in this country. The resources industry boom has resulted in many individuals earning eye watering salaries without a university qualification whilst the average Bachelors graduate salary is ~$68k. Despite this anomaly, studies conclude that a higher education is closely tied to a higher income.
A plumber may be earning more than a junior doctor, but this tends to be the exception rather than the rule and does not consider the salary ceiling of each profession. Furthermore, a glance at the Australian Tax Office’s list of the average highest earning occupations, shows that every profession listed requires a university qualification.
It is also important to consider that ROI will not be consistent across all university majors. A study from the US found the ROI for 21 major categories of study.
The above chart indicates that students looking to maximise the financial outcome of university as their main goal should consider studying engineering. However, given this study is US-based, there may be discrepancy when translating it back to reflect the local environment.
Whilst helpful, ROI on a degree cannot be considered the be-all-end-all evaluation on the ‘worth’ of university, however it is an important consideration.
Employability
Higher earning potential may be one of the incentives for attending university. However, it hinges on the condition that an individual becomes employed after completing their course.
The ABS found that people with non-school qualifications (degree, diploma or certificates) were more likely to be employed than those without a non-school qualification.
Furthermore, the Graduate Outcomes Survey reported that the full-time employment rate for domestic undergraduate students was 79% in 2023 which is the highest level since the survey commenced in 2016. Furthermore, the overall undergraduate employment rate increased to ~89% in 2023.
Whilst the upwards trend is promising, it is important to note that a degree does not guarantee a job upon completion and therefore cannot provide the assurance of a higher income to every individual. Applying the statistics from the survey above, 1 in 10 undergraduate students remain unemployed (note: it has not been defined whether this is involuntary unemployment). This begs the question, is the higher income potential ‘worth it’ at the ~10% chance that it could end with unemployment? I would certainly say so.
Unemployment is now at a record low in Australia, dropping to 3.9% in November 2024 providing good news for recent graduates. Whilst the current situation brings hope for job seekers, individuals considering university should consider the composition of the future job market rather than today’s.
According to Jobs and Skills Australia’s latest Labour Market Update, nine out of ten new jobs now require a post-school qualification. Furthermore, the proportion of new jobs needing tertiary education qualifications is set to increase from 70% - 90% over the next decade. It is estimated that failing to educate enough university-trained workers will cost the economy $7 billion by 2026. For those weighing up whether to enter university in the coming years, future employability prospects are a crucial consideration on whether it is ‘worth it’.
Holistic benefits
Certainly, higher educational attainment leads to higher income, but this is not the sole benefit that university can provide.
There is an unaccounted benefit to university that is arguably unquantifiable. And that is the personal growth and development that additional education provides. Whether that comes in the form of network and connections or simply attaining further knowledge in a topic that provides self-fulfilment.
It is also often considered that university positively effects other aspects of life such as health outcomes. Studies show that those with higher degrees generally have higher self-reported health ratings and lower rates of mortality for heart disease, diabetes and other non-communicable diseases. Of course, university isn’t the only factor in these ratings as a string of socioeconomic factors are also attributable.
Why do we go to university?
Besides the pursuit of knowledge, I first decided to attend university largely due to social and environmental pressure. I had little consideration for future earning potential and decided to enrol in something I was interested in and simply ‘figure it out’ on the way. If you told 17-year-old me, I’d be here at Morningstar a few years later I’d have very little idea of how I paved this path.
Fortunately, I enrolled in my Bachelors at a time where higher education costs were somewhat reasonable however that is not the case facing prospective students today. ‘Figuring it out on the way’ is a far more expensive exercise now than it ever was for me.
My Bachelors degree could have easily been in underwater basket weaving with the effort I put into it. On the other hand, my Masters degree was a far more intentional choice. I chose to study finance to extend my knowledge in another field and whilst I enjoyed the subject, the primary purpose was to maximise my earning capabilities and return on investment. Eventually I attained what I thought was my dream job but simply realised the income wasn’t enough to justify the sacrifice it required, and that I had misunderstood the way I valued my degree.
Overtime, my degrees have expanded my network of opportunities and allowed me to qualify for a wide range of positions. This subverts the common assumption that what you study determines where and what you will work as forever. In my time in finance, I have come across Maths majors, Chemical engineers and English majors all working in similar roles.
I can personally attest to the fact that in this competitive job market, a degree alone doesn’t guarantee you a job – a regression to what we’ve assumed in the past. Rather a degree provides you the keys to a multitude of doors and it is up to the individual to determine what exactly will be behind those doors.
Conclusions
Enrolling into university is a personal finance decision, certainly an expensive one not to be taken lightly.
The data still indicates that attaining a degree has financial and social benefits, but I don’t think it goes far enough to explain exactly why. I believe the answer lies in the opportunity cost of not attending university. The threads of society are everchanging. Higher education is no longer simply a bonus to your resume, it is now a precondition to attaining most careers in the job market.
Higher education is no longer simply an educational pursuit. The increase of degree holders in lower paying jobs triggers an important conversation about a true workforce skills deepening or merely a rise of blatant credentialism. Whichever school of thought you believe; the consequences are unavoidable – we are reaching peak higher education. With 90% of new jobs requiring a degree, individuals starting their careers should hold the future employment environment in mind if that is their preferred metric to determine the ‘worth’ of a degree.
Although success is not to be taken for granted. There are pathways (such as university) that tend to objectively gear towards financial success, however your ultimate outcome depends on how you can leverage this advantage. Using ROI as a primary measure of the worth of university is an incomplete analysis. Should you remain purely reliant on this metric, you are in danger of foregoing the additional value of higher education. Income is a crucial part of everyone’s financial journey, but my experience of university encompasses much more than that. Upon reflection it is not only the knowledge and hard skills gained, but also the invaluable networks formed and personal growth that is forced upon you through the learning environment.
It appears paradoxical that our representatives continue to push rising fees onto students, arguing attendance is a ‘choice’, when the future market indicates it is becoming a necessity for livelihood in this country. Furthermore, given the estimates for damage to the economy if we fall short on the skills demand, it is surprising that the political conversation isn’t addressing this clear contradiction.
