A college education has many rewards, but it is primarily an investment, and its return can be calculated by measuring the increase in salary that it brings. While college has many intangible benefits that are difficult to measure, the NPV and IRR of future income can be used to measure its rate of return. Unfortunately, very few comparisons have been done to rank career paths on these metrics.
In the table below, I build on my previous research by ranking 22 different career paths by return on investment. The careers are ranked by Net Present Value and rate of return (methodology explained at bottom). The career rankings take into account numerous factors for each career, including the length and expense of education, salary potential, and unemployment risk.
Career ROI Rankings:
| Career | Average Salary | NPV | After-tax earnings (lifetime) | Rate of Return |
| 1. Law | $124,230 | $186,200 | $4,709,000 | 15% |
| Attorneys rank high on the list since their education is complete just three years after college, and they can step right into six-figure salaries. | ||||
| 2. Chemical, Petroleum, Nuclear Engineering | $85,000 | $174,100 | $3,271,000 | 19.3% |
| Petroleum and Chemical engineers step into starting salaries over 60k, leading to a high return on a 4-year education. | ||||
| 3. Pharmacy | $98,960 | $173,305 | $3,833,000 | 16.5% |
| Pharmacists typically must complete a six year program before starting work, but high demand for pharmacists enables them to move directly into $90k per year positions upon graduation. | ||||
| 4. Computer Science | $83,160 | $170,000 | $3,335,000 | 19% |
| Computer science grads start work immediately after college with salaries above 50k, giving them a fast payback on their investment, but lifetime earnings potential is lower than in some professional fields. | ||||
| 5. Medicine – Specialist | $190,000 | $148,000 | $5,994,000 | 12.75% |
| Doctors have always enjoyed good incomes, but their educational investment is so high that it reduces their educational ROI more than is commonly realized. | ||||
| 6. Accounting | $69,500 | $144,900 | $3,038,000 | 17.9% |
| Accountants can start work right after college, and their pay increases considerably once they’ve completed their CPA certification. | ||||
| 7. Stockbroker | $90,470 | $125,600 | $3,194,000 | 16% |
| Stockbrokers start with a low salary, but can build up to a comfortable 90k with time and effort. | ||||
| 8. Civil / Mechanical Engineering | $75,200 | $112,000 | $2,860,000 | 16.0% |
| Civil and Mechanical engineers tend to lag engineers in other fields in terms of income and career ROI. | ||||
| 9. Medicine – Primary Care | $161,500 | $108,900 | $5,246,000 | 12.2% |
| Primary Care doctors have an educational investment almost as high as medical specialists, but do not receive commensurate salaries. | ||||
| 10. Physical Scientist (Astronomy, Physics, Chemistry, etc) | $78,100 | $108,600 | $3,177,000 | 14.7% |
| Physical scientists have to complete eight years of education before moving into a full time research or academic position. | ||||
| 11. Airline Pilot | $148,410 | $106,241 | $3,279,000 | 13.75% |
| Airline pilots must work for years at low paying regional air or charter jobs before making it to a major carrier, but the final payoff is a relatively high salary and reasonable working hours. | ||||
| 12. Nursing (RN) | $62,480 | $106,170 | $2,598,000 | 16.75% |
| Nurses can finish training in as little as three years, and earn relatively good salaries right from the start, with job prospects virtually anywhere in the country. | ||||
| 13. Police Officer | $50,000 | $78,000 | $1,748,000 | 9.6% |
| Police Officers are well compensated relative to the length of their education, but take risks not associated with most other careers. | ||||
| 14. Biological / Life Scientist | $69,175 | $71,720 | $2,812,000 | 13.3% |
| Biological scientists earn lower salaries than their colleagues in physical sciences, but have to undergo the same amount of training. | ||||
| 15. Financial Analyst | $81,700 | $54,000 | $3,042,000 | 12.20% |
| While completing an MBA can nearly double a financial analyst’s salary, the high tuition and lost earnings diminish the rate of return. | ||||
| 16. Insurance Underwriter/Appraiser | $57,795 | $54,000 | $2,342,000 | 13.20% |
| Insurance underwriters and appraisers enjoy a relatively steady income after college. | ||||
| 17. Architecture | $73,650 | $50,000 | $2,710,000 | 12.2% |
| Architects have decent salaries in the long run, but they must first complete a five year Bachelor’s program, and then spend several years as interns before becoming full-fledged architects. | ||||
| 18. Human Resources Specialist | $56,740 | $25,000 | $2,164,000 | 11.50% |
| HR Specialists start working quickly, but their salaries don’t rise as significantly as in other careers. | ||||
| 19. Graphic Design | $45,340 | $18,220 | $1,994,000 | 11.2% |
| Graphic Designers can start work right after finishing college, but competition for positions is high, keeping salaries down. | ||||
| 20. Psychologists | $70,000 | $11,000 | $2,373,000 | 10.5% |
| Psychologists’ long training period and low salary compared to MDs decreases returns significantly. | ||||
| 21. Teaching (K-12) | $52,450 | -$6,630 | $1,930,000 | 9.6% |
| Teachers are not particularly well compensated in the US, and since their starting salaries are particularly low, the NPV of an investment in a teaching career is actually negative. | ||||
| 22. English (PhD) | $60,000 | -$15,250 | $2,165,000 | 9.25% |
| At the bottom of the rankings are Humanities majors. If an English or Humanities PhD candidate tells you that they didn’t go into it for the money, they’re not lying: this career path has a negative return on investment in income terms. | ||||
Annotated spreadsheet with all calculations: HTML | XLS with formulas
Definition of Terms:
NPV: This is the Net Present Value of the student’s investment in education, based on a 10% discount rate. 10% is a common rate of return expected for long-term investments, and it helps provides a fair benchmark of the value of each career path.
IRR: This is the Internal Rate of Return of the educational investment. IRR tends to favor shorter time horizons, so shorter educational paths like engineering are rewarded when measured via IRR.
Lifetime Earnings: This is a simple sum of the lifetime after-tax earnings of each career path from age 18 through age 65.
Methodology:
All salary data was taken from the BLS May 2007 Occupation Employment and Wages Estimates. The BLS data measures only base salaries, and does not include bonuses, profit-sharing, or other similar forms of compensation in its estimates. College was assumed to cost $20,000 per year (this sounds low, but is an average for public and private colleges, after all scholarships, grants, and student work are taken into account). Professional school costs, and graduate and resident stipend data were sourced variously, and are noted in the spreadsheet. Inflation at 2% and progressive taxation are also accounted for in the calculations.
The rate of return for each field was calculated by determining the IRR for each field, taking into account the cost of college and measuring total after-tax gains from age 22 to age 65. The NPV of each career path was also calculated with a discount rate of 10%. Finally, lifetime after-tax earnings were calculated as a simple sum to provide another measure of earnings potential.
True Cost - Analyzing our economy, government policy, and society through the lens of cost-benefit 
This is an excellent analysis. I tried to open the google sheet spreadsheet, but it appears the link is broken. Is there anyway I could get a copy of the sheet or you could update the link? Much appreciated
Praveen,
Whatever your methodology, you should consider updating this study for 3 reasons:
1) The job market of 2008 is different from 2018.
2) The economy is better (though we may be approaching some more volatile markets).
3) Cost of tuition has risen, millennialis apparently have $0 saved, so if ROI changed it could shift enrollment to a different field
4) People are mentioning your work without stating the year(s) your research was conducted.
Whatever inherent errors you did/didn’t make should be consistent with a second pass for 2017-2018. Feel free to contact me by email!
Dave, you are correct that this study is woefully out of date at this point! It does need an update – law has collapsed in the intervening years, and is nowhere near the top, given a bi-modal salary distribution where most attorneys never have a shot at the big money days of old.
Hi Praveen,
I noticed I wrote your name wrong. I’m sorry about that.
Avi
Hi Praveena,
I found your study informative, but had a few concerns about your discount rate of 10%:
1. You’re assuming that $1 has a discount rate of 10%. But aren’t you also assuming that $1 in student debt has an interest rate of 10%? And of course, this doesn’t make sense. Unsubsidized Stafford Loan interest rates on medical and graduate school has been 6.8% for most of the last decade.
2. Most forecasters predict a future stocks returns closer to 7-8% rather than 10%. See Charles Schwab, for example:
http://www.schwab.com/public/schwab/nn/articles/Q-and-A-Estimating-Long-Term-Market-Returns
3. Stocks are a risky asset. A balanced investment portfolio contains both stocks and bonds, which further lowers expected returns.
4. The 10% return assumes tax exempt growth. 401(k)’s and IRA’s permit tax exempt growth, but have withdrawal limitations. A rational investor who plans to make unqualified withdrawals (i.e. before retirement) on some investments is likely to avoid 401(k)’s and IRA’s for those investments.
5. Both 401(k)’s and IRA’s have contribution limits, which places limits on the amount one could invest early in their career (when the NPV of their earnings are highest).
6. After-tax returns are likely to be much lower than before-tax returns, especially given that few investors are likely to be disciplined enough to buy and hold a single total stock market index fund for 47 years.
This discount rate can make a substantial difference in professions with high educational requirements, like physicians.
Avi
I realize this is a really old article but your figures are slightly fishy. The average primary care doctor is roughly 30 when they finish residency. While the salary is somewhat accurate the lifetime earnings seems suspiciously high if its after tax. I don’t think most of them work more than 40 years…
Reblogged this on Jaded Justice and commented:
Man, I really wish I did my homework before going to Berkeley. Thanks Berkeley for not letting me change my major when I wanted. Maybe I should go to Law School…Nah
Based on data from the Census Bureau and College Board, I calculated that the median return on private college is actually negative. Here is the calculation — I’d be interested to know if this is inconsistent with your research.
http://nostradoofus.com/2009/10/19/has-college-become-a-bad-investment/
William, your estimations and mine do not necessarily contradict – but they may diverge where our assumptions are different. I do think that it is incorrect to add room and board to college costs, as one has to pay these costs regardless. I do not include them.
I used a 10% discount rate, which raises a steeper bar for college education. Nonetheless, I found that many careers have a highly positive NPV and ROI.
It’s hard to argue that the ROI for most engineering fields is negative, when median salaries are near 90k and only 4 years of education is required.
On the other hand, I calculate the ROI of many humanities degrees to be negative, which is in line with your estimations.
At the end of the day, I think it’s grossly inaccurate to say that the ROI on college has gone negative – it’s always been negative for a large number of low-paying career tracks, and it’s quite positive for well-paid career tracks. I do agree with the sentiment that the ROI of education is dropping, because wages are stagnant while tuition is rising at 5+% per year. Just as with health care inflation, at some point tuition inflation has to level off, because education is no longer worthwhile once it produces negative returns.
You are overestimating the average salary of attorneys, which has been dropping steadily in the last couple of decades while the cost of law school tuition is skyrocketing. For most people, law school is a bad investment — $150,000 plus in debt upon graduation with no or poor job prospects.
http://online.wsj.com/public/article_print/SB119040786780835602.html
Attorney, I used the Bureau of Labor Statistics data for salaries – but I agree with you that law is no longer the “golden ticket” that it once was, in fact I pointed that out in the comment immediately previous to yours.
It would be great if I could get a proper breakdown of unemployment by career – the data the BLS collects on this is really generic and not very useful (they lump all “professionals” into one category).
But if I were to simply go with my guesstimate of attorney unemployment at 20%, that would probably knock law out of the top 5. Note that my calculations do take into account tuition costs (and the resulting debt).
Unemployment in the legal field has rocketed during the recession, meaning that Law’s place on top is probably over. Anecdotally, I know more unemployed attorneys than I do unemployed college grads in any other field. It’s possible that the legal field is going through a necessary correction, as chronicled here:
http://www.nytimes.com/2010/01/17/fashion/17lawyer.html
Of all the careers on this list, the ranking for Medical Specialists is probably least accurate.
Here’s a good picture of what specialists in private practice in the US actually make:
http://www.cejkasearch.com/compensation/amga_physician_compensation_survey.htm
Quite a few medical specialties including radiology, many surgical specialties, and cardiology have median salaries of $400,000 and above.
If these compensation numbers were used, medical specialists would clearly have the highest career ROI of any field. Having said that, cherry-picking data sources for different fields is highly problematic, and so I have not done so. Still, it’s a mystery to me why the BLS data seems to low-ball the salaries of medical specialists so significantly. I believe this may because almost 50% of many specialists’ income is technically profit sharing, since they are owners of their practices, rather than traditional employment income. Nevertheless, they generate that income through their own physical work, and so it should be counted.
Thanks for the detailed feedback. Let me try to tease out the various issues here:
1. Returns to innate ability vs. returns to education – This is the toughest issue. At one extreme, I could have put NBA player on my list, and the ROI for this career per my calculations would be obscene. But most high school kids don’t have that skill, and no training will impart it.
On the other hand, and more germane, many architecture students do have the academic ability to go to medical school or law school. What I would like to measure is the ROI of different career paths for a student who has these choices.
It’s also true that even within a single career, there are wide variations in pay due to innate skill and quality of training. I think using averages (medians if I had them!) is justified, as I’m trying to present a general picture. But the problem I wrestle with most is the fact that in certain careers, promotions cause both title and pay to change over time, while in other careers (think medicine) promotions do not exist and pay is relatively static after training.
2. True costs of education – My career list was originally meant for college-bound students. I mixed apples and oranges a bit by throwing “police officer” into the mix, but in looking at career options available to the college bound student, a student going to UMass Boston has the same basic opportunities as a student going to Harvard. It’s true that costs are not constant for all students, and again I’m forced to use average tuition costs etc. in making my calculations.
3. Value for intended audience – You argue that heterogeneity in ability renders my return calculations of little value to prospective college students. It’s implicit, and perhaps I should make explicit, that to achieve the average returns indicated, one must complete the career path in question. I could attempt a quantitative measurement of difficulty for each career path, so that students have an idea of what they’re up against. Or I could simply label NBA Player “Impossible”, Medical Specialist “Difficult”, and Human Resources “Easy”. I have already adjusted for unemployment risk, so given that a student completes the career path in question, I think the ROI numbers provide some idea of the financial return to be expected.
I’m a bit troubled by the implications you’re making from the calculations. Calling those figures “returns to career paths” makes me really uncomfortable. For one, true costs of eduction are not constant within occupations. It is much less costly for a college graduate to acquire medical training than it would be for somebody with mild retardation.
Even if you care strictly about accounting costs (and not true costs), the benefits of education are not constant within occupations. You can’t disentangle whether medical training is more lucrative than architectural training because the schooling imparts more skills (adjusting for costs), or because more productive people go into these fields. In that case, the appropriate counterfactual would have all doctors becoming architects (and vice versa). Only if their earnings in the two careers stayed constant could you say that the difference in earnings (again, adjusting for costs) was attributable to career choice. Either that or you’d need some clever and unethical randomized experiment.
This /has/ to matter for your intended audience. If you presented these numbers to a prospective student, it would suggest that every dollar they spent on training for a particular occupation would generate X dollars back over their lifetime. That’s really misleading because of the huge heterogeneity in ability.
In short, I’m worried that what you call costs and what you call benefits are really crude proxies. As such, you’re attributing something very ill defined to educational investments. It’s a tricky problem. That’s probably the reason that the research is so sparse.
Thanks for the comments. I’m interested to know if there are any other comparative studies out there which compare returns for different career paths. I didn’t find much detailed research on this, except some random papers on German returns to higher education.
I’m less interested in capturing the impact of education on earnings for a particular individual – I think this issue has been studied more, and this presents less value to my eventual target audience (high school kids, college freshmen, guidance counselors, parents).
I think what you’ve done is pretty interesting and useful. I do have a few comments though:
1. At first blush, your figures of 10-15% seem a bit low to me. Most papers show around a 10% increase in income /per additional year/ of primary education, and this marginal benefit increases for college (and decreases for PhD study). So I’d expect to see higher returns even when accounting for the up front cost of education.
2. I think the ideal measure would be to consider the increase in earnings from education relative to the very same person not choosing schooling. That would give you the true effect of education in some sense. I don’t believe your figures account for this selection, and hence would be biased upwards — that makes it even more puzzling to me that the numbers you present are as low as they are.
3. Is the relevant earnings measure salary or wage? By not accounting for differing levels of leisure in these careers, you may be skewing the results. e.g., the lawyers I know spend all their time in the office and getting stuff dry cleaned, whereas the chemical engineer I know writes grants while watching football.
I know that there will be further questions on the salary data, methodology, etc, so here’s a brief FAQ:
1. Why are the salaries for some fields understated so much?
The BLS salary data used does not include certain kinds of bonuses or any overtime pay. It’s also quite difficult to account for career progression through promotions. Once a human resources analyst is promoted to management, for instance, his pay may increase greatly, but that change is not captured here.
It’s also important to keep in mind that the data given are averages. I know of specialist physicians that make over $500,000 a year, and I know of computer programmers that make over $200,000 a year. But these salaries are not representative. I used the BLS salary data set as it was the most complete and consistent data set that I could find. If you’re aware of a better data set, let me know!
2. Why do you use a 10% discount rate for your NPV calculations? This seems too high.
I used 10% as the discount rate as this represents the long term savings growth rate that a young worker might expect to achieve. Some may point out that most 401k plans have earned a 0% return since 1998, given the recent market crash. On the flipside, however, a worker who started investing in stocks in1982 would have gained 15% per year through 2000. Americans also seem to value immediate consumption highly (evidenced by Americans’ low savings rate), and a higher discount rate captures that preference.