The Changing Landscape of Higher Education in the AI Era
The economy is experiencing a significant shift, with a growing number of studies examining the challenges faced by recent college graduates in an AI-driven world. Researchers have been closely analyzing how the job market is evolving and what this means for those seeking to build their careers. A key finding from Harvard economists Lawrence Katz and Claudia Goldin in September 2025 revealed that while the college wage premium still exists, it has remained largely stagnant since 2000. This stagnation was further explored by the San Francisco Fed, which attributed it to a reduced demand for workers with higher education.
In addition, the World Economic Forum highlighted that AI skills now command a 23% wage premium, compared to just 8% for a bachelor’s degree alone. This indicates a growing importance of technical skills in today’s job market. Dallas Fed economist J. Scott Davis made waves in February 2026 with a paper showing that AI is not only reducing entry-level hiring but also increasing wages for experienced workers in AI-exposed occupations.
But what about graduates who pursued degrees in fields considered “AI-proof,” such as psychology or education? A new report from the Postsecondary Education and Economic Research Center sheds light on the financial returns of graduate degrees. When factoring in tuition and fees, some graduates are actually facing negative returns. For example, psychology graduate degrees yield a -8% cost-adjusted return, meaning the estimated change in lifetime income after accounting for the cost of attendance is negative.
The report also found that clinical psychology, a specialized branch of psychology, offers -5% cost-adjusted returns. Social work and curriculum and instruction degrees also show negative returns, according to the study. On the other hand, computer science degrees yield a modest 6% return after adjusting for costs.
Joseph G. Altonji, a professor of economics at Yale and co-author of the study, emphasized the importance of understanding earnings potential and job opportunities associated with different degrees. He advised students to consider these factors before pursuing graduate education.
Over the years, more students have turned to graduate degrees as a way to boost their salaries. According to the U.S. Census Bureau, the percentage of Americans with a graduate degree increased from 31% in 1993 to 42% in 2022. However, as AI threatens white-collar jobs, Gen Z is being forced to rethink traditional career paths.
Research from Anthropic last month showed that AI is theoretically capable of performing most tasks in white-collar fields, including engineering, law, and business and finance. Despite this, many individuals are still opting for post-graduate degrees, although an increasing number are choosing to skip college altogether. Even roles that were once considered safe from automation offer limited job security.
To calculate these estimates, researchers Altonji and Zhengren Zhu used administrative data from the Texas Education Research Center to develop causal estimates for 121 specific advanced degrees. Their study goes beyond salary comparisons by considering a student’s outside options—estimated earnings they would have achieved had they not pursued a graduate degree.
The Hidden Costs of Pursuing Higher Education
Students are increasingly questioning the value of higher education. Beyond the threats posed by AI, some are struggling to justify even a four-year degree. According to data from the Federal Reserve Bank of New York, the unemployment rate for recent college graduates has recently surpassed the unemployment rate for all workers. However, it’s possible that the motivation for entering a graduate program isn’t always about boosting salary. Many students may be looking to make a career pivot.
Despite these concerns, graduate degrees overall do increase students’ earnings by around 17%, according to the researchers. Even as AI threatens to replace roles in law and business, law degree and MBA holders still see 41% and 13% in cost-adjusted returns, respectively. These are solid returns, though significantly lower than the 173% returns offered by a doctor of medicine (MD) degree. The high returns for MDs come even after accounting for the average $228,959 students pay to earn the degree.
Engineering, one of the most vulnerable careers to automation, is already seeing relatively low returns. While the average annual earnings for all engineering graduates is six figures, the payoff is slim. Electrical and mechanical engineering graduates only see 4% cost-adjusted returns. For computer engineering, the cost-adjusted return is just 2%.
Of course, many students pursuing master’s degrees often majored in the same fields during their undergraduate studies, which already have high average annual earnings. This explains the marginal gains observed in the study. For instance, electrical and computer engineering graduates earn over $82,000 annually before even starting their graduate programs, according to the study.
However, Altonji noted that the payoff for these degrees could still be particularly high for those coming from humanities backgrounds. “The percentage gain in earnings is higher for those degrees,” he said. “It’s higher for people who come from some fields like, say, English, or some of the humanities majors, some of the majors that are associated with lower earnings.”
