The degree dilemma: School districts spend millions on ineffective master’s degree premiums

Los Angeles Unified School District (CA) expects a $94.5 million budget shortfall this year. On the East Coast, Fairfax County Public Schools (VA) is experiencing a $121 million deficit. For Chicago Public Schools (IL), it’s a staggering $734 million. With ESSER funds expired and student enrollments declining, districts across the country face very real budget concerns, forcing them to make difficult decisions that can harm students, like layoffs and school closures. Identifying and eliminating inefficient spending offers districts a way to reduce the pain from these decisions. 

In this District Trendline, we focus on one of education’s most persistent examples of ineffective and inefficient spending—automatic salary increases for teachers who hold a master’s degree (i.e., master’s degree premiums). Drawing on data from our Teacher Contract Database, we examine master’s degree premiums across four areas:

• State policy landscape: how state mandates influence district implementation of master’s degree premiums.
• Longitudinal trends: changes in the average master’s degree premium through time.
• District policy landscape: how master’s degree premium structures and costs vary across districts.
• Opportunity cost: the financial investment required from districts to pay for master’s degree premiums—and what they’re giving up in exchange.

Education leaders must think strategically and spend district funds efficiently and effectively—maximizing outcomes per dollar invested, not spending the least amount possible. Savvy district leaders can use financial pressure as a catalyst to eliminate inefficient practices that have gone unchecked, like investing in a compensation structure that has no clear goals or return on investment.¹

This isn’t to suggest that investing in teachers is unimportant—quite the opposite. Teacher compensation is the largest educational expense,² and rightfully so as they are the most critical within-school factor affecting student achievement.³ Yet many districts allocate these substantial resources without any systematic approach to ensure that students benefit. We find that 90% of large school districts pay teachers more for master’s degrees, and nearly a third of states require districts to, despite the evidence that master’s degree premiums are bad policy for almost everyone:

• Research shows that, on average, teachers with master’s degrees are no more effective than those without,⁴ and even when a practicing teacher earns a master’s degree, their effectiveness doesn’t improve.⁵
• Despite the additional pay, it can take teachers nearly a decade to recoup the cost of tuition for their master’s program.
• Recent changes in federal student loan programs—including the elimination of Grad PLUS loans and capping federal student loans for graduate students at $20,500 per year—means that master’s programs are becoming even more expensive for teachers.
• Master’s degree premiums and requirements may have adverse consequences on teacher diversity.

Fifteen states mandate master’s degree premiums

So why do districts spend this money? Only two states, Connecticut and New York, require teachers to earn master’s degrees to become fully licensed. However, 15 states require school districts to offer higher salaries for master’s degrees.

Two of these states mandate master’s degree premiums without establishing minimum salary requirements, while the remaining 13 both require master’s degree premiums and mandate minimum salaries or state salary schedules. In contrast, 34 states do not mandate that districts pay teachers with master’s degrees more than those with bachelor’s degrees. Colorado and New Mexico both take more nuanced approaches, which involve master’s degree premiums but do not necessarily require them.⁶

Most districts pay extra for no discernable benefit

Although the majority of states do not impose master’s degree premiums on districts, most districts maintain these costly policies anyway. We examined our sample of 148 teacher contracts and district policies from the nation’s largest school districts⁷ and found that a staggering 135 districts pay teachers with master’s degrees more than their equally experienced colleagues with bachelor’s degrees.⁸ Importantly, this illustrates that master’s degree premiums are not limited to districts with collective bargaining agreements, as our sample includes districts with and without them.

Despite clear research evidence, and even in the absence of state mandates, districts allocate their scarce dollars to reward credentials that don’t improve student outcomes.

The practice is common, but how expensive is it? In the 135 districts that pay master’s degree premiums, the average premium in 2025 for novice teachers is $3,581. It is more than twice that for veteran teachers, as the average premium for teachers with 25 years of experience is $9,315. Increasing master’s degree premiums as teachers gain experience is also bad policy. Just as master’s degrees do not make teachers more effective from the outset, master’s degrees do not improve teachers’ effectiveness over time. 

Figure 3 illustrates how master’s degree premiums have become institutionalized in district budgets. Salaries for teachers with bachelor’s and master’s degrees have increased modestly through time at similar rates, translating into remarkably stable master’s degree premiums on average.⁹ Year after year, districts continue to invest in status quo compensation structures rather than research-backed policies and practices. The implication is clear: It is past time for districts to break these inflexible spending patterns, re-envision teacher compensation, reward what matters, and invest in compensation strategies more likely to lead to improved outcomes for teachers and students.

What master’s degree premiums really cost

In some districts, such as Albuquerque Public Schools (NM), the pay bump for advanced degrees is relatively modest. In 2025 a new teacher with a master’s degree earned just $547 more than their colleague with a bachelor’s degree. Even for more experienced teachers, the master’s degree premium never exceeds $813. While these amounts seem small, they add up quickly. Assuming Albuquerque’s teacher workforce mirrors national averages for experience and master’s degree attainment,¹⁰ a back-of-the-envelope calculation suggests the district may spend about $2.3 million on master’s degree premiums in 2025—equivalent to $30 per student.¹¹ This money could have gone toward programs with a stronger track record of improving teacher effectiveness, like Albuquerque’s teacher mentorship program,¹² which pays school-based teacher leaders $2,000–$4,000 to mentor novice teachers.¹³

By contrast, Santa Ana Unified School District (CA), places a much higher value on master’s degrees. In 2025 new teachers with a master’s degree earn $1,954 more than their counterparts with bachelor’s degrees, while teachers with 25 years of experience see a staggering $62,342 more in a single year. This massive difference exists because teachers with a bachelor’s degree are capped at step seven on the salary schedule, regardless of years of experience, while teachers with master’s degrees receive pay raises as they gain experience. Using the same assumptions applied to Albuquerque, Santa Ana may spend upwards of $38 million on master’s degree premiums, or about $993 per pupil. These funds could be redirected in ways that are more likely to improve student and teacher outcomes, like rewarding high-performing teachers. (Per our analysis of Santa Ana district documents, they do not have any performance pay policies.¹⁴) Research finds that performance pay may improve overall teaching quality, particularly in urban areas.

Interested in the data? Explore 2025 master’s degree premiums data from our sample districts here.

Districts should reimagine how they compensate teachers, and states should support them.

Paying premiums for credentials with little to no return on investment—and some serious downsides for teachers—isn’t smart policy. Instead, states and districts should reimagine compensation structures and teachers’ roles to implement policies that improve teacher quality and student outcomes. Differentiated compensation can be good policy when based on research-backed policy levers, such as additional pay for teaching in high-need schools or hard-to-staff subjects, performance-based compensation, salary increases for teacher leadership roles, and premiums specifically for in-field master’s degrees in subjects like mathematics, where advanced content knowledge directly benefits instruction.¹⁵

Across-the-board base pay increases, particularly for novice teachers, may also be a more effective use of money. Paying teachers more at the beginning of their careers (as opposed to high salary increases later) may improve student achievement and teacher retention.¹⁶ Teacher mentorship programs in which highly effective teachers are paid to mentor student teachers during pre-service, or mentor novice or underperforming in-service teachers, are yet another worthwhile use of funds that may result in improved student and teacher outcomes.¹⁷

Charlotte-Mecklenburg Schools (NC) provides a strong example of a district that does not pay premiums for master’s degrees (in fact, North Carolina does not permit it¹⁸) and instead has intentionally improved teacher and student outcomes through strategic staffing. Schools participating in the strategic staffing program, which pays effective teachers up to $20,000 more for serving in advanced roles, have seen substantial decreases in teacher vacancy rates and met student growth benchmarks at double the rate of the state as a whole.

To be clear, reimagining teacher compensation is difficult as the transition requires strategic thinking. However, there are tools available to assist district leaders in this complex process. Education Resource Strategies (ERS) has developed a Teacher Compensation Calculator that allows administrators to input various compensation restructuring strategies and receive detailed estimates of their potential financial impact within the specific district context.

Importantly, implementation matters just as much as the policy. When North Carolina eliminated master’s degree premiums in 2013, existing teachers with a master’s degree received the promised master’s degree premium while the master’s degree lane was phased out for new teachers.¹⁹ Although this policy is not without ongoing controversy, it enables districts like Charlotte-Mecklenburg to pursue compensation reforms that are more likely to result in improved outcomes. Meanwhile, Florida’s transition to performance-based pay went poorly because many districts continued to center master’s premiums despite reform intentions.

As education leaders continue to navigate a time of ever-decreasing funding, it is more important than ever to ensure that every dollar spent is worthwhile for our students. Leaders can do this by rethinking stale and persistent salary structures and instead investing in strategies that work.