College is one of life’s “biggest investments.” New report asks: Is it worth it?

A new report released by the College Futures Foundation finds that while a large majority of California college programs allow graduates to recoup the costs of their postsecondary education in five years or less, a handful let recent graduates earn less than the Typical Californian with only high income. school education.

The report by researcher Michael Itzkowitz of the HEA Group found that programs that did not help recent graduates earn more than high school diploma holders were concentrated at private, for-profit colleges. The newspaper reports that these programs have no economic return on investment.

In contrast, all programs analyzed at California State University and the University of California had a positive return on investment, measured as the difference between the graduate’s median earnings five years after graduation and the median earnings Californians aged 25 to 34 without a college education. . It was predicted that less than 1% of programs in both university systems would take more than 10 years to pay off.

Eloy Ortiz Oakley, president and CEO of the College Futures Foundation and former chancellor of California Community Colleges, said the report was a response to survey data highlighting growing skepticism about the value of higher education in a rising costs.

“Paying for college is, in many ways, one of the most important investments a student or their family can make in their life, probably second only to the mortgage,” he said. “If you think about it, people get a lot more information about what other investments they’re going to make, or what other debts they’re taking on, than when they invest in a higher education institution. We therefore want to ensure greater transparency and more information for students and their families when investing in higher education.

Oakley said the report is not a judgment on whether a particular academic program should be offered because of its economic benefits. Instead, he said, the report aims to help Californians view the value of a college or university less in terms of acceptance rates and more in terms of the potential to increase graduates’ economic mobility.

Define “return on investment”

The report, “California College Programs That Pay,” analyzes data from the U.S. Department of Education’s College Scorecard to understand the earnings of approximately 260,000 people who earned an undergraduate certificate, associate’s degree or bachelor’s degree in California with the support of a federal loan or grant. .

Looking at 2,695 programs across 324 institutions, Itzkowitz compared students’ out-of-pocket expenses to earn a degree to the extra money they earn from completing it.

To estimate the cost of a postsecondary program, the study uses data reported by colleges on how much students must pay after deducting grants and scholarships. This figure includes not only tuition, but also fees, books, supplies and other living expenses. This net cost is used to calculate a price-to-earnings premium, a measure of the number of years it will take to recoup the cost of a security.

The study makes some simplifying assumptions to calculate this premium.

The first is that students will take one year to earn a certificate, two for an associate’s degree, and four for a bachelor’s degree. These assumptions are not true for many students in practice. For example, only about 36% of Cal State freshmen who started in 2019 graduated within four years. In cases where completing a program over an extended period would cost more, the study may underestimate students’ actual costs.

A second assumption is that each program offered by a given institution costs the same, since cost breakdowns for given fields of study were not available.

Finally, the universe of studies is limited to graduate students, and not to those who started a program but did not complete it. Previous research suggests that students who start a college program but don’t complete a degree tend to earn less than graduates, Itzkowitz said, and are more likely to have trouble paying off debt.

Report Highlights

Across all programs included in the study, Itzkowitz calculated that 88 percent prepared graduates to recoup the cost of their degree in five years or less. Median earnings five years after graduation were also at least $10,000 higher than a typical high school graduate for the vast majority of programs.

But 12 percent of programs gave graduates five years or more to recover their expenses, and of those, 112 were reported as having no economic return on investment.

The report also notes differences between education sectors. Itzkowitz found that 17% of programs offered by for-profit schools had no return on investment, compared to just 1.2% and 1.3% of majors and degrees at public and nonprofit institutions, respectively. .

One difference between for-profit institutions and their public and nonprofit counterparts is that for-profit institutions offer the greatest number of undergraduate certificates in the state – and a larger share of these programs do not result in any economic gain. Two fields, cosmetology and somatic bodywork, stood out as offering the most programs without a measured return on investment.

Yet many programs have shown results even over a one-year horizon. The report calculates that nearly half of programs at public institutions allow graduates to recoup the cost of their degree within a year. Among private, nonprofit institutions, 7% of programs allow graduates to recoup their costs during this period. Thirteen percent of for-profit institutions met the same criteria.

Oakley said he hopes the report will inspire more research to determine whether higher-income programs attract students of color, where high-performing programs are located regionally and how to replicate programs with the best economic outcomes .

“There are many programs within our public institutions that provide a good return on investment,” he said. “What surprises me is that when we ask these institutions why, they don’t necessarily know why. »

Other Approaches to Measuring College Value

While the College Futures Foundation report focuses on graduates’ earnings over the five years following graduation, other recent research has sought to project students’ earnings over a longer time horizon.

For example, a 2019 report from Georgetown University’s Center on Education and the Workforce ranked 4,500 colleges by calculating their projected returns 40 years after enrollment. This analysis estimates the net present value of a student’s future earnings potential, that is, it weighs the costs of attending college today against the potential for higher earnings over time.

The Equal Opportunity Research Foundation released a study in May framing ROI in terms of the extent to which college increases a student’s lifetime earnings after subtracting the costs of college. Rather than comparing college students to the median high school graduate, this study estimates what students would have earned if they had not pursued higher education. It also takes into account actual college completion rates, a step that recognizes the risk for students who start a program but don’t complete it.

EdSource receives funding from several foundations, including the College Futures Foundation. EdSource retains sole editorial control of its coverage content.