A new report shows that most four-year college degrees enable graduates to recover the costs of their education within a reasonable amount of time. Almost two-thirds of more than 38,000 degree programs (65%) produce graduates who earn enough to recoup their college costs in ten years or less, and 46% achieve that same result within five years of graduation. That’s the good news.
The bad news? Almost one quarter of all college programs (10,000) produce graduates who fail to earn enough to pay off their educational costs within 20 years after they’ve completed their studies.
And about 6,000 of these programs - many of which are at the sub-baccalaureate level - don’t show any economic premium over a high school diploma. That means that more than 350,000 students enrolled, paid all their educational costs often by taking on considerable debt, and graduated from these programs but realized little or no economic gain from doing so.
The results are in a report released last week by the public policy group Third Way, entitled “Which College Programs Give Students the Best Bang for Their Buck?” It presents an analysis of post-secondary degree and certificate programs using data from the U.S. Department of Education’s College Scorecard to measure the return on investment (ROI) associated with various higher education programs. It’s the most fine-grained analysis of Third Way’s various reports on the economic payoffs of attending college to date.
The results are based on a unique methodology developed by Michael Itzkowitz, a Senior Fellow at Third Way and the author of the report, to calculate what’s termed the "Price-to-Earnings Premium,” or PEP.
Modeled after the investor idea of a price-to-earnings ratio as a gauge of stock value, the PEP measures the amount of time it takes on average for students from a given college program to recoup the costs of paying off their education, whether at the certificate, AA or bachelor’s degree level. Here are the steps to compute a given program’s PEP.
- Calculate the amount a student pays out-of-pocket to attend a given program (i.e, the net amount after scholarships and grants are factored in). Third Way assumes four years of cost for a bachelor’s degree, two for an associate’s degree, and one for a certificate.
- Calculate the median salaries of graduates (two years after completion) and the median salaries of those with only a high school diploma within the state where the program is located.
- Divide the amount in #1 by the difference between the median salaries of program graduates and the high school graduates, gathered in #2.
- The resulting quotient - the PEP - tells you the number of years it takes for students to recoup the net costs of their education.
Because program-level earnings data from the Department of Education reflect only those programs that are large enough to protect the privacy of individual students, only about 20% of all college programs nationwide are included. Nonetheless, these larger programs are where the vast majority of students are enrolled. Third Way’s analysis covers over 2.2 million students.
Type of Credential Matters
Although bachelor’s degrees take longer to complete and are typically more expensive than shorter degree programs, 65% yield graduates who earn enough to recover their educational costs within 10 years or less—representing 75% of all bachelor-degree holders. Only 10% of bachelor’s degree programs—representing 5% of four-year students—show their graduates earning less than the typical high school graduate within two years after obtaining a degree.
At the associate’s level, 64% of programs - representing 58% of students earning an associate’s degree - allow graduates to earn back the cost of their degree within just five years, higher than any other type of credential. However, a higher percentage of associate’s degree programs (21%) lead to no earnings premium whatsoever compared to four-year programs (10%).
For certificate-granting programs, usually ranging from six to 18 months in length, 48% show the majority of their graduates able to recoup their educational costs within five years. However, on the flip side comes a strong caution: 42% of certificate programs produced no ROI for their graduates.
Higher Ed Sector Matters Even More
Degree programs at public institutions have the highest likelihood that graduates can recoup their educational investment within five (56%) or 10 years (73%) after completing their program. Of the 1.3 million students graduating from these programs, approximately 1 million (76%) were earning enough to pay off their educational costs within 10 years or less. But there is also some bad news: more than 3,000 programs (13%) had a majority of their graduates—representing 109,183 students—earning less than a typical high school graduate two years after program completion.
Because the costs of attending private non-profit institutions are often greater than a public college, it takes longer on average for students graduating from those schools to recoup their educational costs. Only 31% of private non-profit college programs show their graduates recouping their educational costs in five years or less. Still, the majority of programs - 56% - show their students able to recoup their costs within 10 years of graduation, representing 62% of all graduates from private non-profit institutions.
Degree programs at for-profit institutions are the least likely to yield a quick ROI and the most likely to offer no economic premium whatsoever. Only 40% of for-profit programs allow graduates to recoup their costs within 10 years, far less than in the other two sectors. Worse, nearly half (46%) of for-profit programs show no ROI whatsoever, a much greater percentage than their public and private counterparts. Two-fifths of those who complete for-profit programs are likely to end up economically worse off even though they’ve earned the credential for which they enrolled and paid.
Different Programs of Study Make a Big Difference in ROI
The Third Way report also identifies the specific programs at the certificate, associate’s and bachelor’s level with the best and worst ROIs. No surprise here - the academic program that students complete makes a big difference in their ability to recoup educational investments. At the bachelor’s level, for example, the programs with the best ROI include those in:
- nursing, construction management, allied health, and a number of subfields in engineering.
Those bachelor’s level programs most likely to yield no economic ROI include:
- religious studies, anthropology, zoology, religious studies, film studies, and various majors in the performing arts.
I asked Michel Itzkowitz what he saw as the most important implications of the report, and he referred to the good news/bad news nature of the results: “These data allow us to better pinpoint the types of programs that are working for students and which ones are not. From a policy perspective, it allows us to see which degrees and programs are most likely to pay off. And from a consumer perspective, it’s the kind of data that students and families seek out when considering enrolling in an institution.”
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August 16, 2021 at 05:00PM
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