College is one of the “biggest investments” of life. A new report asks – is it worth it?

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

A report by researcher Michael Itzkowitz of the HEA Group found that programs that resulted in recent graduates earning no more than those with a high school diploma were focused on private, for-profit colleges. The document identifies such programs as not generating an economic return on investment.

By contrast, all programs analyzed at California State University and the University of California showed a positive return on investment, measured as the difference between the median earnings of graduates five years after graduation and the median earnings of Californians aged 25 to 34 without a college degree. Less than 1% of programs in both university systems were expected to take more than 10 years to recover.

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

“Paying for higher education is in many ways one of the largest investments a student or their family will make in their lifetime, probably second only to a mortgage loan,” he said. “If you think about it, people get a lot more information about other investments they’re going to make or other debt they’re getting into than they do when investing in a college. That’s why we want to make sure there is more transparency and information for students and their families investing in higher education.”

Oakley said the report is not an assessment of whether a particular academic program should be offered based on its economic benefits. Rather, he said the report aims to help Californians think about the value of a college or university less in terms of its acceptance rate and more in terms of its potential to increase the economic mobility of graduates.

Definition of “return on investment”

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

Analyzing 2,695 programs at 324 institutions, Itzkowitz compared students’ out-of-pocket expenses for earning a degree with the additional money they earn as a result of completing their degree.

To assess how much postsecondary education costs, the study used college self-reported data on how much students are required to pay after deducting scholarships and grants. This figure includes not only tuition, but also fees, books, materials and other living costs. This net cost is used to calculate the price-to-earnings premium, a measure of how many years it will take to recover the cost of the reference.

The study made several simplifying assumptions to calculate this premium.

First, it will take students one year to earn the certificate, two years for an associate’s degree and four years for a bachelor’s degree. These assumptions do not hold true in practice for many students. For example, only about 36% of Cal State freshmen who started in 2019 graduated within four years. In cases where it would be more expensive to complete a program over a longer period of time, the study may have underestimated the actual costs to students.

The second assumption is that each program offered by a given university costs the same, because there were no cost breakdowns available for individual fields of study.

Finally, the college world is limited to students who have graduated, not those who started a program but did not complete it. Previous research suggests that students who enter college but do not receive a degree typically earn less than graduates, Itzkowitz said, and are more likely to have difficulty paying off debt.

The most important information

Itzkowitz calculated that across all programs in the study, 88% prepared graduates to recoup the cost of a degree in five years or less. Average earnings five years after graduation were at least $10,000 higher than those of a typical high school graduate for the vast majority of programs as well.

However, 12% of programs took graduates at least five years to recover their ongoing costs, and 112 of them were flagged as having no economic return on investment.

The report also noted differences between education sectors. Itzkowitz found that 17% of programs offered by for-profit schools failed to produce a return on investment, compared with just 1.2% and 1.3% of majors and qualifications at nonprofit and public institutions, respectively.

For-profit institutions differ from other nonprofit and public institutions in that they offer the most bachelor’s degree certificates in the state, and most of these programs have no economic benefit. Two fields – cosmetology and somatic bodywork – stood out as having the most programs without a measured return on investment.

Despite this, many programs brought returns even within a one-year horizon. The report calculated that almost half of programs at public institutions allowed graduates to recoup the costs of obtaining a degree within a year. Among private nonprofit institutions, 7% of programs allowed graduates to recover their costs during this period. Thirteen percent of for-profit institutions met the same criteria.

Oakley said he hopes the report will inspire further research on whether higher-earning programs attract students of color, where high-return programs are located regionally and how to replicate programs with the best economic benefits.

“There are many programs in 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 the value of universities

While the College Futures Foundation report focuses on graduates’ earnings within five years of graduation, other recent studies have sought to forecast college graduates’ earnings over a longer time horizon.

For example, a 2019 report by Georgetown University’s Center on Education and the Workforce ranked 4,500 colleges and universities by calculating their projected returns 40 years after incorporation. This analysis estimates the net present value of a student’s potential future earnings, meaning it balances the costs of paying for a college education today with the potential for higher earnings over time.

The Foundation for Equal Opportunity Research released a study in May that measured return on investment in terms of how much a college increases a student’s lifetime earnings after subtracting college costs. Instead of comparing college graduates with the average number of high school graduates, this study estimates how much college graduates would have earned had they not pursued a college degree. It also takes into account colleges’ actual graduation rates, a step that takes into account the risks for students who start a program but don’t complete it.

EdSource receives funding from several foundations, including the College Futures Foundation. EdSource retains exclusive editorial control over the content of its reporting.