How much is a college credential worth? As surveys show the American public losing faith in the value of higher education, researchers have made many attempts to quantify the benefit it imparts.
Higher education experts often discuss a concept called ROI, or return on investment. ROI typically measures how much a college degree increases earnings over the lifetime of a graduate, after accounting for the cost of attending. If the earnings bump exceeds the cost, the program has a positive return on investment.
New research from the Foundation for Research on Equal Opportunity, a free market think tank, attempts to quantify the return on investment for 53,000 different college programs at the graduate, undergraduate and certificate levels. The project includes a searchable database.
The research found that ROI is highly variable. Bachelor’s degrees offered a median return of $160,000, but some had a lower ROI than a certificate in technical trades. About one-third of Pell Grant and federal student loan funding pays for programs that don’t pay off, the research found.
Higher Ed Dive spoke with Preston Cooper, a senior fellow at FREOPP, about what sets these new measures apart.
Editor’s note: This interview has been edited for length and clarity.
Higher Ed Dive: There have been many different measures of return on investment, and a lot of recent research. The federal government has released a lot of data on the earnings and costs of different programs. How does your work build upon or go further than some of that federal data or other measures of ROI?
Preston Cooper: Our study goes beyond some existing studies in a couple key ways.
Number one, we use a different baseline when we're talking about what that earnings gain is. So a lot of other studies will just look at the median wage of a typical high school graduate, and then compare that to the median wage of a college graduate, and attribute the entire difference to college.
But people who go to college might be different in fundamental ways from people who stop out of education with only a high school diploma. Part of that earnings difference between college graduates and high school graduates might be due to those pre-existing differences, rather than anything to do with the college degree itself. So we make an adjustment for that.
The second major thing that we do that departs from other studies is we take account of the fact that almost 40% of students who start college don't actually finish their degrees.
How did you incorporate the fact that students have “pre-existing differences?”
This is what we call the counterfactual earnings. In the parallel universe where that student does not go to college, what would their earnings be?
Often people will use just high school graduates' median earnings as this counterfactual. But that's not necessarily a good assumption.
We look at the type of students that each school is serving. So some schools might be serving more male students or female students. Some schools might be serving more underrepresented minorities. We calculate a counterfactual wage for each program that is directly reflective of those different traits.
And then the second adjustment we apply is a selection bias adjustment. And that's a fancy word for basically trying to account for the fact that even if you account for all these demographic factors, there are still probably differences between the people who decide to go to college and the people who don't decide to go to college along traits that we can't necessarily observe at first glance.
For instance, your academic ability, your motivation, your family background, lots of other characteristics like that. We apply an adjustment for that as well.
The counterfactual that we estimate for Harvard University is a lot higher than the counterfactual estimate for your local community college, because we recognize that Harvard University is taking students who have higher earnings potential, who come from wealthier families, who might have stronger academic credentials.
We recognize that the same earnings outcome at Harvard and a community college might mean something very different, because those two schools are enrolling very different types of students.
Were there any surprises in your analysis?
Master's degrees are often seen as something that's a very good investment. It turns out that's true some of the time, but very often it's not true. We find that 43% of master's degree programs have a negative ROI. That gain in earnings that they deliver is just not big enough to justify the cost of those master's degree programs.
Schools will often advertise that they have very high earnings for MBA graduates. What they don't tell you is that they're taking students who already had pretty high pre-existing earnings potential. If you're advertising a salary for your MBA program of $100,000, but the student would have earned $98,000 otherwise, that's not a very great earnings gain, even though $100,000 sounds like a pretty high salary at first glance.
What should prospective students take from this database? Are there drawbacks to encouraging every student to pursue a high ROI field?
I don't think that we can ignore the fact that certain majors just have a much higher ROI than others. But if you are a student who is really interested in art or film studies or English or something like that, our ROI database can still be useful for you because you can go and see what kinds of schools are giving their students a good ROI for the film program.
What do you think officials at institutions can take away from your research?
For these lower ROI programs that they have, they should start thinking more seriously about how to improve students' job prospects after graduating with one of these degrees.
One example is if you are an English major and you take a marketing course, you tend to do a lot better on the job market because you do have that tangible skill. If I were a school, I would be looking at these low ROI majors and I would be thinking about, “How can we revamp these majors? How can we change them to try and make these a better deal for students?” Too often schools will throw up their hands and say, “Well, there is no way to make this field pay off.”
