Spotlight Exclusives

Is College Worth It? Calculating the ROI on a Degree or Certificate

Preston Cooper, visiting fellow at the Foundation for Research on Equal Opportunity Preston Cooper, visiting fellow at the Foundation for Research on Equal Opportunity, posted on

The cost of higher education—whether it’s a four-year college, two-year program, or specialized certificate/degree program—continue to skyrocket, posing a particularly difficult question for families who may lack abundant financial resources: is the degree worth the money? Preston Cooper, a research fellow at the Foundation for Research on Equal Opportunity tries to provide answers through a new project that tracks return on investment (ROI)—the increase in lifetime earnings minus the costs of college—for nearly 30,000 bachelor’s degrees. Cooper spoke with Spotlight recently about the database, which is easily searchable, and the major takeaways from the report. The conversation has been lightly edited for length and clarity.

Let’s start with how this project came about, some of the background and what you were trying to achieve?

Basically, there’s been a lot of talk about whether college is worth it or not. Sometimes you’ll see people saying college is always great, we need to get as many people going to college as possible. And then you also have some people saying, college is outdated, and you shouldn’t need a college degree for anything anymore. And I think that both of those two extremes are kind of getting some of it wrong. I think the more important question to ask rather than is college worth it is, we should be asking when is college worth it? Because under that umbrella, college describes a huge variety of post-secondary educational credentials, everything from certificates and short-term programs to bachelor’s degrees and graduate degrees, medical degrees, master’s degrees and so forth.

And so, I really set out in this project to quantify when is college worth it? If you look at how much of an earnings boost do you get from a college degree and then compare that to what the costs of college are, it turns out going to college justifies the costs most of the time, but not all the time. I think that’s something that’s really important for students to be aware of as they’re considering their plans for higher education.

And so, how do you do that? What data did you use?

The project is based off of a data set called the College Scorecard, which is put out by the Department of Education and collects earnings data for graduates of hundreds of thousands of post-secondary degree and certificate programs. You can look up, for example, what would you earn in your second year after graduation if you got an economics degree from Swarthmore College, like I did. But you could also compare that to a political science degree or a biology degree or a music degree. It really allows you, for the first time, to look at not just what are the earnings associated with the particular institution, but what are the earnings associated with particular majors at those institutions?

But the data set has one big shortcoming and that’s that it only looks at the first couple years after graduation. So, what we did in our project is we used other sources of data, like the U.S. Census, the American Community Survey, to extrapolate those earnings out over the entire career. So, we know the Scorecard will tell you what a Swarthmore economics major earns at age 24, 2 years after a typical graduation. But what do you earn at 35 or 45 or 55? We use other sources of data to extrapolate those earnings estimates out over the course of lifetime, and then we compare it to what we think people who are going to those programs would’ve earned. If they didn’t get a college degree. And then we also compare those earnings estimates to what the costs of education are—both direct costs like tuition and opportunity costs and indirect costs, such as the time that you have to spend out of the labor force in order to get a post-secondary credential. You add all those up and basically, we get estimates of a return on investment for each college degree. What is the lifetime boost in earnings you can expect from a degree minus the costs?

And your data is totally searchable, right? You can go in and plug in the name of a college you’re interested in, and it’ll give you that information?

That’s right. On our website you can type in the name of a university or the name of a particular college major and you can see our estimates of ROI for all of the programs that would fall under that category. So, if you type in Swarthmore College, you can see our estimates for all the different majors at Swarthmore college.

And is this just for traditional four-year colleges or were you able to look at two-year programs, community colleges, certificate programs, that kind of thing.

Yeah, so we started with four-year colleges but then we expanded it to associate degree programs, certificate programs, and also graduate degrees as well. We weren’t able to get estimates for every single program out there because for some, the sample size isn’t large enough, but we have estimates for the 60,000 most popular degree and certificate programs out there.

And what have been some of the most interesting takeaways for you in looking at this data?

Major really matters. That might not be a huge surprise, but I think that the results really drive home that your college major is a huge determinant of what your lifetime financial situation is going to look like. If you get a bachelor’s degree in engineering, computer science, economics, business, nursing, and so forth, you’re almost certainly going to earn back the cost of your education. You’re probably going to be in a very good financial position. But if you get in a degree in something like philosophy, English, literature, art, music, and psychology, which is America’s most popular bachelor’s degree, the likelihood that your education is going to pay off turns out to be much lower. There are still some good programs in philosophy and psychology, but those programs are much fewer and further in between, and the majority of those programs are probably going to have a very small payoff.

And what about the return on investment at community colleges or other two-year programs?

We found something similar in that the return on investment at community colleges really depends on what you study. If you get an associate degree or certificate in a more career-oriented field, such as licensed practical nursing, precision metal working, things like that, the likelihood that your degree or certificate is going to pay off is very, very high. And sometimes, the returns on those credentials are going to be on par with a bachelor’s degree. If you go to community college and get a degree in the right field, sometimes you can be in as good a financial situation as the typical college degree holder. But that’s not true across the board for community colleges. If you go with more of a general studies approach like a liberal arts track at a community college, the likelihood that that’s going to pay off turns out to be pretty low. I should also note, there are some trades that don’t pay off either, like cosmetology is typically not going to pay off the average student.

And that would be because cosmetology is just not a well-paying profession at this point?

That’s a big part of it, yes. Cosmetology tends not to be very high paying, but I also don’t want to discount the cost. Those degrees are offered mostly by private schools, which charge fairly high tuition rates, about $10,000 on average for a one-year program, which is fairly high for one-year certificates. And it turns out that often, the increase in earnings is not big enough to justify both the cost of tuition and the time you have to spend away from the labor force in order to get that credential.

And what did you find in terms of the Ivy League-state school dynamic? Did you find that the more expensive schools did indeed provide more bang for the higher price?

On average, yes, there really is a premium to attending very selective colleges or an Ivy League school. When you’re comparing apples to apples, getting a computer science degree from Cal Tech is probably going to pay off much better than getting a computer science degree from a more generic university without a powerful brand name. There really is an Ivy League or a selective college premium, but I want to qualify that by saying that this doesn’t erase the impact of major. For example, the electrical engineering major at Iowa State University, which has an acceptance rate of around 90%, has an ROI of over $1 million. Or, if you go to the University of Pennsylvania, one of the most selective schools in the country, and you get a degree in film and media studies, you’re probably going to be worse off financially for having gotten that degree.

So, if you go to a less selective college and pick the right major, you can put yourself in a very good financial position. If you go to an Ivy League school and you pick the wrong major, you might not necessarily be in a great financial position despite the brand name of your school. So, while the name of the school does matter, I would say that the most important factor for students to consider is the major.

Are there any particular lessons for policymakers coming out of this work?

That’s a great question. One analysis that we ran looked at the estimate of ROI for each of the programs and the loan repayment rate for students who graduate from that program—what percentage of students who graduate from that program are paying off their loans. And we found that there is a very, very strong correlation between ROI and loan repayment rates. So, if we see that the federal government is providing a lot of loans to programs that just aren’t providing their students with a great return on investment and are not putting their students in a great financial position to pay back their student loans, I think that’s something policy makers should take notice of. Fortunately, I think that there has been some bipartisan interest in taking a second look at some of these programs that the federal government is funding and saying, should we really be funding this program if it’s not providing great results for students?

Also, should we perhaps tighten up eligibility standards for federal student loans so only programs that are leading to some certain outcome benchmarks are going to be getting student loans? I think that there is some bipartisan interest in tightening up the accountability rules that we have for colleges and universities that are dependent on federal funding, which I think is good news. It’s clearly the case that we the taxpayers are funding a lot of programs through grant loan programs that just don’t have a great payoff for students.

And it also sounds like the data supports the increasing interest in two-year programs and certificate programs as long as they are in specific fields that lend themselves to post-graduate employment.

That’s absolutely right. I think that we need an all-of-the-above strategy when it comes to post-secondary education. I think that folks who say, oh, we should only be focusing on four-year degrees, or we should only be focusing on trade school are missing the mark. I think that we should instead be looking at the outcomes of these various programs and saying, are these programs doing right by students? If they are, that’s great and we should continue supporting them. If they’re not, maybe we should reconsider whether those programs are worthy of taxpayer dollars.

We haven’t really touched on graduate degrees—what did you find there?

Ours was the first study to really look at a return on investment for graduate programs and we found actually some extremely surprising results: about 40% of master’s degrees are what we call negative ROIs. They don’t deliver a boost in earnings big enough to justify their costs because master’s degrees can be very, very expensive. You’re usually not getting a lot of financial aid for those programs and even very popular master’s degrees like the MBA, which I think people think of as a fairly high paying degree, are often not delivering the results that they promise. This is doubly concerning because we’ve seen a huge explosion in the number of students pursuing master’s degrees, often in the hope that it is going to enhance their earnings power and enable them to get a better job. And I think the data is showing that for a huge swath of master’s degrees, that’s just not the case. If I’m a student out there considering a master’s degree, I would be very cautious about what program I’m going to and whether this might be a good idea at all.

And is that true for doctoral degrees as well?

Doctoral degrees like PhDs tend not to have a very good payoff either. Part of that might be that people pursuing academia might not necessarily have the lofty salary aspirations of others and they might be more willing to give up some of those salaries in order to pursue an academic job track. But I still think it is very important for people to know that a lot of these PhD programs are not necessarily going to pay off, especially when you consider that you might be spending four or five years in one of those programs. For professional degrees like law and medicine, those do pay off pretty well—over 90% of medical and law degrees deliver enough to justify their costs.


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