A new analysis by Third Way, the national think tank, indicates that for the majority of U.S. colleges low-income students are earning enough after college to pay off their out-of-pocket educational costs within just five years, and seven out of 10 institutions allow these same students to recoup their investment in less than 10 years.
That’s the good news. The bad news? About 20% of institutions show little to no return on investment (ROI) at all for their low-income students ten years after college.
The report, entitled Providing Low-Income Students the Best Bang for Their Educational Buck, was released today. As in its prior work evaluating the monetary value of college, Third Way calculated what it calls the Price-To-Earnings Premium, or PEP, a novel way to calculate the return on investment of various higher education institutions.
The measure can be thought of as an alternative to the Obama-era “Gainful Employment” regulation that evaluated programs by how much of their post-completion discretionary income former college students had to pay to meet their educational debt obligations.
It’s modeled after the investor idea of a price-to-earning ratio as a way to assess stock value. The PEP measures the amount of time it takes on average for students from a given college to recoup the costs of paying for their education, whether it be at the certificate, associate’s or bachelor’s degree level.
PEP Methodology
Relying on data from the U.S. Department of Education and the Census Bureau, Third Way investigators:
- Calculate the amount a student pays out-of pocket to attend a given institution (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 average salaries of attendees (ten years after attendance) and the average salaries of those with only a high school diploma within the state where the college is located.
- Divide the amount in #1 by the difference between the salaries of attendees and the high school graduates, gathered in #2.
- Report that quotient - the PEP - which tells you the number of years it would take for students to recoup the net costs of their education.
In a report published a year ago, PEP scores were reported for all students who attended a given institution, but they were not broken out for specific student subgroups.
The new paper address that gap by focusing on low-income students, defined as those whose income was $30,000 or less upon enrollment. Because the out-of-pocket costs of college can be substantially different for these students and also because employment outcomes are likely to differ between low-income students and those from more affluent backgrounds, an ROI specific to this often more vulnerable student population provides important answers to the perennial “is college worth it” questions.
PEP Results
Of the 2,487 institutions studied, 52% enabled their low-income students to pay back their college costs in less than five years, and 70% did so in less than 10 years. However, 520 schools, or 18% of the total, show their average low-income student earning less than a high school graduate, even 10 years after being initially enrolled. As the report concludes, “Being that their post-collegiate earnings are so low, it’s unlikely that low-income students who attend these institutions will ever be able to recoup their educational investment.”
PEP results differed by higher ed sector, type of institution and the level of educational credential.
- Educational sectors differed significantly. While 65% of public and 48% of private, non-profit institutions saw their former students earning enough to recoup their college costs in five years or less, only 15% of for-profit schools did. In contrast 63% of for-profit institutions show their low-income students earning less than the average high school graduate within 10 years of entering their institution compared to only 13% of publics and 6% of private, non-profits.
- Type of credential matters as well. While the net costs of earning a bachelor’s degree will typically be greater than for an associate degree or a certificate, 58% of four-year institutions show their average low-income student earning enough additional income beyond the typical high school graduate to recoup their total net college cost within five years or less.
- The majority (54%) of two-year schools also show a sufficient ROI for their average low-income student to recoup his or her educational investment in five years or less, a proportion in line with their four-year counterparts.
- However, even though the time and cost to earn a certificate are typically less than for an associate’s or bachelor’s degree, institutions that specialize in awarding certificates are the most likely to be the ones whose low-income students earn less than those who never attended college. Slightly more than half of them leave their average low-income student with no ROI whatsoever. And only 35% show these students earning enough to recoup their costs within five years or less—a percentage far smaller than for two- and four-year schools.
- Institutions with the best PEP scores need to enroll more lower-income students. One way to look at the overall impact schools have on low-income students is to stratify them by whether the majority of their students are Pell Grant recipients and then calculate how long it takes low-income students to recoup educational costs at those institutions.
- Even though the vast majority (82%) of four-year colleges enable their low-income students to recoup their educational investment within 10 years, most of these are institutions whose student bodies are made up of less than 50% Pell recipients. Only 19% of these “high ROI” institutions enroll Pell recipients as the majority of their overall study population.
- Of the 69% of two-year schools that enable the typical low-income student to recoup his or her educational investment within 10 years time, just over half (54%) enroll more than 50% Pell students.
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Several aspects of Third Way’s methodology should be kept in mind because they will impact the results. First, PEP is based on attendees - rather than graduates - of a given school. Therefore, students who don’t graduate may pay less, as they have been in school for less time than those who eventually graduate. On the other hand, the methodology also assumes one, two and four year completion times for different levels of credentials, which can produce more generous PEP estimates for many schools, since students often take longer than that to complete their specific credential. Also, certain categories of students - those still in graduate school or the military, for example - are excluded from the calculations.
Overall, the encouraging news that most two-year and four-year colleges yield a reasonable and relatively prompt ROI for lower-income students must also be viewed alongside the fact that far too many schools are leaving their lower-income students in an earnings lurch where they’re no better off in terms of future income than if they had not attended at all.
As Michael Itzkowitz, a senior fellow in higher education at Third Way and the author of the report, told me in a phone interview, “Higher education is supposed to enable socioeconomic mobility for all students. This report highlights that most institutions do this rather well. However, some actually leave students in a worse place after they attend. As Congress and the new Administration consider new laws to improve higher education, this report can serve as a starting point to highlight which schools and credentials show their students succeeding.”
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April 01, 2021 at 05:00PM
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The ROI From College For Low-Income Students: The Good News And The Bad - Forbes
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