Does college pay off?

We dive into the latest research on college ROI, including a study released today by Georgetown University’s Center on Education and the Workforce. In short: what students study matters a lot.

The country has learned a lot about the return on investment for college in the past few years—as national program-level datasets have come online and state longitudinal systems have come into their own. Two new sets of research added to our understanding this week.

The Georgetown University Center on Education and the Workforce is out today with a report digging into the relationship between credential level, program of study, and lifetime earnings. And the Postsecondary Value Commission, funded by the Bill & Melinda Gates Foundation, just released a set of 16 foundational papers that explore college value from a host of angles.

They follow on the heels of several other major studies looking at college ROI. So, now seemed like a good time to step back and do a quick dive into the latest research. The summaries below look at four recent studies, and also highlight other related resources. If you want to skim or skip around, here’s the breakdown of what’s covered in each section of this article:

  1. More education, more earnings? The college payoff: More education doesn’t always mean more earnings,” Georgetown University Center on Education and the Workforce.
  2. The primacy of program mix. Student outcomes at community colleges: What factors explain variation in loan repayment and earnings?,” Brookings Institution.
  3. What matters in a college? The returns to college(s): Relative value-added and match effects in higher education,” NBER Working Paper Series.
  4. Low wage, high value. “Exploring the importance of low wage, high social value careers,” Postsecondary Value Commission.

More education, more earnings?

Workers with higher levels of education, on average, earn more than their less-educated peers—but not always. Averages hide a significant level of variation. A study out today from the Georgetown University Center on Education and the Workforce puts new numbers on that.

Key findings:

  • Bachelor’s degree recipients, in general, earn substantially more over a lifetime than high school graduates and those with associate degrees.
  • However, 16 percent of high school graduates earn more than half of workers with a bachelor’s degree do.
  • The same is true for 23 percent of those with some college education, and 28 percent of associate degree holders.

The details: Age, field of study, occupation, gender, race and ethnicity, and location all influence the differences in earnings—largely in ways one would expect.

  • Women earn less than men across education levels, and Black and Latino workers similarly earn less than their white and Asian-American counterparts.
  • Bachelor’s degrees in certain fields, such as architecture and engineering, have median lifetime earnings well above the typical bachelor’s and even master’s degree holder.

Reminds us of: Two studies from the Federal Reserve Bank of New York that are the gold standard for estimating returns to college. One analysis seven years ago found that the financial benefits of college still outweigh the costs, despite rising tuition. However, the same researchers found that’s not true for at least a quarter of bachelor’s degree holders. Those in the bottom 25 percent of earnings don’t make more than the typical high school graduate.

Parting thought:

“Students need professional guidance on the economic outcomes of college and career pathways before they make one of the biggest decisions of their lives,” said Ban Cheah, report author and CEW research professor and senior economist.

The primacy of program mix

A new study out of the Brookings Institution shows just how much what students study matters when it comes to earnings. The research examined program-level data on earnings and student-loan repayment at more than 1,200 community colleges nationwide.

Key findings:

  • Earnings and loan repayment rates vary significantly across programs, and the field of study explains most of that variation.
  • Programs that enroll larger numbers of Black, Latino, and Native American students tend to have worse track records. However, student demographic characteristics aren’t the primary explanation.
  • Rather, underrepresented minority students are disproportionately enrolled in fields that tend to pay less.

The details: The differences are driven by systematic variation in the programs that colleges offer, not by differences in what white and underrepresented minority students at the same institution choose to study.

  • At institutions with the most underrepresented minority students, only 16 percent of seats are in programs in the highest-earning fields, and 12 percent are in fields with the lowest earnings.
  • In contrast, at institutions with the lowest share of underrepresented minority students, almost a quarter of seats are in the highest-earning fields, while only 7 percent are in fields with the lowest earnings.

It is not clear whether this variation in program offerings is driven by real or perceived differences in student demand, by local labor market conditions, by institutional resources, or by other factors. But no matter the reason, the authors note that the decision to offer certain programs—and at what size—is largely within an institution’s control.

Reminds us of: Third Way Education’s recent analysis of the ROI of certificate, associate, and bachelor’s degree programs, using College Scorecard Data. It found a wide variation depending on the specific area of study, even among credentials within the same broad field, like allied health.

Parting thought:

“On balance, we find that demographics are not destiny for community college program outcomes,” write Cory Christensen and Lesley Turner, the Brookings report authors. “Community colleges do have control over important factors that can improve students’ economic circumstances.”

What matters in a college?

Another new study, this one a National Bureau of Economic Research working paper using data from Texas, also showed how critical a student’s field of study is to earnings. In particular, the research found that, among the state’s public universities, those that increased the odds of a student graduating with a STEM degree also significantly boosted their earnings above what would otherwise be expected.

The researchers’ larger focus, however, was on what institutional characteristics—selectivity, academic and student support spending, faculty mix—might be factors in whether a college adds value or simply produces the results that would be expected given their student body. They explored that by comparing the outcomes of students who applied to and were accepted to multiple institutions, before ultimately choosing one.

Key findings:

  • Institutional selectivity doesn’t drive added earnings over the longer-term, measured as 10 years after college entry.
  • In the first couple years after college, however, selectivity is correlated with a small earnings premium—but it fades quickly as the labor market “learns” about workers’ skills and productivity without that intermediary signal.
  • Institutional resources are positively correlated with value-added for both short-term and long-term earnings. As one goes up, so does the other.

But the researchers stress that they can’t tell whether this is a causal relationship—in other words, it’s not clear whether a university’s spending itself is what matters, or if budget is acting as a proxy for something else. Thus, increasing funding for under-resourced institutions might increase value-added for their students, but it might not.

What is clear: For an individual student, choosing an institution with more resources increases their odds of earning more. 

The details: One of the biggest contributions of the paper, however, may be its methodology. By using “admissions sets,” the researchers were able to control for a much wider set of student characteristics—including unobservable factors like motivation—than typical value-added studies are able to. This demonstrated that the relationship between raw outcomes and value added is relatively weak.

  • For BA completion, a 10 percentage point increase in the raw graduation rate only predicts an increase in value-added of just 1 percentage point.
  • For earnings, a $10,000 increase in the raw earnings average of alumni predicts an increase in value-added of just $330.

The research also indicates caution may be warranted when comparing raw outcomes measures, even for institutions that have appear to have similar student bodies. The paper found wide variation in the graduation and earnings outcomes for institutions even with the typical controls for student characteristics, like race, gender, family income, and academic preparation, were in place—but much of that variation disappeared when the researchers controlled for the more robust group of characteristics captured by the admissions sets.

Reminds us of:Employment and Earnings Inequities: A Case Study from the University of Texas System,” published this week as part of the Postsecondary Value Commission’s work. Like the NBER paper, it uses a rich trove of administrative data and is able to look at how race, gender, family income, and field of study all interact when it comes to earnings.

Parting thought: “We definitely don’t want to say that nobody should go to a selective college,” said Jack Mountjoy, co-author of the NBER report and an assistant professor of economics at the University of Chicago.

“There are all kinds of non-monetary benefits. And as economists we care about those—people don’t just care about maximizing income, they care about maximizing utility.”

Low wage, high value

One of the research papers released by the Postsecondary Value Commission this week takes the idea of utility versus wages head on. The paper features an overview of research on low-wage jobs that nevertheless provide a high value to society and, in many cases, the individuals that hold them. 

This is a point of national reckoning right now with many frontline jobs in the helping professions—home health aids, medical assistants, early childhood educators, and the like—facing acute shortages and in some cases market failures that make it difficult to increase wages. Postsecondary education can’t do much to address those challenges without broader policy and economic change, write the researchers, Sandy Baum, a senior fellow at the Urban Institute, and Lorelle Espinosa, program director at the Alfred P. Sloan Foundation. 

Key findings:

  • Low-wage, high-value fields are dominated by women and people of color. Data from the Bureau of Labor Statistics, highlighted in the report, shows just how lopsided the workforce is in those jobs.
  • In some public service professions, such as teaching, research has shown that fringe benefits like healthcare, paid time off, and retirement contributions bring workers’ total compensation more in line with national averages for similarly educated workers.
  • Ample evidence shows that people derive satisfaction from helping others in their work, and that non-monetary benefit can be a powerful motivator.

Reminds us of: Research from Gallup and the Strada Education Network looking at education’s impact on well-being. “From College to Life: Relevance and the Value of Higher Education,” for example, found that graduates of public service programs, like education, criminal justice, and social work, tend to give their education high marks for relevance to their work and day-to-day lives. That sense of relevance is, in turn, correlated with a stronger sense of well-being and other metrics for thriving. (Strada is a funder of Work Shift.)

Parting thought:

“Considerable evidence shows that people prioritize factors other than earnings in choosing their careers and that a majority of college students would be willing to trade some pay for the opportunity to help others on the job,” Baum and Espinosa write.

The challenge, they write, is to ensure those tradeoffs aren’t too steep.

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