Golden Opportunities: Measuring Return on Investment in California Higher Education for Low- and Moderate-Income Learners
May 9, 2024
This paper was commissioned by College Futures Foundation. A full version of the report can also be found here on their website.
Introduction
When people spend their time and money on something, they expect a return. And, when they make one of the largest investments they’ll ever make—a postsecondary education—the stakes are even higher. Higher education used to be seen as a sure way to move up the socioeconomic ladder, especially for those from low- and moderate-income backgrounds. But with rising college costs, many aren't so sure it’s worth the investment.
Every year, California invests about $20 billion in higher education with the hope of providing more economic opportunity for all who enroll.1 Providing a strong return on investment—for both students and the taxpayers who fund their educational pursuits—benefits all stakeholders involved. And doing so will reassure all who are considering a postsecondary education that college is, indeed, worth it.
In this analysis, we explore whether California colleges are delivering on their promise for people from low- and moderate-income backgrounds. Specifically, we examine how long it takes students and families in this income category to recoup their educational costs after attending an institution of higher education.
Methodology
This analysis uses data from the US Department of Education’s College Scorecard to assess the earnings outcomes of approximately 731,000 low- and moderate-income undergraduate students at 292 institutions of higher education across California.2 In total, these institutions enroll about 1.9 million certificate- and degree-seeking students. Low- and moderate-income students are defined as those whose family income is between $0 and $75,000 per year.
In order to see how long it takes these students to recoup their educational costs, we use a Price-to-Earnings Premium (PEP) metric.3 A PEP first looks at the out-of-pocket—or “net”—costs that students and families pay to complete a credential. To calculate how much a credential costs, it is assumed that students will complete a bachelor’s degree in four years, an associate’s degree in two years, and a certificate in one year.4 Their annual net cost—the remaining costs after all scholarships and grants are deducted—is then adjusted based on the amount of years it takes to complete the credential. This allows us to see how much a credential at each institution costs for low- and moderate-income students.5
Then, a PEP assesses the additional earnings that low- and moderate-income students obtain after attending an institution of higher education. It does this by measuring the median earnings of former students 10 years after they’ve enrolled in an institution.6 If the average low- and moderate-income student earns more than a typical high school graduate with no college experience in California—measured to be $26,073—this is seen as an “earnings premium” that the institution provides.7 These additional earnings can subsequently be used to pay down the net cost of earning a credential.
Total Net Cost to Earn a Credential / Earnings Premium
(Post-Enrollment Earnings - Typical Salary of a High School Graduate)
= Number of Years to Recoup Education Costs
Below, we show three examples of California institutions’ Price-to-Earnings Premium.
We can see that California State Polytechnic, Humboldt costs an average of $44,562 in out-of-pocket costs for low- and moderate-income students to earn a four-year degree. Yet, these students make $19,526 more than the typical high school graduate after they attend.
$44,562 Net Cost to Earn Credential / $19,526 Earnings Premium =
2.3 Years to Recoup Educational Costs
They can now use that $19,526 earnings premium to recoup their $44,562 in 2.3 years.
Years to Recoup Educational Costs
All Institutions
Most California institutions (79%) allow their low- and moderate-income students to recoup their education costs in five years or less. And nearly a third (31%) show that these students are able to recuperate their costs in under a year. This means that their students earn a high enough premium—while paying an affordable enough price—to pay down their costs of earning a credential quickly.
However, 60 (21%) California institutions show a payback period of five years or longer for the low- and moderate-income students they enroll. And 24 (8%) of those show that the majority of these students are earning even less than a typical high school graduate, meaning they gained no economic premium whatsoever by enrolling in college.
Degree Type
The type of institution—and whether it offers a bachelor’s degree, associate’s degree, or certificates—can also play a role in the likelihood that low- and moderate-income students are able to pay down their costs of obtaining a higher education.8 Generally, associate degree-granting institutions in California allow these students to recoup their educational costs more quickly than other types of colleges.
*Percentages may not add up to 100% due to rounding.
More than nine out of 10 (96%) associate’s degree-granting institutions allow their low- and moderate-income students to recoup the costs of earning a degree in five years or less. Certificate-granting institutions are less likely to show a quick payoff, as 44% show a payoff period longer than five years. And nearly a quarter (24%) of certificate-granting institutions show their low- and moderate-income students obtaining no economic return on investment whatsoever.
Sector of Institution
The sector that offers higher education—whether it’s public, private non-profit, or for-profit—can also show differences in the payback periods for low- and moderate-income students. Public institutions generally offer a quicker timeframe for these students to recoup the costs of earning a credential.
Almost all public institutions (99%) in California show their low- and moderate-income students earning enough to recoup their educational costs within five years or less. And over half of public institutions (54%) show that these students are able to recoup their costs of a credential in less than one year. In contrast, private non-profits and for-profit institutions take longer: 23% and 53%, respectively, show these students unable to recoup their educational costs within a five-year timeframe.
Institutions that Enroll a High Proportion of Low- and Moderate-Income Students AND Provide a Quick Return on Investment
Many schools in California offer a quick return on investment, yet fail to admit a high proportion of low- and moderate-income students. This reserves opportunity for the few who get admitted, but can also serve as a force to perpetuate socioeconomic inequality, rather than encourage economic mobility. Below, we examine the institutions that offer a quick return on investment while also enrolling a high proportion of low- and moderate-income students. Specifically, we look at institutions whose student body is made up of more than 50% of Pell Grant recipients, yet also allow these students to recoup their educational costs in a year or less.9
Many of the California State University (CSU) institutions meet these benchmarks, as they provide an affordable education and high enough earnings premium to pay down their costs quickly after attendance. For example, both CSU San Bernadino and CSU Los Angeles require low- and moderate-income students to pay only about $6,000 in out-of-pocket costs for a four-year degree, while providing an earnings premium of over $27,000, on average, compared to high school graduates in California.
Conclusion
With the cost of college continuing to rise, it’s critical that low- and moderate-income students leave better off after they attend. While most colleges in California deliver on this promise, some fail to do so. Beyond this look at return on investment across entire institutions, it may be worthwhile to also examine the ROI of specific programs within an institution. In the meantime, these data serve as a starting point for institutions, state policymakers, and education advocates who care about student outcomes. Knowing what’s working—and what isn’t—is key to continuous improvement efforts moving forward.10
Data Dictionary
1. For more information on California’s budget for higher education, see here.
2. This analysis covers 91 bachelor’s degree-granting institutions, 107 associate’s degree-granting institutions, and 94 certificate-granting institutions. The type of the institution is determined by the credential that it awards most often.
3. Price-to-Earnings reports and metrics were originally developed with and for Third Way.
4. The time to complete used in the analysis is a generous estimate, as it often takes longer to complete a credential. For example, according to the National Student Clearinghouse, it takes 3.3 years for students to complete an associate’s degree and 5.1 to complete a bachelor’s degree. here.
5. Net costs are derived from the U.S. Department of Education’s College Scorecard. This report uses weighted average for students whose family income is between $0 and $75,000.
6. Median earnings are derived from the U.S. Department of Education’s College Scorecard. This report uses weighted average for students whose family income is between $0 and $75,000.
7. This is derived from the American Community Survey of the U.S. Census Bureau. It reflects working individuals in California between 25 and 34 years old who have graduated school but never attended college.
8. The level of institution is determined by the credential it awards most often, whether that be a bachelor’s degree, an associate’s degree, or a certificate.
9. This portion of the analysis is limited to institutions with at least 100 degree-seeking undergraduate students.
10. For more information on the cost of college in California throughout the years, see here.
