Is a college degree worth the cost? This is a pressing question for many families today, as tuition and fees continue to rise, leaving graduates burdened with significant student loan debt. A recent study reveals that a majority of Americans are skeptical about the value of higher education.
However, a new analysis suggests that most post-secondary degrees can lead to financial benefits in less than five years for low- and moderate-income students. The timeframe for this payoff largely depends on the school and program chosen by the student. The analysis, conducted by the HEA Group and the educational nonprofit College Futures Foundation, focused on graduates in California, which has the highest college enrollment in the country.
The study specifically looked at families earning $75,000 or less, as these students may be hesitant to pursue higher education due to concerns about the return on investment. Despite these fears, the research found that nearly 80% of California colleges and other higher education institutions offer a positive economic return within five years for this group of students.
"Affordability is the main factor that deters students from pursuing a college degree - many believe they can't afford higher education costs," shared Michael Itzkowitz, founder of HEA Group, with CBS MoneyWatch.
However, the study revealed that numerous low- and middle-income students are receiving "an affordable education that leads to a significant earnings boost, enabling them to quickly repay their college expenses," he added.
Itzkowitz highlighted that California's state colleges, which generally have lower tuition fees compared to private nonprofit universities, offer the best return on investment for these student groups. He suggested that these findings are relevant nationwide, as state colleges and universities in other states also provide cost-effective degree options compared to private institutions.
The study's conclusions align with a recent analysis of 1,500 colleges conducted by Bloomberg News, which indicated that Ivy League schools like Yale and Harvard offer the highest return on investment due to their graduates' lucrative salaries. Nevertheless, students who are not accepted into Ivy League institutions may benefit more from attending state colleges instead of expensive private universities, given that the lower cost of public institutions results in a superior return on investment.
Despite the growing skepticism about the value of a college education, statistics show that graduates tend to earn significantly more than those with only a high school diploma. On average, college graduates earn around $60,000 per year, while high school graduates earn about $36,000 annually, according to data from the New York Federal Reserve Bank.
This college wage premium can lead to a substantial financial advantage over a lifetime. For example, a recent study found that baby boomers with bachelor's degrees have a median retirement savings of nearly $600,000, compared to only about $75,000 for those with just a high school diploma.
Top Colleges for ROI
By analyzing data from the U.S. Department of Education's College Scorecard for 731,000 low- and moderate-income graduates in California, researchers assessed the return on investment for various schools. This analysis considered the earnings premium that college graduates receive compared to their net cost of obtaining a degree, factoring in tuition, fees, scholarships, and grants, and the number of years needed to complete the degree.
For example, a recent study revealed that the net cost of obtaining a bachelor's degree from California State University, San Bernardino is approximately $5,373. However, graduates from this institution earn an average of $28,000 more per year than individuals with only a high school diploma. Consequently, CSU San Bernardino alumni are able to see a return on their educational investment shortly after graduation, ranking the university as having the second-best return on investment among all schools in California.
On the other hand, Stanford University, despite being more expensive, offers the best return on investment. Low- and moderate-income students at Stanford can essentially recover their costs immediately upon graduating. This is largely attributed to the higher wages Stanford graduates command, earning about $74,000 more annually than high school graduates.
However, the study noted that Stanford and other top-tier colleges have a lower percentage of low- and moderate-income students compared to state schools.
"There are numerous state schools that students should consider as they often provide the best options," remarked Itzkowitz. "These schools typically offer in-state tuition, which is significantly more affordable than out-of-state tuition, along with generous scholarships and promising economic opportunities."
Schools to Approach Cautiously
The research also identified some warning signs, with around 20% of higher education programs failing to deliver a return on investment. Essentially, graduates from these programs are unlikely to earn adequate salaries to offset the cost of attendance, potentially earning less than high school graduates.
These institutions primarily consist of for-profit schools that specialize in certificate programs within sectors like cosmetology, according to the study.
Considering these challenges, students are advised to conduct thorough research on educational institutions to understand the economic outcomes of their graduates before enrolling in a program, as highlighted by Itzkowitz.
"In today's landscape, it is crucial for students to exercise greater discernment, as the decision they make regarding their education is one of the most significant ones they will ever make," he emphasized.
