When does college pay off for low-income students?
Also: America’s neglected workforce training system, and more fallout from student loan forgiveness.
Welcome to The Tassel, FREOPP’s newsletter on higher education policy, written by senior fellow Preston Cooper. Each month, The Tassel dives into our latest work on higher education, along with a handpicked selection of research and articles from around the web that we think are worth your time. To manage your subscription preferences, visit your Substack settings.
A recent Wall Street Journal survey showed that 56 percent of Americans now believe that a four-year college degree is not worth the cost, because “people often graduate without specific job skills and with a large amount of debt to pay off.” Ten years ago, just 40 percent of poll respondents thought the same—meaning the public has been losing confidence in the value of higher education over time.
The reality is a bit more nuanced: sometimes higher education pays off, but too often it fails to improve students’ financial wellbeing. The student loan crisis and the public anxiety exposed in the Wall Street Journal survey are downstream of this phenomenon: college pays off, except when it doesn’t.
The colleges and majors that deliver economic mobility for low-income students
My latest issue brief for FREOPP looks at how well higher education is serving America’s most vulnerable students. I use my estimates of return on investment (ROI) for 47,000 different undergraduate degrees and certificates and match these to the average socioeconomic status of students enrolled in each school. This allows me to examine how ROI differs between schools serving the children of the elite and those enrolling students from low-income families.
In the richest quartile of schools, defined by students’ socioeconomic status, 82 percent of degree and certificate programs yield a positive financial return, and more than half are expected to increase students’ net lifetime earnings by $250,000 or more. But in the poorest quartile of schools, 45 percent of programs do not have a financial return, and just 17 percent generate a return above $250,000.
This statistic implies that whether a college education will pay off is close to a coin flip for many disadvantaged students. Fortunately, there are many examples of programs that serve low-income students well, even if these programs are the exception rather than the rule.
Let’s look at programs at schools serving predominantly low-income students, with an expected ROI of $250,000 or more. Around half of programs in this category are in health care fields, and four-fifths of those are subbaccalaureate credentials such as the associate degree in registered nursing and the certificate in licensed practical nursing. Other certificate programs, such as those in metalworking or vehicle maintenance and repair, also feature prominently.
On average, four-year college degree programs tend to have higher returns than subbaccalaureate credentials offered by community colleges and trade schools. But for low-income students specifically, subbaccalaureate credentials account for the vast majority of high-ROI programs. Shorter durations, lower costs, and a direct path into the workforce make these programs a more promising option for students with fewer resources or doubts about their ability to finish college.
This is evident when we examine the programs that create the most aggregate value for low-income students—that is, those that generate high ROI and graduate lots of students, meaning the degree program is scalable. By this measure, the top program in the country is the precision metal working certificate at Tulsa Welding School in Oklahoma. This program has an expected ROI of $213,310 and graduated 5,944 students over a two-year study period. Multiplying these figures together implies that the school created an aggregate $1.3 billion in value for its students, who are predominantly low-income.
Improving ROI for low-income students
While schools serving high-income students produce a positive financial return more than 80 percent of the time, nearly half of the programs at schools serving low-income students are negative-ROI. Students at these schools deserve better options.
There are promising models to improve student outcomes, but higher education is notoriously slow to change. Colleges need incentives to offer more programs that lead to a solid financial return. Right now, however, colleges receive generous subsidies from the federal government regardless of how well they serve their students.
My white paper on higher education accountability, released last month, proposes boosting low-income students’ Pell Grants by up to $5,000 if they enroll in high-return programs. This will encourage students to choose programs with a stronger payoff. To retain students and their federal financial aid dollars, colleges will have to offer more of these high-return programs, and scale down those that aren’t serving students well. (The proposal is paid for by requiring colleges to reimburse taxpayers for losses on student loans.)
Policymakers should also ensure that low-income students have access to postsecondary career-preparation options outside of traditional higher education. Overhauling America’s withered workforce-training system is a start (more on that in a moment). Key is ensuring that college alternatives such as short-term skills-training courses, apprenticeships, and other work-based learning programs operate on a level playing field with traditional colleges and universities when it comes to federal funding.
Congress shouldn’t just open up the federal-aid floodgates to anyone; traditional and nontraditional postsecondary options alike should be required to demonstrate strong outcomes before receiving funds. But at the same time, Congress shouldn’t deny funding to promising career-preparation pathways simply because they differ from college as we know it.
What I’m writing
America has neglected its workforce-training system. A new report from Harvard University’s Project on the Workforce looks at job training programs funded under the Workforce Innovation and Opportunity Act (WIOA). America spends around fifty times as much on Pell Grants for traditional higher education as it does on workforce training. As a result, many so-called “workforce training” programs are operated out of traditional colleges and look much like traditional college credentials, because they can combine WIOA dollars with other funding sources. “WIOA dollars tend to go toward classroom learning environments rather than work-based learning environments,” write the report’s authors. In Forbes, I argue that we don’t need a big new government program to fund workforce training. Instead, policymakers should ensure that existing funding sources treat different postsecondary options equally.
Student loan forgiveness may undermine college accountability. Even if the Supreme Court strikes down President Biden’s marquee student loan forgiveness initiative, the Education Department is quietly working to expand loan cancellation through other means, notably by offering millions of borrowers a $0 monthly payment if they choose an income-driven repayment plan. At OppBlog, I contend that this change will cripple the only federal policy that explicitly holds colleges accountable for student outcomes. A provision known as the Cohort Default Rate deters hundreds of low-quality colleges from participating in the student loan program. However, the Biden administration’s changes to loan repayment mean that most of these schools will face no consequences for pushing federal loans onto students who cannot pay them back.
What I’m reading
Employers are finally “tearing the paper ceiling.” State governments and private employers alike have scrapped bachelor’s degree requirements for millions of jobs nationwide, reversing decades of “degree inflation.” At Vox, Rachel Cohen tracks how the general mood on degree requirements has shifted from the Great Recession to the Covid-19 pandemic. Research, activism, and plain old economics all played a role.
House Republicans want to expand Pell Grants to short-term programs. The GOP-backed Promoting Employment and Lifetime Learning (PELL) Act would allow programs as short as eight weeks in duration to receive federal Pell Grant dollars—but it imposes a tough eligibility standard. Programs must increase their graduates’ median earnings by at least as much as the amount of tuition to receive funding. Jason Cohn of the Urban Institute finds that 79 percent of existing vocational certificate programs would not meet this standard.
Price controls for college tuition? Economists such as myself tend to recoil at price controls, which reduce supply and create shortages. But Chris Corrigan, a former financial aid officer, thinks tuition ceilings may be warranted for colleges that use federal student loans. Because of federal subsidies, higher education is not a true free market. Just as Medicare caps payments to health care providers, the Education Department should cap tuition at the colleges it funds, Corrigan argues at the Martin Center. Colleges which don’t use federal loans would be free to charge whatever the market can bear.
How to cut the cost of college by 25%. Some colleges want to experiment with three-year bachelor’s degrees, which would enable students to graduate faster and with less debt. But accreditors—those gatekeepers of federal student aid—are standing in the way. At Inside Higher Ed, Josh Moody reports that New England College received a firm “no” from its accreditor when it proposed a bachelor’s degree with lower credit requirements. Those who would like to see more innovation in higher education will eventually need to tackle accreditation reform.
What I’m doing
I traveled to my aunt’s bison ranch in Illinois over Easter Weekend and got to safely frolic in the vicinity of America’s national mammal (an electric fence was also in the vicinity, specifically the vicinity between myself and the bison). It made for some pretty epic close-up photos of the type that would get you tossed ten feet in the air if you tried to take them in Yellowstone. More pictures here.
In other news, I’m excited to announce that over the coming months I will be updating the college ROI analysis that many of you know and love, using new data from the Department of Education. Is there anything specific you’d like to see in the updated report? Drop me a line.