Catherine Rusoff
One of the main questions families face today is whether a college degree is worth the expense, given rising tuition and fees that can saddle graduates with tens of thousands of student loan debt. Today, most Americans do not think the cost can be justified.
But a new analysis finds that most postsecondary degrees pay back in less than five years after graduation for low- and moderate-income students, although that time frame can largely depend on the type of school and program a student chooses. . The analysis, from the HEA Group and the educational nonprofit College Futures Foundation, focuses on graduates from California, the state with the highest higher number of enrolled university students.
The study examined families earning $75,000 or less, as these students may be more likely to skip higher education due to fear that pursuing a post-secondary degree may not pay off, even if a university degree could help them gain an economic position. For this group of students, nearly 4 in 5 California colleges and other higher education institutions provide a return on investment within five years, the research found.
“The number one deterrent to a student not pursuing a college degree is affordability – they simply think they can’t afford a higher education,” HEA Group founder Michael Itzkowitz told CBS MoneyWatch.
But the study found that many low- and middle-income students are receiving “an affordable education that provides a sufficient income premium so they can pay for their college education very quickly,” he added.
Schools with the best return on investment for low- and moderate-income students include many of California’s state colleges, which tend to be lower priced than private nonprofit universities, he noted. Itzkowitz said he believes the findings have applicability across the U.S. because students across the country also have access to state-run colleges and universities that offer lower-cost degree programs compared to private institutions.
The findings echo recent and recent analysis of 1,500 colleges by Bloomberg News, which found that Ivy League universities such as Yale and Harvard provide the best return on investment due to the high salaries received by their graduates. But students who are not accepted to one of the Ivies are often better off attending public colleges rather than expensive private institutions, as the lower cost of attendance at public institutions results in a better return on investment.
Although many students incur debt when pursuing a college degree, graduates are typically rewarded in the workplace with higher earnings, a benefit that accrues throughout their career. Despite Americans’ growing skepticism about the value of college, the typical college graduate now earns about $60,000 annually, compared with $36,000 for people with only a high school education, according to the study. data of the Federal Reserve Bank of New York.
Over the course of your life, this university salary premium can translate into a huge financial advantage. For example, baby boomers with a bachelor’s degree have average retirement savings of nearly $600,000, but those with just a high school diploma only have about $75,000 saved, a recent study found. found.
Colleges that offer the highest return
To examine a school’s return on investment, the analysis analyzed data from the U.S. Department of Education’s College Scorecard to examine the earnings premium for 731,000 low- and moderate-income graduates in California.
The analysis then looked at the net cost that students pay to complete a course, which is the value of tuition and other fees minus scholarships and grants, multiplied by the number of years needed to obtain a degree. Comparing the income premium graduates receive to the net cost of earning the degree indicates how long it takes to realize a return on investment.
For example, the study found that the net cost of earning a bachelor’s degree at California State University, San Bernardino is about $5,373. But graduates from this university earn about $28,000 more per year than people with only a high school education. As a result, CSU San Bernardino graduates are able to see a return on their investment after just a few months of graduation – giving it the second-best return on investment among all California schools.
The more expensive Stanford University offers the best return on investment, with low- and moderate-income students basically able to recoup their costs once they graduate. This is partly due to the wage premium given to Stanford graduates, who typically earn about $74,000 more annually than people with only a high school education.
But Stanford, like other top colleges, accepts a smaller percentage of low- and moderate-income students compared to public schools, the study found.
“There are many public schools that are often the best option for students to consider,” Itzkowitz said. “They often include in-state tuition, which is much cheaper than out-of-state tuition, and can offer generous scholarships and provide strong economic opportunities.”
Schools with red flags
The analysis also found some warning signs, with around 20% of higher education programs providing no ROI. Basically, graduates will never earn enough to offset the cost of attendance because their earnings will likely remain lower than those of high school graduates.
These tend to be for-profit schools that offer certification programs in industries such as cosmetology, the study found.
Because of these pitfalls, students should research schools and colleges to learn about graduates’ typical economic outcomes before committing to a program, Itzkowitz noted.
“It is critical that students are more discerning than ever before because it is one of the most important decisions you will make,” he noted.
