Related topics in the Ref Desk: Cost of Attendance
By Owen Daugherty, NASFAA Staff Reporter
Questions surrounding college affordability and which institutions give borrowers the best bang for their buck are inherently a question about value.
In an attempt to answer that question, a new report from Third Way, a public policy-focused think tank, used what it calls the Price-to-Earnings Premium (PEP) to analyze the return on investment (ROI) for low-income students at their respective institutions.
The findings from the report show that low-income students earn enough after college at a majority of institutions to pay off their out-of-pocket educational costs within five years of their initial enrollment, and these same students recoup their investment in less than 10 years at 7 out of 10 institutions.
However, at about 20% of institutions reviewed in the report, low-income students earned less when compared to a high school graduate, even 10 years after they initially enrolled.
Considering the low earnings for these students after leaving their institutions, “it’s unlikely that low-income students who attend these institutions will ever be able to recoup their educational investment,” the report states.
The positive findings overall for low-income students are welcomed, though some sectors disproportionately leave these students in the same or worse financial shape from an earnings perspective than if they hadn’t enrolled in the first place, according to the report.
At more than 60% of for-profit institutions, low-income students earned less than the average high school graduate within 10 years of entering their institution, meaning those students — regardless of costs — obtained little to no economic premium.
At bachelor’s degree-granting institutions, the report finds 58% show their average low-income student earning enough additional income beyond the typical high school graduate to recoup their total net cost within five years or less, and 82% show these students being able to do so in 10 years or less.
While a majority of low-income students at associate degree-granting institutions are able to recoup their educational investment in five years or less, a proportion comparable with their four-year counterparts, a significantly higher amount, 18%, show no ROI for their average low-income student, compared to just 3% of four-year schools.
Certificate-granting institutions, which typically cost less and require less time to complete than associate degrees, were found in the report to be the most likely to leave their average low-income student earning less than those who had never attended college — at more than half of those institutions, the average low-income student saw no ROI at all.
A major caveat of the report is that even if an institution shows a fast ROI for low-income students, they may fail to admit those students at a substantial rate.
“Only allowing these students to access institutions that provide a wage premium on a limited basis can perpetuate inequality for the many who enroll in institutions that do little to ensure the economic benefits of attending college,” the report notes.
Notably, the report found that only 19% of four-year institutions that leave low-income students with a high ROI enroll Pell Grant recipients as the majority of their overall student population.
Of the 69% of two-year schools that enable the typical low-income student to recoup their educational investment within 10 years, slightly more than half enroll more than 50% Pell Grant recipients.
The report aims to serve as an accountability standard borrowers can use as a metric for different institutions and follows similar work from the lead author Michael Itzkowitz, a Third Way senior fellow who previously introduced the PEP in a report measuring the monetary value of college for all students.
“It’s more critical than ever that institutions provide all students — and especially those most likely to be hurt by a weakened economy — with a return on their educational investment,” the report concludes. “While most deliver on this promise, way too many fail low-income students, leaving them earning even less than those with no college experience whatsoever.”
Publication Date: 4/7/2021