Rethinking return on investment in California higher education

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OPINION – Golden Opportunities, a recent report from the College Futures Foundation using data compiled by esteemed researcher Michael Itzkowitz of The HEA Group, shines a light on one of the most popular topics in higher education: return on investment (ROI). But the results and methods deviate significantly from other ROI studies, leaving readers unsure of the ROI that is truly offered by higher education institutions in California.

Itzkowitz measures ROI as the number of years it takes students to recoup the net cost to earn a credential. Unfortunately, this approach fails to account for the enormous taxpayer subsidies public institutions receive, especially in California. As a result of these subsidies, California’s community colleges are able to offer low and sometimes free tuition to students. The programs supported by those subsidies have a cost, but most of that burden is carried by the contributions of Golden State taxpayers rather than the student. An ROI calculation that focuses only on the time to recoup net educational costs thus fails to accurately capture the quality of the educational programs being measured. Private and for-profit schools do not receive those subsidies to nearly the same extent and therefore must charge students more for their tuition. This doesn’t mean these programs are of lesser quality, only that the student bears the cost of education rather than the taxpayer, and cheaper doesn’t always mean better.

Under the Itzkowitz model, just five percent of private nonprofit or for-profit career colleges are calculated to deliver ROI to students within a year of graduation; however, approaching ROI from a more comprehensive viewpoint yields vastly different results. Georgetown University’s prestigious Center on Education and the Workforce (CEW) also released a report on higher education ROI earlier this year. Rather than simply calculating time to recoup the student’s net educational costs, as Itzkowitz does, the CEW’s model instead offers a more robust look at the quality and benefits of educational programs by comparing longer-term ROI across institutions. By extrapolating long-term earnings from College Scorecard data, the CEW gives an idea of how the education a student receives can impact their earnings potential up to 40 years after graduation. While a student may be able to pay off their educational costs of community college sooner than if they had attended a private or for-profit institution, that’s no guarantee of how they can expect to fare 40 years down the road.

As it turns out, Georgetown’s approach to measuring ROI ultimately favors schools offering high-earning and in-demand programs like nursing, skilled trades and STEM. Under this model, over half of the top 10% of California’s schools ranked for 10-year ROI are for-profit.

While for-profit career colleges have a higher tuition price due to limited taxpayer subsidies, they also tend to deliver measurably stronger outcomes for students compared to their peers attending community colleges. Not only do they deliver strong outcomes, but they deliver these outcomes in short-term programs that prepare students for quick entry into the workforce.

As proof of the quality of for-profit career colleges, the highly respected nonpartisan research firm Lightcast reported this year that among two-year and less-than-two-year programs, “students at for-profit institutions had 5.75 times the odds of completing a credential compared to those who started at public or nonprofit colleges.” Furthermore, graduates from these for-profit institutions had “approximately 2 times higher odds of securing full-time employment compared to their peers from public and nonprofit institutions.”

When new studies are released evaluating return on investment in education, readers should consider whether the method of calculation looks at the quality and value of the program, rather than simply which one offers the lowest tuition. Students and taxpayers alike want to know that the education they pay for supports their long-term earning power. Only by measuring program outcomes and long-term economic benefit can we truly know which institutions offer the best deal.

Riley Burr is a higher education policy researcher and writer who serves as Executive Director of the CECU Research Foundation.