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Career education is a vital pipeline to high demand jobs in the workforce. Students from all walks of life benefit from the opportunity to pursue their career education goals and find new employment opportunities. Join Dr. Jason Altmire, President and CEO of Career Education Colleges and Universities (CECU), as he discusses the issues and innovations affecting postsecondary career education. Twice monthly, he and his guests discuss politics, business, and current events impacting education and public policy.
Jason Altmire [00:00:05]:
Hello, and welcome to another edition of Career Education Report. I'm Jason Altmire, and today we're going to talk about return on investment for college programs. It's a topic that is widely discussed. And our guest today is Preston Cooper. He is a senior fellow at the American Enterprise Institute, and he is widely considered one of the nation's experts on this issue of return on investment, one of the premier researchers in higher education. And in fact, Preston, I should have called you Dr. Preston Cooper because you now have a PhD as well in economics. So we are grateful for you being with us.
Jason Altmire [00:00:42]:
Thanks for being here.
Preston Cooper [00:00:43]:
Thank you for that kind introduction. I'm glad to be back on the show.
Jason Altmire [00:00:46]:
You have been widely quoted because you've done some very extensive research on return on investment, and we'll dig into some of that work. But how would you describe why it is important in the first place to look into ROI as it relates to college programs?
Preston Cooper [00:01:04]:
Well, if you take a poll of college students and ask them, what is their number one reason for going to college, the most common answer you'll get is some variation of I want to get a better job or I want to earn more money. And people will say, you know, other things matter as well. You know, the joy of learning and all that. Don't want to dismiss the importance of that. But it's really what college students want most out of college. And I think it's also what policymakers want out of college when we fund our higher education system to the tune of hundreds of billions of dollars. So we should really be assessing whether all that money and time we're investing in higher education is actually paying off in terms of higher wages for students. And it turns out that it often does pay off.
Preston Cooper [00:01:46]:
But there are some cases, unfortunately, where higher education turns out not to be a great deal for students. And that's where my research comes in.
Jason Altmire [00:01:54]:
Some of the research that you have done related to roi, you've quantified that a quarter of bachelor degree programs have negative ROI, and 43% of master's degrees have negative ROI. What does that mean? Negative ROI.
Preston Cooper [00:02:13]:
So return on investment is basically the expected increase in lifetime earnings that you get from pursuing a college degree minus the costs of college. So when ROI is positive, that means that the increase in earnings you're going to get over the course of your lifetime from getting that college degree is going to exceed the costs of college. But when ROI is negative, that means that that increase in earnings that you get is not enough to compensate you for the costs of going to College, which are not just the cost of tuition and fees and textbooks, but also time spent out of the labor force, you know, time that you're not earning money, you know, gaining experience in the labor market. That's also a sacrifice that people are making when they pursue college. So my analysis really tries to put all of these factors together and figure out what do we think you're going to earn over the course of your lifetime and how does that stack up against the various costs of college that you're going to incur? And it turns out sometimes most of the time college does pay off. But unfortunately, in a lot of cases, especially for master's degrees, as you mentioned, the increase in earnings simply does not justify the cost that students are taking on to get the degree.
Jason Altmire [00:03:25]:
Where does it factor in completion rates? One of the things that is a constant source of irritation for our members, generally, the proprietary career schools, is that these accountability measures that the Biden Department of Education put forth and the Obama administration before that, only looked at, for the most part, for profit schools and then career programs in other schools, but they didn't factor in completion rates. So if you were one of those career programs in other schools, the fact that you were unable to graduate 75 or so percent of your students didn't matter at all. That didn't factor into your calculation. But you did look into completion rates and how it impacts roi, and what did you find?
Preston Cooper [00:04:15]:
That's right. So we have a version of the ROI analysis that basically adjusts for the fact that a lot of students do not finish college. So it accounts for that risk that you're taking on when you start college, that you may bear some of the costs of college, you might pay some tuition, you might spend some time out of the labor force, but you don't actually finish the degree or certificate and then you, you drop out of school, you don't get the earnings benefits associated with that, and often you're coming out behind. So the analysis adjusts for this and we find that programs that have fairly high completion rates tend to do very well in the analysis. But one reason that a lot of programs do have negative ROI is they're at schools with very low completion rates. So we know some community colleges have 10, 20, 30% completion rates where students are very unlikely to get that degree and get the labor market benefits of their education. But then at schools that have relatively high completion rates, a lot of four year colleges, but also a lot of trade schools, career colleges, which have completion rates in the 70, 80, 90%, they tend to do very well because it's much more certain that students, when they embark on their higher education journey, they're actually going to get the earnings benefits that come with that at the end.
Jason Altmire [00:05:29]:
Yeah. You have a very interesting chart that you've put forward in some of the research, and it shows a very clear correlation in completion rate. The lower the completion rate depletion rate, the lower the ROI in every category. So I do think that that's something that policymakers looking towards the prospective idea of adding accountability measures to schools, if you're gonna do so, you should include the fact that schools with low completion rates had students that did enter the program as well, and they should be held accountable for the outcome of those students.
Preston Cooper [00:06:02]:
I think that's absolutely correct. I mean, not completing, I think, is the number one risk facing any college students when they start their higher education. Jo, we know that about 62% of students who start college do finish, but that means that almost 4 in 10 students are not finishing and an even higher percentage are taking longer than the expected amount of time in order to finish their degrees and therefore paying more tuition costs, spending more time out of the labor force. So I would absolutely agree that if we're talking about accountability, we also need to be talking about completion rates and accounting for the outcomes of those non completers, which are often much worse than the outcomes of people who complete their programs.
Jason Altmire [00:06:42]:
I'm going to mention a program not picking on anyone. But, you know, you list these programs from top to bottom, and I'll just mention the one that's at the bottom, and that's the degree, bachelor's degree in drama from the University of Southern California. And you talk about how, you know, the financial implications and the ROI you calculate to be over the course of that student's working lifetime, over half a million dollars of negative return on investment, which is shocking if you think about it. But what are some of the other programs? You don't have to mention, necessarily institutions, as I just did with one. But what are some of the other programs that you find trend to having more negative roi?
Preston Cooper [00:07:29]:
Well, field of study matters a lot. So we see programs in majors such as drama, as you mentioned, the arts, English literature, education unfortunately as well, tend to have just worse labor market prospects than others and so tend to have lower ROI and sometimes even negative roi. But field of study, you know, it's not the only factor. You know, also we need to be looking at the prices that these institutions are charging. So usc, as you mentioned, has one of the highest tuition rates in the Nation people are spending just tons and tons of money to attend usc and it turns out that's often not worth the cost. And then we also need to look at the graduation rate. As I talked about earlier. It's kind of those three factors.
Preston Cooper [00:08:11]:
Choosing the right field of study, making sure you're paying a relatively affordable price for your education, and also making sure that you're in a position to complete and especially complete on time, are all factors that'll probably generate positive ROI for you. But if some of those factors are not present, it's going to be more likely that you're not going to see an ROI in your education.
Jason Altmire [00:08:33]:
What are the arguments that are presented when you discuss this issue? So you talk about the fact, and I'll look at the chart here, Fine arts. At the bottom, a degree in education, English and linguistics, Social work, very important, but doesn't pay a lot. History, agriculture, those are some programs that are towards the bottom. And what are the arguments that people give for why they as institutions and programs should be treated differently when accountability measures are discussed? Why they shouldn't be held accountable for the fact that their graduates pay money to get these degrees and then in many cases never earn enough to pay back the cost?
Preston Cooper [00:09:18]:
Well, I would say the number one objection that I get is that ROI is not everything. It shouldn't just be about the money. It should also be about the joy of learning and becoming a good citizen and so forth. And I totally agree that all those things are important. But I also believe that educational programs should have to fulfill what I call the educational Hippocratic oath. So you should do no harm, do no financial harm to your students. You don't have to make your students rich, but you should at least make sure that they're no worse off than they would have been if they hadn't gone to college at all. And I don't really buy the excuses that colleges will sometimes put forth where they'll say, well, this is just a low earning field and there's nothing we can do about it.
Preston Cooper [00:09:56]:
Well, there's actually plenty you can do about it. You could lower your price, you could try to increase your graduation rate and you could also try to retool your programs to make them a bit more labor market relevant. Like, yes, an English major is probably not going to make you rich most of the time, but you know, an English major can be valuable in some jobs. Maybe we should try to identify what those jobs are and retool our curriculum to prepare students more for, for that type of work. That is going to have a bit of a higher, a return on investment. I do worry sometimes that institutions will just throw their hands up and say there's no way we can make this program have positive roi. But then often they don't end up even trying at all. And there, I think that there are lots of things that they can do to make these programs pay off a little bit better for their students.
Jason Altmire [00:10:42]:
There's also the idea of societal value and just student interest. A student might just have an interest and an aptitude and, you know, have it be their dream to pursue a career in a field that turns out to not be lucrative. And no one is saying that you shouldn't be able to pursue a degree in art history or pursue a degree in any of those things that I mentioned. But I think something that needs to be considered and you do talk about is the taxpayer's role in all of this because you and I and our listeners are paying for that student to pursue their dream in a career that is not going to make a lot of money. What have you found with regard to the subsidization of education from the taxpayer?
Preston Cooper [00:11:34]:
Well, this is one thing that I looked at in the study. So we looked at the percentage of federal student loan and Pell grant dollars that are flowing to these negative ROI programs, and it turns out it's about 30% of federal funding overall is going to programs that tend not to make students any better off financially. And I would say that's a problem from the taxpayer's perspective, especially when it comes to loans. Because, you know, student loans are. The idea is when you take out a loan, you're going to pay it back. It's an investment in your human capital to increase your earnings potential so that you can pay back your loan with interest. And when that doesn't happen, I think we have a problem. You know, we can talk about how, you know, some of these programs have a lot of, a lot of social value.
Preston Cooper [00:12:16]:
But I think when we introduce loans into the equation, there is an expectation there that that program that's getting the loan is going to increase students earning earnings enough so that they'll be able to pay it back. And when that does not happen, it's not really in the student's best interest. It's not in the taxpayers best interest because the student defaults on the loan, the taxpayer doesn't get the money back that they were hoping. And so we really do need to be thinking about whether taxpayers need to be funding all of these programs through the student loan system. I think that there's a lot of problems out there in terms of student loan repayment, people not being able to afford their payments. And a lot of that can be traced back to the fact that people took out loans for programs that did not have an roi.
Jason Altmire [00:12:59]:
And I think that's something that we're going to have to think about with regard to public policy is, you know, if a student makes a life choice and they take out loans or they qualify for grants as a result of that, you know, what is the continuing expectation on behalf of the government and thereby the taxpayer to fund those decisions? Again, no one's saying you can't do it, but the fact that we're having this debate about accountability, that discussion I think should factor in.
Preston Cooper [00:13:30]:
That's right. And I think that if we do want to subsidize some of these low earning fields, such as, such as the arts, I think we should at the very least be explicit about that. Right now we have this backdoor subsidy through the student loan program for low earning fields that I don't think really ends up helping out anybody except for the schools offering the degrees. And if we want to support the arts, we should explicitly support the arts. You know, I like the idea of potentially creating dedicated scholarships through the National Endowment for the Arts, the National Endowment for the Humanities for students who show a lot of promise in these fields and want to study in these fields that traditionally do not have very high earnings. If we as a society want to support those fields, we should be explicit about what we're doing and recalibrate the subsidies accordingly.
Jason Altmire [00:14:11]:
We've spent a lot of time on this podcast talking about the change in perception of four year degrees and the importance of students being able to pursue careers in technical fields and the high demand that exists for a lot of these professions. Certainly nursing, aviation mechanics, auto mechanics, truck driving is a big one. And you talk about in your research the fact that if you look at the. We talked about the programs on the bottom, the programs that are at the top, the highest ROI you found are technical trades and nursing right behind it. And those are programs that our schools offer and they're in high demand. Maybe talk a little bit more about why you think it is that when you look at return on investment, it's those type of programs that finish at the top.
Preston Cooper [00:15:01]:
That's right. So we find that the technical trades have a median ROI of over $300,000, which puts them closer to the top of that chart. That includes things like H vac technology, auto repair, electrical work, and so forth. And one of the reasons that those programs tend to do very well is, you know, they're relatively short in duration. It's easy to pay a smaller amount of tuition, get a skill, get into the labor force relatively quickly. There's a very high completion rate of a lot of those programs as well. And it turns out that that immediate, you know, skill building exercise that dramatically increases your earnings potential tends to have a very good ROI over the course of your lifetime and ends up being better than a lot of bachelor's degrees out there. Now, some bachelor's degrees are also up at the top there too.
Preston Cooper [00:15:47]:
Engineering, computer science, nursing, and so forth. But the technical trades have often been overlooked as a very strong ROI program. And I'm glad that my research was able to highlight that a lot of those programs are actually doing quite well by their students.
Jason Altmire [00:16:02]:
And now that we've had a change in administration, and certainly a different point of view as it relates to federal regulation across all of government, not just in higher education or the Department of Education or what do you expect from this administration in looking at results like these and considering accountability for outcomes, which is going to be very important, not just in Congress, but to the Trump administration, and then where a concept like return on investment, the cost of education, the ability to find a job postgraduate, not only career success, but financial success, where are things like that going to factor in in policy in the current administration?
Preston Cooper [00:16:46]:
It's a great question. So I think it's not, not exactly a secret that there's not a whole lot of love lost between the Trump administration and some of our elite colleges and universities. And there really is a movement among Republicans like no other that I've seen in my career to start holding some of these institutions accountable. So in the House and Senate, we've seen comprehensive higher education reform bills introduced which would really put some very, very strict outcome standards on the colleges that are receiving federal funding. They would require them to meet minimum earnings thresholds or potentially pay back the loans that students are not able to repay when they take out loans to go to schools that don't have a great roi. So it's a little bit too early to say, you know, what, exactly what exact form that accountability regime will take. But I think it is safe to say that we're probably going to see an effort from congressional Republicans and potentially from the Trump administration as well, to, to hold schools accountable for the outcomes that they're producing for students and to potentially cut off federal funding for schools that are not quite up to snuff.
Jason Altmire [00:17:51]:
In the Past President Obama, I remember, put forward a much less expansive proposal to have at least some sort of visibility for outcomes and transparency, but also some accountability that did cross all schools in all sectors and it was widely criticized across higher education. And you do get pushback. Now our sector on the for profit side is used to that argument and we just believe that all schools in all sectors should be held to the same standards. We don't think think that's unreasonable. When you talk about concepts like ROI and postgraduate success and student outcomes, just hold all schools accountable so that all schools can benefit from that accountability, do you think that that's something that is going to be more likely to succeed in the current political environment?
Preston Cooper [00:18:46]:
I would say so. I think that the current administration, if they're interested in accountability, it would probably be sector neutral accountability. So I don't think there's really any interest in reviving the old idea of gainful employment where we only hold the for profits certificate programs accountable. I think that there's a broad recognition among the new administration that a lot of the problems are actually, you know, the master's degree programs at the elite private nonprofit colleges, which were totally exempt from gainful employment, you know, the source of a huge amount of student debt that is not being repaid. So I would expect that if we do see that a big accountability push, it would probably be very broad based and they would say, we don't care what your tax status is, we don't care what your ownership is. We want to see whether you're producing good outcomes for students or not. If you are, then great, continue doing good work. If you're not, we're going to have to have a conversation about whether you're going to continue to get taxpayer funding.
Preston Cooper [00:19:42]:
And I think that is the right approach.
Jason Altmire [00:19:43]:
How do you make sure when you're putting a formula together that measures outcomes, how do you make sure you're looking at the right things? How does someone like you and your peers in the think tank world, who do this and live it and breathe it every day, how do you work with Congress to provide insight and advice, if at all? And how does the Congress ensure that when they're passing these accountability measures that they have the best interests of students across all sectors at heart and the things that they're measuring, the accountability is really what's the most important.
Preston Cooper [00:20:20]:
Well, so I think one of the virtues of my ROI analysis is that you can use it to evaluate different policy proposals that are aiming to hold schools accountable for their outcomes. So I've looked at you know, the ROI of programs that are, for instance, would be forced to pay risk sharing penalties under the House Republicans plan to make colleges essentially cosign their students loans. And I find that, you know, that really does appropriately target schools that are leaving students with a negative roi. And so one of the values of having that data set out there, where we have a, you know, very precise look at which schools are paying off and which schools are not, is it does allow us to evaluate these different policy proposals on the table and make sure that the metrics which are being used in those proposals actually do correlate to the financial value students are receiving. I think one problem with the gainful employment rule, which we've talked about earlier, is it actually didn't correlate that well to measures of roi. There are a number of good programs that faced penalties under the gainful employment rule, and there are a number of bad programs, you know, especially those master's degrees in private nonprofits that basically got off scot free. And I suggested some changes to the gainful employment rule that would make it target the negative ROI programs a bit better and not give such strong sanctions to the positive ROI programs. And unfortunately, the Biden administration did not take any of my recommendations well.
Jason Altmire [00:21:45]:
No, they did not. This has been great. This has been very instructive. And Preston Cooper does a lot of great work. I would really encourage listeners to check out his work. And Preston, if they wanted to find you both at AEI or any of the research that you've done, how would.
Preston Cooper [00:22:02]:
They get in touch so you can Google aei Preston Cooper. And my Scholar page should pop up and all of my work will be listed right there. And there's some contact information for me as well.
Jason Altmire [00:22:13]:
Our guest has been Dr. Preston Cooper, senior Fellow for the American Enterprise Institute. Thank you for being with us.
Preston Cooper [00:22:21]:
Thank you.
Jason Altmire [00:22:22]:
Thanks for joining me for this episode of the Career Education Report. Subscribe and rate us on Apple Podcasts, Google Play, Spotify, or wherever you listen to podcasts. For more information, visit our website@career.org and follow us on Twitter CECUED. That's C-E-C-U-E-D. Thank you for listening.