What is the ROI on higher education?

Delivered August 31st, 2022. Contributors: Darius G., Anna G., and Kej A.

Research Outline: What is the ROI on higher education?

Part

of three

Part

What is the correlation between education attainment and salary?

Key TakeawaysFor those that have attained a Bachelor's degree, the median annual salary is $59,600. Individuals with a Master's degree or higher have a median annual salary of around $69,700 or more.
While median earnings have risen significantly for young adults in the United States aged 22 to 27 that have obtained a Bachelor's degree or higher since the year 1980 (from $41,000 to $46,000), median earnings for those with some college education or an associates degree (from $36,500 to $31,000), as well as those with a high school diploma or less have greatly decreased.
According to research conducted by Georgetown University, the average cost of attending college has increased by a massive 169% since 1980. However, the median earnings for young adults have only increased by 19% during that time frame.
IntroductionAmericans with a Bachelor's degree or higher (median salary of $59,600 or more) are typically higher earners than those that have either not graduated from high school, received only their high school diploma, or obtained an Associate's degree (median salary of $44,100 or less). Although those that have attained degrees from accredited universities/colleges are likely to earn a higher salary, as well as greater lifetime earnings, a vast share of degree earners is currently underemployed. Furthermore, the cost of attaining a degree has increased significantly over the past few decades, while salaries have only experienced a minor increase (169% vs. 19%). Additional information on the correlation between education attainment and salary has been provided in the area below.
Correlation Between Education Attainment and SalaryMedian Salary by Education LevelAccording to a report by the National Center for Education Statistics (NCES), the median salary for individuals that have not completed high school is only $29,800, while those that have earned their high school diploma have a median salary of around $36,600. U.S. citizens that attended college but have not earned a degree have a median annual salary of $39,900. Meanwhile, those with an Associate's degree maintain a median annual salary of at least $44,100.
Furthermore, for those that have attained a Bachelor's degree, the median annual salary is $59,600. Individuals with a Master's degree or higher have a median annual salary of around $69,700 or more. Please note that these statistics are for full-time employees between the ages of 25 and 34. 
 Source 
 
According to Payscale, the average base salary for a U.S. citizen with a Doctorate degree is $101,000 per year.
The median lifetime earnings for someone that did not graduate high school is $1.2 million, compared to $1.6 million for someone that received their high school diploma, and $1.9 million for citizens that attended college but did not receive a degree. 
Meanwhile, the median lifetime earnings for those with Associate's degrees, Bachelor's degrees, Master's degrees, Doctoral degrees, and Professional degrees are $2 million, $2.8 million, $3.2 million, $4 million, and $4.7 million, respectively.
The median lifetime earnings for someone in a computer and mathematical occupation that only has a high school diploma or GED is $2.6 million, compared to $3.8 million for a Bachelor's degree recipient in the same occupation. 
The median lifetime earnings for an Associate's recipient in architecture or engineering occupation is $2.7 million, compared to $5.3 million for a Doctorate's degree recipient. 
Also, professional degree recipients have a median lifetime earning of $6.5 million in health practice occupations, compared to $3.4 million for Master's degree earners. 
Additional comparisons on lifetime earnings can be found in figure 6 on page 12 of The College Payoff report published by Georgetown University's Center on Education and the Workforce.
Impact on Earnings Over the YearsWhile median earnings have risen significantly for young adults in the United States aged 22 to 27 that have obtained a Bachelor's degree or higher since the year 1980 (from $41,000 to $46,000), median earnings for those with some college education or an associates degree (from $36,500 to $31,000), as well as those with a high school diploma or less have greatly decreased. However, the median earnings for individuals with a high school diploma or less have recently increased, reaching nearly $30,000 in 2019, but are still down from the $33,000 in 1980.
 Source 
 
It should be noted that in June 2022, 33.6% of college graduates in the United States were underemployed, as reported by the New York Fed. This rate has mostly remained steady over the past three decades.
Correlation of Costs and EarningsThe average cost of obtaining higher education has greatly outpaced the earnings for young adults aged 22 to 27 over the last four decades. According to research conducted by Georgetown University, the average cost of attending college has increased by a massive 169% since 1980. However, the median earnings for young adults have only increased by 19% during that time frame. 
 Source 
 
Tuition and fees at private non-profit four-year institutions have grown from an average of $19,360 in the 1991-92 academic year to $38,070 in the 2021-22 academic year. At public four-year institutions, tuition and fees have increased from $4,160 in 1991-92 to $10,740 in 2021-22. Finally, at public two-year institutions, tuition and fees have risen from $2,310 in 1991-92 to $3,800 in 2021-22. 
Interestingly, median family incomes have only risen by 23% from 1990 to 2020. The median family income has increased from $68,098 to around $84,008 in that 30-year span.
Including tuition and fees, transportation, books and supplies, room and board, and additional personal expenses, the cost to attend college is $55,800, on average, for students at private non-profit colleges, $44,150 for out-of-state pupils attending public universities, and $27,330 for those at public in-state institutions.
Research StrategyTo determine the correlation between education attainment and salary in the United States, we leveraged some of the most reputable sources available in the public domain. We focused on government websites, which we believed would offer reliable and up-to-date data on the topic. These sources included the National Center for Education Statistics (NCES), the Department of Labor, and the Department of Education, among others. 

Also, we sought reports and statistics produced by prominent education institutions in the country, such as Georgetown University. Additionally, we searched through reports, articles, and press releases on the relevance of obtaining a degree that were published by news, media, and press distribution sources, including Forbes, Business Insider, and CNBC, among others. We also consulted sources focused on compensation, such as Payscale, for information on median earnings by degree attainment.

Part

of three

Part

What is the return on public investment in higher education?

Key TakeawaysA report by Massachusetts Teachers Association found that $69,000 invested in educating someone in a public higher education college or university in the state brings a net return of around $83,000, as each graduate's contribution to the state is approximately $146,000. 
As per the Association of Public and Land-Grant Universities, compared to a person with a high school diploma, a bachelor's degree holder receives $82,000 less in public spending and pays $273,000 more in taxes, representing a net gain of $355,000 for the government. The net difference is $167,000 higher for advanced degree holders.
The University of Georgia's Selig Center for Economic Growth estimates that a 1% growth in the number of graduates can increase state GDP by 0.5%. 
IntroductionThe report analyzes the return on public investment in higher education. Based on the available examples, higher education primarily gives back to the economy through degree holders, who have significantly higher earnings, and thus pay higher taxes and require less government spending. While it is not the only contribution, it accounts for an overwhelming share. Therefore, as noted by a Massachusetts Teachers Association (MTA) study, the government's return on investment (ROI) can be quantified using the higher number of students graduating thanks to additional funding, given that it increases contributions to the state coffers. 

Based on the above, the first section presents the impact of state funding on degree completion, followed by an overview of the economic effect of the growth (or decline) in the number of graduates. It also summarizes the reports by MTA and the California State University (CSU), which provide detailed analyses of the ROI of relevant public investments. 
The Impact of State Funding on Degree Completion The State Higher Education Executive Officers Association (SHEEO) conducted several simulations on how increasing the average state appropriations by $1,000 per full-time equivalent (FTE) would impact the number of degrees awarded at the country level. It used several different methodologies, but each showed a significant correlation between public funding and student outcomes.
For example, applying the methodology used by Deming and Walters in 2018, SHEEO estimated that for community colleges, the number of bachelor's degrees would increase by around 75,000 after two years and a further 74,000 after three years.
Based on the method used by Zhao in 2018, public colleges would award an additional 56,000 associate degrees, along with 4,117 bachelor's degrees, 961 master's degrees, and 151 doctoral degrees.
To compare, Midwestern Higher Education Compact found that a 10% increase in state appropriations per institution would result in 0.41% more graduates among Black students, 0.38% more graduates among Latinx students, and 0.28% more graduates among White students over 12 years. 
The Economic Impact of Higher Graduation RatesThe growth in the number of college graduates translates into lower government expenditures, higher gains from taxes, more jobs created, and boosted GDP. Thus, these are the main elements that constitute the return on public investment in higher education. Below, they have been presented in more detail based on examples. 
As per the Association of Public and Land-Grant Universities, compared to a person with a high school diploma, a bachelor's degree holder receives $82,000 less in public spending and pays $273,000 more in taxes, representing a net gain of $355,000 for the government. The net difference is $167,000 higher for advanced degree holders.
 Source 
 
Washington State Board for Community and Technical Colleges notes that out of the $5.2 billion that the community and state colleges add to the local economy, $18.7 billion (or 290,296 jobs) comes from its graduates' increased productivity and higher wages. For additional context, college and student spending account for the rest, additional factors contributing to the ROI.  
Tony Carnevale, "the director of Georgetown University's Center on Education and the Workforce," believes that declining numbers of college graduates negatively impact wages, tax revenues, welfare costs, and crime costs. He also notes the indirect effect on the economy, which is widening the skills gap and hurting economic activity due to the unavailability of talent.
The University of Georgia's Selig Center for Economic Growth estimates that a 1% growth in the number of graduates can increase state GDP by 0.5%. The chart below shows how reaching milestones in the state's share of degree holders could impact the GDP. 
 Source 
 
The Impact of the California State UniversityA 2021 report by California State University (CSU) provides a detailed analysis of its economic impact, including the return on state investment.
The study found that for every dollar invested by the state, industry activity worth $6.98 was generated. When including higher earnings by graduates, the ROI grows to $29.90.
Also, the institution's economic contribution includes 209,400 annual jobs, $10.3 billion in labor income, $26.9 billion in local industrial activity, and $1.6 billion in taxes. On top of that, CSU's alumni add around 475,000 jobs, $88.3 billion in industrial activity, and $5.9 billion in state and local taxes. 
Overall, the institution noted that each year, CSU-related tax revenues alone are higher than the state funding, which validates the investment.
A Study by Massachusetts Teachers AssociationIn June 2020, Massachusetts Teachers Association (MTA) published a report, "An Economic Analysis of Investment in Public Higher Education in Massachusetts: Recovering from the COVID-19 Crisis and Laying Foundations for the Future." The publication advocated for increased state investment in higher education in Massachusetts, based on its estimations of high short- and long-term returns.
Specifically, the report found that $69,000 invested in educating someone in a public higher education college or university in the state brings a net return of around $83,000, as each graduate's contribution is approximately $146,000. 
Furthermore, each $1 million in public higher education funding adds 17.7 jobs (in the range of 13-15, depending on the allocation of funds), while investing $120 million would create at least 2,856 jobs over three years. This includes direct, indirect, and induced employment (i.e., created by increased household spending due to the creation of other jobs). 
Together with the high quality of employment in the education sector, these figures show that investing in higher education is more beneficial for the economy than funding sectors often prioritized in Massachusetts, e.g., casino and road construction.
This amount invested ($120 million) could fund education for 7,000 additional students per year, representing a 4% increase in the current total enrollment in public institutions. It would also translate into approximately 1,600 more graduates annually. 
At the same time, compared to a person with a high school diploma, a graduate with an associate degree can save $59,795 in state expenditures on social programs (e.g., welfare, Medicaid, unemployment compensation). In comparison, a person with a bachelor's degree saves about $84,361.
People with degrees or some college education also pay higher taxes due to higher salaries. The report estimates that a person with some college pays $1,902 more in annual state income and property taxes than someone with a high school diploma. The figure rises to $2,223 more with an associate's degree and $4,612 more with a bachelor's degree.
The above adds up to $82,709 extra in lifetime tax payments by a graduate with an associate's degree and $146,346 more by a graduate with a bachelor's degree.
The table below presents a summary of the key figures included in this section.
 Source 
 
The study concludes that a $120 million state investment in public education would bring returns of $134 million from taxes alone and $234 million overall. The estimate is based on the assumption that it would add 1,600 graduates each year. According to the authors, "a dramatic increase in the state’s investment in public higher education is an exceptionally good deal for the entire Commonwealth and should be vigorously pursued by policymakers."
Research StrategyWe focused on data provided by academic and nonprofit institutions, such as Massachusetts Teachers Association, California State University, and Selig Center for Economic Growth. To make the findings more robust, we also leveraged media sites (e.g., NPR). After determining that the major determinant of the ROI on public investment in higher education is alumni's economic contribution, we decided to separately analyze the impact of public funding on the number of graduates and the economic benefit of an increased number of degree holders.

Furthermore, in the course of the research, we found that most of the reports that directly analyze the return on public investment in higher education are vastly outdated. For instance, the most often referenced study, "High Returns: Public Investment in Higher Education," was published in 2008. Therefore, we chose to present both the 2021 report by CSU and a 2020 study by MTA. The former has a narrow scope (limited to the institution itself) and gives little insight into the methodology, but it was included because it is recent and quantifies the ROI. The report by MTA, while slightly outside the timeframe of 24 months (as it is from June 2020), gives a detailed view of how the ROI on public investment in higher education can be measured and has a state-wide scope. 

Part

of three

Part

Which bachelor’s degree programs have the highest and lowest ROI?

Key TakeawaysOut of all bachelor's degree programs, Computer Science has the highest return on investment, with a 228.9% return in the first 20 years. 
According to a study by Third Way, 100% of nursing programs allow graduates to recoup their educational investments within the first five years of graduation.
Anthropology offers multiple career paths but has one of the highest underemployment rates in the US. Based on Third Way's recent survey, 44% of Anthropology programs have no economic return on investment.
Fine Art is ranked among negative-value degrees. It has an underemployment rate of 58.4%, an ROI of -67.5%, and a lifetime value of -$223,851.44. 
IntroductionThis report contains an overview of four bachelor's degree programs with the highest ROI, including Nursing, Business, Engineering, and Computer Science; and three bachelor's degree programs with the worst ROI, including Anthropology, Fine Arts, and Theology/Religious Studies. The programs were chosen based on reports published by education databases, nonprofit organizations, and business media. 
Bachelor’s Degree Programs with the Highest ROIBased on a starting salary of $50,600, the ROI on a bachelor's degree is -41.1% in the first ten years. 
The bachelor's degree programs with the highest ROI are Engineering, Nursing, and other STEM courses. 
 Source 
 
Nursing Nursing is one of the highest-paying professions in the US and comes with high job security. The return on investment 20 years after graduating is between $438,000 and $556,000. 
According to a study by Third Way, 100% of nursing programs allow graduates to recoup their educational investments within the first five years of graduation. 
The profession is also high in demand, as the Bureau of Labor Statistics (BLS) projects that employment will increase by 12% for registered nurses (RNs) and 26% for advanced practice nurses from 2018-28.
There is also room for advancement in the profession. Registered nurses can ascend to administrative positions such as "assistant clinical nurse managers or charge nurses." 
BusinessThe return on investment for business programs varies depending on the school attended. However, the ROI 20 years after graduating is between $590,000 and $856,000. 
According to a survey of 5,500 business programs at more than 1,700 colleges by Georgetown University, the "majority of business programs lead to median earnings that are about ten times graduates’ debt payments, two years after graduation."
The above confirms that business programs have a high value compared to many other programs. Over a period of 20 years, graduates would have earned a 68% ROI based on a starting salary of $50,260.
 Source 
Engineering Engineering is widely recognized as one of the highest-paying STEM careers. It is ranked as the most profitable degree by Best Choice Schools, as engineers earn an average of $100,000 annually. 
The Bureau of Labor Statistics estimates that opportunities in biomedical engineering will rise by 61.7%. Over a 20-year period, graduates of engineering would have earned an ROI of $527,000-$642,000. 
According to a study by Third Way, 100% of engineering programs, including electrical, electronics, industrial, and aerospace, among others, allow graduates to recoup their educational investments within the first five years of graduation. 
The ROI for a bachelor's degree in general engineering is 87.8% in 20 years and 249.5% in 30 years. 
 Source 
ComputerGraduates of Computer Science have the scarcity of talent as an advantage. Computer Science and its related programs yield an ROI of $400,000 - $909,000 within 20 years.
According to Education Data, the ROI of a bachelor's degree in Computer Science based on a starting salary of $70,140 is 228.9% in 20 years and 482.4% in 30 years. 
 Source 
 
Graduates of computer science can explore multiple lucrative career options, including software development, programming, web development, and computer science. 

Bachelor’s Degree Programs with the Lowest ROIBachelor's degrees with the lowest ROI usually undercompensate and offer unstable employment opportunities. 
 Source 
 
AnthropologyAnthropology offers multiple career paths, but ironically has one of the highest underemployment rates in the US. Based on Third Way's recent survey, 44% of Anthropology programs have no economic return on investment. 
According to a Washington Post article, Anthropology majors earn about $19,227 annually two years after an investment of about $132,656 to earn the degree at Ithaca College. 
Fine ArtsFine Art is ranked among negative-value degrees. It has an underemployment rate of 58.4%, an ROI of -67.5%, and a lifetime value of -$223,851.44. 
Based on a starting salary of $40,500, its ROI only becomes positive after 40 years at 24.6%. 
 Source 
 
According to Third Way, 43.8% of Fine and Studio Art programs have no economic return on investment. 
Theology and ReligionTheological institutions, along with art and beauty schools, have the lowest long-term economic value.  
Based on a starting salary of $48,840, the ROI for a Philosophy or Religious Studies major is 30.3% in 20 years and 130.8% in 30 years. 
 Source 
 
According to Third Way, 45.1% of Religious Studies programs have no economic return on investment. Only 1% of students who study theology and religion are employed. 

Research StrategyIn answering this request, the research team leveraged reputable industry sources such as Education Data and Affordable Schools and credible report publishers such as Third Way and Market Watch. 

The bachelor's degree programs with the highest ROI were extracted from a report by Affordable Schools and backed with information from other sources such as Education Data and Third Way. The ranking on Affordable Schools is based on "how much a student will truly pay to earn a degree in a particular subcategory, weighed against the average salaries of graduates 20 years later." The report includes the total cost of achieving each listed degree across five universities in the US, providing a range for the ROI. 

The bachelor's degree programs with the lowest ROI were extracted from a report by Third Way and backed with information from Education Data and Hey Tutor. The report's methodology is based on a calculation of Price-to-Earnings Premium (PEP) using "the earnings premium that students obtain relative to the price they paid to earn their credential."