Jul 5, 2023
While there’s long been debate surrounding the value of higher education in America, new data reveals some institutions may actually leave graduates financially worse off than if they hadn’t attended college.
Around 500 institutions, enrolling nearly 1.5 million undergraduate students, don’t provide a minimum economic return to students, according to a June report from postsecondary research and advocacy organization the Institute for Higher Education Policy (IHEP).
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Students meet this threshold if they earn at least as much as the typical high school graduate in their state, plus enough to recoup their investment in college within 10 years.
"We should expect at a minimum that colleges are not leaving students worse off than had they not attended," Diane Cheng, IHEP vice president of research and policy, told MarketWatch.
Here’s why some institutions may not seem worth the cost, and what needs to change.
Why college sometimes isn’t worth it
There have been a number of headlines lately questioning whether college has lost its shine for young Americans.
Even big employers like Google and IBM are no longer listing postsecondary degree requirements on some of their job postings.
Plus, there are around 43 million borrowers in the U.S. who owe over $1.6 trillion in student debt — and will need to resume repayments in October, with the question of loan forgiveness still up in the air.
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Although the IHEP reports 83% of schools do provide a minimum economic return for students — the typical post-school earnings at most public and private non-profit institutions are about $8,981 above the threshold — some schools actually leave their students worse off after graduating.
Among the 507 institutions that didn’t meet the threshold — many of which are either private for-profit or private non-profit institutions and require significantly more financial investment than public entities — the average student’s earnings fell $4,064 below the threshold.
The IHEP also acknowledges that race, family income and gender can play a role in how much value students actually gain from college due to inequities in higher education and the workforce.
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What needs to change
The IHEP proposes several affordability programs to reduce these inequities across race and income levels.
This includes doubling the maximum amount available via federal Pell Grants — awarded to low-income students — which stands at $7,395 for the 2023-2024 academic year. The IHEP notes the grant has failed to keep up with rising costs. The maximum amount available in 2018-19 covered just 28% of the cost of a four-year program — compared to 1975-1976, when it covered over 75%.
Doubling the grant would increase the number of schools that meet the economic threshold for students by 95, accounting for around 610,000 undergrads, according to the IHEP.
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Investing in first-dollar free college programs — which effectively offer grant amounts equivalent to the full amount of an institution’s tuition and fees (regardless of any other aid students receive) — could also reap more economic benefits for students from low-income backgrounds.
While most free college programs remain restricted to two-year colleges, extending these programs to four-year institutions would add further value as well.
Additionally, colleges could consider providing funding for non-tuition expenses, like housing, health care and transportation costs, and support to increase their complete rates.
The IHEP recommends expanding eligibility requirements for financial aid to make them more inclusive so that aid is provided to low-income students irrespective of whether they attend part-time, enroll immediately after high school or later in their careers, transfer schools or work in another state after graduating.
The organization also suggests improving data collection on student earnings by race, ethnicity and college attendees who do not complete their degrees.
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Serah Louis is a reporter with Moneywise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.
