Alex majors in engineering at a public university, while Chris earns a nursing degree. Their return on investment (ROI) -- the increase in lifetime earnings minus the cost of tuition, other expenses and lost earnings while enrolled -- is likely to be high, concludes Preston Cooper of the Foundation for Research on Equal Opportunity (FREOPP). Computer science and economics degrees also show a high pay off.
Overall, the median ROI for a bachelor's degree completed in four years is $343,000. But most students take longer, and some never graduate at all. The risk-adjusted ROI is $160,000.
But the variation is huge. Some degrees -- such as education --have a minimal return on investment, and others leave graduates worse off than if they'd never enrolled. Check out "fine arts" on the graph.
"Certificates in the technical trades have a higher payoff than the typical bachelor’s degree," Cooper writes. But other certificates have low or no ROI.
"Nearly half of master’s degree programs leave students financially worse off," he writes. "Even the MBA, one of America’s most popular master’s degrees, frequently has a low or negative payoff. . . . However, professional degrees in law, medicine, and dentistry are extremely lucrative."
At one end of the spectrum, the bachelor’s degree in drama at the University of Southern California costs students over $160,000 over four years, but delivers earnings more than $10,000 per year below the counterfactual. As a result, I estimate that USC’s drama program has an ROI of negative $540,000.
The full ROI estimates for undergraduate programs are available here. The full ROI estimates for graduate programs are available here.
"Around 29 percent of federal Pell Grant and student loan dollars over the last five years were used at programs that leave students with a negative ROI," notes Cooper.
Most studies of the college payoff are much rosier than FREOPP's report because they compare the earnings of college graduates -- 68 percent more -- with the earnings of workers with only a high school diploma.
That doesn't just lump in the arts majors with the engineers, writes Cooper. It assumes that apples (people who attend college) have the same earnings potential as oranges (those who don't enroll). "Finally, raw earnings premiums do not account for the cost of college or the risk of not finishing."
He estimates "counterfactual earnings for each program’s typical students, based on their demographics, socioeconomic status, academic ability, family background, and geographic location." In a universe in which the student didn't go to college, what would he or she be likely to earn?
For the median bachelor’s degree program, estimated earnings at age 27 are approximately $52,000, compared to median counterfactual earnings of $37,000, he estimates. Graduates enjoy a 39 percent wage premium, which "is respectable, but considerably less than the 68 percent premium implied by unadjusted numbers."