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Is College Worth the Cost?

Is college worth it? For the first time in history, we may have a definitive answer to whether or not your specific degree and school choice provides a positive ROI. We know that ROI isn’t the only thing that matters when choosing a degree, but when looking at higher education through a financial independence lens, it’s definitely the highest value.

Looking through census, employment, and Department of Education data is number crunching crusader, Preston Cooper. Preston and his team over at The Foundation for Research on Equal Opportunity put together the most extensive research on college degree ROI ever created. Preston’s findings allow you to parse through over 30,000 degrees and school choices so you (or your child) can make the best decision on where to get a bachelor’s degree.

Preston discusses the discrepancies between nonprofit and for-profit university degrees, whether or not high-cost schools equal a higher payday through life, and why even going to Harvard doesn’t secure a high ROI. Want to know the true value of your degree? Tune in and check out Preston’s full study!

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 251, where we interview a absolute rockstar, Preston Cooper, a research fellow from the Foundation for Research on Equal Opportunity and talk about the ROI of a college degree.

Preston:
And my research has shown that the choice of what you’re going to major in, in college, can literally make millions of dollars worth of a difference to your financial position throughout life. This is one of the most important financial decisions that you can make in your entire lifetime. I’m very excited to share the results with all your listeners.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and joining me today are two co-hosts, the imitable Dave Meyer, vice president of numbers and data and all things nerdery for our BiggerPockets, and my intrepid co-host Scott Trench, CEO of BiggerPockets. Dave, thank you for joining us today.

Dave:
Thank you. It’s about time. I’ve been waiting for an invitation to be on the Money show for, I don’t know, 250 episodes. I’m glad to have finally gotten the call here.

Mindy:
I can’t believe we haven’t had you on the show yet, because I am the president of your fan club and I love you. I am so glad you’re on the show. Not in that way.

Dave:
Well, thank you. My money habits are probably not what your audience is interested in, so I’m glad that we came. You brought me in to talk about college degrees and data, which is much more in my wheelhouse.

Scott:
Dave’s sandwich budget makes him-

Dave:
It’s out of control.

Scott:
Incompatible with the BiggerPockets Money Podcast.

Dave:
It’s really getting to be too much. I like eating.

Mindy:
Scott and Dave and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate or reconsider whether college is right for you, or determine the ROI of college in general, we’ll help you reach your financial goals and get money out of the way, so you can launch yourself towards those dreams.

Mindy:
Scott and Dave, we have the most fun guest ever today. Preston Cooper has written a massive spreadsheet. Is that the right way to say it, written a spreadsheet? Gathered data.

Scott:
Constructed.

Mindy:
The most amount of data I have ever seen on a spreadsheet in one spot.

Scott:
Compiled.

Mindy:
Compiled this data all about the return on your college investment. He goes and the first few minutes of this episode are him just describing how he came about all the different datasets that he put together and they are fascinating. I’m making it sound like this is a boring episode, and you will want to listen to this episode 47 times.

Scott:
This is one of my favorite episodes we’ve ever recorded on the BiggerPockets Money Podcast. I was not surprised. As soon as I read the article a few weeks ago, I knew we had to get Preston on the show, because this is game changing, life changing, society shaping type work that Preston has put together here.
And the sum output is, I think you’ve got a dataset that Preston’s compiled available at freopp.org. We will link directly to the article, a summary of the article that just has the, “Hey, type in your college and degree, and you’ll see the ROI of it there.” And then also the raw spreadsheet, if you want to play with those. We’ll link to all of those things in the show notes at biggerpockets.com/moneyshow251.
But fundamentally you’ve got a dataset there that I think is about as professionally and thoughtfully constructed to account for all the caveats that we as financial analysts or listening to the show, or at least the ones on the show today would want to put in there. I think it’s something you can trust. And so to corroborate that, Dave, what do you think about the value of the spreadsheet? Is it a trusted tool [crosstalk 00:04:15]?

Dave:
Absolutely. I’m completely in awe of what he did. Before I worked at BiggerPockets, I worked in education technology and higher education specifically. And what Preston has created is something that was talked about as a dream when I worked in this space. And the way he’s constructed it and the data he’s using, it seems just incredibly sound from a methodological standpoint. I honestly couldn’t be more impressed by both his data and his ability to talk about it and make it really easily understandable and actionable at the same time.

Scott:
The too long, didn’t read TLDR version of this is, go to freopp.org and access the material for free to help you or your loved ones make a decision that at least factors in the ROI of your college degree. And know that you’ve got a pretty sophisticated analysis backing that, to at least directionally may help you make a good decision.
The long version is the fun one though. And that’s what we’re about to get into in a few moments here. We’ll spend a hour and 20 minutes here talking with Preston about the methodology that we put together, specific degrees that may make sense or not make sense, the impact of subsidies from governments and donors and all that kind of stuff.
And then a little bit of discussion on policy, which I thought was really fascinating. I don’t think we get too political. Don’t worry with that. I think it’s a really well constructed worldview on that. And then finally, we hear the ROI of a couple of our degrees. So we’ll learn about Mindy’s fashion degree, fashion design degree.

Mindy:
A super awesome choice.

Scott:
But anyways, I couldn’t be more excited to bring him in. So should we go ahead and bring him in here, guys?

Mindy:
Preston Cooper, welcome to the BiggerPockets Money Podcast. I am so excited to talk to you today.

Preston:
Thank you, Mindy. I’m happy to be here.

Mindy:
Let’s give everybody listening a quick overview of who you are and what you do.

Preston:
Sure. I’m Preston Cooper and I am a research fellow at the Foundation for Research on Equal Opportunity. We’re a nonprofit, nonpartisan public policy research organization based in Washington, DC. I am their higher education fellow. I’ve just completed a report calculating the expected return on investment for over 30,000 different bachelor’s degrees. So you can go to our page and look up the value of a college degree, not just each individual major, but each individual major at each individual school.

Scott:
That’s so awesome. I just want to chime in here that I was just telling everyone before the show, a couple weeks ago, maybe a week or two ago, I was having a couple of beers and having a nice quiet night in, nerding out on personal finance, which is of course one of my favorite pastimes. And I think I came across your work or someone sent it to me or there was a link somewhere.
I spent 40 minutes reading the study and going into it. I was like, “We got to get Preston on the show.” I couldn’t be more excited here to have Preston on. So thank you for putting together this study and doing that.
Could we get one more layer deep on your background? Are you an economist? What is the nature of your profession that gets you into this line of work?

Preston:
Sure. I’m an economist by training, but I am focused mostly on public policy. We’re focused on advancing public policies that are going to help people, particularly people below the median income. And one of the best ways that we believe that we can help people is helping them make better decisions about their financial futures.
And my research has shown that the choice of what you’re going to major in, in college, can literally make millions of dollars worth of a difference to your financial position throughout. This is one of the most important financial decisions that you can make in your entire lifetime. I’m very excited to share the results with all your listeners.

Scott:
Awesome. Love it. That’s the context. How did you begin approaching this study with that goal in mind? Can you just walk us through the study and how you built it?

Preston:
Of course, yes. So a couple years ago, the Department of Education released this massive novel dataset, where they told you the earnings that college graduates will receive one to two years after graduation, not just for each individual school, but for each individual school and each individual major. We had a huge dataset of over 30,000 bachelor’s degree programs.
But the problem was is that this data was basically just an earnings number in the first couple years after graduation. We know that those first couple years after graduation are not always a great guide to what you’re going to be making when you’re 40. Usually if you’re 40, you’re going to be making a lot more than somebody who’s 23.
So what I decided to do in this study is I decided to extrapolate those earnings out over the entire career. I also calculated what we call the counterfactual earnings. Basically, if you had never gone to college, if you’d been the same person of the same ability and motivation and family background, but you’d never gotten that college degree, what would your earnings have been in that case?
And then we can basically take the difference between those two numbers, both the earnings with the degree and the earnings without the degree to calculate the estimated financial value of each of these 30,000 bachelor’s degrees. Then you subtract the cost of college, the tuition that you have to pay and the time you have to spend out of the labor force while you’re getting that degree. And we have what we call the ROI, the return on investment, which is the lifetime net boost in earnings that you can expect to get from each of these degrees.
And we found that if you graduate on time, it’s going to be about $300,000 for the average degree. But that average is very misleading, because there are some degrees which are going to be worth millions of dollars. There are some degrees which are not going to be worth anything at all.

Scott:
Can you walk us through some of those key assumptions in there, maybe with a specific example if possible, where we’re talking about somebody who’s getting a degree versus their identical self without the degree? What is a representation of that, that we can fit from a story concept into our minds to understand this?

Preston:
Of course. I can use the example of myself. I went to Swarthmore College, which is a little liberal arts college outside of Philadelphia, and I got a undergraduate degree in economics. And so the way that we calculate this is we go to the Department of Education website and we look up, what is the earnings at age 23 and 24 for someone with a bachelor’s degree in economics from Swarthmore? That’s the only data that they have of that Department of Education website.
And then what we do is we see how much more or how much less does a Swarthmore economics major make relative to the average economics major? And we found that it’s about 60% above the average economics major, is what a Swarthmore graduate in economics will make. I’m glad, I think I chose the right college.
And then we basically say, we have census data showing what an economics major is going to make at every single point over their entire lifecycle. We know what an economics major makes at age 30. We know what an economics major makes at age 40. We also know the distribution of what those economics majors are earning and we can calculate.
So if a Swarthmore economics major earns X percent above the average at age 23, we can also assume that maybe that Swarthmore economics major is also going to earn X percent above the average at age 30 and age 40. So we can trace out this path of what that Swarthmore student’s lifetime earnings are going to look like over the course of the entire major, excuse me, over the course of the entire lifetime.
And then the next step is figuring out, well, what would they have earned in the parallel universe where they don’t go to college? And I apologize if I’m getting metaphysical here, but that’s really the only way to assess it, is that what would you have earned in that parallel universe? Because we can’t just compare the earnings of a typical college graduate to the earnings of a typical high school graduate, because the people who choose to go to college and the people who only have a high school degree are not always the same.
They have different kinds of skills. They might have different levels of motivation. They might come from different family backgrounds. It’s going to be an apples to oranges comparison.
So what we do is we also go back to census data and we take a look at that subset of high school graduates who look kind of similar to college graduates. We use those earnings as a base, and we also make an adjustment, what we call the ability adjustment factor. We use a much more detailed dataset, which records people’s SAT scores and standardized test scores to basically figure out what portion of that gap between what a college grad earns and what a high school grad earns, is explained by the differences in ability and family backgrounds, these various factors that aren’t related to education? And how much is actually attributable to the degree?
We throw that in and we can adjust with the counterfactual earnings, those parallel universe earnings for these unobservable factors, for this ability for this family background. So now we have the earnings, we have the counterfactual. It’s basically a at this point-

Scott:
I’m just taking a quick laugh here, because you are a legend. That is a phenomenal answer to that particular-

Dave:
This is unbelievable.

Scott:
That is a phenomenal, a perfect way I think to frame that, or as close to perfect as economics allows with that. So fantastic and bravo. Sorry for the interruption with that.

Preston:
Thank you. I’m excited that I can get into the weeds here, because I’ve come on a couple of different podcasts and they usually say, “Skip over all that methodological junk. Let’s just get through the results.” And so you guys actually care about what the nitty-gritty, the economics behind this is. So this makes me really excited. Thank you for that.

Scott:
The results are only as good as the study here. That’s awesome. Keep going, tell us more about that.

Preston:
Sure. So now we’re here, we have the earnings, we have the counterfactual earnings. The final ingredient in this cocktail is the cost of tuition and the opportunity cost of going to college. So tuition is a fairly easy number to get. We take tuition after financial aid. So after applying the Pell grants and the scholarships the typical student is going to get from the school. We’re just focused on what the end cost is for the students.
And then what we also have to estimate is the opportunity cost. So if you’re going to go to college, most people are not going to be working full time while they’re in college. There might be a few people who are doing that. I don’t know how they’re doing that. They’re heroes, but most people are not going to be working full time.
And so we have to figure out, well, what is the value of all those wages you’re giving up for those four years while you’re in college, or sometimes five or even six years? Sometimes people take five or six years to graduate. And so we can go back again to the census data. We can figure out what are typical wages for 18, 19, 20-year-olds? Do the same adjustments that we did before for, for ability, for demographics, for family background. And we can figure out, well, what is that opportunity cost of getting the college degree?
And it actually turns out that that opportunity cost is usually going to be more than the cost of tuition, that a typical high school graduate with the profile of somebody who’s going to college, is probably going to be making 25, $30,000 while they’re in college. That’s not an excellent salary, but it’s also not nothing.
And so that’s definitely a cost that people have to take into account when they’re considering whether to pursue a college degree. Because a college degree that’s only going to boost your earnings, your lifetime earnings by a tiny little amount might not be worth that opportunity cost of spending four years out of the labor force. So it’s something that we definitely have to take into account and I think we often don’t take into account enough when we’re talking about college ROI.
Those are the different components, the different moving parts. We put them all together. We take expected lifetime earnings. We take expected counterfactual earnings, and subtract that. We take tuition and opportunity cost, subtract that.
We also do an adjustment for present value. So you guys are a personal finance podcast. I assume that your listeners will be somewhat familiar with the concept of present value. But basically this is the idea that a dollar today is worth more than a dollar tomorrow, because you can invest that dollar and you can get a return in the market if you invest it.
So we adjust, we basically discount all future cash flows. So all the earnings you’re going to get, all the counterfactual earnings, the tuition payments, yada, yada, yada, all this stuff. We discount it at a real discount rate of 3%. So if you figure 2% inflation, that’s a nominal discount rate of about 5%. And that’s probably about midway between what you’re going to be getting on a treasury bond and what you might be getting in the stock market.
And that’s basically saying, well, what is the next best alternative use of the money that we’re putting towards tuition, of the money that we wouldn’t be earning since we’re going to college and we’re not going into the labor force? And so that’s something that we have to take into account, because if you can get a better return on your investment, just by sticking your money in the stock market, rather than investing it in a college education, that’s something we also want to take into account. That’s something we do take into account in the study.
We put this all together and then we basically have the results.

Scott:
Go ahead, Dave. Dave is [crosstalk 00:17:54].

Dave:
I just want to know how long this took you, because it’s just so casual. You’re like, “Oh, yeah.” And then we just have these results that everyone has wanted for the last 50 years. You just produced this. I just have to know how long this took you.

Preston:
Well, the short answer is it took me about six months to put this all together. But the long answer is it probably took me about five or six years of actually studying the various data sources out there, to figure out where can you get all this data? I sometimes describe it as the parable of the blind man and the elephant, where the blind man can’t see the whole elephant, but he can feel different parts of the elephant and realize that this is an elephant we’re talking about.
It’s kind of the same way when we’re talking about college ROI, that there are these data sources out there that are scattered in various places. There’s the Department of Education data, there’s the census data, there’s the tuition data. None of it really gives us the complete picture. And so we have to figure out how to put it all together and what assumptions we need to put it all together.
And that’s what I was very excited to do with this project is putting the data from all these disparate data sources together and coming up with some estimates that I hope will be pretty useful to students and their families.

Scott:
We’re truly able with this dataset to say, here is the ROI at a discount rate of 5% for this. It’s 3% real.

Preston:
3% real.

Scott:
5% nominal. That would be, I would just put 5% in my model, for example.

Preston:
Yep.

Scott:
If I’m doing that and how that works across a number of different majors with that. One question before we get into the next layer deep here with that is, suppose that I’m a BiggerPockets Money listener, and I’m used to real estate. I think I can get a 10% to 15% IRR on my investment properties. Would there be a… obviously, that would change the profile of some of the degrees to a certain extent, but how would you recommend someone who’s listening and thinking about that for themselves or their children as a framework to compare the ROI of college versus investing? How would that change the landscape do you think from your perspective?

Preston:
Of course. So, the choice of a 5% discount rate is of course going to be somewhat arbitrary. I thought that was a good one because it’s midway between a treasury bond and midway between what the stock market is going to return you. But everyone out there is going to have different financial circumstances. They’re going to have different investment opportunities out there, and maybe taking a second mortgage out on your house in order to pay for your kids’ college education is not going to necessarily make sense for you. That’s something that people have to think about individually.
And so one of the features that we have on our website, one of the things you can go look at is you can decompose ROI into its component parts. You can see what the earnings are at each stage of the lifecycle. You can see what the counterfactual is. You can see what the tuition numbers are.
And if you’re the kind of person who’s really inclined to play around with spreadsheets, you can take all that data. You can download it from our website. You can do your own ROI calculation. You can put in a different discount rate if you want, you can put in 10% or 15%, if that’s the return you think you want to get. And if that’s the use of the data that you want to make, more power to you.
But I do want to underscore that point, which is a very good one that everyone’s financial circumstances are different and the ROI results that we’ve put out, they should be a tool. They should be a guide. They shouldn’t be the be all and the end all. Individual circumstances are going to matter.

Scott:
So it’s becoming apparent to me that I find it very difficult, other than the source data, to argue with any of the methodology or framing of your approach here and all of it’s customizable if I want to change those different types of assumptions with that. What are some criticisms or some call outs or some parts of the study that may not be complete, or that the viewer needs to be aware of when looking at it?

Preston:
Of course. So I think the trickiest part of the study really is estimating those counterfactual earnings, those parallel universe earnings. So the data that we have on basically what we call the unobserved characteristics of students, what is their ability? How good are they at schoolwork? How motivated are they? All these factors that are both correlated with the decision to attend college and with labor market outcomes later down the line. A student who’s more motivated to complete college might also be more motivated to get that high paying job. And it’s very hard to disentangle those kind of things.
So what we’ve done is we’ve used a much more limited dataset called the National Longitudinal Survey of Youth, which tries to track all these, what we call these unobserved factors. We produce basically estimates of the portion of the college earnings premium that’s due to these unobserved factors. But you could quibble with our methodology. You could say that maybe you’re not including the right factors. Maybe there are things that the National Longitudinal Survey of Youth is not asking about that they should ask about that might have an effect on ROI.
Maybe another criticism would be, people at the very top, people of the ability, college distribution, the people who are going to the very top colleges, the people who are getting 1600s on their SATs, there’s not really a great comparison group for them, because everybody at that level of ability who’s getting 1600 SAT score is going to be going to college or almost everybody. So you can’t really figure out what the counterfactual should be there. It’s going to be guesswork.
All this stuff is educated guesswork. All of it does require assumptions. I think that the assumptions we’ve made are the best ones that we can, given the available data. But I think reasonable people can disagree about what the right way to adjust for these kind of things is, and what factors you should take into account.
But I will also say that it’s rather uncommon in the ROI literature to adjust for these things at all. So, if you go to just the Department of Education’s website, all you’re getting is the average earnings for people at 23, 24. There’s no adjustment for the counterfactual. There’s no adjustment for the cost of tuition. There’s definitely no adjustment for these unobservables.
I think that our estimates are getting a lot closer to the truth than the data that has been out there before. And if somebody thinks that they can do better, this is not sarcastic at all, more power to them. I would love to see more analyses of this data, more attempts to get closer to what the true ROI of a college degree is. I would love to see more people who might be smarter than I am, try to make those adjustments and try to get closer to the truth.

Scott:
I hope you know that I’m asking these questions to bring out what is clearly your total mastery, perhaps of this area, in a way that has not been paralleled before previously. So these are all… The fact that you’re able to go through those different types of things and call those out is phenomenal. And like any study, there’s going to be differences with this, but I hope that those listening can tell this is a master at work, and this is really comprehensive with a lot of this stuff. And it’s a really good tool to go and check out the study here.
I do want to call out two things that are not part of the data, but that you pointed out actually in your article that are caveats to some of this. One is the completion rates for the degrees. You mentioned that this assumes that you actually finish the degree, and in some cases, there’s a drop off, which can change the ROI of the degree. If 20% of students don’t finish it, that can change it, I believe.
And the second one, I think was that some degrees like biology do not translate to good economics on their own, but are rather setting the stage for a medical degree or something like that. And so those are things to keep in mind if you’re going to go and peruse the dataset after this, and you don’t want to read the full article that outlines all those different types of things. I think those are two great call-outs that you put I think in your article with that, that I wanted to mention there.

Preston:
Absolutely. So, if you look on our website, freopp.org, that’s F-R-E-O-P-P .org, you can see our estimates of ROI for all these bachelor’s degrees. We actually provide both completion adjusted estimate and a non-completion adjusted estimate. So the non-completion adjusted estimate is basically assuming that everything goes right for you. So assuming you graduate in four years, you get the degree, you don’t drop out. Everything goes right, everything’s fine and you start working immediately at age 23.
And so that’s the dream scenario. Some people are going to end up in that scenario. So they should have an estimate of ROI. We produce that estimate.
But we also produce an estimate that’s adjusting for those completion rates. So we say, if you go to college, there’s a risk you’re not going to finish. There is a risk-

Scott:
I should have known you already thought of that one too.

Preston:
There’s a risk that you might take five or six years to finish, which is something that people do often, and this is going to change the estimated ROI. We also do that completion adjusted ROI, which is what is basically the expected value of the degree, taking all these risks into account. And so depending on your interests, you might be interested in either the non-completion adjusted or the completion adjusted and that’s why we provide both.
I also want to just talk about that biology point that you brought up earlier, which is definitely an important one. We are looking at returns strictly based on the bachelor’s degree. We know that a lot of these degrees, particularly biology, are mainly valuable because they’re preparing you for a graduate degree. Most biology students believe that they’re going to go get a medical degree, that’s their end goal.
And so biology on its own doesn’t look that great, because we’re only taking into account the bachelor’s degree. We’re not taking into account the graduate degree. I think that’s still an informative point for students, because it tells students that if you get a biology degree, and then you don’t go to the medical school track, you don’t go to the graduate school track, then you’re really up the creek.
If you get a biology degree without the grad degree, that is not a great outcome. We find that most students who are doing that, who are getting the bio degree without going on to medical school are going to come out behind. The cost of college is not going to be worth the benefit they’re getting from that. That is one caveat that I do want to mention.
But we are planning to do another report similar to this on graduate degrees that’ll come out sometime next year. So if you are interested in the graduate degree track, then you can both look at the undergrad degree and the grad degree, and you can figure out overall, is this track that I’m planning going to make financial sense for me?

Mindy:
I love that. Overall is this track that I am planning going to make financial sense for me? That is huge. And just to go back a moment, people who are looking can find fault in anything. It took you seven solid minutes to describe all the detail that is in this report and how you came about it. You don’t come across as somebody who was like, “I threw some numbers together on a spreadsheet.”
If you open up that spreadsheet that you shared, it is just this giant wall of text or data that is… But there’s trends and going through it, you can see, oh, wow, an engineering degree is a pretty good degree to get. This degree in anthropology, not so much, unless I have this deep burning desire to be an anthropologist. Maybe I should choose a different degree.
I want to encourage anybody who’s listening to this show, go and look at this data, because it’s fascinating. Even if you’re not a data nerd. I’m not really a data nerd. I looked at that spreadsheet, I’m like, “Nope, close it back up.” I went back to your more easy to read website information.
But there’s a ton of information there. And if somebody wants to go in and tweak all of those little things, I think they’re picking, I think that this is an amazing piece of, giant wad of data that people can take and use to choose not only the college that they’re going to, but the actual subject that they’re going to study, because there’s stupid degrees out there. I’m so sorry to offend anybody who studied fashion design. I studied fashion design. That’s a completely worthless degree.
I worked in fashion design one year as a receptionist, didn’t even need my fashion degree to go do typing in the front office for a fashion designer. It was not my a burning passion. I just thought it might be interesting. If I had had this study, I probably wouldn’t have studied fashion design. Do you guys talk about fashion design in your report? Did that make the cut?

Preston:
Well, let’s see. I can look it up right now. I have the spreadsheet here in front of me. So, fashion design. So, there’s a lot of design degrees out there and it looks like most of them are, I am sorry to say, that are not going to have great RO. But there are-

Mindy:
Shocking. Shocking. Oh, my goodness. What a surprise, brand new information.

Preston:
But there are a few out there that actually do seem to have decent returns. So one that I just pulled up right now is the Fashion Institute of Technology in New York, which I believe is one of the top schools for fashion designers. The design degree there is going to give you an ROI of about $370,000. That’s above average.
There are diamonds in the rough out there for some majors like that. Overall, I don’t want to recommend that legions of people go into fashion science, because that’s probably not going to work out. But if you’re someone who is really, really passionate about fashion, if this is something that you’re just absolutely 100% committed, “I want to do this with my life,” there are programs out there which will get you a decent ROI.
But if you’re someone who is saying, “Fashion might be cool, I don’t really know, I’ll just go to some random college and I’ll figure out my major later,” fashion might not necessarily be the choice that you want to consider there. That’s one of the points I want to impress upon people that, yes, overall engineering is going to be better. Yes, overall music and arts are going to be worse, but there are exceptions to this trend.
And if you look hard enough in our spreadsheet, you can find those diamonds in the rough. You can find those programs that are bucking the trend for their major.

Scott:
Thank you, Mindy, for bringing it up. That’s actually ended up being a perfect example of a great use case for this. If you are interested in one of these professions that may not have, or one of these degrees that may not have the best ROI, maybe there is a school out there that produces a great one for you with that. Thank you. That’s a perfect example.

Preston:
Yeah. I remember one of the degrees that somewhat surprisingly came out as not very great ROI is psychology. I think about 40% to 50% of psychology programs are going to have negative ROI, once you account for completion and all these things. So most psychology students are going to end up behind for having gone to college.
But once again, there are exceptions. I believe the programs, I can look it up right now. It was at Colgate and Colby colleges. Those seem to be having some, Colgate University ROI is about 800,000. Colby College ROI is about 700,000. Those are pretty good ROI. That’s well above the average, but that is not the norm for the majority of psychology programs.
Once again, I would say if you are high school student who is very, very passionate about psychology and really, really wants to do this as a career, there are programs out there which are going to be good for you, but that’s not going to be the case for the majority of psychology programs. I would say that if you’re not that passionate about the psychology field, and you might just be doing this because it’s a popular major and you’re not sure what else to major in, that might not be the best reason. You might not be getting a great bang for your buck on your college education if you’re not deliberately choosing one of the best programs in the country.

Scott:
Could you walk us through a couple more outliers? Well, could you walk us through a couple more examples that you think are illustrative or helpful or that were surprising, or maybe confirmed things that people… What are some of the big takeaways that you have that you’d like to share, that folks might remember?

Preston:
Absolutely. There’s a lot of talk you see in the media, the U.S. News, World Report rankings about the top colleges, everybody wants to rank institutions. And it’s always the same institutions that are at the top of these lists. It’s Harvard, Yale, Princeton, Columbia. You could basically print the same list every year probably and nobody would notice the difference.
So one interesting thing about that is that, yes, there are a lot of programs at Harvard, Yale, Princeton that are going to have high ROI, but there are also a lot of programs at those schools that are not so great. And even at the top universities in the country, even at Harvard, there are programs which have negative ROI. The anthropology program, the ethnic and gender studies program at Harvard, these programs are on average the students are coming out behind, which is something that people don’t often think about.
They think, if I got into Harvard, then I’m set for life. I don’t necessarily have to worry about what I major in. And that’s not necessarily the case that just because you got into Harvard, it doesn’t necessarily mean that you’re going to have a great ROI in your degree. It still matters what you major in.
And the flip side of that is that schools which do not make the rankings commonly, which do not have these highly selective applicant pools, which are not at the top of the U.S. News & World Report can often have really good programs that people just don’t know about. I was studying one today. The Iowa State University has an 87% acceptance rate. So it’s accepting almost everyone who applies. It’s not a selective college by any means.
It has nine programs which have an ROI above $1 million. Most of these are in engineering and computer science, which is not terribly surprising, but still, this is a college in Ames, Iowa that is not on the U.S. News top rankings, that is not a highly selective college, but is still doing really well for its students.
And the other piece of this is that Iowa State is a really big university. It’s moving a lot of students from the lower middle income categories into the upper income categories, through these programs that it has. Because it’s producing a lot of engineers, a lot of computer scientists, a lot of people who are going to go on to earn six figure salaries. And it’s really doing more for upward mobility than most of the Ivy League is. It’s creating more millionaires than Harvard, Yale and Princeton put together.
And so that’s one thing that I really want to impress upon people is that the brand name of the school is usually not the best guide to ROI. Sometimes it aligns, sometimes that brand name colleges are going to offer good programs, but that’s not a guarantee. And that sometimes you’re going to be disappointed on ROI if you go to a brand name school, and sometimes you’re going to be pleasantly surprised if you go to a less selective school and choose the right major.

Dave:
Other than brand name, are there any characteristics of schools that you’ve been able to distill, that tend to produce a higher ROI? Is it smaller number of majors, lower tuition? Are there any other characteristic you could share?

Preston:
Yes. Well, the biggest factor is the major. So about half the variation in ROI is going to be explained solely by the majors. So, schools that are offering a lot of engineering, computer science, economics, nursing, business degrees, those are the degrees that are really going to get people high ROIs. So schools that are offering those majors are usually going to have the best outcomes on average.
That being said, the characteristics of the school overall matter too. And one of the biggest factors is graduation rate. So, this is one of the biggest risks for a student who’s considering college, is the risk that they’re going to drop out of college. They’re not going to finish the degree and then they’ll be on the hook for some of tuition, but they won’t be getting most of the benefits of the degree.
And we actually see that the vast majority of people who default on their student loans are people who did not finish their degrees. This is really the big, when we talk about student loan crisis, this is really where the crisis is coming from. It’s coming from the people who have the debt, but no degree. So this is just a very big risk that I want to make sure people are aware of when they’re considering college, that a lot of students drop out, about four in 10 students don’t finish college.
But the choice of institution can make a big difference here, that there are some institutions which simply do a lot better by their students at providing supports, at providing good matching of students to programs, at providing the kind of welcoming environment that will help students get across the finish line. There are some students which, excuse me, some schools which don’t do well on those metrics.
And so when we’re talking about what is the impact that the institution has, rather than the major, it’s really graduation rate. That’s really the most important factor that the institution can contribute. And so that’s another thing that people should take a look at. What is the graduation rate of the institution that I’m attending?
Usually you can find it just by googling Iowa State graduation rate. It’ll be right there on the Department of Education homepage. So that’s a huge factor that I hope people will consider.

Dave:
Do you find that the institution matters more or the degree matters more in terms of graduation rates?

Preston:
So one of the shortcomings is that we do not have degree level completion rates. We only have institution level completion rates. Basically, we have to assume that the completion rates are going to be the same for all majors at an individual college, which might be a reasonable assumption. We’re still not sure. There actually has not been a lot of great research on this. If there are any PhD students listening, this would be a great topic for you to research, but we basically have to assume that the graduation rates are the same across all majors.
But it does seem to be the case that things that the institution does do have a fairly big effect on graduation rate. So we think that’s a reasonable assumption.

Dave:
Preston, what about the difference between for-profit and non for-profit institutions? Because you hear a lot bad stuff about for-profits in the news. Does that come out in your research as well?

Preston:
We looked at ROI by sectors, and we found that about 50%, 55% of programs that for-profit colleges are going to have negative ROIs. And the average overall program’s is about 28%. So for-profit colleges are definitely worse than the average. This also goes back to the graduation rate issue that for-profit colleges usually have really abysmal graduation rates, that they’re not offering the supports that students need to get across the finish line. And that’s really the biggest contributor to the low ROI for for-profit colleges.
That being said, I don’t want to create the impression that everything is fine and dandy at the public and private non-profit institutions as well, because about 25% to 30% of programs at those schools will also have negative ROI. So just going to, excuse me, going to a public or private nonprofit college is not going to guarantee you a return on your investment, but it can increase your odds of getting that return on your investment a little bit better.

Scott:
What are some large or popular degrees that have negative ROIs that may surprise some folks?

Preston:
I mentioned psychology earlier, and psychology is the most popular single major in the entire United States. We have more psychology majors than anyone else I believe. And that is a fairly low ROI major. As I mentioned before, 40% to 50% of psychology programs do not pay off when you’re taking to account graduation rate. And even if you assume that you complete on time in four years and you have a 100% chance of completion, I believe it’s still about 35%, 40% of psychology programs are not going to pay off.
I’ve often thought of psychology as, it’s sometimes like a default major because psych 101 classes are big. Often, people will have a few psych classes under their belt when it comes time to decide what to major in. I think that psychology ends up being the default major for a lot of students. They think, “Oh, this might have some labor market applicability.”
Sometimes it does, most of the time it doesn’t, that usually it’s not necessarily going to provide a great return for students. And so that’s one of the reasons I worry about psychology ending up as this default major sometimes, that it often is a much lower return major than people anticipate.
I think students have gotten it through their heads now that majoring in studio art is not going to lead to great ROI. But I think that there are a lot of majors where that hasn’t necessarily sunk in yet, and I think psychology is one of those.

Scott:
Awesome.

Mindy:
I was super surprised that psychology had such a low ROI across the board, but I also will say that I think you’re right. It’s a great default major just like business, just like general liberal arts where there’s… And the people who are taking that aren’t necessarily the right people to be in… Let’s see, how do I phrase this without offending people? They’re not the people who college is the best choice for them.
On episode 44 of our podcast, we interviewed Tinian Crawford. It took him six short years to get his associate’s degree, which is a two year degree, because college was not the right choice for him. He struggled through it. He finally got it. He quit, and went and became an electrician. And now he’s out on his own and crushing it as an electrician.
He didn’t need to go to that school. I think he majored in graphic design at some point and other random things, but it was just default majors. It wasn’t something that he was passionate about. I think there’s this discourse since I was in high school saying, “Oh, after high school, you go to college, that’s what you do. Grass is green. The sky is blue. You go to college after high school.” And college is filled with people that shouldn’t really be there, because that’s not the best choice for them.
I love the information on this study that you did, because you can use it as a search. “Oh, maybe I’ll study psychology. Oh, wait. That’s not such a great choice. There’s nothing else I want to study. Maybe college isn’t where I’m going to go.” Or did you do anything on anything like the trades? Do you have any idea on how much it costs to get into the trades versus what you can make?
Because I know the trades right now, there is a mass shortage of electricians and plumbers and all things related to real estate and development. And right now they’re paying people to come learn the trade and then work for them for a year. It seems like we’re not pushing people enough in that direction.

Preston:
I totally agree. I think that we as a society have undervalued the trades and have undervalued alternative post-secondary education pathways to the bachelor’s degree. This is a policy choice that we have put a lot of our funding eggs in the bachelor’s degree basket, with the result that traditional four year colleges are going to get a lot more public funding on a per student basis than alternatives such as trade schools, such as apprenticeship programs and alternatives to the bachelor’s degree, which as you mentioned, might have an extremely high return for students.
We do have a shortage of electricians. We do have a shortage of advanced manufacturing skilled workers. We do have a shortage of plumbers and alternatives to the bachelor’s degree like apprenticeships, like trade schools could really help fill that gap. And given those shortages, there are very high earnings, very high wages for some of the people in those trades right now, making them an extremely viable option for people who might not think that college is the best fit.
We didn’t look at that in this particular study. It’s something that I definitely want to examine in the future. But the data that I’ve seen that exists out there, suggests that, yes, a lot of apprenticeships are going to provide that significant boost in earnings that a lot of students are really after in their post-secondary education. And that it is often going to be a much better option for students than a college degree, if the college degree you’re considering is a mid-level psychology degree, rather than an engineering or computer science degree.
You can’t compete with the engineering degrees. Nothing can compete with the engineering degrees for ROI, but not everybody wants to be an engineer. I can’t do that engineering stuff, I can’t do that advanced math, but for-

Scott:
I bet you’d be pretty good at it.

Preston:
Thank you. I appreciate that. But for a lot of students who are not going to be engineers, the trades, the apprenticeship programs are often going to be a better option. But I will say the federal and state governments do have their thumb on the scales in favor of the traditional four year bachelor’s degree. That’s where they’re putting a lot of the funding for post-secondary education instead of those alternatives.

Scott:
I have four questions now with this, so we don’t have to go through all them, but how does a parent make best use of this? What policy would you hope changes or think should change with this, as a result of the learnings from this study? Those are two completely separate different questions, but you can answer them whatever way you want with those.

Preston:
Absolutely. Well, I think the number one impact that I hope comes out of this is that it’ll be a tool to empower students and their parents and their families when they’re making decisions about college. I hope that people, that students will be able to use this tool to figure out, well, what is the ROI of various degrees? What can I expect to earn and is this going to be worth my time and my money to get this degree? So that’s the number one impact.
If that’s the only impact that came out of this, even if Congress did nothing, even if state governments did nothing, if people can still use this information to have help inform their decision-making, I would be overjoyed. I would love that.
In terms of policy solutions, what I would advocate for is that most of the student loan market, most of the college financing funding is coming from the federal government. 90% of new student loans are initiated, are originated by the federal government. Which means that taxpayers have a huge stake in what these earnings are, what the outcomes of these college degrees are.
And as my research shows, there are a lot of degrees out there which taxpayers are funding, which you guys are funding, which I’m funding too, which are not necessarily showing great ROI. I would like Congress to maybe scrutinize these programs a little bit more. I’m not saying that we should defund all the arts degrees, but I’m saying maybe there should be a better system of carrots and sticks for institutions to offer programs that are offering higher ROI. And maybe deemphasize some of the programs that aren’t showing great ROI.
And one way you could do this, which is a popular policy idea, both on the left and the right, is what we call risk sharing. And basically this is the idea that if students fail to pay back some of their student loans, the college would be on the hook for some of that. So that they would have to pay back the federal government a portion of the money that the federal government is not getting, because students are unable to pay their loans.
And we know that when students are unable to pay their loans, it’s usually either because they dropped out of college or because they have a degree that just wasn’t worth it. And so this is going to be a financial incentive for colleges to both, one, raise graduation rates, and two, offer degrees that might be more worth the money than the ones they’re offering right now.

Dave:
Preston, that’s a really interesting take. And I’m curious what you think about the role of rising tuition in these programs. Because I’ve seen data that suggests that in the last 30 or 40 years, college tuition has grown 4x actual inflation. So this to me seems like a somewhat recent phenomenon where 40 years ago, it was much easier to generate, to get a degree that actually had a positive ROI, where today, because tuition is rising so quickly and has outpaced inflation and earnings so rapidly, that things are probably only to get worse without any other change.
I’m just curious if you have any thoughts on tuition and how this is going to proceed in the future. If tuition keeps rising at this rate, are there going to be any degrees that can produce a positive ROI in the future?

Preston:
Well, that’s a great point that you bring up, and tuition cost, that’s one third of our ROI calculation. That’s a huge, huge part of it that’s making a difference to whether these programs are going to show positive earnings outcomes. And just to give people the lay of the land on this, for most of the 20th century, the premium that a college graduate earned over a high school graduate was rising, but around 2000, that started to flatten out. And so it’s been stuck around 65% for the last 20 years or so. The college premium is no longer rising.
If the college premium is no longer rising and tuition is still rising, then like you said, it is a mathematical certainty that ROI is going to go down over time. We didn’t analyze this over time. This is just a snapshot. So this is basically just my impression based on the data.
But you’re right that the cost of college is going to be a huge factor in this. There are a lot of degrees that are going to be worth it if tuition is lower, but are not going to be worth it if tuition is higher. That being said, I don’t think that the rising cost of tuition should lead us to discount the earnings outcomes, which is really doing most of the heavy lifting in ROI.
That an engineering major is going to be getting much higher ROI than an anthropology major at the same school, even if those two students are paying the exact same tuition. Because the earnings is still doing much of the heavy lifting. The tuition is going to make a difference, of course, and that is going turn some programs from positive ROI to negative ROI. But I do want to emphasize, the earnings is really what’s doing the heavy lifting.

Scott:
What do you think is going to happen in the future with this? We’re painting a picture here and you just did it for us about, for 50 years, it was increasingly beneficial to be a college graduate versus not have that. It’s now becoming, that gap is narrowing every year since 2000, just what you’re saying on average. We haven’t done the study. We don’t know that for sure, but we can infer that, extrapolate that from what you just said with that. What’s going to happen next? Do you think these schools, do you think that the ROI is going to continue to just get worse and worse and worse and people are going to keep flooding into it? Do you think that student enrollment patterns are going to change, some of these degrees will change? Students will shift from college to trade schools? Not what you want to happen from a policy perspective, but what do you think is going to happen on our current trajectory?

Preston:
Of course. I want to bring up a really interesting development that’s going on right now. So historically, we’ve seen that when recessions happen, college enrollment tends to spike. And the reason for this is that when the labor market is really weak, people take refuge in higher education. They say, “I’m going to go back and get a degree and try to increase my value in the labor market, while this economic storm is happening. So hopefully when the dust settles, I’ll be able to get a better job.”
That is actually not happening right now. So we saw this huge spike in unemployment with the pandemic. The number of jobs that was lost in the pandemic, that hasn’t fully recovered yet. College enrollment actually has not spiked in line with historical trend, which is something that surprised me actually. I wrote a piece two years ago saying that, “Oh, the pandemic is probably going to cause a spike in college enrollment,” and I was wrong, mea culpa.
But it’s a very interesting development going on right now, because we’ve seen that wages at the lower end, lower to middle end of the spectrum are rising, because we have a labor shortage right now. And people are recognizing that they can get greater value for their labor services in the market. And they’re saying that maybe going back to college isn’t necessarily the best option for me. They’re saying that maybe other options are, maybe I should try to get another job right now, build skills on that job and use that to get higher wages later on. Maybe I should go to apprenticeships or trade school.
Apprenticeships, by the way, are spiking. Apprenticeships are up about 60%, 70% just over the past 10 years or so. That’s a very positive development. A lot more students are choosing to pursue apprenticeships and not necessarily traditional higher education. A lot of students are choosing to pursue that.
Some are choosing to pursue trade school, which I think is a positive development. We should be pluralistic with regards to post-secondary education. We should recognize that a bachelor’s degree is not the best option for everybody, and it’s not even the best option for most people. And that there are these other alternatives out there which can really lead to great economic outcomes, which can really provide a secure path to the middle class that I’m glad students seem to be considering right now.

Scott:
Preston, there was something that I think you mentioned in one of our chats prior to recording here, about other expenses that go into education outside of tuition. And that was a minor point, but you said an important one in your article. Could you expand on that point?

Preston:
Sure. So almost all students who are attending higher education are getting some kind of subsidy that they’re usually not going to be covering the full cost of their education. So at the average public university, the average public university is spending about $21,000 per student on education-

Scott:
Per year or in a four degree?

Preston:
Per year. And the average in state students, undergraduate student is only going to be charged about $4,000 in tuition after aid on average. So students are getting lots of subsidies from financial aid. The school is getting subsidies from the state government usually, and also graduate students and foreign students are usually going to be cross-subsidizing those domestic undergraduates somewhat. So students are usually not covering the full cost of their education.
And so we were curious when we did the study, how many of the programs which are showing positive ROI are just showing that positive ROI, because they’re getting a massive subsidy? If tuition costs reflected the full underlying cost of education, what would ROI look like? And so we ran that analysis and we found that the share of programs with negative ROI jumps from about 28% to 37%. So that’s about 10% of programs out there, which are only showing positive ROI because they’re getting a big subsidy from either the government or from graduate students or from foreign students, from some source.
And we can debate, what the morality is of that and what that means. One camp would probably say higher education is a public good, and we should subsidize it to some degree, not overwhelmingly so, but to some degree. And it’s fine if there are some programs which are showing modestly negative ROI, and there’s probably another camp that’s saying, well, a lot of these programs only look good because they’re getting a subsidy from the government. Maybe that’s not the best path to be setting students on if we’re dumping all these money into the programs and they’re not actually benefiting our economy more broadly through higher wages.
And so that’s a debate we can have, but I do want to impress upon people that, yes, there are a lot of programs out there, which are only showing a positive ROI because of the subsidy they’re getting. For students, I’m not sure if this is an immediate consideration that you should take into account. You should take all the financial aid you should get, you should be calculating ROI solely based on the tuition that you have to pay, not on what broader society is paying for your education.
But if you’re a policymaker or you’re another stakeholder, if you’re on the board of trustees or if you’re in a college administration, or if you’re just another stakeholder in higher education, you might be interested in the fact that a lot of degrees are only showing a positive return because they’re subsidized.

Dave:
Preston, you make a great point. I think students should probably just look at the exact way you just described it. But have you heard from any of the other players about your study, have you heard from any people who are subsidizing these degrees, like donors or state governments, or have you heard any reaction from colleges themselves about your study?

Preston:
Sure. Well, the colleges that look pretty good on the study are obviously very happy about it. The colleges that don’t look so great on the study, might be not saying so much about it.

Dave:
We’re going to have to put you into a witness protection or something. Are they calling you and threatening you?

Preston:
Exactly. But it is funny that at most colleges, most colleges can boast at least one good degree program and one really bad degree program. And so that’s why some colleges might not necessarily say want to trumpet this study from the heavens, because their engineering program might look really good, but their anthropology program might not look so great.
But that underscores what I think is the central point of this study, which is that it’s not just the choice of school that matters. It really is the choice of major. That’s about half the return is going to be explained by that choice of major, not by the choice of school. And that the very same school, very same student body, very same tuition paid can have massively different returns just based on what you choose to major in.

Dave:
This is just a side question, but has anyone ever asked you a question you couldn’t answer really well?

Preston:
Well, probably occasionally. Yes.

Dave:
Just this one. This is the first question.

Preston:
I remember a couple months ago I was testifying before Congress and I got a question from a member of Congress who shall remain nameless. I started to answer it and then she interrupted me and wouldn’t let me answer the question and said, “Well, so you’re saying, isn’t it true that you just want to kill puppies,” or whatever. But that’s probably when I couldn’t answer a question, because I wasn’t allowed to, but that’s neither here nor there.

Scott:
Does this work that you’re doing on higher education regularly put you in front of policymakers like this?

Preston:
Yes. This is something policymakers are super interested in, as they should be, because we’re funding higher education at the federal level to the tune of about 150 billion a year. This is a not insignificant part of the federal budget. So yes, I am encouraged by the fact that there do seem to be policymakers who are interested in this work on ROI.
I’m also encouraged by the fact that there is bipartisan interest and an accountability agenda, that we recognize that not all the programs that we as taxpayers are funding are good ones. Not all programs are ones that we should necessarily be giving that government funding stamp of approval to. There is more interest in reigning in the federal grant and loan programs, making sure that we’re not lending money to students who might not be able to pay it back, because they’re not going to a great program. And making sure that we as taxpayers, not just students, but taxpayers as well are getting a good bang for our buck when we invest in higher education.
That brings me to just one other point that I wanted to mention is that it’s not just students who are going to benefit if we start thinking about ROI more. It’s also all of society, because let’s think about what function do wages and salaries serve in the economy? Wages and salaries are a signal of where we need skilled labor. Higher wages for engineers are not just an accident. Higher wages for engineers are the economy screaming at us, “We need more engineers. We have to build buildings, we have to build roads and bridges. We have to do all this stuff that requires engineers and we’re going to pay for engineers.”
And that is the signal that the economy’s sending to say, “Please, universities, train more engineers, please, students, major in engineering, so that we can hire you and pay you a bunch of money to build buildings and roads and bridges for us.” That is what the economy is telling us.
And so when students would take into account ROI more and when they pursue these fields that are really in demand in the labor market right now, we all benefit because we all get more buildings. We all get more bridges from the more skilled engineers that are being trained by this system. So when we talk about ROI, it’s not just the students who should be listening, it should be everybody, because we’re all going to benefit if students take into account ROI more.

Scott:
Absolutely. I love it. Preston, is there anything else that we should cover here? Or Mindy or Dave, do you have any other questions before we begin wrapping up the show here?

Mindy:
No, I think the questions that I was going to ask were already answered by Preston and his amazing command of this information and this delightful description. No, that’s not right. The delightful way he’s sharing this story. I opened up that Excel spreadsheet and I was like, “No, I don’t want this information. It’s so much.” But you are explaining this in a way that is both fascinating…
I have a kid that’s going to college in a few years and she wants to study occupational therapy. She’s going by, “Oh, Boston University is the best occupational therapy program. I’m going to go there.” Well, let’s go into Preston’s database and see, is that the best ROI on that degree? Is that the best school to go to for that degree?
Because occupational therapy is, and I’m not an occupational therapist, I don’t know, but I’m assuming that you basically learn the same stuff at all the colleges. So if you can go to a college that may be the second or third ranked program, but has the highest ROI, that’s a better way to look at it than just what has the best program?

Preston:
I totally agree. This is a new way of looking at colleges that does not necessarily always align with the rankings that you’ll see in U.S. News. And it is purely focused on the financial returns. That’s another caveat I want to mention, that financial returns should not be the only consideration. The joy factor also matters. The campus environment also matters, but financial returns should be a huge part of the consideration, even if it’s not the only one.
I think that if students decide that, “I want to go get that degree in the arts,” that’s a valid choice. Parents might not approve, but it’s still a valid choice. It’s a free country. You can do that. But you should know how much that decision is going to cost. You should know how much in lifetime earnings you’re going to be giving up for pursuing an arts major, as opposed to a major that maybe has more career value.
And so it’s not the be all end all, financial returns is not the only consideration, but they are a huge part of it. And at the very least you should know what the returns are before you make your decision.

Mindy:
I think that’s a really great point. The Washington Post recently published an article based on a lot of the information in your data. They had some pretty raw information there. A bachelor’s degree in anthropology from Ithaca College costs $132,000 on average. And two years later, graduates are earning $19,000 a year. You could be earning more than $19,000 a year not going to college. And it would take you seven years of solid income just to pay off your degree. I think that a lot of people who were studying anthropology probably didn’t consider that going into this.

Preston:
I’ve just looked up anthropology at Ithaca College in our database and we find it’s a negative $345,000 ROI. So part of that is the cost of tuition and the opportunity cost. But also part of that is that I think for some of these programs, actually the earnings that you’ll get coming out of it are lower than the earnings, the counterfactual earnings. They’re lower than the earnings of that counterfactual high school graduate.
So that’s the kind of program that, even if you do have a social benefits justification for it, I’m not sure if that’s something we should be considering or we should be funding.

Scott:
Maybe it would be fun to do a quick analysis or ROI of our degrees.

Preston:
Sure.

Dave:
That’s a good idea.

Scott:
Mindy, would that be fun?

Mindy:
Go nuts. I think that would be a lot of fun.

Preston:
As I was telling Mindy earlier, we don’t have every degree in the database, because if it’s a small enough cohort of graduates, the data’s not going to be there for privacy reasons. I can’t guarantee that all of your degrees are going to show up, but I hope they will.

Scott:
All right. Vanderbilt University, economics. I am looking at an ROI adjusting for completion and underlying spending of 1.2 million.

Preston:
All right, nice.

Scott:
And for those listening, we will put a link to the 35 minute read or 40 minute read comprehensive analysis of the study, that will probably rehash a lot of what we talked about here on the show. We’ll put a link to this sub article that has the easily accessible table in it and we’ll put a link to… Well, actually that article, that second article will also have a link to the full downloadable spreadsheet that you can access on that. So all those will be available on biggerpockets.com/moneyshow251. You can also go to freopp.org, and I’m sure you’ll be able to find it there.

Mindy:
And that’s F-R-E-O-P-P, .org. Look at Dave’s face. Do you have the Excel spreadsheet open, Dave?

Dave:
I was just having fun over here, Mindy.

Mindy:
I know, you’re so excited, kid at a candy shop. And Dave is-

Dave:
I’m trying to find my degree.

Mindy:
Dave is typical of our listeners. They’re all huge spreadsheet nerds, which I say with love.

Preston:
Awesome. I’m a huge spreadsheet nerd too. This is probably obvious. The spreadsheet is there available for download.

Dave:
I couldn’t tell.

Mindy:
Oh, really?

Scott:
And what I love about that, you just made the whole thing available for free to everyone, raw data, easily customizable table, write-up, all that. I love your intention with this study and what you’re hoping to achieve with it. It’s good for our country. It’s good for people who are trying to make these decisions. Thank you for this work. And I can tell, you’re clearly passionate about it.

Preston:
Thank you. I am. Yes. And this is all publicly available data that I’ve calculated this based on. I believe that people should have access to this information, that we as taxpayers, we’re paying to collect the data. And so we should be able to analyze and release that publicly in a way that’s accessible to everyone.

Scott:
Dave, what was yours?

Dave:
I went to the University of Rochester as an undergraduate and I studied political science, which as a data analyst has been really useful to me. The before adjustment ROI is nearly 670,000. So, pretty positive.

Mindy:
Oh, that’s above average.

Scott:
Awesome.

Mindy:
I balanced you guys out with my negative a million or whatever. It doesn’t even show up. My degree, my college was so small.

Dave:
Yours was too high, Mindy. It just couldn’t calculate it. The number was too big.

Scott:
Preston, what was yours?

Preston:
I was a Swarthmore economics graduate. So my ROI after completion adjustment is about 1.6 million. So, pretty decent, although I work for a nonprofit, so I might be a little below average, but that’s fine. I’m doing what I love. But I went to a great school, I’m very pleased with my education and the data seems to agree with me. I’m happy about that.
Although one funny story I just want to mention, since we’re on this subject, when I first published this story, somebody responded to me on Twitter saying, “It’s very important to look at medians, not averages when you’re talking about this,” which is what we do. We look at medians, not averages, because I was a geography major at UNC. And the ROI for our major was a million dollars and that didn’t make any sense.
And it turns out when Michael Jordan went to UNC, he was a geography major.

Dave:
That’s incredible.

Preston:
So it looks good when you look at the average, but maybe that’s not necessarily something attributable to the degree.

Scott:
This seems like a good Dwayne Johnson joke time as well.

Dave:
Well, Preston, when you do the graduate degree study, I would be really interested to see that, this is not my podcast, but I’m going to speak for Scott and Mindy and invite you back on here. Because I think that’s really going to be interesting, because personally I just know that when I was an undergrad, I had no idea what I was doing. I picked a major out of a hat. But when I went to graduate school, I thought about the ROI much more seriously. I’d be very curious to see if that is born out in the data.

Preston:
Absolutely. You’ll be the first to know when that comes out.

Dave:
Thank you.

Scott:
Awesome. We will love to help share the word about that particular study. We’re also here and available whenever you decide to solve healthcare in the future as well.

Preston:
All right. I’ll leave that to my colleagues here at FREOPP. We don’t just study higher education. We also study healthcare, we study housing, we study criminal justice, lots of different policy issues. I can’t let the show end without plugging my great organization and all the wonderful work that my colleagues do. So if you’re interested in healthcare, check them out.

Scott:
Absolutely. It’s perfect. So where can people find out more about you? We have freopp.org, we just heard about all of those resources. How can people follow anything else that you’re doing? Twitter, any other areas where they can learn more about you?

Preston:
Yep. I’m on Twitter at @PrestonCooper93. I think my Twitter quality is mostly good, although I do do some late night tweeting sometimes, so you’ll have to deal with that. You can follow our work at freopp.org. You can sign up for email updates there. I also write a column for Forbes every now and then. So you can look me up, Forbes, Preston Cooper, if you google that, my stuff should show up.

Scott:
Awesome. Well, Preston, this has just been phenomenal. It’s truly a privilege to hear about how the study was conducted, not to mention have access to it as a decision-making tool when contemplating the biggest financial decision people are making up to that point in their lives. Maybe the biggest financial decision they ever make in their lives. So it’s really, really powerful work.
And you are just so clearly a master of the space, understanding the nuances there, thinking about all the caveats. Thank you so much for taking the time to complete it, write it up and then share it again here on our podcast. We really appreciate it.

Preston:
Thank you for having me on. This is a great conversation.

Mindy:
This was delightful, and I’m so appreciative of your time, and yes, Dave is not a regular co-host here, but he will be back when you release that grad school study, because I’m fascinated by that too. And this was really easy to understand, even if you’re not a data nerd like these other two guys on the show. Thank you so much.

Preston:
Appreciate that. Thank you.

Dave:
Thanks Preston.

Preston:
Thanks. Thank you very much, guys.

Scott:
Thank you.

Mindy:
That was Preston Cooper who just blew your mind for an hour solid straight. He is fantastic in every sense of the word. Dave, what did you think of the show?

Dave:
I’m amazed because Scott said that it was one of his top three to five best episodes. And while I would love to say that’s because it’s the first time I’m on the Money show, I think I’m just completely in awe of Preston. I’m glad we let him go, because I probably could have asked him questions for two more hours, but I just think this is, honestly, it’s an amazing tool for anyone. Whether you’re a parent or a student or just someone interested in public policy and where taxpayer dollars are going, this is a tool that everyone should play around with and take a look at.

Mindy:
As a mom of a future college student, she’s a freshman in high school right now, she’s thinking about college and this is great to be able to show my daughter, “Hey, this plan or this program at this school might not be the best choice. This program at a different school is going to give you a better return on your investment. Let’s look at that.”
It’s not so much the number one school versus the number eight school, it’s which one is going to make you the most money? What is going to be the best investment for you? I’m so excited to share this with her and talk to her about this and start this conversation. And she has a personal finance class that she has to take in high school starting this year, she has to take it. I want to share this with the teacher of that class and be like, “You need to talk about this in your class and talk to the high school counselors.” This is such a powerful tool.

Scott:
I was blown away the moment I read that article and, oh my gosh, I was so excited about the… We need to get Preston a podcast here because he was phenomenal in presenting all of this stuff. This is an immensely complex subject. He broke it down for us bit by bit, in a way that we could all understand with that. He answered every question that I came into it with. Because I didn’t realize he used a 5% discount rate, for example, and I was very interested in that.
Oh and great, you don’t like the 5% discount rate? Here’s the model. Go change the number. That’s the perfect answer to that of inquiry with that. And loved it, loved it. This is one of my favorite things to talk about is the ramifications of stuff like this. So couldn’t be more grateful to Preston and the work that they’re doing at FREOPP. And again, go check it out.
One more time, biggerpockets.com/moneyshow251 where you’ll find all those links or you can go direct to freopp.org. And from there, follow the cascade of the links to, one, find the article that is the banner article that has the very in-depth analysis and then the summaries, the tables and the actual raw dataset. But we’ll link to all those in our show notes as well.

Mindy:
This was definitely not the last time you hear Preston Cooper on this podcast.

Scott:
As long as he wants to come.

Mindy:
I think he will. I think he was delighted to answer questions. Did you hear him say that, we asked him some questions that other people haven’t and he really enjoyed nerding out with you guys.

Scott:
I’m glad. Because I certainly did, enjoyed nerding out with him.

Mindy:
Scott and Dave, should we get out of here?

Dave:
Thanks for having me you guys, this was fun.

Scott:
Let’s do it.

Mindy:
Oh, this is definitely not the last time you will hear from Dave Meyer either.

Dave:
Uh-oh.

Mindy:
From episode 250 one of the BiggerPockets Money Podcast, he is Dave Meyer. The other guy is Scott Trench. I am Mindy Jensen saying, “Got to bail, blue whale.”

 

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Source
Is College Worth the Cost? is written by The BiggerPockets Money Podcast for www.biggerpockets.com

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