How long does it take for students from low-income backgrounds to recoup their college costs?
In a recent report, the think tank Third Way developed a formula to explore this question.
A year ago, in April 2020, the organization released an initial report that “examined the time it takes students to recoup
their out-of-pocket costs of earning a credential at institutions across the US.” Now, researchers have returned to this work to find a way to measure which institutions provide students from low-income backgrounds the most “bang for their buck.”
To find the Price-to-Earnings Premium, or PEP, for students from low-income backgrounds, Third Way “compared the additional income low-income students earn ten years after their initial enrollment in comparison to the average earnings of a high school
graduate with no college experience.”
Source: Third Way
Examining 2,487 institutions, Third Way found it took 52% of students from low-income backgrounds (those whose family income was less than $30K) five years or less to recoup net college costs.
However, for over 500 schools, their average student from a low-income background earned less than a high school graduate. In other words, these students received no return on their educational investment.
Of the three different types of institutions examined (bachelor’s degree, associate degree, and certificate), students had the best chance of recouping their net costs at bachelor’s degree-granting and associate degree-granting institutions.
At 82% of bachelor’s degree-granting institutions, students from low-income backgrounds who earned degrees were able to recoup costs in 10 years or less. At associate degree-granting institutions, that figure was 69%. However, only 43% of those who obtained
certificates did the same.
The study also found that the schools with the quickest returns often have an enrollment that is less than 50% Pell Grant recipients. Only 19% of the bachelor’s degree-granting institutions whose students were able to recoup costs in 10 years or less
enrolled mostly Pell Grant recipients. And unfortunately, associate degree-granting schools with the lowest return on investment also had majority Pell Grant recipient enrollments.
When a student is deciding on the college that is right for them, it is likely that return on investment is not at the forefront of their mind (though maybe it should be!). However, that expected ROI is an important factor that they should consider and
that advisors should be helping them keep in mind.
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