Beware of a College Degree

WARNING: A COLLEGE DEGREE MAY BE HAZARDOUS TO YOUR FINANCIAL HEALTH

––Let the buyer beware when the product is a college degree. Even the most prestigious institutions are offering credentials that will never pay for themselves. Gender studies majors: Caveat emptor.

by Garrett Baldwin

Dartmouth College, the No. 13-ranked national university by U.S. News & World Report, announced a seismic shift in tuition in June 2022. The school eliminated loans for entrants whose families earn less than $125,000 annually. Instead, they’ll receive scholarships. Students who qualify won’t have to pay most of the $83,802 annual cost for tuition, room, board and other fees. That sounds like a solution to soaring education costs.

But consider this: Dartmouth has the 16th largest endowment in the United States. The school had roughly $8.5 billion in its coffers at the end of its 2021 fiscal year. The school also benefits from steep tax exemptions under section 501(c)(3) of the Internal Revenue Code and endowment tax thresholds from the Jobs and Tax Cuts Act of 2017.

So, is the endowment drawing on its sizable nest egg and tax benefits to fund this scholarship initiative?

Nope. The money came from private donors.

Roughly 450 students will enjoy the benefits. Condolences to families earning $200 over the cap. Plus, tuition will likely increase for wealthier students because this program doesn’t address the underlying reasons it’s so high in the first place.

Yes, Dartmouth is extremely expensive. But is the cost worth it… and for whom?

$2.68 million

The posiTive reTurn on invesTmenT for a bachelor’s in maThemaTics from DarTmouTh

The affordability problem

Think of Dartmouth as a microcosm of an education system run amok around affordability and return on investment (ROI) issues. Ivy League schools have experienced the most dramatic uptick in costs over the last few decades. In short, the stunning rise in college tuition since the 1970s is due primarily to high demand and cheap access to student loans.

In analyzing the gravity of the situation, one must remember that Dartmouth sells a product (a college degree or any number of advanced degrees).

It sells these products the same way Ford Motor Co. sells trucks. The big difference is that Ford doesn’t call customers over the next 25 years after a purchase to request donations to an endowment or cash to add to its balance sheet.

Plus, Ford pays a lot more in taxes.

In April 2022, Kavya Nivarthy, a Dartmouth student who writes for The Dartmouth newspaper, argued that the school’s tax exemptions drive it to focus more closely on its financial interests than on students. That’s compelling. In the last decade, Dartmouth has dramatically strengthened its financial position while creating a student housing crisis.

In 2012, Dartmouth’s product, paid for in tuition, fees, and room and board, cost $57,996, according to The Chronicle of Higher Education. Today’s all-in cost represents a more than 44% increase in less than a decade. Also, in 2012, Dartmouth’s endowment was just $3.8 billion. Today’s figure represents a 123% leap on a minimally taxed endowment run by a school legally called “The Trustees of Dartmouth College.” The return-on-investment problem While affordability remains a challenge, students and parents should closely eye the ROI for every degree sold at any U.S. college or university. Government-backed loans guarantee capital for many unprofitable programs and schools, resulting in a terrible investment for taxpayers, students and society, according to Preston Cooper of the Foundation for Research on Equal Opportunity (FREOPP).

His research tabulates earnings and ROIs at ages 25, 45 and total lifetime returns. (See p. 14 for more on Cooper’s work.)

Science, technology, engineering and mathematics (STEM) degrees offer healthy ROIs, Cooper said. Liberal arts degrees? Not so much.

Cooper tabulated expected financial earnings for more than 30,000 bachelor’s degrees in the U.S. The results reveal a major disconnect in degree-based returns from liberal arts degrees from schools like Dartmouth.

For example, a Dartmouth mathematics degree provides a lifetime ROI of $2.68 million when adjusted for completion of the degree and underlying spending. A computer science degree returns $2.11 million. An economics degree offers $1.8 million. Political science, engineering, physics and philosophy (likely feeding into law schools) generate more than $1 million in lifetime ROI.

But several other Dartmouth degrees should come with a Surgeon General’s warning based on the expected impact on one’s financial health. For example, Cooper’s data suggests the lifetime ROI for a fine arts and studio arts degree is -$172,362. Yes, that’s a negative number.

A degree in “cultural minority, gender and group studies” produces a -$107,391 ROI.

It remains uncertain whether students receive upfront financial guidance on their investment. But they should.

Still, Dartmouth isn’t alone in the vast disconnect between ROIs in STEM and liberal arts degrees.

Take Northwestern University. (Full disclosure: Several alumni work for Luckbox.)

The ROI of an industrial engineering degree from Northwestern is $1.49 million, according to FREOPP. By comparison, the ROI of a degree from Northwestern’s Medill School of Journalism is approximately $686,000. For ethnic, cultural minority,

Universities should

Ouse their hefty endowments to fund research and provide gender and group studies it’s -$276,685. Once again, that’s a negative number. And for someone in the theater and drama program—which Seinfeld’s Julia O deserving students with financial support. Louis Dreyfus attended—the ROI is once again more negative: -$522,273, Cooper’s data shows. Many degrees produce negative ROI across the nation, many of them in the arts. One of the most prominent warnings about ROI in those disciplines came from a 2014 study by PayScale, a company that helps employers manage compensation and data. It showed that 20 years after completing a bachelor’s at the Maryland Institute College of Art (MICA), the average grad was more than $90,000 worse off than someone who didn’t attend college. MICA challenged the study, but it’s hard to doubt its accuracy. In 2014, -$522,273 the average price of a fouryear MICA degree was north of $200,000. In 2022, the THE NEGATIVE RETURN cost of on-campus tuition ON INVESTMENT OF A over four years is roughly BACHELOR’S IN THEATER $280,000, with an addiAND DRAMA FROM tional $64,000 for room, NORTHWESTERN board and other expenses. That makes the ROI for a fine arts degree at MICA -$381,503 after adjustment for completion time and total spending, according to FREOPP. The need for a fix So long as cheap capital remains available for students, borrowers will pump money into these schools and the schools will pad their endowments. But students, the government and the media should consider the financial dangers associated with certain degrees that fail to provide strong returns and can leave students deep in debt for decades. The simple solution is to provide everyone involved with better financial disclosures before anyone declares a major and signs up for a loan. Plus, there’s no reason to abandon liberal arts degrees. Universities could use their hefty endowments to fund research and provide financial support for group studies or the fine arts. But they should also explore O The return on investment ways to mitigate specific programs’ weak or negative ROI. Just leave U.S. taxpayers out of it. for a Dartmouth They’ve suffered enough. O fine arts and studio arts degree comes to Garrett Baldwin, a commodity and trade economist, serves as Luckbox editor at large. He actively trades value and momentum stocks and O -$172,362. Yes, that’s a negative number. wagers on sports and prediction markets.

IS COLLEGE WORTH IT?

––Some degrees increase lifetime earnings by the millions, while others result in a negative return on investment. The biggest factor is your major.

by Preston Cooper

––M ost young Americans say they want a college degree. But from a financial perspective, choosing a major and an institution can make all the difference. Some programs leave students worse off financially than if they’d never attended, while others can increase lifetime earnings by millions of dollars.

With that in mind, we’ve estimated earnings and lifetime return on investment (ROI) for nearly 30,000 bachelor’s degree programs across the nation and made the information available in an article under my byline at the freopp.org website. Much of the underlying data comes from the U.S. Department of Education and the Census Bureau (see, “The Lesson?” right).

In financial markets, ROI measures profitability relative to cost. For this study, the ROI of a college education is defined as the increase in lifetime earnings a student can expect from that degree, minus the direct and indirect costs of college.

These ROI estimates can help students make better decisions about postsecondary education and also provide direction to anyone interested in higher-education policy.

Foremost among the findings is the importance of choosing the right major. College rankings like those in U.S. News and World Report emphasize choice of institution, but research shows the choice of major explains nearly half the variation in ROI.

Students will have a much greater chance of financial success if they study engineering, computer science, nursing or economics—not art, music, religion, psychology or education.

That isn’t to say that lower-earning majors are worthless. Society needs artists and musicians. But low incomes for these majors signal a supply-demand mismatch. Universities are producing too many art majors and too few engineering majors relative to the number of jobs available. As a result, employers bid up the wages of engineers while surplus artists flood the labor market. The answer is not to eliminate low-earn-

$306,000

Median ROI FOR A BACHELOR’S DEGREE HOLDER WHO GRADUATES ON TIME

$1 million

POSSIBLE LIFETIME RETURN ON SOME ENGINEERING, COMPUTER SCIENCE, NURSING AND ECONOMICS DEGREES

$0

FINANCIAL VALUE OF SOME DEGREES IN ART, MUSIC, RELIGION AND PSYCHOLOGY

1/4

OF COLLEGE PROGRAMS HAVE NEGATIVE ROI

80%

OF ENGINEERING PROGRAMS HAVE ROI ABOVE $500,000

1%

OF PSYCHOLOGY PROGRAMS HAVE ROI ABOVE $500,000

100

PROGRAMS AT COLLEGES WITH AN ACCEPTANCE RATE BELOW 20% HAVE NEGATIVE ROI

–Preston Cooper

ing majors nationwide but to reduce their scale.

Attending an elite institution can pay off—but not always. Should you pay more to attend a fancy private school? Sometimes. The best programs in the country are usually at top schools. These colleges and universities may offer more support to boost completion rates, and graduates of elite colleges also have access to professional networks that supply lucrative job opportunities. Pricier tuition can be worth the money if expensive colleges can deliver higher earnings.

But elite schools aren’t necessarily golden keys to success. Even at Ivy League schools, several programs have negative ROI. The choice of major matters more. Engineering and computer science programs at schools without powerful brand

O O O

Choosing a major and what college to attend are the most important financial Choosing a major decisions most people will ever make. and what college to

attend are the most important financial decisions most people will ever make.

names almost always have higher ROI than film or gender studies programs in the Ivy League.

Many bachelor’s degree programs don’t make sense, financially. Having a bachelor’s is usually better than not having one, even if the degree comes with $30,000 of student debt. But after accounting for mediocre completion rates and high costs, many bachelor’s degree programs don’t look too good. Thirty-seven percent of programs do not deliver a financial return when adjusting for spending and completion. Another 32% have a lifetime ROI below $250,000.

Mediocre or nonexistent ROI suggests a misal- Redacted and reprinted with permission from FREOPP

location of resources. Many of the students in programs with poor ROI might be better served if those resources were shifted to other forms of postsecondary training, such as apprenticeships, vocational schools or career-oriented associate’s degrees. Because many students do not directly fund most of their own education, policymakers should have a role in a reallocation of funding.

Granted, many bachelor’s degrees have non-financial benefits that students should take into account. Social benefits accrue to some degrees. The engineers who developed the iPhone probably captured only a small fraction of the social value they created. But

O O O

Attending an elite school doesn’t guarantee financial success; some Ivy League degrees have negative ROI.

degrees that generate social benefits often come with gratifying private rewards. Yet, the idea that most negative-ROI programs are generating enough social benefits to justify themselves is doubtful. Degrees with social benefits can also have large private ROI.

Moreover, bachelor’s degrees can generate social costs. As the share of the population with a college degree rises, employers seek stronger educational credentials from job candidates, even though the skills required for those jobs have not changed. It follows that some college graduates simply take jobs away from non-college graduates. This displacement effect likely explains much of the college wage premium. While college graduates benefit, the economy does not grow overall.

For prospective college students, though, those considerations reside largely beyond their immediate decisions. Estimates of ROI should empower students and their families to make more informed decisions. The most important financial question is not whether college is worth it, but how they can make college worth it.

Preston Cooper, is a senior fellow in higher education policy at the Foundation for Research on Equal Opportunity. He is also a contributor to Forbes.com. @prestoncooper93

The Lesson? Graduate on Time

When accounting for the risk that a student will drop out of college or take longer than four years to finish, median ROI drops from $306,000 to $129,000. Twenty-eight percent of bachelor’s degree programs have negative ROI when adjusting for the risk of non-completion. If ROI is adjusted to reflect the underlying cost of education, not just tuition charges, the share of nonperforming programs rises to 37%.

Major category

Negative ROI $0 to $250,000 $250,000 to $500,000 $500,000 to $1 million Above $1 million

ALL PROGRAMS 28% 36% 17% 15% 4%

ENGINEERING 0% 4% 14% 60% 22%

TRANSPORTATION, CONSTRUCTION AND ARCHITECTURE 2% 21% 34% 37% 6%

MATHEMATICS AND STATISTICS 6% 32% 30% 25% 8%

ECONOMICS 6% 27% 30% 21% 15%

BUSINESS, FINANCE AND MANAGEMENT 10% 43% 27% 16% 4%

COMPUTER AND INFORMATION SCIENCES 10% 20% 21% 34% 15%

PHYSICAL SCIENCES 12% 40% 36% 11% 1%

HEALTH AND NURSING 13% 17% 27% 38% 5%

AGRICULTURE AND NATURAL RESOURCES 24% 45% 22% 7% 1%

COMMUNICATIONS AND JOURNALISM 27% 48% 21% 4% 0%

POLITICAL SCIENCE AND OTHER SOCIAL SCIENCE 32% 53% 11% 4% 1%

PUBLIC ADMINISTRATION 39% 54% 6% 1%

ENGLISH, LIBERAL ARTS AND HUMANITIES 42% 49% 8% 1% 0%

1%

EDUCATION

LIFE SCIENCES AND BIOLOGY 44% 52% 4% 0% 0%

45% 46% 8% 1% 0%

MISCELLANEOUS 47% 34% 15% 4% 1%

PSYCHOLOGY 59% 38% 3% 0% 0%

PHILOSOPHY AND RELIGIOUS STUDIES 74% 23% 2% 0% 1%

VISUAL ARTS AND MUSIC 78% 17% 4% 1% 0%