Does college offer a return on investment? ‘It’s front of mind for universities today in a way that it was not necessarily 15, 20 years ago’

Public confidence in higher education is declining amid high costs and student debt, prompting colleges and states to increasingly prioritize and demonstrate the 'return on investment' (ROI) of degrees. While a Strada Education Foundation analysis indicates 70% of public university graduates achieve a positive ROI within 10 years, significant state-level variation exists, and a Burning Glass Institute study found 52% of recent graduates are underemployed in jobs not requiring a degree. Institutions are responding by stabilizing tuition and aligning curricula with workforce demands, supported by federal and state initiatives that link funding and transparency to graduate earnings, signaling a fundamental shift in how higher education's economic value is assessed.

Analysis

Public confidence in higher education is declining due to high tuition, student debt, and a challenging job market, prompting a critical re-evaluation of degree "return on investment" (ROI). Colleges are now actively marketing their financial benefits, with states like Colorado publishing ROI reports and Texas linking funding to these metrics. This marks a significant shift from 15-20 years ago, driven by increased student awareness of potential non-payoffs.

While a Strada Education Foundation analysis indicates 70% of recent public university graduates achieve a positive ROI within 10 years, this varies significantly by state, from 53% to 82%. A major concern is underemployment, with the Burning Glass Institute reporting 52% of recent graduates in jobs not requiring a degree, highlighting a persistent disconnect between academic programs and workforce needs. Even high-demand fields are not immune to this issue.

In response, institutions are stabilizing tuition and lowering sticker prices to address affordability, while also actively aligning curricula with employer demands, as exemplified by Michigan State University's engagement with business leaders. Federal and state initiatives are reinforcing this trend, with regulations linking federal funding to graduate earnings standards and increased transparency through tools like the College Scorecard and state-specific ROI studies. This collective effort aims to ensure higher education delivers tangible economic value.

Key Decisions for Investors

• Investors should monitor educational institutions' ability to adapt curricula to market demands and demonstrate graduate employability, as this will influence their long-term viability and potential for government funding.
• Consider the implications for sectors reliant on skilled labor and consumer debt, as the shift towards quantifiable educational ROI could redirect investment from traditional four-year degrees to vocational training and specialized certifications.
• Evaluate the potential impact on regional economies and real estate markets in areas heavily dependent on university enrollment, given the increasing scrutiny on college affordability and graduate outcomes.