2-Year Degree’s Value? For a Few, Less Than High School, Report Says

Over all, community colleges deliver a negative return on investment to taxpayers, and 15 percent of them produce graduates who earn less than if they had never enrolled, according to a controversial report being released on Thursday.

The report, “What’s the Value of an Associate’s Degree? The Return on Investment for Graduates and Taxpayers,” attempts to quantify the costs and benefits of two-year degrees by institution, both to individuals and to the taxpayers who subsidize their educations.

Among the more eye-opening findings: For 85 of the 579 colleges included in the analysis, the average salaries of alumni are lower than those of high-school graduates.

And even while, on average, most graduates came out ahead, “It is stunning that for 15 percent of the schools, graduates might have been better off if they hadn’t gone,” said Jorge Klor de Alva, one of the report’s authors, who is president of Nexus Research and Policy Center and a former president of the University of Phoenix.

The other author is Mark S. Schneider, a vice president of the American Institutes for Research and president of College Measures, an AIR offshoot that has developed its own online data-analysis tool. Mr. Schneider is also a board member of Nexus, an organization begun with backing from John Sperling, the founder of Phoenix.

Earlier Nexus reports have been widely viewed as a defense of the for-profit sector—including one 2011 study finding that those colleges were good investments for taxpayers and students. That raised suspicions about the new report’s objectivity among the handful of educators who viewed it before it was published.

“Community-college presidents can’t help but raise their eyebrows when a report that paints a negative picture of their institutions is generated by those with such strong ties to the for-profit industry,” David S. Baime, senior vice president for government relations at the American Association of Community Colleges, said in a written statement.

Mr. Klor de Alva responded that his research group is completely separate from the University of Phoenix and that no one who still works in the for-profit industry serves on its board.

The report is the latest of many national efforts to judge colleges based on their “return on investment,” a complicated, charged exercise. Critics of the report questioned the method and accuracy of the data, including self-reported earnings from the salary-tracking company PayScale.

The researchers concede that their analysis captures only a portion of the students who attend community colleges: graduates whose highest academic credential is the associate degree. The individual return on investment is determined by calculating how much a typical graduate earns over a 40-year career compared with what a typical high-school graduate in that state would earn over the same period. Included in the cost of a degree are both tuition and lost wages.

According to the analysis, the average return on investment over a lifetime for earning an associate degree ranges from very high at some colleges—more than $700,000—to sharply negative at others, with losses greater than $250,000. (See table, below.)

Some rural colleges showed particularly low or even negative returns because alumni were found to earn less than, or only slightly more than, the statewide average for high-school graduates.

For taxpayers, high dropout rates drive down the return on investment, the authors explained, because students are subsidized while they’re enrolled but don’t get the degree and pay bump that would result in their paying higher taxes. And some states, like Texas, don’t have income taxes, so the direct benefit of graduates’ added earnings seemed much lower.

The report shows average returns to taxpayers ranging from gains of more than $150,000 to losses of more than $40,000.

Limited Data

Throughout the report, the authors acknowledge the shortcomings of the data they were able to include. But even though the data are imperfect, they say, the study was still worth pursuing to give students and policy makers more information.

The analysis assumes that dropouts make the same salaries as high-school graduates when, in fact, they might have received certificates in vocational fields that raised their earnings potential. The report also leaves out the earnings of students who transfer to four-year colleges without first receiving an associate degree. Students who transfer or earn certificates aren’t counted as dropouts, but their earnings don’t show up in the taxpayer-gain column.

The report, which the authors allowed The Chronicle to share with a few of the institutions listed as low performers, drew an immediate rebuke from officials at Pennsylvania Highlands Community College and from Snow College, in Ephraim, Utah. Both report that about three-quarters of their students transfer to four-year colleges. Their successes, and the taxpayer dollars that are saved when students start out at a community college, aren’t reflected in the data, the officials said.

Scott L. Wyatt, president of Snow College, called the report “reckless and harmful” to institutions like his.

“Nobody in our legislature is going to read the analysis,” he said. “They’re going to look at the bottom line and say, ‘They’re second from the bottom. We’re not going to give them money this year.’” One year after receiving an associate degree, “the vast majority of our students are working part-time jobs to support their way through a baccalaureate program,” he said.

Those gaps make the report “fundamentally inadequate and unrepresentative of how we serve our students,” said Mr. Baime, of the community-college association. “It’s like reviewing a movie on the basis of the first reel.”

One thing he and Mr. Klor de Alva agree on is the need for Congress to adopt legislation to enable the tracking of students throughout their studies and into the work force.

Without a federal “unit record” system, Mr. Klor de Alva said, “we focused on what we could account for.”

Educators should push for change, he said. “All of these community-college leaders must advocate in unison and aggressively for the kind of data that would permit them to show how well they’re doing.”

Because of the current data limitations, the authors caution in the report that “we do not advocate that our results be used for accountability purposes.”

The report does recommend, however, that state legislatures base higher-education allocations on measures of students’ performance. And despite the authors’ admonitions, the report’s return-on-investment lists could be used for that purpose.

That rankles critics like Clive Belfield, a research fellow at the Community College Research Center at Columbia University’s Teachers College. Mr. Belfield, who reviewed the report last week, said that while any research on college completion was helpful, the report underestimates the societal benefits college graduates contribute, besides the income tax they pay. He also questioned the accuracy of the PayScale data.

“In most states, it looks like community-college graduates earn less than high-school graduates, which seems very unlikely,” said Mr. Belfield, an associate professor of economics at Queens College of the City University of New York. He worries about how the data could be interpreted, he said, at a time of fiscal constraints.

“State legislatures seem perfectly happy to cut funding for higher education,” Mr. Belfield said, “if they can find research that helps them justify it.”

Performance Benchmarks

Among the report’s recommendations is that state governments and local districts base their appropriations on not just enrollment but also performance benchmarks, including course completion and certificates and degrees earned. Performance-based financing has already spread to dozens of states, most notably Tennessee, where 100 percent of the higher-education operating budget, or about $800-million, is distributed that way.

Colleges should focus on completion, and they should emphasize technical training in fields like health care, petrochemicals, and high-end manufacturing, maintaining close ties with local businesses, the report recommends. Associate degrees focused on job and technical skills have greater “market value,” it says.

In the analysis, community colleges with a greater concentration of degrees granted in health-related fields tended to show higher returns on investment.

The median starting salary for community-college graduates in the analysis, calculated for 2011, was about $35,000. On average, graduates of colleges in the bottom 20 percent began earning about $31,600, while those in the highest 20 percent earned about $38,500.

While the return on taxpayers’ investment may be low or even negative, community colleges deliver significant bang for the buck for most students, the report concludes. “Even after factoring in the costs that graduates incur when earning the degree, the associate’s degree is a good investment,” it says, “with a median net gain during a 40-year work-life of more than $259,000 compared with that of a high-school graduate.”

Graduates who earn more pay more taxes, the report notes. Each graduate of a median community college, it says, generates $67,000 in additional tax revenue.

If community colleges can find ways to graduate more students and connect them with well-paying jobs, the report says, they “will stop being viewed as the weak link in the higher-education continuum, and their students will no longer be identified as higher education’s second-class citizens.”

The Value of an Associate Degree

Two researchers have estimated the return on investment to the graduate and the taxpayer of an associate degree from a community college when that is the graduate’s highest academic credential. The controversial findings show some institutions with very high returns and others with negative returns, attributed in part to those colleges’ low graduation rates.