By Laurel White
A college degree is more likely to be rated as economically “worth it” when local-level income data, rather than state-level data, is used to measure return on investment, according to a new report from UW–Madison researchers.
The report released today by the Student Success Through Applied Research (SSTAR) Lab builds upon existing research about the return on investment (ROI) of college by examining metrics like earnings and economic mobility using local-level earnings data, rather than statewide earnings data. Statewide data has often been used for such analyses.
Nick Hillman, director of the SSTAR Lab and lead author of the report, says attending college can boost students up the economic ladder and reverse economic inequalities — but it doesn’t always “pay off” equally for all students all the time. He says this new report aims to shed more light on the subject.
“There is a degree of uncertainty involved with investing in higher education, and national efforts are underway to help students assess the economic risks and rewards of attending college,” says Hillman, who is also a professor in the School of Education’s Department of Educational Leadership and Policy Analysis.
The report builds upon the work of the Postsecondary Value Commission, an initiative formed by the Bill & Melinda Gates Foundation and the nonprofit, non-partisan Institute for Higher Education Policy. In 2021, the commission developed three core metrics to measure ROI for colleges in the United States: minimum economic return, earnings premium, and economic mobility.
Minimum economic return compares the earnings of high school graduates to college graduates after accounting for the cost of college. Earnings premium compares a graduate’s salary to the median salary of someone with the same degree. Economic mobility measures whether a graduate’s income is higher than at least 60% of incomes statewide.
The new report used income data from the U.S. Census Bureau’s American Community Survey 2017-2021 5-Year Estimates. It framed the data in local “commuting zones,” which are statistically-derived measures of local labor markets based on the U.S. Census Bureau’s journey-to-work data. It found more colleges and universities met or exceeded ROI benchmarks when commuting zone data was used to assess outcomes, rather than statewide data. Institutions located in places with higher shares of poverty, lower incomes, and in more rural areas tended to benefit the most from using local earnings. Overall, 16% more institutions met ROI benchmarks when local data was utilized than when statewide data was utilized.
“Overall, local earnings tend to benefit more institutions and especially those institutions serving students or places that have historically been underrepresented in higher education,” Hillman says. “Using local earnings for this kind of analysis is sorely needed, and it provides more local context and actionable, relevant information for students and institutions.”
Researchers also worked with UW–Madison’s Applied Population Lab to create an interactive tool that allows users to explore local ROI for colleges and universities across the country in more detail.
The project was funded by the Bill & Melinda Gates Foundation.
The SSTAR Lab is a research-practice partnership embedded in the Division of Enrollment Management. Its research focuses on issues related to college opportunity and student success. The lab’s mission is to produce and elevate practical research aimed at reducing barriers, improving equity, and supporting student success in higher education.
Hillman also consistently serves as a national expert on financing higher education, including student loans and government debt relief.
The full report, “Calculating the Return on Investment in Postsecondary Education: Differences in State vs. Local Earnings,” is available online.