What Types of Institutions of Higher Education Lead to Lower Earnings?

On December 8, the Department of Education announced that “the Free Application for Federal Student Aid (FAFSA^®) form submission summary now identifies postsecondary institutions as having ‘lower earnings’ if the median earnings of undergraduate completers, four years after graduation, are less than the median earnings of recent high school graduates in the same state.” In the press release for this change to FAFSA, the Secretary of Education cited a recent survey indicating that “more than half of all Americans now say a college degree is not worth the price” and pointed out that “total outstanding student loan debt is approaching $1.7 trillion.” The press release also called out that “more than 2 percent of undergraduate students nationwide attend an institution where graduates earn less than a high school completer on average” and that “these same institutions receive upwards of $2 billion in Federal student aid annually.”

Any number of students attending an institution where a credential is worth less than a high school diploma is too many, and it is a scandal that any of these institutions are receiving federal financial aid dollars. All the same, isn’t the news here that over 97 percent of students in higher education are enrolled in an institution where they can expect to make more than they would have with just a high school diploma? That is good news and contrary to the narrative that the Secretary seems to want to push, namely that college is a scam.

What makes the negative framing of this valuable addition to FAFSA even more troubling is that the Secretary neglects to identify what kind of institutions are providing the majority of these low-value credentials. The Department of Education made the data available in downloadable spreadsheet, which I have turned into a searchable table below. Tellingly, the data did not include a column identifying what kind of degree each institution predominantly awards or what sector it belonged to (public, private not for profit, for-profit). I added one, using IPEDS and College Scorecard.

You would not know it from the Secretary of Education, but what the data show is that most of the institutions that were identified as “lower earning” are for-profits (88%) and for-profit certificate programs (80%) in particular. Two-thirds of for-profit certificate programs have worse income outcomes than a high school degree, and 55% of all for-profit institutions fall below this threshold. It’s also noteworthy that not one single public four-year institution was identified as a “lower earnings” institution and only 53 community colleges (4% of all community colleges) were.

It’s good that the Department of Education is calling out institutions of higher education that are wasting our tax dollars, but it should be much clearer on which institutions are the main problem.