$755 Million in Taxpayer Dollars Go to the Lowest Performing Institutions on the PEP

Taxpayer dollars funded $755 million of federal financial aid and student loans going to the 25 worst-performing institutions on Third Way’s 2024 Price-to-Earnings Premium (PEP) metric. The PEP measures a student’s return on investment (ROI) from a given college and helps us understand how well schools are delivering on the taxpayer-funded aid they receive. By matching PEP values from our 2024 analysis to institutions’ annual Title IV funding, we can identify how much funding is allocated to schools with terrific outcomes versus those with abysmal returns on tuition.

The 25 best- and 25 worst-performing institutions on our PEP metric are listed below in Tables 1 and 2. Next to each institution is its PEP score from our 2024 report and each institution’s 2022-23 Title IV funding from accreditor data from the National Advisory Committee on Institutional Quality and Integrity (NACIQI). This year’s 25 top-performing institutions on the PEP received $1.5 billion in total federal dollars, and the 25 lowest- performing schools received $755 million. That’s $755 million going to colleges and universities where the average time it takes students to recoup their tuition costs would be more than 300 years—delivering no financial return on the taxpayer dollars that fund those schools.

Institutions that delivered the worst outcomes for students were allocated half the amount of funding that the top performers received. Those schools failed to deliver affordable education and strong earnings to students, and they failed taxpayers on delivering a strong return on their investment in higher education. The Academy of Art University, for example, saddles students with costs that would take 265 years to recoup, yet the college received $81 million in taxpayer funding. California State University, Dominguez Hills, in comparison, received $82 million and prepares students to recoup their tuition in less than a year.

The 25 colleges with the worst returns on investment enrolled an average of 51% Pell Grant recipients. American InterContinental University’s Atlanta campus and Florida National University’s main campus each enrolled student populations of over 80% Pell recipients, who all bring guaranteed federal aid dollars with them. American InterContinental and Florida National boast PEP values of, respectively, 73 and 552 years. When we zoom in on the PEP value offered specifically to their low-income students, neither institution delivers any ROI for those students. Another layer of analysis would be needed to pinpoint whether these poor outcomes are attributable to a lack of resources to better support students or more predatory intentions or behavior. But the PEP data do tell us that these 25 schools are allocated significant taxpayer dollars and leave students significantly worse off than if they had not pursued a degree there at all.  

Each year, millions of taxpayer dollars prop up colleges that leave students struggling and taxpayers without any return on their investment. Keep in mind that the $755 million discussed in this blog post only accounts for the 25 worst-performing schools. More than 140 institutions in the 2024 PEP analysis for all students burden their students with a PEP of more than 50 years or deliver no ROI. These schools saddle students with significant debt and little or no financial return to show for it.

These PEP data initiate an important conversation about higher education ROI and responsible use of federal resources. Taxpayers entrust our higher education system to invest in institutions and students. Many of those taxpayer dollars are well spent at schools that serve students incredibly well. But our system also funnels millions of dollars to schools whose students will never see a return on their tuition in a persistent pattern of taxpayer dollars funding schools with poor student outcomes. The 2024 PEP analyses reinforce the need for strong guardrails for institutions that have access to taxpayer-funded aid. There are untapped policy levers, like the accreditation system that gatekeeps Title IV aid, that policymakers can make better use of to ensure responsible use of taxpayer dollars and strengthen student outcomes.