How Colleges Can Balance Costs and Outcomes to Deliver a Strong ROI

Third Way’s Price-to-Earnings Premium (PEP) calculates a college’s return on investment (ROI) using the net price of the degree and students’ earnings premiums over a high school graduate. Some schools perform exceedingly well on the PEP, preparing students to recoup their tuition in as little as a few months. At other institutions, attendees will never see an ROI in their lifetime.

To understand what differentiates strong performers on the PEP from those that deliver poor returns, we analyzed how schools balance costs and outcomes. Specifically, we examined the tuition and earnings for the 100 best- and 100 worst-performing institutions on the metric.

The top-performers on the PEP charge reasonable tuition costs and equip students with strong post-enrollment earnings outcomes. On average, the 100 schools with the best PEP cost $50,000 for a four-year bachelor’s degree. Their students earn an average of $78,000 annually 10 years after enrolling. That’s substantially more than a high school graduate’s salary, which hovers around $37,000 nationally.

However, there aren’t magic tuition or earnings values that create the perfect ROI. Well-performing institutions charge affordable tuition in relation to how much their students earn after enrolling. And that can vary based on factors like geography and local labor markets. For example, students at both Northern Kentucky University and the Massachusetts Institute of Technology (MIT) recoup their tuition costs in less than two years. But the colleges charge different tuition amounts and lead to different returns. 

Northern Kentucky’s net tuition for a bachelor’s degree is $24,000, and attendees earn a median $50,000 per year 10 years after enrolling—about $16,000 more a year than the average high school graduate in the state. On the other hand, MIT costs $81,000 for a bachelor’s degree, and students earn a median $143,000 annually 10 years after enrollment. That is almost $100,000 more a year than what the average high school graduate earns in Massachusetts. By design, schools can do well on the PEP with vastly different net prices—if they can deliver a sufficient return on the other end.

When we look at the 100 worst performers on the PEP, we see that these institutions charge high tuition costs and leave students with low earnings. Alarmingly, compared to top schools on the PEP, the lowest performers charge about $40,000 more, while also leaving students earning about $40,000 less 10 years out—digging a money pit at both ends for students. The lowest-performing colleges charge, on average, $91,000 for a bachelor’s degree, but attendees earn an average of just $40,000 annually 10 years after enrollment. That means that these students earn significantly less than the cost of their degree and not much more than a high school graduate anywhere in the country.

Liberty University, for example, charges a higher tuition than MIT—$120,000 for a bachelor’s degree. And 10 years after enrolling, students earn $45,000 annually, which is just $7,000 more a year than the average high school graduate in Virginia. Liberty’s students pay a high price to attend and have a slim earnings premium over high school graduates, resulting in a PEP of about 18 years. Shawnee State University in Ohio has a similar PEP. It takes students 20 years to recoup their investment. Shawnee charges less than Liberty University—$57,000. But 10 years out, attendees earn $40,000 annually, which is only $3,000 more than the average high school graduate earns per year in Ohio.

An institution’s success on the PEP depends on how efficiently it can balance tuition costs and post-enrollment earnings. Delivering a strong ROI requires a holistic view of attendees’ financial investment and their earnings. Well-performing colleges on the PEP charge tuition that students can recoup given their earnings outcomes. Colleges can still charge higher tuition and perform well on the PEP when they equip students with strong enough earnings to balance the costs. And institutions whose attendees, comparatively, do not make tremendously more than a high school graduate can also perform well by equipping them with affordable tuition costs. When institutions fail to strike this balance, students pay the price.