What is in the promise of higher education? Most parents, if asked, would certainly say they hope their child will earn a college degree. That is probably based on the assumption (backed up by research) that people with degrees have more opportunities and earn much more in their lifetimes, even after taking into account the cost of tuition. Who wouldn’t want that for their child?
Now, as the economy and our world are changing, that assumption is being challenged. The cost-benefit ratio of a college education is being reconsidered, especially with the increasing costs of college attendance. As more attention is given to financial literacy and rising student debt, more potential college students are examining the return on investment in a degree.
It isn’t a simple equation. ROI on a college degree involves tuition costs but also financing costs and student loan interest, speed to degree, degree quality, and future employment prospects including earning potential. It’s time for higher education to become more transparent with students about the costs and benefits of degrees. The commitment of becoming a college student or of returning to school is a big one, with many risks.
Bloomberg Business in 2014 referred to this as the “Education Premium Risk.” The analysis compares the investment in a college education minus the median earnings of a high school graduate and demonstrates that, on average, college is worth the investment. However, this has to be weighed against tuition costs and the obvious result is that lower tuition tends to result in greater return on investment.
WGU was established as an affordable higher education option for adults. The university’s framers took a pragmatic view of higher education, with the interests of workers in mind. With a flat-rate tuition of about $6,000 per year for all the courses a student can take, we keep the up-front investment for students low.
Furthermore, the competency-based education model we use at WGU empowers students to accelerate to their degree by quickly proving what they already know and shortening the time needed to attain their degree. This also has the potential to reduce their financial investment. Though many institutions struggle to get their adult students to degree completion in six years, the average time to complete a bachelor’s degree at WGU is less than three years at a cost of about $18,000.
Although a college degree certainly adds career value, it doesn’t necessarily make sense for students to borrow high amounts to finance their education. To this end, we launched the Responsible Borrowing Initiative in 2013 to encourage students to only borrow what they need to complete their degrees. Since the initiative began, average borrowing per student (of those who take out loans) has decreased by $2,500 per year, a reduction of 29 percent. In one year, WGU students reduced borrowing by $125 million.
Another way universities can control costs for students is through tuition freezes. While most institutions have been steadily increasing tuition rates—published tuition prices have risen 28 percent, on average, since 2008—we have not increased our tuition since 2008. The growth of the university, which now has 55,000 students and 45,000 alumni, has provided ample funds for scholarships. In 2014, WGU awarded more than $2.5 million in need-based scholarships.
But low cost is just one factor in attaining a high ROI for a college education. In the case of WGU, graduates experience an average increase in income of $10,400 in the first three years after graduation, significantly higher than the national average of $6,400. The time to earn back your investment in a bachelor’s degree at WGU is about two years!
Potential students are becoming savvier when it comes to their return on investment. The financial cost is a good place to begin the comparison to determine if the degree will be worth it, but that’s not the only consideration. Today’s students are aware of the investment of time to a degree as well, and whether they are able to pursue other work or family pursuits during that period. This means considering the structure of the learning time (sitting in class at specified times versus an empowerment model that allows the student to choose when they study).
WGU’s competency-based model makes time a variable controlled by the student within the ROI equation. One easily forgotten aspect is the value of earning the degree faster in order to begin earning more money sooner. If a student graduates a year sooner, they have an additional full year of increased earnings, thus increasing their lifetime earnings post-degree.
The promise of a higher education is intact, although it is evolving. The evidence is clear that consumers who carefully consider their options and weigh the various values within the return-on-investment equation can capitalize on the promise of a more secure financial future as a college graduate.
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