Executive Summary
- Ranking the value of state public universities’ degrees.We ranked the 50 U.S. state public university systems by medianreturn on investment(ROI), which we define as the amount a student can expect to gain financially from each individual degree. ROI compares the main financial benefit of college — the increase in lifetime income attributable to the degree — to the costs, including tuition and foregone earnings.
- What high-performing states do well.South Dakota’s public colleges and universities have the highest median ROI at $217,000, followed by Minnesota, Iowa, Kansas, and Pennsylvania. The poorest-performing states were Hawaii, Montana, Louisiana, Connecticut, and New Mexico. High-ROI states commonly have a well-developed technical college system. A preponderance of career-oriented majors at four-year schools also plays a role.
- How states can increase the value of college degrees.To increase aggregate ROI, states should consider implementing performance-based funding and removing restrictions on high-value majors.
Introduction
The United States’ decentralized higher education system offers a diverse array of options for students. In addition to a large private sector, most of America’s public institutions are controlled at the state and local level. Each of the 50 states operates one or more systems of universities, regional colleges, community colleges, and technical schools.
The upshot of this decentralization is substantial variation in the character of higher education across states. Tuition, funding, degree offerings, and policies differ from one state to the next. As a result, there is considerable variation in higher education outcomes across states. While some state college systems succeed in moving large numbers of students into the middle class, others fail to deliver on the promise of economic mobility.
This report assesses the variation in typical return on investment (ROI) across state higher education systems. The goal is to identify the states which present young residents with the best set of postsecondary educational options. The report calculates the median ROI of undergraduate degree and certificate programs at public institutions in each state, including both four-year schools and community colleges.
FREOPP has calculated ROI for tens of thousands of postsecondary education programs across the country, includingbachelor’s degreesandsub-baccalaureate credentials. I define ROI as the amount by which a degree or certificate is expected to increase the typical student’s lifetime earnings, minus the cost of in-state tuition and time spent out of the labor force. The estimates of ROI presented in this report also adjust for the risk that some students will not complete their education.
ROI is the most comprehensive measure of the net financial value that a student can expect from pursuing a degree or certificate. FREOPPhas foundthat ROI varies considerably by field of study; an engineering degree is far more likely to pay off than an English degree. However, ROI is also affected by institutional quality: even though English degrees have low ROI on average, some English programs provide graduates with far more financial value than others.
Ranking the states by their public university systems’ ROI allows us to learn lessons about best practices in higher education. States which consistently produce high ROI must be doing something right.
While maximizing ROI is not the only goal of higher education, studentsconsistently reportthat their primary reasons for attending college are getting a better job and increasing their earnings potential. Therefore, states should prioritize those outcomes when operating their postsecondary education systems.
The best (and worst) states to be a college student
The following map shows the median return on investment for undergraduate programs at public universities in each state. Measured by ROI, South Dakota has the best state university system in the country. Students in the Mount Rushmore State can expect a typical lifetime return of $216,927 on their education. Return on investment at South Dakota’s public colleges is nearly twice the national median of $118,182.
South Dakota’s students enjoy a variety of high-quality technical schools such as Lake Area Technical College, which offers several high-value associate degrees in fields such as vehicle maintenance and repair (ROI: $333,950) and agricultural business and management (ROI: $276,278). Another specialized public institution is the South Dakota School of Mines and Technology, which offers a four-year degree in mechanical engineering worth $618,994.
The more traditional four-year schools in the state, including the University of South Dakota and South Dakota State University, also offer plenty of high-value degrees in fields such as nursing, engineering, and biological sciences. While one flagship university often dominates other state college systems, South Dakota stands apart for having several high-quality institutions.
Other states with strong ROI.Nearly tied for second place are two other Midwestern states, Minnesota (median ROI: $214,923) and Iowa ($214,015). The University of Minnesota-Twin Cities dominates high-quality academic programming in the Land of 10,000 Lakes. It offers several degrees with an ROI exceeding $900,000, including marketing, mechanical engineering, and finance. Importantly, each of these degree programs graduates hundreds of students per year, meaning they provide a substantial pipeline for talented young Minnesotans to reach the upper middle class.
Minnesota’s community colleges also do quite well: associate degrees and certificates account for 38 percent of undergraduate credentials granted at the state’s public colleges. One standout is Alexandria Technical and Community College, which offers a certificate in precision metal working worth $727,301.
Iowa State University is far and away the most valuable player in the Hawkeye State. The school’s mechanical engineering program graduates nearly 500 students per year and supplies a median ROI of nearly $925,000. Other valuable, high-enrollment degrees at Iowa State include general business, agricultural business, finance, marketing, computer engineering, and electrical engineering.
Rounding out the top five states by ROI are Kansas ($180,770) and Pennsylvania ($167,432). The median ROI exceeds $300,000 at both the University of Kansas and Kansas State University. In addition to high-quality programs in nursing and engineering, the University of Kansas also offers a journalism degree worth nearly $400,000. Unexpectedly valuable degrees abound in the Sunflower State: Fort Hays State University offers a liberal arts degree worth $234,000.
The Pennsylvania State University system is the major driver of high ROI in the Keystone State. Several large, high-value programs support Pennsylvania’s strong median ROI: the degrees in nursing, finance, mechanical engineering, and electrical engineering all graduate several hundred students per year and have ROI above $900,000.
Not all states enjoy high ROI.Median ROI in several state college systems is disappointing. In Hawaii, ROI for the median program is slightly below zero (-$5,720). Fifty-four percent of undergraduate programs at the Aloha State’s public colleges and universities have negative ROI, meaning the typical student is financially worse off for having enrolled. Even the state’s flagship school, the University of Hawaii at Manoa, has negative-ROI programs: the popular psychology major graduates hundreds of students per year but leaves enrollees worse off by around $78,000.
Median ROI is just barely positive in several other states. Forty-seven percent of undergraduate programs at Montana’s public universities yield negative ROI. Other states with a high percentage of negative-ROI programs include Louisiana (46 percent), Connecticut (45 percent) and New Mexico (43 percent). A weak showing by the state’s flagship university is often the main cause of a low ranking on the ROI scale. Even at the most prestigious schools in each state, negative-ROI programs in fields such as film, psychology, and the liberal arts are common.
MVPs: Most Valuable Programs
FREOPP’sreporton the return on investment of bachelor’s degrees included a ranking of the top 25 programs in the nation by ROI. Almost all were programs at highly selective private nonprofit colleges; the top program, with an ROI of over $4 million, was the computer science degree at the California Institute of Technology.
While this ranking is informative, ranking programs by ROI without accounting for program size tells us little about which programs are the most successful at promoting economic mobility on a large scale. Caltech’s computer science degree is great for those who can get it, but the program graduates only a few dozen students per year. With over 16 million undergraduates in the United States, identifying the true engines of economic mobility requires considering both ROIandprogram size.
To that end, I have calculated a ranking of the nation’s “most valuable programs” (MVP). These degrees at public colleges and universities supply excellent ROI and graduate enough students to meaningfully impact economic mobility in their states. I multiply each program’s ROI by the number of graduates between 2015 and 2017; the product is akin to the total value created by each program.
For instance, the business degree at Indiana University-Bloomington has 1,597 graduates and generates ROI of $1.25 million. Multiplying those figures together yields $2 billion. The business degree at IU-Bloomington therefore creates an estimated $2 billion in value for students.
The following table displays the nation’s top 100 MVPs, ranked by value created.
The MVP ranking captures both economic value and the ability to scale. While Caltech dominates the “pure” ROI ranking, the top spot on the MVP list goes to the bachelor’s degree in registered nursing at the University of Texas at Arlington. UT-Arlington lacks the prestige of Ivy-adjacent institutions like Caltech, but its inclusive admissions policy (the school accepts 88 percent of those who apply, though the nursing program requires an additional application) ensures that the school can serve more students. The program creates nearly $4 billion in economic value.
Twenty-three programs on the MVP list are in registered nursing, followed by 18 in business fields and 18 in computer science. Mechanical engineering and finance have reputations as lucrative majors, but they account for a smaller share of programs on the MVP list, perhaps due to these fields’ difficulty.
The MVP list has a bias towards large states for obvious reasons. However, it is also possible to identify the most valuable program in each state: the degree that provides the best balance of strong economic value and inclusive enrollment practices.
Registered nursing is the most common MVP, taking the top spot in 26 states. Ten states’ most valuable programs are in business and finance. In seven states, the top spot belongs to an engineering program, while a computer science program is the MVP in six. The one unconventional MVP is a bachelor’s degree in aviation at Utah Valley University, which provides an ROI of $450,980 and graduates hundreds of students per year.
The contrast between two computer science programs in California is instructive. Caltech’s computer science degree has an ROI of $4.4 million, but graduates fewer than 100 students per year. The same major at the University of California-San Diego has a lower ROI of $1.4 million, but it educates several times the number of students. There is little doubt which program is doing more to advance economic mobility in the state.
The states where higher education investments go the farthest
The measure of ROI used in the above statistics considers only the costs to students. But every state subsidizes its public universities to some extent, meaning taxpayers bear some of the cost of producing education. At public institutions, the cost of net tuition is typically only a fraction of the overall per-student cost of operating a college or university.
It follows that a state could increase ROI by shifting some of the costs of operating its public colleges from students to taxpayers. While this would certainly benefit students, it may not increase the welfare of society overall if the underlying value of the degree does not change.
It is therefore worth considering whether each state’s higher education system pays off with respect to the full underlying cost of operating the university system. To that end, FREOPP has calculated a measure of ROI with respect to underlying education-related spending at each institution, not just tuition costs. This gives a measure of whether a state’s public university system provides a net benefit for society overall.
The following map shows average spending-adjusted ROI at each state’s public colleges and universities. To allow for the possibility that some programs might “cross-subsidize” others, I aggregate spending-adjusted ROI using averages rather than medians. I also include graduate programs in the calculation, since graduate programs might cross-subsidize undergraduate ones.
All 50 state university systems have positive ROI on average. (Hawaii’s public universities are negative-ROI at the median but positive-ROI at the average.) The top five states by average ROI are Virginia ($299,962), Iowa ($287,253), Michigan ($276,369), Minnesota ($253,273), and Pennsylvania ($239,092).
While Iowa, Minnesota, and Pennsylvania retain their status as top-five states, Virginia and Michigan move up the rankings slightly when calculating ROI with respect to spending rather than tuition. This is because these states have unusually high tuition at public universities which drags them down in the main ranking, but is less of a handicap in the spending-adjusted ranking. Still, the similarity of the two lists underscores how much of ROI is due to the labor market value of the degrees on offer.
What can state university systems do to increase aggregate ROI?
All else being equal, states that work to keep tuition down and graduation rates up will enjoy higher ROI in their university systems. However, the most critical driver of ROI is the labor market value of the education being produced. Lower tuition is nice to have, but it isn’t worth much if the degree being financed does not help the student attain higher earnings.
A case in point: South Dakota’s public colleges and universities have the highest ROI in the country. The Mount Rushmore State, however, has above-average tuition and an unexceptional graduation rate. South Dakota’s strength lies in its well-developed technical college system and a career-oriented group of four-year universities. These schools provide students with degrees and certificates that employers value, leading to significant lifetime earnings gains for students. The result is the highest median ROI in the nation.
The question before policymakers is how to replicate high performance elsewhere. How can state governments encourage their colleges and universities to emphasize degrees with strong labor market value?
Performance-based funding.Many states use some form of performance-based funding to allocate state appropriations to public universities. Under a performance-based scheme, state governments tie a fraction of public colleges’ overall state appropriation to outcomes, especially graduation rates. A few states, including Tennessee and Ohio, link a majority of higher education funding to performance. However, most states’ performance-based funding accounts forless than 20 percentof total appropriations.
The model has a mixed track record of success. Notably,none of the top three statesby ROI (South Dakota, Minnesota, and Iowa) currently use performance-based funding.
The major problem with performance-based funding as it currently exists is an overwhelming emphasis on graduation and retention rates. While degree completion is an important ingredient in student success, completion rates are subject to manipulation. Researchershave observedthat some universities grant more short-term certificates in order to juice their graduation rate numbers, but there isless evidencethat attainment rates for associate and bachelor’s degrees increase. Moreover, the value of a higher graduation rate is questionable if it comes through lower standards;one studyfound that much of the rise in college graduation rates since the 1990s is due to grade inflation.
Labor market outcomes — when they are included in performance-based funding formulas at all — are usually an afterthought. But some performance-based systems have taken a keener interest in employment and earnings outcomes. One promising new funding model is that of Texas State Technical College. In 2010, the state legislaturestarted to baseall of the school’s annual appropriation on its graduates’ earnings. The change led the school to shut down several low-performing programs and reallocate resources towards those with greater labor market demand. Between 2009 and 2017, the school’s graduates enjoyed a 26 percent increase in starting wages and a 65 percent increase in job placements. State funding duly increased by 45 percent.
Other states are considering performance-based funding as a tool to increase ROI. A billproposed in Missouriwould fund the state’s public colleges according to earnings outcomes, giving schools extra credit for enrolling low-income students and graduating them into decent jobs. Such a funding framework would provide institutions with a direct financial incentive to increase ROI.
Expanding high-value majors.Policymakers should also encourage schools to increase access to high-value majors. Even at universities with relatively inclusive admissions policies, students who wish to pursue high-paying fields such as computer science, mechanical engineering, and economics must often meet additional requirements in order to declare those majors. The result is easy access to low-paying majors but limited access to high-paying ones.
Economists Zachary Bleemer and Aashish Mehtaexamined college major restrictionsat the top 25 public universities in the country. Three-quarters of high-value majors at these schools impose a restriction on declaring the major, usually a minimum GPA or an internal application. What’s more, these restrictions have become more common over time. While many universities lure students in with high overall acceptance rates, they often make it difficult for students to get the most value out of their education.
Bleemer and Mehta find that major restrictions do not improve students’ academic performance. Instead, students shift to lower-paying majors, but don’t improve their GPA. A “B” student in economics, prohibited from declaring the major by a GPA restriction, simply becomes a “B” student in sociology.
Additional researchfinds that students forced to pursue lower-paying majors realize lower salaries. This is a signal that the labor market prefers someone with training as an economist or engineer even if that person did not score top marks in all their classes. It follows that universities should respond to these labor market signals and open up lucrative majors to more students. There may be a role for state governments in repealing or scaling back restrictions on high-paying majors at public universities.
Solve the nursing shortage.It is especially important for public colleges and universities to increase the size of nursing programs. According to the American Association of Colleges of Nursing (AACN), nursing schools in the United Statesturned awayover 80,000 qualified applicants in 2019. This is especially problematic asmany analysts expecta shortage of registered nurses to intensify over the coming years. High salaries for nurses are evidence that the labor market desperately needs more people in the profession.
Given that nursing is the “most valuable program” in over half of state public university systems, expanding nursing schools at public colleges is one of the most effective ways to increase aggregate ROI.
There are several reasons for seat shortages at nursing schools. Because the private sector tends to pay nurses better than most schools pay nursing instructors, administrators are at a disadvantage in the market to find faculty. Moreover, almost 90 percent of vacant nursing faculty positions require or prefer a a candidate with a doctoral degree, according to AACN. Added to these constraints, there is limited space in hospitals and clinics for nursing students to gain clinical experience. The preceptors who mentor nurses-in-training are often in short supply, not least because the additional labor nurses provide as preceptors is often uncompensated.
It is beyond the scope of this report to recommend a silver-bullet solution to the shortage of places at nursing schools, but state policymakers focused on ROI should not ignore this issue. Legislators might consider reforms to licensing laws to strategically reduce nurse training requirements in some areas, so long as public safety is not compromised; such reduced requirements may ease the pressure on nursing schools. Some states might consider establishing nursing apprenticeships similar tothose in the United Kingdom, which could provide additional training opportunities for aspiring nurses.
An opportunity for policymakers
The phrase “states are the laboratories of democracy” is more than a cliché. America’s decentralized higher-education system provides the perfect laboratory for policy experimentation to improve the financial value of postsecondary education for all students. The substantial variation in ROI across public university systems should remind state governments that they have considerable power to improve economic mobility for their residents. They should prioritize high-value education programs and work to expand them.
