Background

States and institutions are facing increasing pressure to demonstrate the value of higher education from a variety of stakeholders. Students, elected officials, and the public are expressing doubt about the cost-effectiveness of traditional degrees. Students question whether the cost of a degree is worthwhile, especially given the burden of student debt, which exceeds $40,000 per borrower on average.[1,2] But most students are willing to take on college debt if they know it will lead to a good job after graduation.[3] Students, policymakers, and taxpayers demand greater transparency and accountability from colleges and universities. These concerns can translate into lower college-going rates or cuts in funding, which threaten the potential of higher education as a driver of economic mobility.

The higher education sector has to acknowledge and respond to the public’s concerns. While the data are still clear that a college degree does pay off on average,[4, 5] too many programs and degrees fail to provide a worthwhile return on investment. Analysis of College Scorecard data demonstrates that the typical graduate at over 1,000 institutions earns less than the typical high school graduate 10 years after they’ve graduated. While the majority of the 1,000 institutions (630) are predominantly certificate-granting for-profit institutions, there are still hundreds of private nonprofit and public institutions that are producing these poor outcomes for graduates. These outcomes do not even account for the investment the student has made in their degree.[6]

Just looking at median earnings compared to thresholds like poverty is insufficient, as medians, by definition, mean that half of students in the cohort earn less than that amount. College Scorecard data reveal that, in a single year, an estimated 880,000 students earned less than the high school median salary five years after graduating. This excludes students who were not working at all. States are uniquely positioned to use student-level data to determine their own value thresholds as well as more accurately measure student outcomes.  

There is substantial opportunity to reorient higher education to focus on and deliver measurable economic benefits to students and communities. One out of every three students does not complete their degree,[7] which can create long-term economic hardship. Non-completers are more likely to default on their student loans[8] and to live in households that receive public assistance.[9] In half of the nation’s communities, half of the credentials being awarded are not aligned with the local labor market demand.[10] These barriers to value — low completion rates, high default rates, misalignment between training and opportunities — are often worse for students from communities with limited economic advantages and opportunities, making it even harder to achieve the upward mobility promised by a college degree.[11, 12] 

Higher education — inclusive of both institutions and state officials — must embrace the idea that value and students’ post-completion success are part of its mission. The sector needs to be able to measure and communicate that value, be held accountable to it, and take steps to improve on that value.

Early efforts to incentivize post-completion outcomes through postsecondary finance were limited by data availability. Many outcomes-based funding models relied (and still rely) on proxies for value. These include degree completion in fields like STEM or healthcare, based on the assumption that these disciplines lead to better job prospects or are in high-demand. However, as states have linked their education and workforce data systems, states are refining their approach to funding and evaluating higher education. With more reliable data, policymakers can now create systems that reflect a more nuanced view of value that includes the economic success of graduates.

States are applying value in a variety of ways to inform policy and investment, including allocating institutions’ general operating appropriations, financial aid programs, and supplemental investments in particular program areas. Financial aid programs aimed at high-demand, high-wage programs have expanded in recent years, such as Florida’s Open Door Grant and Louisiana’s M.J. Foster Promise Program. States like Kansas, Iowa, and Ohio are also providing funds to institutions to support programming in high-demand fields, including in non-credit programs. This brief focuses on how states are incorporating value into their funding formulas for general operating funds to public colleges and universities.

States should elevate value as a core element of their state goals and strategic priorities and begin to shape what value means for their state. Defining value in a strategic plan or state goal signals its importance and drives other policy changes, including finance policy or addressing workforce shortages. States such as Colorado, Texas, and Maryland have made value a core part of strategic plans or attainment goals.

A definition of value should be applicable to all institutions and sectors. Some considerations for defining value include affordability, employment outcomes, earnings, student debt levels, return on investment (ROI), and reliance on public benefits. There are non-financial aspects to postsecondary value as well, such as increased civic engagement, volunteerism, intellectual curiosity, health, all of which contribute to the public good.[13]

Different definitions of value reflect different priorities and policy objectives. States may consider the policy objectives in Table 1 when developing a definition of value. Generally, each subsequent level provides an increasingly precise view of value, though ultimately that depends on the metric. The first level considers if students are earning degrees that are intended to position graduates for jobs with relatively high median wages, but does not measure students’ real outcomes. Levels 2 through 5 assess value at the student level, using graduates' actual post-completion outcomes. In these cases, it is important for states to disaggregate the data to identify any gaps in which students receive the value of the degree. This disaggregation should include prior education and employment, age, gender, race/ethnicity, and geography.

MEASURE: POST-COMPLETION DATA SOURCES & METRICS

Next, states must develop the measurement of the defined policy objective. This requires access to detailed post-completion data, which may require pulling from a variety of sources. The level of analysis can range from individual programs to entire institutions, and extend to statewide measures. Certain levels of value may not be feasible for some states due to limitations in available data.

APPLY: HOW STATES USE POST-COMPLETION OUTCOMES IN FUNDING FORMULAS

Many states publish data dashboards with extensive information about post-completion outcomes by program, institution, and even disaggregated by student characteristics. But information alone is insufficient to drive significant changes.[14] Across all five levels, states have embedded measures of value into their finance policies (e.g., financial aid, funding formulas) to incentivize institutions to better align their efforts with the needs of the labor market and students’ long-term financial wellbeing. States also must decide what mechanism to use in applying their chosen value metric, whether it be a premium or weight, a separate metric, or an absolute eligibility threshold.

Level 1:  Is this program designed to lead to a high-wage job?

• Arkansas - Arkansas’s Productivity Funding Formula, the state’s Outcomes-Based Funding (OBF) model, incorporates weights for credentials in high-demand fields (high-demand SOCs crosswalked to CIP production) for 2-year and 4-year institutions.  

• Louisiana - Louisiana’s OBF includes a measure for degrees earned in fields leading to a 4 or 5 Star Job for 2-year and 4-year institutions. The state’s Star Job Rating System ranks jobs in Louisiana based on forecasted employment growth, currently available jobs, and compensation levels, among other factors.

Level 2:  Are completers successfully prepared for their occupation?

• North Carolina - One metric in the OBF portion of North Carolina’s community college funding formula is the institution’s aggregate licensure and certification pass rate.*

• Virginia - The Workforce Credential Grant Program (also known as Fast Forward) in Virginia reimburses colleges for students that not only complete an eligible workforce training program, but also for graduates who go on to earn industry-recognized credentials or licenses. 

Level 3:  Do completers get a job?

• Tennessee - Tennessee’s OBF includes a metric for its community colleges that measures job placement within the year following completion.  

• Florida - The State College System’s Work Florida Student Success Incentive Fund uses a combined high-wage, high-demand, and job placement metric. Colleges are funded based on the number of workforce education graduates who were employed and either 1) earned wages above a certain regional threshold or 2) completed programs linked to statewide and regional demand lists.

Level 4:  Do completers typically earn good wages?

• California - The OBF portion of California’s community college model has a metric for the number of graduates who have attained the regional living wage.  

• West Virginia - The community college sector’s OBF includes a metric for graduates working in the state two years after graduation and earning annual wages at least two times the poverty level for a single household.

Level 5:  Are students better off than if they hadn’t pursued this degree?

• Texas - The community college OBF model only provides funding for completions that meet the state’s “credentials of value” definition. Credentials of value are those for which the typical graduate earns more within 10 years than the net cost of their education plus the earnings of a typical high school graduate. 

*North Carolina’s primary enrollment driven funding formula was updated in 2024. The reforms advanced through “PropelNC” align this enrollment funding with value by providing greater weights for programs (both credit and non-credit) in high-demand, high-wage fields.

Emerging Trends, Cautions and Questions

Significant momentum is building in states to define, measure, and apply value to their postsecondary finance systems. The number of states implementing one or more of the levels of value is likely to increase within the coming year. Eight states engaged in the State Higher Education Executive Officers Association’s learning community around ROI in Fall 2024. There is movement in states like Colorado and Tennessee, where state agencies and advocates are putting forward metrics and frameworks for value.

States must not rush into this effort, though. There are dozens of difficult technical and policy questions to consider in developing value metrics. An ideal ROI calculation will likely be constrained by data availability and quality, especially given the need to look back over many years. There is also a tension between nuance and simplicity, reflecting the complexity of the issues at hand while ensuring all stakeholders comprehend the system. ROI calculations can also be prone to bias without certain adjustments. Research indicates that factors like Pell Grant status and selection bias (the tendency of certain types of students who attend certain colleges or programs to have a higher earning potential) can skew the results of ROI calculations if not properly accounted for.[15,16,17]

Adjusting for students’ prior education and earnings can be critical. Comparing the post-completion earnings to the wages of a high school graduate may falsely imply a high ROI if the typical student had high wages before the program. Table 3 shows the example of a degree and a certificate in Computer Support, using data from California’s community colleges. Two years after completion, certificate students have a higher wage than those with a degree. The certificate would likely have a higher ROI when compared to the wage of the typical high school graduate. However, the wage increase from pre- to post-completion is only 12% for a certificate, while those with a degree see a 39% wage increase.

Applying an ROI calculation in a finance system raises more policy questions and equity implications. States that wish to use an ROI metric will need to consider some of the following:

• Access: High-ROI programs may not be evenly distributed across the state, whether because of regional workforce opportunities or institutional program offerings. This has implications for students’ access to these programs, given students’ preference for attending college close to home,[18] and whether that access varies not just by geography but other student characteristics as well.

• Affordability: While states and institutions should encourage more students to enroll in high-ROI programs, that may not be feasible without addressing the upfront cost. A program with high tuition can have a high ROI if it generates high earnings, but that payoff may be unattainable for a low-income student without financial assistance.

• Stackability: Some credentials may not produce a high ROI independently or in the long run, but may be designed to stack towards longer-term credentials that do. These might include short-term certificates or general studies associate degrees. Other credentials may have value only when stacked on top of another degree. States should consider how their application of metrics incentivizes acquiring these credentials on their own or as part of a stackability strategy that better ensures ROI.

• Public value: States will likely want to support some low-ROI credentials that are essential to the public good but do not typically earn high wages. These may include home health aides, social workers, and early childhood educators. States might consider “high-value field” adjustments within their funding formulas. They may also pursue other policies like program-specific financial aid to subsidize costs or create pathways to support completers beyond these credentials.

Conclusion