The Master’s Degree and Checking ROI after Student Graduation

As a follow-up to my recent post about graduates from master’s degree programs and their related debt and post-graduation income, I decided to dive more deeply into the Wall Street Journal (WSJ) database.

For my analysis, I clicked through all master’s degree programs from beginning to the end. For each, I noted which college had the highest ratio of debt to earnings (and thus had the poorest return on investment [ROI] for a graduate according to the WSJ reporters) and which college had the lowest ratio of debt to earnings (and thus had the highest ROI for a graduate).

If the degree reported results for graduates of American Public University System (APUS), I listed that data as well. Here are the results from lowest to highest for those degrees where APUS was included.

Lowest Ratio of Debt to Earnings

Highest Ratio of Debt to Earnings

Now here is the same data for APUS for the selected degrees.

American Public University System Ratio of Debt to Earnings

It’s much easier to look at data from an institution that you’re familiar with. At APUS, we take pride in our mission of providing a quality and affordable education. I knew that (1) approximately 72% of all APUS graduates do not borrow any amount from the Federal Student Aid (FSA) programs or APUS, and (2) that those who borrow, borrow more than tuition and fees. I decided to create a spreadsheet and calculate some numbers to look at the differences.

American Public University System

In all the master’s degrees where the number of APUS graduates was significant enough for the Department of Education to provide data, the percentage of the median loans utilized for tuition and fees were calculated to be less than 50% for all.

Without additional data, it is tough to speculate on reasons for additional borrowing. I would guess that there are some students who borrow just enough to pay for tuition, fees, and books since APUS is online only. Those students may have a full-time job and earn enough money to cover cost of living expenses and do not want to borrow more money than they need for their direct costs of education.

Other students may work part-time, and the additional funds are needed to supplement living expenses. The data reported represents the median amount borrowed, so there are grads with lower and higher loan balances, with an unknown range.

In further review of the entire database of master’s degrees created by the WSJ, I noticed that there were 11 degrees where the ratio of debt to earnings was less than 1.0 for all the colleges and universities that offer these degrees. The reason for this low number was not because the median loan balances were low, but rather that the salaries for graduates were high.

Four of these degrees were IT-related (Computer Science, Computer and Information Sciences, Computer/IT Administration and Management, and Management Information Systems), and four were engineering-related (Electrical Engineering and Communications, Engineering-General, Engineering-related fields, and Mechanical Engineering). One was Management Science and Quantitative Methods, another was Criminology, and the last was Taxation.

There were other degrees where the college or university with the lowest ratio did not have the lowest debt, but it reported one of the highest median salaries for graduates instead. A few of these examples are:

• Allied Health, RIT – Median debt was $27,602, median salary was $98,137, and ratio was .28.
• Biology (General), University of Wisconsin at Lacrosse – Median debt was $41,000, median salary was $171,020, and ratio was .24.
• Communication, Journalism & related, Northwestern University – Median debt was $49,721, median salary was $82,238, and ratio was .61.
• Entrepreneurial & Small Business Operations, University of Pennsylvania – Median debt was $41,000, median salary was $167,417, and ratio was .25.

As I said before, I would like to see additional information for each school before concluding that there are many institutions that offer master’s degrees at a price that cannot be sustained based on the graduates’ median salaries two years after graduation. The first item would be the percentage of graduates who borrowed money, and the second would be the percentage of loans that was used for tuition, books, and fees versus other costs of living.

An interesting blog post about these articles was written by Brendon Cantwell. He noted that master’s degrees grew 175% from 1980 to 2019, higher than all other degree categories. The number of unique master’s degrees did not grow after 2006, which he believes offsets some of the claims that the passage of the Grad PLUS loan program in 2005 triggered many master’s degree offerings at higher-than-normal pricing.

Mr. Cantwell also points out in his post that six broad fields (business, education, healthcare, IT, public administration, and engineering) account for 75% of all the master’s degrees awarded in recent years. These are very established programs linked to occupations and professions.

A more recent publication by the U.S. Department of Education provides some additional insights to the situation. Using data from the National Postsecondary Student Aid Survey (NPSAS), the paper reports that 60% of all master’s graduates in 2015-16 borrowed money for their programs. This was an increase from 1999-2000 when only 47% of that year’s master’s graduates borrowed money.

Average loan balances for master’s degree graduates increased by 57% from 1999-2000 to 2015-2016 going from $42,100 to $66,000. The average student loan balance for graduates varied by type of program which may be due to different tuition rates charged by graduate schools at the same university or due to different credit hours required to earn a degree (note – data reported by the WSJ reports loans as a “median” value, not a “mean,”; therefore, the data is not comparable). Among the most popular master’s degrees, the average loan balance for a master’s in education was $55,200 versus an average loan balance of $66,300 for a master’s in business administration.

The emphasis of the first WSJ article related to the high cost of elite school master’s programs in certain fields with the salaries of graduates two years later. The tool they developed includes data from all academic programs, including undergraduate, certificate, and doctorate. While fewer colleges and universities offer doctoral programs, the NPSAS data used in the Department of Education report indicates a substantial increase in the percentage of doctoral graduates who borrow as well as the average loan balances borrowed.

Several articles were written after the WSJ revelation. Some offered recommendations such as implementing gainful employment type regulations for all institutions and all degree types, capping the grad PLUS loan program, or requiring risk-share arrangements between the institution and its students.

I have been a fan of implementing gainful employment type regulations for all institutions since it was originally proposed by the Obama administration for primarily for-profit institutions. As you can see from the table listing the highest ratio of median loan balance to median earnings, many of the schools listed are non-profit colleges.

APUS, a mission-oriented for-profit institution, is the lowest ratio university for two of the eleven program categories in which its data is included. The findings are similar when you peruse the broader list.

I am also a fan of capping the grad PLUS program. The data reported by the WSJ and the Department of Education’s NPSAS are either medians or averages. The medians and averages would decrease, in my opinion, if borrowings were capped. It would be extremely useful to show the percentage of loans used for tuition, books, and fees versus other living expenses as I attempted to illustrate with APUS examples.

Lastly, unless a degree’s offerings are regulated by a professional association or specialty accreditor, there may be variability among institutions for the credit hours required to earn that degree. Using MBA programs as an example, I have seen credit hours required to earn an MBA range from 30 to 60 representing the difference from a two-semester program to a four-semester program. The arbiter as to which one is best might be the one with the lowest ratio of median loan balance to median income.

In the end, more transparency is better for the student. I applaud the Department of Education for coordinating with the IRS to collect income data and for aligning that data with individual borrowers and their program information.

I also thank the reporters and analysts who have reviewed the data and objectively reported their observations. Given Mr. Cantwell’s observation that six broad fields accounted for 75% of all master’s degrees issued in recent years, I hope that the Department of Education can find a way to decrease the number of graduates required before data is published for each institution. Lastly, I hope that more transparency leads to a market self-correction versus a regulated correction.[/vc_column_text][/vc_column][/vc_row]