Note: Some values presented below differ slightly from those in later research due to minor changes in how they were calculated, namely excluding high school graduates with no earnings and using more accurate estimates of college prices. These differences do not change the overall findings or the recommendations.
Higher education is not only a top driver of economic opportunity in California but also a superlative investment, yielding higher average returns than stocks, bonds, or gold. However, research reveals that these dividends are not equally distributed, as even after 10 years in the workforce, not every college graduate realizes a positive return on investment (ROI). This preview of forthcoming research, done in partnership with the Strada Education Foundation, examines the patterns of ROI in California by comparing the earnings of a sample of recent college graduates to the typical college expenses they would have faced. By identifying patterns in how these returns vary by degree type, region, race, ethnicity, and sex, we aim to help decision-makers use resources more effectively to advance educational equity across the state.
What do we mean by ROI?
ROI represents the added value of a college degree minus educational expenses.
College graduates whose earnings premium—the amount they earn above what a typical high school graduate earns—is high enough to cover their higher education expenses are deemed to have a positive ROI. In this analysis, earnings are estimated over a 10-year period. Expenses are estimated as the annual net price of attendance (tuition, fees, books, and living expenses minus all grant aid) at public institutions plus student loan fees and interest, multiplied by four for bachelor’s degrees and by two for associate’s degrees.
To illustrate in greatly simplified terms, if the total net price of a degree were $80,000, a college graduate would need to earn at least $80,000 over a decade, averaging $8,000 per year, above the median earnings of high school graduates to recoup their investment. (The actual formula and its components are much more nuanced, including adjusting earnings for annual growth and inflation and excluding institutions with especially high and low net prices.)
The following results combine earnings and demographic data from the 2019–2023 American Community Survey with net prices for federal aid recipients from the College Scorecard to estimate which college graduates aged 25–29 achieve a positive ROI. The analysis does not track actual Californians from college into the workplace (a task better suited to the state’s nascent Cradle-to-Career Data System), but it offers a rough approximation of their earnings premiums, expenses, and returns.
Most Californians with bachelor’s degrees, especially in urban regions, have a positive ROI
Nearly 8 in 10 Californians with a bachelor’s degree enjoy a positive ROI within 10 years, with values ranging from 66 percent of residents in the North-Far North region to 84 percent of residents in the Bay Area. By and large, workers with bachelor’s degrees in the state’s more urban areas along the coast are more likely to attain a positive ROI than their counterparts in more rural inland areas. This finding is consistent with prior research finding a larger bachelor’s degree earnings premium in urban counties.
But the payoff for associate’s degrees is less certain and less uniform
However, only 59 percent of Californians whose highest level of education is an associate’s degree attain a positive ROI within a decade, in part because bachelor’s degrees lead to higher earnings on average. This difference may also reflect the counterintuitive fact that, thanks to financial aid, low-income Californians face lower net prices at public universities than at community colleges. Although research finds a larger premium for associate’s degrees from urban colleges, the evidence from the newer California data is more mixed. The two regions with the lowest proportions of Californians with associate’s degrees who attain positive ROI, Upper Sacramento Valley and North-Far North (both 43%), are largely rural. But the mostly urban Bay Area (53%) and Los Angeles County (55%) are in the middle of the pack, similar to the more rural San Joaquin Valley (52%) and Sacramento-Tahoe (54%) regions. This ambiguous pattern may simply reflect more variable estimates due to the relatively smaller number of Californians with associate’s degrees, or it may point to true regional differences in college prices, labor markets, local cost of living, or other factors to be addressed in subsequent research.
Among those with bachelor’s degrees, more white and Asian Californians achieve a positive ROI
Comparing Californians with bachelor’s degrees by race, ethnicity, and sex reveals substantial variation in who enjoys positive ROI after 10 years. The most striking difference is that more Californians who are white, Asian, or of two or more races attain a positive ROI (76%–82%) than Latinx and Black Californians (72%–75%), irrespective of sex. Differences between female and male Californians are less pronounced than differences among races. There is less than a percentage point difference between females and males among Asian, Black, and Latinx Californians (using unrounded values). Female Californians of two or more races are four percentage points more likely to achieve a positive ROI than male Californians, and white female Californians are three percentage points more likely to achieve a positive ROI than white male Californians.
Most Californians with associate’s degrees also realize a positive ROI, but intergroup differences are less straightforward
Across demographic groups, most Californians with associate’s degrees attained a positive ROI, but the story is more complex than the results for Californians with bachelor’s degrees. The overall lower rate of Californians with associate’s degrees attaining a positive ROI relative to Californians with bachelor’s degrees, noted above, is also the case within each combination of race or ethnicity and sex. Differences range from 7 percentage points (Latinx male Californians) to 24 percentage points (Asian male and white female Californians). There are also bigger differences between the sexes relative to Californians with bachelor’s degrees: proportionally more female than male Californians with associate’s degrees achieve a positive ROI among Asian Californians (10 percentage point difference) and Californians of two or more races (6 percentage points). But the opposite is true among Black Californians (15 percentage points), Latinx Californians (14 percentage points), and white Californians (5 percentage points). And in contrast with the bachelor’s degree results, Latinx and Black male Californians are among the most likely to enjoy a positive ROI.
Colleges should improve data use to guide students’ choices
California’s colleges and universities should increase their efforts to improve graduates’ economic success, such as making better use of employment data. Currently, the state provides student-matched earnings data, reported in system-level dashboards, to California Community Colleges, California State University, and the University of California. Yet these results do not seem to reach many students, as few college students report receiving guidance on education-to-career pathways that is timely, data-informed, and tailored to their individual circumstances. Campuses should share program-level earnings data more frequently and earlier with current and prospective students to help them plan their educational and occupational trajectories. All colleges should supplement these data with employment projections and current labor market information, along with qualitative data from employers collected through existing and potential partnerships. Moreover, they should also use this larger set of data to scrutinize and refine programs while exercising due care and acknowledging that the value of programs can extend beyond earnings, such as in typically low-paying professions like teaching.
Additionally, colleges will soon have access to the Cradle-to-Career Data System’s extensive and population-wide collection of linked higher education and employment data. Proposed system enhancements would add items such as occupations, hours worked, and employers’ locations, as well as income data covering the 14 percent of working-age Californians with self-employment income from gig work and other independent contracting. This fuller picture of postgraduation employment outcomes, communicated widely to prospective and current students, faculty, and staff, will better enable all parties to make evidence-based choices, ultimately leading more students to careers that pay off.
These findings prompt further inquiry
The findings presented here should be taken with caution. For one, net price is an imperfect estimate of the true cost faced by California’s college graduates. It overstates costs by including housing, food, transportation, and other living expenses they would have paid even if they had not been enrolled, but it also ignores the opportunity costs of forgoing additional paid employment to attend classes. The living expenses themselves are often imprecisely estimated and rarely account for the additional costs of supporting dependent children and other family members. And these comparisons do not consider other factors correlated with ROI, including graduates’ field of study and the specific institution they attended, nor do they account for the effects of migration across regions and states, earnings in one’s 40s and 50s (when the college earnings premium continues to grow), or the value of being able to pursue more advanced degrees. Finally, earnings alone cannot stand in for the many other valuable but difficult to quantify aspects of job quality, such as benefits, job security, workplace safety, predictable hours, flexible schedules, and opportunity for promotion and professional growth.
Stay tuned for more research and recommendations
Over the next year, we will publish more detailed analyses examining which California college graduates achieve a positive ROI, including deeper explanations of underlying causes and more comprehensive policy recommendations to improve outcomes for Californians.
We thank Nichole Torpey-Saboe of the Strada Education Foundation for conducting the analyses and providing helpful feedback on this commentary. We also thank the College Futures Foundation for supporting this work.
