Does Community College Pay Off?

​​​​​​​​​​An Initial Look at Return on Investment in Texas

For many prospective students, college represents an opportunity to secure a job that pays well and, ultimately, a better life for themselves and their families. While this may sound like a lofty ideal, the question of what college is worth and whether it pays off is often a very pragmatic one, especially for community college students—a diverse population with significant financial need. To effectively recruit and serve these students, a clear, transparent measure of the economic value of education is essential. Students, postsecondary institutions, and policymakers are aligned in this interest. Indeed, a core goal of Building a Talent Strong Texas, the state’s strategic plan for higher education, is the completion of “postsecondary credentials of value” which “propel graduates into lasting, successful careers.”

One measure of the economic value of education is return on investment (ROI), a calculation that subtracts the total costs of college from the expected future returns over time. Students at colleges and in programs with a high, positive ROI earn higher wages which, in time, more than cover the costs of college. In this brief, the Research Institute at Dallas College calculates and compares the ROI of community colleges in Texas to measure the added value community colleges generate over a high school diploma, and to identify which colleges provide students with the best returns. Using data from the U.S. Department of E​​​​​​​ducation’s College Scorecard, the Research Institute computes ROI at multiple time horizons, from 10 to 40 years after college entry, applying methodology from the Georgetown University Center on Education and the Workforce. This analysis also builds upon existing research by examining how ROI varies with gender and family income. A data dashboard accompanies this brief.

Average Outcomes

To calculate ROI, the Institute uses data on earnings and net price from College Scorecard. In this analysis, community college refers specifically to public institutions where associate degrees are the predominant credential awarded—meaning that more associate degrees are conferred than bachelor’s degrees, certificates, or graduate degrees. For each postsecondary institution, College Scorecard reports median annual earnings 10 years after entry to college of all students who received federal financial aid when attending. Across all Texas community colleges, these earnings average $37,296. This earnings value includes students who completed their program as well as those who did not, thus accounting for dropout or stop-out risk during college. College Scorecard also reports net price at each institution, which adds tuition, fees, supplies, and cost of living, and subtracts grants and scholarships. The average net price of community college in Texas is $6,843 per year. Compared to Texas, national earnings are slightly lower and prices higher, at $36,556 and $7,691, respectively. For reference, Dallas College students have median earnings of $37,543 ten years after college entry, with an average net price of $4,739 per year. Combining these price and earnings data allow for the calculation of ROI, a cumulative tally of costs and benefits over a student’s career. Full details on the methodology used to calculate ROI are included in the Appendix. Table 1 shows the resulting ROI calculations at multiple time horizons and three different scopes. Because the underlying costs and earnings data are similar among Dallas College, Texas, and the United States, their ROI values are also alike in magnitude, with Dallas College edging past the average ROI of all community colleges in Texas and the United States.

Table 1: Average Return on Investment (ROI) of Community Colleges

Time Horizon 10-Year ROI 15-Year ROI 20-Year ROI 30-Year ROI 40-Year ROI
Dallas College $ 190,000 $ 338,000 $ 472,000 $ 703,000 $ 893,000
Texas $ 182,000 $ 329,000 $ 463,000 $ 693,000 $ 883,000
United States $ 181,000 $ 328,000 $ 461,000 $ 690,000 $ 879,000

Notes: ROI calculations assume net price is constant and paid while attending, the discount rate is 2%, and earnings are constant 10 years after college entry.

Sources: College Scorecard, U.S. Department of Education; Georgetown University Center on Education and the Workforce; Research Institute calculations.

 

A more striking difference can be seen when comparing ROI by type of institution. In this analysis, a four-year college is defined as one which predominantly awards bachelor’s degrees. Figure 1 compares the ROI of four-year and community colleges in Texas. For both types of institutions, higher education demonstrates clear economic value: students who pursue postsecondary education earn hundreds of thousands of dollars more than their costs of college over the course of their careers. In Texas, the average 10-year ROI is $182,000 for community colleges and $112,000 for four-year colleges; the 40-year ROI is $883,000 for community colleges and $1,061,000 for four-year colleges. Community colleges have higher initial ROI than do four-year colleges because community colleges are less expensive, but four-year colleges have higher ROI over time as four-year students go on to make more money. Annual earnings 10 years after entry to a Texas four-year college average $47,890, with an average net price of $18,756 per year. Texas four-year colleges overtake community colleges in ROI around 17 years after college entry; by that point, the extra cumulative earnings more than outweigh extra costs.

Figure 1: Return on Investment by Type of Postsecondary Institution in Texas

A line graph that illustrates the above information

Notes: Data labels are placed 10 and 40 years after college entry, or since high school graduation for the "High School, No College" series. ROI calculations assume net price is constant and paid while attending, the discount rate is 2%, and earnings are constant 10 years after entry.

Sources: College Scorecard, U.S. Department of Education; Georgetown University Center on Education and the Workforce; Research Institute calculations.

Years Since College Entry ROI on Community College ROI on 4-Year College ROI on High School, No College
1 -$7,000 -$19,000 $4,000
2 -$13,000 -$37,000 $12,000
3 -$20,000 -$56,000 $23,000
4 $6,000 -$73,000 $36,000
5 $33,000 -$91,000 $50,000
6 $61,000 -$52,000 $66,000
7 $90,000 -$13,000 $82,000
8 $120,000 $28,000 $100,000
9 $151,000 $70,000 $118,000
10 $182,000 $112,000 $137,000
11 $213,000 $154,000 $155,000
12 $243,000 $194,000 $174,000
13 $272,000 $234,000 $194,000
14 $301,000 $273,000 $214,000
15 $329,000 $312,000 $233,000
16 $357,000 $349,000 $252,000
17 $384,000 $386,000 $271,000
18 $411,000 $422,000 $291,000
19 $437,000 $458,000 $312,000
20 $463,000 $493,000 $331,000
21 $488,000 $527,000 $352,000
22 $513,000 $560,000 $373,000
23 $537,000 $593,000 $392,000
24 $561,000 $625,000 $412,000
25 $584,000 $656,000 $431,000
26 $607,000 $687,000 $451,000
27 $629,000 $717,000 $470,000
28 $651,000 $747,000 $490,000
29 $672,000 $776,000 $508,000
30 $693,000 $805,000 $528,000
31 $714,000 $832,000 $545,000
32 $734,000 $860,000 $562,000
33 $754,000 $887,000 $580,000
34 $774,000 $913,000 $597,000
35 $793,000 $939,000 $613,000
36 $811,000 $964,000 $630,000
37 $830,000 $989,000 $646,000
38 $848,000 $1,013,000 $661,000
39 $865,000 $1,037,000 $676,000
40 $883,000 $1,061,000 $690,000
 

It is worth noting that foregone earnings, one of the primary opportunity costs of college, are not built into these calculations of ROI. Foregone earnings in this case refer to earnings one could have realized with a high school diploma only, which are given up or lost in pursuit of college. Instead of factoring these into the ROI values in Figure 1, a separate curve depicts the return to a high school diploma over a 40-year career. To construct this curve, average earnings by age of Texas high school graduates are taken from the 2020 5-year estimates produced by the U.S. Census Bureau’s American Community Survey. Assuming high school graduates begin work after graduation and do not attend college, their 40-year returns total $690,000; college-goers have a clear advantage in returns over their career. A four-year college provides the most ROI over 40 years (+$371,000 above a high school diploma), although community college still pays off (+$193,000 above a high school diploma). Despite the costs of tuition and other expenses, when it comes to ROI, having some higher education is better than none at all.

Of course, timing matters in terms of when returns are realized. Texas community college students take 7 years for their ROI to surpass the cumulative earnings of a high school graduate, while four-year college students take 12 years to do the same, due to higher costs per year and the longer duration of a bachelor’s degree versus an associate degree. Tracking ROI over time, a 10-year window exists from when community college overtakes high school (7 years) to when a four-year college overtakes community college (17 years). Thus, students with more immediate financial needs may prefer the opportunity to access the elevated earnings earlier in life that community college provides. ​

Overall, the Research Institute’s analysis of ROI reveals a critical role for community college and a clear value proposition versus high school alone. However, ROI numbers used for this analysis are estimates which reflect the typical student experience at a college. Especially for community colleges, where student outcomes are often quite heterogenous, actual ROI depends heavily on the particulars of a student’s course of study. Factors like major or field, completion or non-completion, time to credential, and starting age, among others, significantly influence the true ROI realized by a given student. In forthcoming studies, including one utilizing extensive student-level data from the Texas Higher Education Coordinating Board's Education Research Center, the Research Institute plans to revisit these factors and review how they are addressed in the existing ROI literature.

Ranking Returns

ROI is often used to compare postsecondary institutions to see which ones offer students the best bang for their buck. Across all Texas community colleges, Collin College leads in 40-year ROI with $1,051,000, with Texarkana College posting the lowest 40-year ROI of $761,000. Figure 2 narrows the comparison group to see how 40-year ROI stacks up among very large community colleges in Texas. Among this subset, Dallas College is at the median with $893,000, and El Paso Community College lands last with $771,000. One caveat is that earnings are not adjusted for cost of living, so ROI dollars may go farther in some counties than others. Ultimately, all of the colleges shown in Figure 2—and indeed 100% of community colleges in Texas–exceed the value of a high school diploma in their 40-year ROI. Only 34% of for-profit colleges and 92% of four-year colleges in Texas share in this distinction. This finding reinforces the notion that—due in large part to their affordable costs—community colleges generate credentials of value and have a meaningful place in the state’s educational ecosystem.

Figure 2: 40-Year Return on Investment by Community College District in Texas

A bar graph that illustrates the above information

Note: ROI calculations assume net price is constant and paid for three years, the discount rate is 2%, and earnings are constant 10 years after entry.

Sources: College Scorecard, U.S. Department of Education; Georgetown University Center on Education and the Workforce; Research Institute calculations.

Institution 40-Year ROI
El Paso Community College $ 771,000
St. Philip's College (Alamo) $ 835,000
Palo Alto College (Alamo) $ 839,000
South Texas College $ 840,000
San Antonio College (Alamo) $ 840,000
Houston Community College $ 886,000
Dallas College $ 893,000
Lone Star College System $ 934,000
Tarrant County College District $ 939,000
Northwest Vista College (Alamo) $ 945,000
Austin Community College District $ 957,000
San Jacinto Community College $ 969,000
Collin County Community College District $ 1,051,000
 

Within rankings, exploring why ROI differs across institutions is essential for the metric to be used effectively in service of students. In the calculation of ROI, there are two main variables to consider: net price and median earnings. Disproportionately, earnings differences are what drive the ROI gaps evident in Figure 2. Net price is paid for a few years while in college, while earnings matter throughout an entire career. The average net price at Collin College is $7,040 per year, compared to $3,848 at El Paso Community College. Ten years after college entry, Collin College students earn $44,658 per year, more than all other community colleges in Texas. For comparison, El Paso Community College students earn $32,532 per year. El Paso Community College students actually pay less than Collin College students to attend, but they also earn less after college. This earnings deficit, amplified over a career, more than offsets savings on the cost of college and eventually yields a lower 40-year ROI for El Paso students than for Collin College students.

If earnings drive ROI, what causes differences in earnings outcomes among Texas community colleges? Are community colleges with higher earnings following better practices, or are earnings determined by factors beyond a college’s direct control, like area of service, local workforce needs, and geographic variation in wages? These questions illuminate many plausible factors, both internal and external to a college, to explain how earnings and ROI are shaped at the institutional level. Unfortunately, though, the data are insufficient to identify the relative weights of these factors. This ambiguity in what causes high institutional ROI, makes developing steps to improve ROI difficult. A further complication with respect to problems of practice is the lag between when students attend college and when their wage outcomes can be ascertained. For example, in order to report wages 10 years after college entry, College Scorecard relies on students who entered college between 2007 and 2009. The institutional environment at a college at that time could be very different than it is at present.

Despite some of these challenges, the Research Institute contends that the blueprint for high ROI is largely aligned with what most community colleges would already strive to achieve for their students. Bolstering graduation rates, improving job placement, and preparing students for growth within their careers are steps which could positively affect earnings and, therefore, ROI. The other element to earnings and ROI (which has not yet been addressed in this brief) is the importance of major or program of study. Community college students often have more control over what they study than where they study. Regardless of the institution in which they enroll, ensuring that students have the opportunity to pursue fields with better wage outcomes—often in STEM, healthcare, and skilled trades—can boost post-college earnings and ROI. At present, College Scorecard earnings data by field of study are limited to one to three years after program completion and are often redacted due to small program sizes. As data coverage on fields of study continues to expand, a key question for community colleges is which of their specific academic programs offer the highest ROI and why. Equally important is the question of how to support students who pursue fields essential to society but that happen to have lower earnings and ROI, such as teaching or social work.

Demographic Differences

In addition to overall median earnings for an institution, College Scorecard also reports median earnings by gender for male and female students, and for three levels of family income (as reported on federal financial aid applications when students are attending college): $0 to $30,000; $30,001 to $75,000; and $75,001 or more. College Scorecard data only cover students who receive federal financial aid, so even the highest income bracket available is not perfectly representative of the high-income population as a whole. Using these group-specific data in place of overall earnings, the Research Institute can calculate institution-level ROI by gender or family income. Once calculated, gaps in ROI between male and female students or high- and low-income students can be measured. Figure 3 depicts the ROI gap between male and female students at select community colleges in Texas, showing the three colleges with the largest gaps, the state average, and the three with the smallest gaps.

Figure 3: Difference in 40-Year ROI Between Male and Female Students

A bar graph that illustrates the above information

Note: ROI calculations assume net price is constant and paid for three years, the discount rate is 2%, and earnings are constant 10 years after entry.

Sources: College Scorecard, U.S. Department of Education; Georgetown University ​Center on Education and the Workforce; Research Institute calculations.

Community College Gap in ROI by Gender (Male ROI minus Female ROI)
Lamar Institute of Technology $792,000
Odessa College $666,000
Midland College $515,000
Texas Average $301,000
Texarkana College $170,000
San Antonio College (Alamo) $133,000
Dallas College $126,000
 

The average ROI gender gap across all community colleges in Texas is $301,000 over a 40-year time horizon, with male students realizing a $1,078,000 ROI to female students' $777,000. For comparison, the average ROI gender gap of community colleges in the United States is $227,000. Male students have higher ROI than female students at every community college in Texas, but the size of the gender gap varies considerably. On one end of the spectrum, Lamar Institute of Technology, Odessa College, and Midland College have the largest gender gaps of any public two-year colleges in Texas, with Lamar Institute of Technology also posting the largest gender gap at the national level. Male students at these colleges earn at least half a million dollars more than their female peers over a 40-year time horizon. At the other end, Dallas College, San Antonio College, and Texarkana College have the smallest gender gaps of any public two-year college in Texas, although even these comparatively small gaps yield a one- to two-hundred-thousand-dollar difference over a 40-year career.

Disparities in ROI may not come as a surprise given that extensive research exists to document gender pay gaps in the economy as a whole. Nevertheless, magnified over 40 years, the chasm between the post-college earnings of male and female students is startling. One partial explanation for the gender ROI gap is that the fields and, eventually, the jobs that male and female community college students pursue differ substantially. The Research Institute has explored the topic of wage gaps and career placement further in a separate report. The interaction between occupational segregation and local labor market conditions may also exacerbate gaps in community college ROI. Midland and Odessa Colleges sit within the oil-rich Permian Basin, and Lamar Institute of Technology is based in Beaumont, near Louisiana and the Gulf Coast. All three of these colleges are housed in regions where economic opportunity varies along gender lines due to the composition of industries in the area. Economic sectors like oil and gas, construction, transportation, and manufacturing (especially refining), remain male-dominated in terms of the percent of men employed relative to women.

Turning to income level, the average gap in 40-year ROI between high- and low-income students across all Texas community colleges is $282,000; the national gap for community colleges is $278,000. Dallas College falls below this with a gap of $246,000. At all community colleges in Texas, high-income students have higher ROI than low-income students. Figure 4 features the Texas average, Dallas College, and the three Texas community colleges with the widest and narrowest income ROI gaps. At Hill College, Lamar Institute of Technology, and Alvin Community College, high-income students earn at least half a million dollars more than do low-income students over a 40-year time horizon. With education often touted as a great equalizer, such wide divides are striking – students who start ahead in family income while in college remain ahead in ROI after college. St. Philip’s College, Odessa College, and Central Texas College have the narrowest income-based gaps in ROI. These results, in tandem with the results on gender, illustrate that achieving equitable outcomes at an institutional level can be nuanced. For example, Odessa College excels with respect to income equality but struggles with gender equality. Hill College has the worst income inequality in the nation but is near average in terms of gender equality. Students at Lamar Institute of Technology, meanwhile, face among the largest inequalities in outcomes by both gender and income level, with the highest and second-highest national ROI gaps, respectively.

Figure 4: Difference in 40-Year ROI Between Low-Income and High-Income Students

A bar graph that illustrates the above information

Note: ROI calculations assume net price is constant and paid for three years, the discount rate is 2%, and earnings are constant 10 years after entry.

Sources: College Scorecard, U.S. Department of Education; Georgetown University Center on Education and the Workforce; Research Institute calculations.

Community College Gap in ROI by Family Income(High Income ROI minus Low Income ROI)
Hill College $620,000
Lamar Institute of Technology $563,000
Alvin Community College $507,000
Texas Average $282,000
Dallas College $247,000
St. Philip’s College (Alamo) $117,000
Odessa College $90,000
Central Texas College $35,000
 

Explaining why students from high-income families achieve higher ROI than do students from low-income families is beyond the scope of College Scorecard data, but at least one insight can be gleaned: post-college earnings account for more of the ROI gap than the net price of college does. This does not contradict the fact that college unaffordability can, at times, prohibit students from attending college in the first place, but once they do attend, low-income students pay less than high-income students pay. College Scorecard reports separate average net prices for students by level of family income. Across all Texas community colleges, these net prices average from $5,782 per year for students with $30,000 or less in family income to $11,856 per year for students with family income of $110,000 or more. Even though students from the lowest income bracket pay less than half of what students from the highest-income bracket pay for college, low-income students’ ROI is still lower, leaving earnings differences as the only possible explanation. Averaging across all community colleges in Texas, students whose families make $30,000 or less while they are in college go on to earn $35,314 per year 10 years after college entry, while students whose families make more than $75,000 go on to earn $47,653 per year.

College Scorecard data cannot directly answer why students from low-income families go on to earn less than those from high-income families and, as a result, end up with lower ROI. However, the Research Institute postulates that a web of interwoven factors is at play—one all too familiar to community college faculty and staff. Students from low-income families may have uneven academic preparation and are more likely to be first-generation. They may have a heightened risk of dropping or stopping out, whether due to academic challenges or to support their families financially. Even upon graduation, they may lack the social and cultural capital instrumental to landing lucrative jobs with high earnings. In the most extreme cases, poverty, housing security, and food security can also be major obstacles. Developing a robust support system for students from low-income families is no simple task, but it is inarguably critical as colleges seek to achieve more equitable outcomes, including those related to ROI. This is especially true of community colleges, given the special role their open-access mission entails.

In Closing

In this analytical brief, the Research Institute at Dallas College puts forward an initial look at the ROI of community colleges, with a focus on Texas. The analysis shows that enrollment at a typical community college can represent a lifetime value of hundreds of thousands of dollars but notes that ROI will vary significantly by student. Some ROI differences can be explored using College Scorecard data, like differences by gender or income level, but others, like differences by race or ethnicity, remain opaque. Data limitations also necessitate several assumptions in ROI calculations, and future work remains to better tailor these assumptions to the community college student population in Texas and elsewhere.

The focus on pecuniary ROI should not diminish the many other holistic benefits that college can offer. Learning for its own sake, fostering critical thought and civil discourse, and spurring enterprise and innovation are indispensable benefits of education. the Research Institute recognizes that ROI is an imperfect, summary figure. All the same, it also acknowledges the urgent need of students—especially community college students—for a pragmatic and grounded assessment of what they are getting for the cost of their degree or certificate. Especially as Texas enrollment at two-year institutions has declined by nearly 15% during the COVID-19 pandemic, accurately understanding, improving upon, and effectively communicating the economic value or ROI that community colleges have to offer is key.

Appendix

This analysis defines ROI as the net present value (NPV) of a student’s future earnings minus their costs, discounting at a 2% annual rate after the first year of college. NPV assigns a dollar value to what flows of money in the future are worth in the present. The primary data source for ROI calculations is College Scorecard. College Scorecard data are based only on students who receive federal financial aid—about 60% of college students in the United States and 62% in Texas. For data on earnings, College Scorecard reports median annual earnings by institution six, eight, and ten years after entry to college. Median earnings data are available at the institutional level, by gender, and for three family income brackets: $30,000 or less; $30,001 to $75,000; and $75,001 or more. For data on costs, College Scorecard reports average annual net price by institution, which includes tuition, fees, supplies, and cost of living, and subtracts grants and scholarships. Average net price data are available both at the institutional level and for five family income brackets: $30,000 or less; $30,001 to $48,000; $48,001 to $75,000; $75,001 to $110,000; and $110,000 or more. When calculating ROI for low-income and high-income students, net price data for the two lowest and two highest brackets are averaged together, respectively, to construct three income groups which align with those available in the earnings data.

To estimate earnings in years where data are not available, earnings within the first 10 years after entry to college are interpolated using the six-, eight-, and ten-year median data. ROI calculations assume that earnings remain constant after 10 years, in keeping with the approach used by the Georgetown University Center on Education and the Workforce. It is also assumed that students do not work while enrolled, when two-thirds of community college students balance their course load with employment. These assumptions mean that the ROI estimates produced here are conservative (on the lower end of what is possible); insofar as they may be off, they are an underestimate of the true value of college. On the cost side, the analysis assumes that all net costs are paid upfront rather than being repaid over time via loans. Assuming costs are paid upfront means debt and interest rates are not accounted for. With respect to how long students spend in college, the analysis assumes five years at colleges that predominantly award four-year degrees, three years at those that predominantly award two-year degrees, and one year at those that predominantly award less-than-two-year certificates. These assumptions on time spent in college account for the fact that many students take longer to complete college than the number of years typically associated with a four- or two-year credential. Students who finish college in fewer years have higher ROI than those who take longer to complete, all else equal.

Figure 5 illustrates how ROI is modeled for a typical institution, in this case Dallas College, by showing undiscounted costs and earnings over time. For the first three years, the student pays the net price of college; in subsequent years, they earn a wage. Earnings are flat from 10 years onward by assumption, but their net present value would decline with the 2% discount rate when used to calculate ROI. The ROI at any point in time is the summation of the discounted costs and earnings to that point. For Dallas College, this means that ROI ranges from $190,000 ten years after entry to $893,000 thirty years later.

Figure 5: A Typical Dallas College Student’s Average Costs and Median Earnings Over Time

A bar graph that illustrates the above information

Note: ROI calculations assume net price is constant and paid for three years and earnings are constant 10 years after entry. Undiscounted earnings and costs are shown, but a 2% discount rate is used for ROI calculations.

Sources: College Scorecard, U.S. Department of Education; Georgetown University Center on Education and the Workforce; Research Institute calculations.

Years After Entry to Dallas College Earnings and Costs
1 -$4,739
2 -$4,739
3 -$4,739
4 $27,886
5 $29,496
6 $31,105
7 $32,937
8 $34,768
9 $36,156
10 $37,543
11 $37,543
12 $37,543
13 $37,543
14 $37,543
15 $37,543
16 $37,543
17 $37,543
18 $37,543
19 $37,543
20 $37,543
21 $37,543
22 $37,543
23 $37,543
24 $37,543
25 $37,543
26 $37,543
27 $37,543
28 $37,543
29 $37,543
30 $37,543
31 $37,543
32 $37,543
33 $37,543
34 $37,543
35 $37,543
36 $37,543
37 $37,543
38 $37,543
39 $37,543
40 $37,543