The U.S. Department of Education (ED) made waves last month with its proposed rule to overhaul student loan repayment at a cost of $361 billion or more. Less discussed was a second proposal to create a list of federally funded higher education programs with low financial value. Programs on the “shame list” can still access federal grant and loan funding, but ED hopes the list will urge students to think twice before enrolling.

Can shaming colleges work?

The federal government lavishes taxpayer money on thousands of programs that provide little financial return. As a result, 11 million borrowers were in default or delinquent on their federal student loans in 2019. Moreover, ED is currently slated to cancel over $200 billion in loans repaid through income-driven plans because students do not earn enough to pay off their loans in full.

Making the student loan repayment system more generous might make student debt more manageable, but it will do nothing to improve the underlying quality of the education that debt finances. In fact, it may even further subsidize low-value degrees.

The shame list aims to tackle that problem. While the list is far from adequate to address the problem of low-quality degrees—previous attempts at a “shame list” have had little impact on students’ enrollment decisions—more transparency about student outcomes in higher education is a step in the right direction.

ROI: The best measure of a program’s financial value

ED solicited comments from researchers and the public on information and principles to guide the construction of the list. My comment, available here, focuses on how such a list could be optimized to target programs with a low return on investment (ROI).

ROI is the most comprehensive measure of a program’s financial value. It is the increase in lifetime earnings that a student can expect from a college degree, minus the costs of acquiring that degree. FREOPP has produced estimates of ROI for tens of thousands of federally funded programs. However, calculating ROI requires estimating students’ lifetime earnings based on incomplete data or waiting decades to collect actual data, neither of which is a practical option for ED.

Instead, ED should rely on proxies for ROI which are simple to understand and easy to calculate on an ongoing basis. As I show in my comment, students’ median earnings three years after graduation are highly correlated with the ROI of the program from which they graduated. However, estimates of ROI can help us put earnings figures in context.

Among undergraduate programs, a program is more likely than not to yield a lifetime financial payoff if median earnings three years after graduation exceed $30,000 (though there are still plenty of negative-ROI programs in this range). Programs become more likely to pay off as earnings rise. Fewer than five percent of undergraduate programs with median earnings exceeding $45,000 have a negative financial return; students pursuing programs with incomes above this level can be highly confident that their educational investment will pay off.

Graduate programs must meet a higher standard. Graduate degrees are more likely than not to leave students worse off financially when median earnings are below $45,000. Because graduate students already have four-year degrees, students who enroll in these programs have higher earnings potential before enrollment. The graduate school must produce even higher earnings if the additional degree is to pay off.

While earnings are the best proxy for overall financial value, other outcomes metrics can provide additional context. For instance, two programs can have similar earnings outcomes but different ROI if the cost of one program is higher. The ratio of discretionary earnings (earnings above 225 percent of the federal poverty level) to the price of tuition, which is also highly correlated with lifetime ROI, can help inform students about the value of education relative to its cost.

Ultimately, shame isn’t enough of a deterrent

While ED’s effort to “name and shame” programs with poor financial value is welcome, it cannot be the last word on higher education accountability. Congress also needs to take up the issue to ensure that taxpayer dollars only flow to institutions that provide students with a financial return for their investment in education.