39 Chapter 3: Methodology As shown in Table 3.4, the $2.6 million in gross higher earnings occurs around Year 16, which is the approximate midpoint of the students’ future working careers given the average age of the student population and an assumed retirement age of 67. In accordance with the Mincer function, the gross higher earnings that accrue to students in the years leading up to the midpoint are less than $2.6 million and the gross higher earnings in the years after the midpoint are greater than $2.6 million. On a per student basis, the total undiscounted increase in lifetime earnings of students that complete the program is $433.8 thousand (Figure 3.1). The final step in calculating the future benefits stream of the Business program’s students is to net out the potential benefits generated by students who are either not yet active in the workforce or who leave the workforce over time. This adjustment appears in Column 3 of Table 3.4 and represents the percentage of the FY 2021-22 Business program student population that will be employed in the workforce in a given year. Note that the percentages in the first five years of the time horizon are relatively lower than those in subsequent years. This is because many students delay their entry into the workforce, either because they are still enrolled at the college or because they are unable to find a job immediately upon graduation. Accordingly, we apply a set of “settling-in” factors to account for the time needed by students to find employment and settle into their careers. As discussed under the alumni impact, settling-in factors delay the onset of the benefits by one to three years for students who graduate with a certificate or a degree and by one to five years for degree-seeking students who do not complete during the analysis year. Beyond the first five years of the time horizon, students will leave the workforce for any number of reasons, whether death, retirement, or unemployment. We estimate the rate of attrition using the same data and assumptions applied in the calculation of the attrition rate in the alumni impact.38 The likelihood of leaving the workforce increases as students age, so the attrition rate is more aggressive near the end of the time horizon than in the beginning. Column 4 of Table 3.4 shows the net higher earnings to Business program students after accounting for both the settling-in patterns and attrition. Return on investment for students Having estimated the students’ costs and their future benefits stream for the Business program’s students, the next step is to discount the results to the present to reflect the time value of money. For the student perspective we assume a discount rate of 4.4% (see below). Because students tend to rely upon debt to pay for education—i.e., they are negative savers—their discount rate is based upon student loan interest rates.39 In Appendix 2, we conduct a sensitivity analysis of this discount rate. The present value of the benefits is then compared to student costs to derive the investment analysis 38 See the discussion of the alumni impact in the previous section. The main sources for deriving the attrition rate are the National Center for Health Statistics, the Social Security Administration, and the Bureau of Labor Statistics. Note that we do not account for migration patterns in the student investment analysis because the higher earnings that students receive as a result of their education will accrue to them regardless of where they find employment. 39 The student discount rate is derived from the most recent three-year average baseline forecasts for the 10-year Treasury rate published by the Congressional Budget Office. See the Congressional Budget Office, Student Loan and Pell Grant Programs – May 2022 Baseline. https://www.cbo.gov/data/baseline-projections-selected-programs.
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