To Protect Taxpayers, States Should End Funding For Dead-end Degrees

Overview  

More than four million students are awarded college degrees across the country each year.¹ Unfortunately, many of these degrees fail to deliver a return on investment for students.² Even worse, both federal and state taxpayers are subsidizing these dead-end degrees at colleges and universities across the country.^3-4

This problem was addressed by Congress and President Trump through the One, Big, Beautiful Bill. The legislation encompassed multiple education reforms, including cutting off federal student aid for degree programs that fail to lead to higher earnings.⁵

States should build on this success by ensuring that no state or locally appropriated funds are used directly or indirectly to support failing degree programs.

The problem with dead-end degrees

While the United States has some of the best colleges and universities in the world, its higher education system is not without issues.

Every year, tens of thousands of students graduate with dead-end degrees.⁶ These degrees take students’ time and often push them into starting careers with debt, while leaving them worse off financially than if they had not pursued the degree.⁷

Nearly one in four bachelor’s degree programs and more than two in five associate and master’s degree programs provide their students with no positive return on investment.⁸ This may be fine for individuals if it helps them grow in other areas, but taxpayers are also on the hook for funding these dead-end degrees.

Federal and state taxpayers provide generous subsidies for degrees awarded at public and private colleges and universities. For example, the average bachelor’s degree from a public institution comes with a more than $60,000 subsidy from taxpayers.⁹

Federal taxpayers are on the hook for dead-end degrees through federal student loans and loan forgiveness. The federal government loans tens of billions of dollars to college students every year.¹⁰ Roughly one out of every three dollars distributed through federal student loans and Pell Grant funding goes to programs with a negative return on investment for students.¹¹

These loans were originally designed to generate revenue for the federal government but have since become a roughly $200 billion burden.¹² Forcing taxpayers to subsidize federal student loans is even worse when considering the myriad attempts the Biden administration made to forgive student loan debt and the possibility that a future administration could do likewise.^13-15

Fortunately, Congress and President Trump are reversing course for taxpayers through the One, Big, Beautiful Bill.

A new federal test for dead-end degrees

The One, Big, Beautiful Bill enacted generational welfare reform, helping to move individuals from welfare to work and preserving resources for the truly needy in programs like food stamps and Medicaid.^16-18

But the legislation also made key educational reforms. Besides adjusting student loans, broadening Pell Grant opportunities, and creating new tax credits for funding school choice scholarships, it takes strong action against dead-end degrees.^19-20

The One, Big, Beautiful Bill creates a “do no harm” test for college degree programs, and programs that fail the test lose eligibility for federal student loans.²¹ The test compares median earnings for graduates four years after completion of the program with earnings the students could have expected if they had not pursued the degree.²² Graduates with undergraduate degrees are compared to working individuals aged 25 to 34 with only a high school diploma.²³ Graduate degree holders are compared to either working individuals aged 25 to 34 who only have a bachelor’s degree and are in the same state as the institution, have an undergraduate degree in the same field of study, or are in the same state and field of study.²⁴

This test is truly conservative, designed to root out the lowest of the low degrees in terms of value added. The graduate degree test uses the lowest benchmark of three options, reducing the threshold that graduate programs must clear to pass the test.²⁵ The test also only considers individuals’ earnings who completed the degree, not the nearly 37 million who have started a program but then dropped out.²⁶

A program must fail the test in two out of three years to lose access to federal student loans, another way the test is designed to catch only the worst.²⁷ Colleges or universities can then reapply to regain federal student loan eligibility after two years of ineligibility have passed.²⁸

Not all programs that fail to provide their students with a positive return on investment will fail this “do no harm” test, but it will make a huge impact. In one academic year alone, the federal government dispersed $3.3 billion in federal loans to students in programs that are likely to fail the “do no harm” test.²⁹ In total, the Congressional Budget Office estimates that this measure will save taxpayers roughly $900 million.³⁰

The law will also force higher education institutions to think twice about what types of programs they offer students, since those that do not benefit students financially will not be able to count on federal student loans to pay tuition.

States should build on this federal momentum by ensuring that state or local dollars do not flow to dead-end degrees.

States should cut off funding to dead-end degrees

While the One, Big, Beautiful Bill cuts off student-level aid for dead-end degrees, states should build on this by cutting off all state and locally appropriated funds for failing degree programs.

States should prohibit any state or local funds from being used directly or indirectly on any dead-end degree program. These prohibitions should include money for individual student aid, base operational or instructional funding, separately or specially appropriated aid or grants, and capital or facilities funding.

At a minimum, states should apply these prohibitions to programs that fail the federal government’s “do no harm” test, meaning they are ineligible to receive federal student loans. This list of programs should be reviewed and updated annually as the federal list is updated.

Because many programs may not fail the federal test but still provide students without a positive return on investment, states should be open to going beyond the federal list. They can do this by prohibiting state or local funding to any program that has a negative return on investment for students. For example, in the first year of a similar requirement in Utah, eight public schools recommended eliminating more than 270 programs.³¹

Taxpayer dollars should not be required to support programs that leave students in a worse financial position than had they not pursued the degree. The generous five-figure and even six-figure taxpayer subsidies for dead-end degrees should be cut off.

States should also require an annual publicly available report detailing programs prohibited from receiving state aid, enforcement of such prohibitions, and the estimated fiscal impact due to the prohibitions. In addition, states should require higher education institutions to notify students enrolled in at-risk programs.

The Bottom Line: Federal and state taxpayer money has been squandered on degrees that do not benefit students financially. Congress and President Trump have acted to cut off funding for dead-end degrees at the federal level, and states should implement their own reforms to do likewise.

Across the country, college degree programs are leaving graduates in a worse financial position than if they had not pursued the degree. Both federal and state taxpayers support many of these programs despite their failures.

Congress and President Trump acknowledged this problem and worked to address it with the One, Big, Beautiful Bill. The law institutes a new test, through which failing programs lose their eligibility for federal student loans.

States should build on this by ensuring that no state or local money goes to programs that fail this new federal test. States should also look at expanding this prohibition to other programs that fail to provide their students with a positive return on investment.

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