Via the WSJ’s Real Time Economics blog, PayScale has released the results of a study that attempts to provide an ROI for college education. From the WSJ:
The study surveyed results from self-reported compensation data from 1.4 million college graduates across 852 public and private institutions. ROIs were calculated based on the cost of college — tuition and fees, room and board, and books and supplies — and the estimated median pay for that graduate plus four-to-six years to compensate for time spent in school. Costs don’t account for financial aid. The 30-year returns are reflected in real terms and the annual ROI figures include a 4.3% yearly wage inflation.
Overall, the best value proved to be public schools attended by in-state students, yielding a 9.7% average net annualized ROI. The worst deal was attending an out-of-state public school, yielding an annualized net ROI of 8.4%. The net annualized return for private institutions was 9.1%.
The study suggests that a bachelor’s degree has been devalued with lower ROIs over the years, though advanced and professional degrees are seeing greater returns. It also points to the longtime belief that attending an elite university matters — Ivy League schools take up five spots in the top 10.
The top-10 colleges ranked by 30-year ROI were:
- Harvey Mudd College
- Notre Dame
Not a whole bunch of surprises there. However, this just looks at the total dollar amount. If you sort by Annual Rate of Return (a measure of the value of the investment, not just the total return) my alma mater, The College of New Jersey, outranks UPenn, Yale, and Notre Dame. Plus, there are all sorts of questions one can raise about their methodology (which can be found here.).
First, they rely solely on self-reported income from graduates. I can think of all sorts of selection effects here that could be skewing the data. Second, they do not include individuals that are not full-time hourly or salaried employees. That means project- and contract-based employees are left out of their sample. What’s more, self-employed graduates are also excluded. Third, this simply looks at former students who only received a bachelor’s degree. Those that went on to earn graduate and professional degrees were excluded. I can understand why they did this–makes it easier to draw a line from school invested in to future earnings–but there is something to be said for the effect of one’s undergraduate degree and their likelihood of being accepted into a solid post-graduate program and the future earnings that result. Admittedly, this would prove difficult to incorporate into the study.
There are all sorts of ways to view ROI and the value of an investment in a bachelor’s degree. So I decided to have a little fun and play with the data. I created my own composite ranking by adding each school’s ranking across the three criteria listed: average cost, total 30-year ROI, and annual ROI. I then ranked the schools by this composite (much like golf, the lower the score the better their ranking). You can view the data in sortable form here. By my composite metric, the top-10 looks quite different. In fact, not a single school overlaps:
- Brigham Young
- University of Virginia
- College of William and Mary
- Georgia Tech
- University of Florida
- James Madison University
- University of Delaware
- Virginia Tech
- University of Michigan
I certainly wouldn’t claim any scientific validity or superiority of my composite measure (especially since I am relying on PayScale’s data, which I argued above was problematic). However, it should put me in good standing with all the Brigham Young graduates out there.