As an avid reader of BusinessWeek, I was interested in a recent article outlining the most comprehensive study I’ve seen to date on trying to actually pinpoint what kind of return on investment (ROI) a particular college delivers to graduates. Anecdotally, we all know that guy who went to a prestigious private school for $40,000 per year, goofed off for 4-5 years, majored in history and now he’s a realtor or some other profession where his degree was not utilized one bit. Conversely, there’s the high school grad who took over dad’s landscaping business without going to school and he’s raking it in because he grew the business and never even needed a degree. Thus, it’s important to think about which colleges make sense (in aggregate) from an ROI perspective to give yourself or your child the best chance of pursuing such a costly endeavor and having it actually pay off.
This report breaks down schools by various criteria, but the ones I honed in on are what it costs for a 4 year degree vs. total earnings over a lifetime and how that translates into an ROI. What’s missing unfortunately, is the major, but then this would turn into a science project. For instance, does a history major from Princeton end up making more than an electrical engineer from the University of Florida (ranked a best bargain school by the study).
Top Colleges as Ranked by ROI:
1 Massachusetts Institute of Technology (MIT) 12.6 %
2 California Institute of Technology (CIT) 12.6 %
3 Harvard University 12.5 %
4 Harvey Mudd College 12.5 %
5 Dartmouth College 12.4 %
6 Stanford University 12.3 %
7 Princeton University 12.3 %
8 Yale University 11.9 %
9 University of Notre Dame 12.1 %
10 University of Pennsylvania 11.8 %
It was interesting to see that the top was populated with ivy league schools. While they cost much more to attend, presumably, on average, the top education and cache that an ivy league eduction carries more than makes up for the cost. Looking at it from a sheer ROI standpoint, aside from perhaps owning real estate, there’s no common asset class where a typical American can expect to earn double digit returns on investment, so these colleges appear to be well worth the expense over a career.
The Worst Schools by ROI:
852 Black Hills State University 4.3 %
851 Shaw University 4.4 %
850 Black Hills State University 4.6 %
849 Davenport University 5.4 %
848 Cameron University 5.6 %
847 Campbell University 5.2 %
846 Northeastern State University 5.7 %
845 Chicago State University (CSU) 5.3 %
844 University of Arkansas – Little Rock 5.4 %
843 Cameron University 6.1 %
These were the worst schools on the list by ranking, with the ROI just better than long term CDs or bonds you could have purchase a few years ago, meaning, you probably would have been better off taking all that money spent on college, investing it, working a high-school equivalent job, over going to college (at least according to their methodology). Not to worry if you went to many of these schools though, perhaps you’ve flourished and are not “typical”, but if considering one of these colleges in the near future, you may want to think twice.
Personally, I tend to think that the actual major has such a large bearing on both starting salary and lifetime earnings that even this comprehensive report is rendered somewhat useless, but it is a good data point for prospective college students perhaps considering several colleges for a broad-based or open-ended entry to college while they figure out what they want to do with the rest of their lives. Are those 529 Plan dollars best spent at a local state university or a low-ranking private school? It’s good to have some data to assist in your decision.