Want to Know What the ROI on Your College Is? Report Tells All

by Darwin on July 12, 2010

That Was Expensive!

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.


{ 2 comments… read them below or add one }

Financial Samurai July 13, 2010 at 1:25 am

Interesting how the top ROI colleges are all private. There’s definitely a bias there, and I wouldn’t believe much of what this report is saying!


Bernard September 13, 2011 at 11:26 pm

They are private but those schools help their students get top paying jobs and the schools also have excellent financial aid programs. Its rare that their students pay full tuition.


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