Choosing a College: Which Schools Offer the Best ROI?

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Paying for CollegeEarlier this week, President Obama weighed in on college loan debt, telling students at the University of North Carolina, Chapel Hill that he and his wife had only finished paying off their loans "eight years ago." Put another way, the Obamas -- a pair of highly-educated lawyers with high-profile, high-paying jobs -- were still working on their student loan debt when he was 43 years old and his wife was 40.

As the president's experience demonstrates, the classic perception of a college degree as a solid investment that will quickly pay for itself is starting to come under fire. Rather than offering a ticket to a stable, high-paying job in return for a few thousand dollars worth of loans, today's educational model is, all too often, offering students little more than a ticket to underpaying jobs, coupled with a near-insurmountable debt load that, for many, will take a lifetime to pay off. As the President has noted, the anticipated rise in Stafford student loan interest rates -- they're slated to increase to 6.8% this year -- will only make things harder on students.

Weighing Options

Not surprisingly, collegians are having to become more thoughtful, careful consumers. As we've noted in the past, there are several ways to improve the return on a college education -- between taking community college courses, comparing the financial viability of various majors, carefully weighing graduate school choices, and exploring creative scholarship options, it's possible to keep tuition costs down while maximizing a post-college paycheck. But for many students, there is still one major question to consider: How much does college choice translate into earnings potential? Or, to put it another way, can post-graduation earnings justify the $40,000 yearly cost of a Harvard education?

PayScale, an online salary, benefits and compensation information company, may have found an answer. The site just released its 2012 ROI Rankings, a comparison of the average return on investment for over 1,200 American colleges and universities. Pairing tuition and student aid information from colleges and universities with self-reported data from graduates, the site compares the likely cost of an education with the likely return.

Some of PayScale's findings are surprising. For example, it shows that Ivy League schools, which are generally regarded as the gold standard of college investments, don't top the list of best deals. In fact, the top four schools are Harvey Mudd, Caltech, MIT, and Stanford, all of which have an average 30-year net income of $1.1 million or more. Looking solely at net return on investment -- basically, the amount of money that a graduate will earn over 30 years -- PayScale's analysis suggests that private schools are by far the best choice. In fact, taken from this perspective, only three public schools crack the top 20.

Best Return on Investment

But net return on investment might not be the best measure of a college's profitability. After all, while Cornell, an Ivy League school, has an average ROI of $857,500 in salary over 30 years, its steep $209,600 price tag means that its actual profitability is fairly low. In fact, if one compares tuition cost to salary return, public schools quickly soar to the top of the list: the Georgia Institute of Technology, the Colorado School of Mines, the State University of New York's Maritime College and the University of Virginia take top honors with a yearly return on investment of 11.4% or more. Meanwhile, Princeton, the highest-ranked Ivy League, tumbles to number 17 on the list with a yearly ROI of only 10.6%.

Granted, college choice is only one of many factors that determine how profitable a degree will be. But for parents and students who are trying to decide whether to take out tens of thousands of dollars in loans to pay for a Harvard degree, the fact that the school's average yearly return on investment barely tops 10% may make the decision a lot easier -- especially if they're looking at making 20 years of loan payments at interest rates of close to 7%.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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15 Comments

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cvnchichay

Only half the story. The other half are the students themselves. Just like this country is the land of opportunity, but only for those willing to work hard to take advantage of the available opportunities.

April 28 2012 at 11:00 AM Report abuse +1 rate up rate down Reply
cvnchichay

Only half the story. The other half are the students themselves. Just like this country is the land of opportunity, but only for those willing to work hard to take advantage of the available opportunities.

April 28 2012 at 10:58 AM Report abuse rate up rate down Reply
luvtopleaze

This is how many kids look at the economics of the schools they choose.....how much money will mommy and daddy give me and how big of a loan can I get ?

Then they pick an expensive school to get a degree in a moderate paying career and then complain that their loans are too big.

Duh !!!!!!!!!!!!!!!!!!!!

April 28 2012 at 9:41 AM Report abuse rate up rate down Reply
snapdoc

This study fails to consider that several of the colleges that comprise Cornell University are state-endowed (Agriculture & Life Sciences, Human Ecology, Industry & Labor Relations and the School of Veterinary Medicine). As a graduate of Cornell University's state-endowed College of Agriculture and Life Sciences, I consider it one of the best values in education in our country.

April 27 2012 at 9:41 PM Report abuse +1 rate up rate down Reply
the aol experien

I get the feeling that these kids think that if they get a college education, the schooling keeps going on and on. Then they get a job and they think that it's just like school, you know, no real work. Reality check, to work in something besides windmills and algae fuel, you will have to work on average 70 hours a week just to hope to be advanced, and if you are lazy, ff the Mc Donalds. I have a great idea, go to a good trade school become a plumber, IT person and make six figures and still have weekends off.

April 27 2012 at 9:33 PM Report abuse rate up rate down Reply
1 reply to the aol experien's comment
Tom

Those networks and servers have to work 24/7 365. Plenty of IT professionals don't get weekends off.

April 28 2012 at 10:11 AM Report abuse rate up rate down Reply
Richard Broderick

go Princeton!

April 27 2012 at 8:56 PM Report abuse rate up rate down Reply
alpambuena

the best way to cut cost, if you really want to go to college, is to obatain a 2 year degree, either on line, or at a local community college, then transfer, to finish up...first of all you will avoid the hassle of the first two years, and in the mean time, you can get some work experience, while you get the 2 year degree. another thing, is that you will be 2 years older, and much more ready to tackle college, with a better more thought out commitment. do not get sucked in to what everybody else does, or all the fancy online advertisements from colleges...its all fluff, and will not get you a degree any faster.

April 27 2012 at 8:39 PM Report abuse rate up rate down Reply
Sexy Hornball

ok , I spent 100,000 on my daughters college, she makes 10 bucks an hour in California, Poverty level < I have a high school dipolma, and have made over 2 million in the last 20 years, whats wrong with this picture?

April 27 2012 at 4:23 PM Report abuse +1 rate up rate down Reply
2 replies to Sexy Hornball's comment
itacurubi

What's wrong appears to be your apparently unexamined metric of why one might want to be educated.

April 27 2012 at 5:47 PM Report abuse -1 rate up rate down Reply
yankeei

Nothing is wrong. You've given your daughter options for her life down the road. She'll never be sorry, and neither will you that you both invested in her future. Hey, don't get trapped in the "instant return" mentality. It will come.

April 27 2012 at 6:48 PM Report abuse rate up rate down Reply
wolfnus

The SCHOOL matters a LOT less than the major. Students should do research on the labor market. Many sources are available to help them gain knowledge about current and future job openings in various fields. They need to select a major that will get them skills that employers will want when they graduate.. Parents need to help their children do this research and guide them into the right majors. A "fun" major is nice while they are IN college but NOT when they graduate and come back to live in your basement because no jobs are available for them.
The "student debt" issue is less of a problem that many people think. The AVERAGE (mean) debt is about $25,000 and the more important median debt is about $12,000. The AVERAGE debt is higher because it is affected more by those stupid enough to borrow sums like $100,000-plus to go to some expensive private school. The average monthly payment on student loans is only a litttle more than $100, about the price for cell phone/computer services and less than the payment on most car loans.

April 27 2012 at 3:21 PM Report abuse +1 rate up rate down Reply
rforeverfree

the ones that enable to get a job after graduation.

April 27 2012 at 2:14 PM Report abuse +1 rate up rate down Reply