Is College Still Worth It?

From Bloomberg By Louis Lavelle on April 09, 2012

When people talk about
the value of a college degree, they mean different things. A report
last year by Georgetown University’s Center on Education and the
Workforce pegs the median value of a four-year bachelor’s degree at $2.3 million, which is the average earnings for a degree holder employed full-time from ages 25 to 64. The value of a college investment calculated by PayScale, a Seattle-based compensation data company, for Bloomberg Businessweek is a small fraction of that amount, and to understand why, you need to know a little bit about our methodology.

The PayScale methodology
differs from most others in several key respects. Instead of using
lifetime earnings, it starts with earnings over a 30-year period. From
that figure, we deduct the earnings of a typical high school graduate
(since most people who don’t go to college would still have earnings,
albeit at a much lower amount). In our return on investment (ROI)
calculation, the “investment”—or total net cost—is the amount spent on
college over the actual time it takes students to graduate, whether
four, five, or six years. Finally, our ROI figures are adjusted using
each school’s graduation rate. After all, if you don’t graduate, you’ve
made an investment with very little financial return. The result is a
return that reflects what incoming students can reasonably expect from
their investment.

In 2012, both the cost of a college education
and graduate earnings took a bite out of the 30-year college ROI, which
fell 2.3 percent to an average of $353,182 when comparing the same set
of schools in 2011 and 2012, and fell 7.8 percent to $333,455 when
comparing both lists in their entirety, 691 schools in 2011 and 853
schools in 2012. (To view the complete 2012 ranking, click here.)

While
our methodology underwent significant changes last year and this year,
those figures represent an apples-to-apples comparison. On the cost
side, they reflect the college sticker price for tuition, room and
board, and books, without financial aid factored in, which increased 6
percent. On the earnings side, they reflect the earnings of college
graduates (which decreased by 1 percent) in excess of the median pay of a
high school graduate.

Two important changes to our methodology in
2011 and 2012 had the net result of reducing ROI dramatically. Since
many students receive grant aid from their institutions, starting last
year we began deducting average grant aid from college costs, which has
the effect of increasing ROI. But starting this year, we made a second
change that has the opposite effect: using 75th percentile high school
graduate pay (instead of the median) to calculate how much each
college’s graduates earned over and above the pay of high school
graduates. We believe the 75th percentile more accurately reflects the
pay of individuals capable of winning acceptance to college or who spent
a few years in college before dropping out.

Looked at that way,
ROI is only a fraction of what it was last year: on average, $152,114
for all 853 schools on our list, including two separate ROI calculations
for state institutions using in-state and out-of-state tuition. Private
schools did far better than publics, with 30-year ROI of $222,047,
easily surpassing public schools for students paying in-state tuition
($122,987) and out-of-state tuition ($100,155).

Nearly a third of
the top 30 schools were engineering schools, including the top three
institutions: No. 1 Harvey Mudd College, No. 2 California Institute of
Technology, and No. 3 Massachusetts Institute of Technology. All three
schools had 30-year ROI well above $1 million, a claim only 11 schools
could make. On average, engineering schools had ROIs of $603,362, more
than double the ROI for liberal arts schools ($245,943), more than
triple that of business schools ($141,014), and more than 26 times that
of arts and design schools ($22,328).

The only schools that fared
better than engineering schools were those in the Ivy League. Seven of
the eight Ivies are in the top 15, and the average ROI for all eight was
more than $1 million. While costs for these schools are high, several
factors worked in their favor, including generous financial aid and
excellent graduation rates—both in terms of how many students ultimately
graduate and how long it takes them to do so. The weighted net cost to
graduate was $84,241—less expensive than half the schools on the list,
and half the cost of the most expensive.