“College tuition.” Those two words together strike fear into the hearts of parents and students across the country who struggle to pay for a degree before entering the job market. Many schools now charge over $100,000, or even over $200,000, in tuition, room and board, for that precious graduation certificate. But, in the end, is it worth the expense?
Online salary database PayScale.com decided to take this issue head on and figure out how valuable a four-year college degree is over a 30-year period of work for 554 U.S. colleges. They did so using a common business calculation: return on investment (ROI).
PayScale figured out how much more a college graduate of a certain school makes in 30 years of working compared to a high school graduate, then subtracted tuition, room and board costs, factored in the school’s graduation rate (non-graduates see little improvement in pay over high school graduates), did some number crunching and came up with a handy guide for potential students and their funders: a breakdown of whether college tuition is worth the investment.
Which schools are worth your precious cash?
According to PayScale’s research, you should look for nationally recognized private schools, particularly those with an engineering focus. Hence, MIT is at the top of the list, followed closely by Ivy League schools like Harvard, Stanford and Princeton. A recent graduate of MIT will have spent approximately $189,300 to get his degree. But, that cost will yield him $1,688,000 (in 2010 dollars) more in earnings over 30 years than not having graduated from college.
And, to help those writing tuition checks feel better about where they’re putting their money, PayScale also calculated an annualized ROI for each school’s tuition. Continuing with the MIT example, PayScale found that the money spent on a degree there returns 12.6% per year over 30 years. Compared to the stock market, that percentage of return is competitive. Over the last 30 years, with dividend earnings included, the S&P 500 has returned about 11%, according to Yale economist Robert Shiller.
“For every year of work, the typical MIT grad earns $50,000 more than the typical high school grad,” says Al Lee, PayScale’s director of quantitative analysis, who led the study. However, MIT isn’t a typical school in terms of money growth. In fact, only 16% of schools on PayScale’s list beat the S&P 500.
For example, George Washington University is a small private school with a high price tag — more than $200,000 in tuition, room and board over four years (in 2009 dollars) for recent grads. What is the annualized return on that money over 30 years? Ten percent. That’s a decent rate of return, but it doesn’t out-perform the S&P 500 or give you back what MIT or Harvard would.
Is tuition a worthwhile investment at a small, private school? Lee recommends that if you’re paying full price for a less well-known, private school, you need to think hard about whether the non-financial advantages of attending that college make up for the lower return.
However, if you can get financial aid, it completely changes the picture. Finding scholarship money really improves your long-term return calculation. Or, if you’re really fortunate, you could take advantage of offers like Stanford’s University Scholarship, where students who are accepted to the school and whose families earn under $60,000 a year receive tuition, room and board for free.
Keep in mind, each student is unique, so a low-earning graduate from a highly ranked school like Stanford may earn less than a high earner from a public school like the University of Washington. Engineering schools, though, tend to have a floor below which their graduates’ earnings do not fall. They are usually a safe investment.
If you want to spend as little as possible on your tuition and earn back as much as you can, an in-state, public school with a technical focus, like Georgia Tech, is your best bet, according to PayScale’s research.
Which 10 schools are the best investments?
See the list below. They are all private and well-recognized by most Americans. The closest public school to the top is the University of California at Berkeley. It ranks No. 16 with a sizable annualized return of 13.1%. Check out the PayScale college ROI package to compare college costs and the potential return on investment for each school.