Going to college is the biggest investment most of us will make, second to buying a home. With tuition outpacing inflation and tech billionaires telling us not to bother, we start to wonder: is college worth it?
Some see higher education as a transformational experience, enriching our lives in intangible ways. Life’s most rewarding experiences can’t be measured in dollars. Do we backpack across Europe for the financial return?
Yet colleges manage to put a price on education. Yale’s tuition in 2022 is $62,250 per year, not including room and board. That’s up 280% from what Yalies paid 25 years ago. The price of that Ivy League degree is nearly double that of the average private college.
So it’s fair for any non-zillionaire to ask, what’s the value of a college degree?
How to Calculate the ROI of College
ROI comes down to lifetime earnings divided by cost. If you spend $200,000 on college and earn $1,000,000, your lifetime ROI is 500%. Factors like completion rates and financial aid complicate the calculation, but that’s the basic idea.
It’s critical to look at both earnings and cost, since ROI is the ratio of the two. A two-year Associate’s degree yields a high ROI, because cost is minimal. It doesn’t mean an AA is the path to riches. Conversely, taking 5 years to get your BA means more tuition and less time working, so ROI drops dramatically.
Some ROI calculations ignore financial aid. Less than half of Yalies will pay that hefty sticker-price. For a family earning $75,000 or less, Yale expects zero family contribution, boosting ROI.
Does College Have a Good ROI?
Despite rising costs, a liberal arts education still pays. According to The Center for Education and the Workforce at Georgetown, “Median return on investment (ROI) 40 years after enrollment is $918,000.”
Recent graduates may see negative ROI early in their careers. However over a lifetime, the financial advantage becomes apparent. College is a long-term investment.
How Much More Do College Grads Earn?
But what about those college-dropout billionaires, like Mark Zuckerberg, Bill Gates, and Steve Jobs? While there are plenty of outliers, according to The Hamilton Project at the Brookings Institute, a college degree in any major boosts earnings: “The typical bachelor’s degree graduate worker earns $1.19 million, which is twice what the typical high school graduate earns.”
Do Top-Tier College Degrees Yield Higher Earnings?
Yes, generally speaking, graduates of top-tier schools earn more. Princeton grads can expect an average mid-career salary of $161,500 according to data from Payscale. Compare that to $90,000 for graduates of mid-level schools.
Remember, these figures are averages. If we drill down deeper into the data, we find that major and career choice can be stronger predictors of lifetime earnings than college rankings.
Which Colleges Have the Best ROI?
According to Georgetown’s calculations, the highest ROI goes to Albany College of Pharmacy and Health Sciences. Probably not your first guess. This illustrates that a student’s career path is the biggest predictor of earnings. Schools that funnel students into high-earning careers have the best ROI.
Research universities with STEM-focus have very high ROI’s for this reason. MIT, Harvey Mudd, and Caltech are high on the list.
But competitive liberal arts colleges boast high ROI, right up there with STEM schools. According to Georgetown “The ROI from attending one of these colleges is approximately the same as that associated with attending doctoral-level institutions.” Again, this is over 40 years. Any barista with a BA can attest, the road to ROI is not without struggle.
Are Ivy League Graduates More Likely to Get Hired?
It’s not a golden ticket to success, but a prestigious degree can open doors. It takes intelligence and drive to get into a school with a 5% acceptance rate. That’s why competitive firms visit the Ivies and other top-tier schools every year to hire new talent. The schools have done much of the screening for them.
And those Ivy League alums make more money than other graduates. The Washington Post reported “The median annual earnings for an Ivy League graduate 10 years after starting amount to well over $70,000 a year. For graduates of all other schools, the median is around $34,000.”
The Student’s Investment Matters Most
The research on ROI of higher education confirms the real-world value of going to college. But it also shows the individual student’s story makes a huge difference. If choosing the right school came down to the best ROI, we’d all be pharmacists.
A student needs to be personally invested in order to realize those returns. A student with a passion for the arts is unlikely to thrive as a Computer Science major. On the other hand, the 20 year ROI of an Art Major from Stanford is $720,000 according to Payscale.
ROI is a useful metric to consider as you evaluate the schools on your list. But it’s just a piece of the puzzle, not the whole picture. Ultimately, finding a school where the student can engage their passions and sense of purpose is the best investment.