I have been asking for years in my ‘your smart money moves’ column if we could really put a monetary value on a college education. The great debate over public school vs. private school on the high school level will continue because there isn’t a ton of empirical data, but thanks to our friends at PayScale (www.payscale.com), there is beginning to be a lot more evidence around what school really delivers a bang for your buck. We all know that past performance cannot be a guarantee for the future, but there is a set of trending data that makes it interesting to see what schools in the future will deliver you return on your investment if you choose to take out student debt or your parent’s fork over the cash for a college education.
PayScale provides a forecast for the financial return on investment (College ROI) for a bachelor’s degree at public and private colleges through the year 2025.
Here Are The Highlights
- The financial return on investment of a college education will continue to increase in the next ten years, but at very different rates for public and private colleges.
- By 2025, the 20-year net ROI of a bachelor’s degree at a private school will rise 4 percent, but the 20-year net ROI of a degree at a public school will rise 17 percent. One the strong reasons this is happening is strictly over the cost for schools in my opinion. You are have smarter kids stay in their home state versus going out of state due to the rising sticker shock for the cost of college.
- In my opinion only the super elite private schools will potentially deliver true value of return. Also, if you are going for graduate school, it will make more sense to spend money on the graduate education versus the undergraduate education.
- The increased cost of a college education makes it even more important that students factor cost, career goals and projected alumni outcome data into their decisions around college choice.
PayScale calculated the 20-year net Return on Investment (ROI) for those with a bachelor’s degree and no higher degree for the years 2006 through 2014. The 20-year net ROI is the difference between the earnings differential between a college graduate and a high school graduate less the in-state 4-year total cost of obtaining a degree. For each year, they calculate the 20-year earnings of the college graduate as the sum of the median earnings for each year of graduation going back 20 years (for example, for 2006, they utilize the graduation years of 1987 to 2006). Since high school graduates get an additional 4 years in the labor force, we calculate the high school earnings as the sum of the median earnings for each year of graduation going back 24 years (for example, for 2006, they utilize the high school graduation years of 1983 to 2006). All wage data comes from PayScale and is in nominal terms.
The cost data is obtained through the Integrated Postsecondary Education Data System (IPEDS) run by the department of education. They calculate the cost of a degree as the 4-year total cost for in-state students. This includes tuition and fees, room and board, as well as books and supplies for each school year for the 4-year window (for example, for 2006, they sum the total cost figures for academic years 2002-03, 2003-04, 2004-05, and 2005-06).
Once they calculated the 20-year net ROI values for the years 2006 through 2014, they calculated a line of best fit for these data points. Using this line, they then projected ROI values for 2020 and 2025.
My last point you should consider if at all possible is where you are going to live. I cannot stress enough how the power of an Alumni base is going to help you. Living in the South now, the majority of the people here may have never heard of schools such as Babson or Tufts. So, your chances of using your Alumni in a place like Atlanta is far worse than if you went to the University of Georgia. You should consider all of these when you think about type of school, amount of student debt, and where you may live in the future.
View our related article: “The Colleges With the Best ROI”