Director's Blog

Personal Stories from our students, by our students

The Return Variable

As both parents and high school seniors are aware, many factors enter into a choice of college. Geography, private versus public, reputation, and cost are some of the elements that come into play.

But, assuming that a college education is sought to establish prospective employment qualifications, is there a link between institution attended and later economic reward?  Paul Katzeff recently adressed that question in an article in Investors Business Daily. In his analysis, he notes at the outset that the “lure of a sheepskin from the Ivy League or some other prestigious school can be irresistible.” That’s true — the difficulty (as well as the unpredictability) of Ivy League admissions is the reason why we advise students not to fixate on the Ivy League to the exclusion of other places which offer great educations.

Katzeff takes a unique look at the results of college choice, employing data that summarize “typical cumulative pay for graduates 30 years after they earn their bachelor’s degree.”  This involves essentially a net income calculation, meaning a dollar pay figure from which the cost of obtaining a degree (as of 2010) is subtracted. At the top of the leaderboard by reference to this method is Caltech, whose graduates showed a median net income (on a cumulative basis) of $1.7 million. Next in rank were Harvey Mudd — $1.6 million; MIT — $1.52 million; and Princeton — $1.5 million. These figures are for undergraduates and do not include alumni who earned graduate degrees. And, of course, all of the aforementioned schools are pricey, with a four-year tuition tab in the $200,000 range.

The author went one step further and applied a business gauge to the relevant numbers, translating them into a return on investment (ROI). In the percent ROI calculation, differences in tuition are relevant. This means that in-state, public university tuition levels have a significant effect.

When tuition differentials are taken into account, the top list changes substantially. The new apex  four are Georgia Tech — 13.9%; University of Virginia — 13.3%; Colorado School of Mines — 13.1%; and Virginia Tech — 13.0%. As a point of reference for the ROI numbers, in-state students spent an average of $78,000 to earn a degree at Georgia Tech.

Wait, you say, what about financial aid at private schools, won’t that affect the results? Answer, yes, many private and a number of public schools have large endowments with which to fund scholarships. At Caltech, for example, 58% of students receive aid averaging over $25,000 a year. Financial assistance will clearly alter the ROI result for individual students.

The ultimate pick for a university education can’t be reduced to a single variable such as ROI; the attendance decision, as noted above, is an personal algorithm with many variables. The ROI point is worth thought, however. Another conclusion drawn from the pay summary also bears noting in relation to college major:  “engineer jobs tend to pay better than other occupations.”  That’s a trend likely to continue.

Chris Kim
Center Director
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