Ripped From the Headlines: Understanding Colleges from the Perspective of Return on Investment (ROI)

One of the great frustrations I have as a college counselor is trying to get families to look beyond college rankings for their primary guidance when it comes to college selection. I will not bore you with the reasons, as I have shared them in several prior editions of the CKQ. In summary, know that the majority of the rationales for these systems are flawed, partly because of how they are organized and partly because the college selection process needs to be individualized to really work effectively. One measurement of success that some people have turned to in recent years is the school’s Return on Investment (ROI), which is a measurement of the average cost of attending the college or university in question, versus the income potential of the graduates at intervals ranging from immediately after graduation to 40 years post-graduation. Payscale.com was one of the first and most reputable organizations to publish such numbers, but now, Georgetown University’s Center on Education and the Workforce has published new material that examines some 4,500 different 2-year and 4-year schools in the United States, measuring their overall ROI at ten year intervals from graduation.

The key findings in the report were:

1) Private colleges and universities, on average, beat their public counterparts over the lifetime of employment

2) Community colleges and some certificate programs have the highest ROI in the short-term, but are frequently overtaken by Bachelor’s degree programs at some point during the employment cycle

3) The highest group of ROI schools are liberal-arts colleges, earning, on average, more than $200,000 more than the median income for all colleges. These schools are on par with four-year engineering and technical degrees, along with four-year business degrees in overall income.

Now, please understand that there are flaws in only looking at ROI, just as there are flaws when looking exclusively at the national ranking systems. It tells only one story, and part of that story is skewed. Here’s a good example of what I mean.

Santa Clara University in Northern California is an excellent liberal arts college, housed in the tech bubble of Silicon Valley. Its ROI rank 10 years after graduation, according to the Georgetown study, is a very middling 1,415th. However, just ten years later, that national rank shoots up to 132nd. After 40 years, it is an extremely competitive 53rd in the nation. How? While this is my opinion, I think you will find it makes a great deal of sense.

Most people who graduate from a school like Santa Clara come from the western part of the U.S. (currently, 60% of the undergraduates are from California), and with great year-round weather, most people are inclined to stay in the region after they graduate. Further, Santa Clara and the surrounding community of San Jose have been one of the wealthiest and most successful regions in the United States for several decades. Why? What companies operate in Silicon Valley? Apple; Google; Cisco Systems; Western Digital; HP; Adobe; PayPal… the list goes on and on of massively wealthy, publicly-traded companies who employ lots of people in the tech fields (many of which pay very well).

So, does Santa Clara have a high ROI because it is such a great school or because of where it is located? I would venture the answer is both. I think if you moved Santa Clara University to the Midwest, you would find a much lower ROI, especially in the long-term, simply because jobs in the Midwest (along with their cost of living) is much lower than in Northern California. So, my caution is to take advantage of this information that Georgetown has diligently and meticulously reported, but with the notion that it only tells one part of a much larger story.

The other notion that I think you will see spelled out for you in the Listworthy section a bit later on in this edition of the CKQ is membership at the top of these lists is much more a representation of what your degree is in, rather than where you earned your degree (or certificate). The fact is that some industries pay more than others, regardless of where your credentials come from. That is an important part of the puzzle that many families fail to compute in their planning process.

For a link to the original document from Georgetown University, (so you can find the ROI on your favorite schools, please use this link: https://cew.georgetown.edu/cew-reports/collegeroi/