Colleges That Offer the Best Return on Your Investment 2015
In this Nov. 20, 2014 photo, Yale University sophomore Yupei Guo, left, walks with friend Joseph Lachman on the school's campus in New Haven, Conn. (AP Photo/Jessica Hill)
With soaring college costs and plummeting admissions rates, the investment in higher education has become an increasingly daunting task for parents and students. Still, a higher degree has proven its value over a high school diploma in tough job markets, and a study out today aims to help evaluate which colleges are most worth their price tags.
Average student loan debt among graduating seniors in 2014 was $33,000, but those with a bachelor’s degree earn far more over a lifetime – a difference of $1 million -- than those without a college degree, according to data from the Census Bureau. And the unemployment rate for those with at least a bachelor’s degree was 2.9 percent in January – not seasonally adjusted – compared to 5.7 percent for the nation as a whole and 6.1 percent among high school graduates who didn’t attend college.
Harvey Mudd College in California topped the list with an 8.7 percent annual return on investment, totaling over $1.1 million over 20 years, not accounting for financial aid. The California Institute of Technology came in second with an 8.6 percent annual ROI, totaling over 1 million over 20 years, and the Stevens Institute of Technology in New Jersey ranked third with an 8.1 percent annual ROI, totaling $948,300. When financial aid is factored in, however, Stanford University ranks third, and bumps Stevens Institute of Technology to fourth. The study was conducted by PayScale, a company that provides information on salary and compensation.
The study suggests that science, technology, engineering, and math continue to dominate: Seven of the top 10 are engineering schools, and the average 20-year net ROI for engineering schools is $677,500, while for-profit, liberal arts, religious, and art schools all have average 20-year net ROIs of less than $250,000. Alumni who majored in STEM and business/finance fields or ended up working in those careers have the best chance of seeing a 20-year net ROI above $1 million.
The results also suggest that a bachelor’s degree has seen devaluation with lower ROI over the years, as advanced and professional degrees have become more prevalent and valuable. They also show that the institutional salience of attending elite schools matters – Ivy League schools have the second highest average 20-year net ROI at $649,900.
PayScale surveyed an average 315 alumni per school included in the study. ROIs were calculated based on the cost of college – tuition and fees, room and board, and books and supplies – and the estimated earnings differential – the difference between the 20-year median pay for a 2014 bachelor’s graduate and the 24-year median pay for a 2014 high school graduate. The 20-year returns are reflected in real terms.
This is the fifth year that PayScale has released its college ROI report. Since its inception, however, the annualized ROI for the nation’s top 10 universities – as ranked by U.S. News and World Report – has fallen dramatically, from a range of 11-12.6 percent to 5.6-8.6 percent. It’s important to note that PayScale has adjusted its method of calculations over the years – this year was the first year PayScale did not adjust the earnings differential by graduation rates – so this change in time visualization isn’t perfect, but it still speaks to some shifts in the higher education landscape. (Click on the names of the individual schools in the legend below to highlight their data over time.)
“If we took the same calculations the way we did it this year and apply it to previous years, we might still see that downward trend, but what also could be affecting that is school costs,” said Lydia Frank, director of editorial and marketing for PayScale. “So as tuition has continued to rise, that’s what’ll be subtracted out, and ultimately the return on investment is going to be lower.”
Overall, public schools attended by in-state students yielded the best value with an average 7.27 percent annualized ROI, totaling $279,198 over 20 years. The worst deal was attending an out-of-state public school for an annualized ROI of 5.18 percent for a total of $237,165.
Return-on-investment calculations are commonplace for trade and commercial industries, but their rise in the realm of higher education have jolted academe. In a half-trillion-dollar industry, few agencies across the federal, state, and local governments – and schools themselves – have historically tracked ROI. Now, some states are just starting to do so, and President Barack Obama, is pushing for a much-maligned college ratings system that would include analyses on student outcome, among other measures. While the president’s critics denounce the ratings plan as one that dilutes a complicated, intricate system into a single metric, PayScale is careful to note that its report only serves to inform students for sake of context and comparison.
“We’re not encouraging students to only pursue STEM degrees or careers that are highly lucrative,” Frank said. “Our main motivation is that students are making smart financial decisions for themselves in term of how much to borrow. Really, it’s a conversation-starter. We don’t think this is the one and only way to evaluate school choice, but this is an area where there’s been a lack of information, so this is where we’ve tried to fill that hole – so students are thinking about earning potential and financial factors that will affect them post-graduation, to change the frame of mind a little bit so it’s not a surprise when you graduate.”
And to compare college ROIs to the stock market, the 20-year annualized ROI for both Apple (at 24.8 percent) and Microsoft (15.2 percent) outperformed all schools surveyed in PayScale’s report. Further, more than 88 percent of surveyed schools have a 20-year annualized ROI higher than U.S. Treasury Bonds, which yielded 2.5 percent, but only 24 percent of schools have an annualized ROI higher than the S&P 500, which has performed at an 7.8 percent ROI.
“Obviously, college return is probably going to be a steadier, more consistent return than the stock market, which bounces around far more wildly,” Frank said. “If you were smart and invested in apple 20 years ago, you probably did super well, but you can’t anticipate what’s going to skyrocket like that and what’s not. It’s just an interesting comparison. My advice would not be to take your tuition money and invest it in the stock market instead [of going to college.] But the purpose here is to say that some schools are going to do a better job for you in terms of setting you up for success in a monetary fashion. And it’s worth evaluating that. Not all schools are created equal.”
Below, a sortable table of the top 25 schools, ranked by ROI calculated with and without financial aid. Hover over the data for more information about the schools, and click the tiered sort icon at the bottom of each column to rearrange the chart. Visit PayScale for the full list of results.