Is a College Education Worth the Money?

college-degree"College tuition." Those two words together strike fear into the hearts of parents and students across the country, struggling to pay for a degree before entering the job market. Many schools now charge over $100,000, or even over $200,000, in tuition, room and board, for that precious graduation certificate. But, in the end, is it worth the expense?

Online salary database PayScale.com decided to take this issue head on and figure out how valuable a 4-year college degree is over a 30-year period of work for 554 U.S. colleges. They did so using a common business calculation: return on investment (ROI).

PayScale figured out how much more a college graduate of a certain school makes in 30 years of working compared to a high school graduate, then subtracted tuition, room and board costs, factored in the school's graduation rate (non-graduates see little improvement in pay over high school graduates), did some number crunching and came up with a handy guide for potential students and their funders: a breakdown of whether college tuition is worth the investment.


Which schools are worth your precious cash?

According to PayScale's research, you should look for nationally-recognized, private schools, particularly those with an engineering focus. Hence, M.I.T. is at the top of the list, followed closely by Ivy League schools like Harvard, Stanford, and Princeton. A recent graduate of M.I.T. will have spent approximately $189,300 to get their degree. But, that cost will yield them $1,688,000 (in 2010 dollars) more in earnings over 30 years than not having graduated from college.

And, to help those writing tuition checks feel better about where they're putting their money, PayScale also calculated an annualized ROI for each school's tuition. Continuing with the M.I.T. example, PayScale found that the money spent on a degree there returns 12.6 percent per year over 30 years. Compared to the stock market, that percentage of return is competitive. Over the last 30 years, with dividend earnings included, the S & P 500 has returned about 11 percent, according to Yale economist Robert Shiller.

"For every year of work, the typical M.I.T. grad earns $50,000 more than the typical high school grad," says Al Lee, PayScale's director of quantitative analysis, who led the study. However, M.I.T. isn't a typical school in terms of money growth. In fact, only 16 percent of schools on PayScale's list beat the S & P 500.

For example, George Washington University is a small private school with a high price tag - more than $200,000 in tuition, room and board over four years (in 2009 dollars) for recent grads. What is the annualized return on that money over 30 years? 10 percent. That's a decent rate of return, but it doesn't out-perform the S & P 500 or give you back what M.I.T. or Harvard would.

Is tuition a worthwhile investment at a small, private school? Lee recommends that if you're paying full price for a less well-known, private school, you need to think hard about whether the non-financial advantages of attending that college make up for the lower return.

However, if you can get financial aid, it completely changes the picture. Finding scholarship money really improves your long-term return calculation. Or, if you're really fortunate, you could take advantage of offers like Stanford's University Scholarship, where students who are accepted to the school and whose families earn under $60,000 a year receive tuition, room and board for free.

Keep in mind, each student is unique so a low-earning graduate from a highly-ranked school like Stanford may earn less than a high earner from a public school like the University of Washington. Engineering schools, though, tend to have a floor below which their graduates' earnings do not fall. They are usually a safe investment.

If you want to spend a little as possible on your tuition and earn back as much as you can, an in-state, public school with a technical focus, like Georgia Tech, is your best bet, according to PayScale's research.


Which 10 schools are the best investment?

See the list below. They are all private and well-recognized by most Americans. The closest public school to the top is University of California at Berkeley. It ranks number 16 with a sizable annualized return of 13.1 percent. Check out the PayScale college ROI package to compare college costs and the potential return on investment for each school.


Rank School Average Cost in 2009 30 Year ROI (2010 Dollars) Annual ROI
1 Massachusetts Institute of Technology (MIT) $189,300 $1,688,000 12.6%
2 California Institute of Technology (CalTech) $181,100 $1,644,000 12.6%
3 Harvard University $189,600 $1,631,000 12.5%
4 Harvey Mudd College $187,700 $1,627,000 12.5%
5 Dartmouth College $188,400 $1,587,000 12.4%
6 Stanford University $191,800 $1,565,000 12.3%
7 Princeton University $187,700 $1,517,000 12.3%
8 Yale University $194,200 $1,392,000 11.9%
9 University of Notre Dame $181,900 $1,384,000 12.1%
10 University of Pennsylvania $191,300 $1,361,000 11.8%


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wdcarterjr

Start with local community college and CLEP's, then finish at a public university; UNLESS, you get a free ride at a prestigious or Ivy League school. Do everything you can to avoid student loans. Horror of horrors, that may include a job. Get a degree that is worth having. If your goal is law and you don't get into law school make sure that plan "B" has a worthwhile degree backing it up. I know lawyers with degrees in accounting and engineering. I know doctors (MD's) with degrees in engineering and other science fields. To strap your family and yourself with crushing debt for you to get a worthess degree from "X" school is selfish, ruinous and foolish. How prestigious is it to list an Ivy League education on a job application for a job that requires a high school education? Be realistic. The world is not going knock on your door. You have to have the tools to kick in doors.

September 01 2011 at 1:29 AM Report abuse +1 rate up rate down Reply
BentWillowCreek

In reality education on a collage level is just another corporate scam on the American worker. We follow like blind sheep, they say you need a better education to make it and we believe them. You get a loan to got to school for 4 years, you graduate and spend another 2 or so years finding the right job, then a loan for a car and a home. Now your up to $400,000.00 or so and you spend the rest of your life paying the debt off, really nothing more than modern day slavery to big business and the Banks.
Who chose the ones that say you need a higher education. I am sure its the ones who's pockets are being filled with the cash you borrow and the interest you pay to achieve that dream you have of a better life. How do you think that got to be in charge? So keep going, keep making them richer, its the American way.

August 31 2011 at 9:14 PM Report abuse rate up rate down Reply
Tanya

Hell No! the average job pay 50,000 a year or below in a life time the average American will not even be making 150,000 at the time of retirement. The cost of every thing in America is steady going up while the pay rate stays the same. When the economy crashed every one started this talk about how thing were getting bad and people where cutting back. The truth is Americans never had any money in the first place all they really had was buying power and now that creditor are not extending credit they must face the harsh reality that only a small elite percentage of Americans have any real money. Most Americans are so stupid they live their whole live base on the show America puts on for us stupid poor Americans who actually believe they will some day benefit from capitalism. Ha HA the joke is on us. Well, I better got go fill-out my unemployment form.

July 12 2010 at 11:00 PM Report abuse rate up rate down Reply

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