Soon high school seniors will start receiving their college acceptance letters. This week’s issue of The Economist has an article discussing the results of a PayScale study of the relationship between the financial return on investment (ROI) of a college degree with the selectivity of the college itself. Via NextDraft.
The two trendlines above support the conclusion that what you study matters far more than where you study it. The flatness of the lines show that selectively doesn’t improve ROI much for degrees of the same major, while the gap between them shows that the type of major has a significant effect on average future salary.
Engineers and computer scientists do best, earning an impressive 20-year annualised return of 12% on their college fees (the S&P 500 yielded just 7.8%). Engineering graduates from run-of-the-mill colleges do only slightly worse than those from highly selective ones. Business and economics degrees also pay well, delivering a solid 8.7% average return. Courses in the arts or the humanities offer vast spiritual rewards, of course, but less impressive material ones. Some yield negative returns. An arts degree from the Maryland Institute College of Art had a hefty 20-year net negative return of $92,000, for example.
You can also play around with the PayScale ROI rankings here.
Take from this data what you will, but perhaps it will soothe the pain of rejections and help relieve the societal pressure to get a “brand name” degree.
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I work with quite a few Ivy Leaguers who didn’t negotiate their salary. So I make more than them and went to a UC college 🙂
Wow, the average loan amount per year for my undergraduate institution is much higher than I expected (I went to a no-loan school with some very generous financial aid). Interesting results. Thanks for sharing!
Another way to look at it: if you are going into engineering/math/computer science, you are getting a large return on your investment, so invest more (go to a more expensive college).
It appears to hold up as the most selective colleges are more likely to be above the best-fit line.
Numerous employers only recruit specific schools. That’s not to say on-campus interviews are the only way to gain employment while still in school or immediately after graduation, but it certainly helps.
This graph doesn’t surprise me at all, but so many students going into college think that the only thing that matters is what school they get into. The thing about selectivity is that the average student at the school may be smarter, but I doubt that there are as many employers coming on campus as the larger and less selective state school has.
I recently met a really intelligent Stanford grad (English literature major) that now works at a gelato shop because her full time job isn’t enough to pay for her shared apartment.
That seems striking.
BUT I think they should be using the total dollar value return rather than a % return calculation for ROI.
From what I’ve seen Payscale uses the full published tuition rates as the basis for % ROI. Thats not very valid in my opinion since people get financial aid and scholarships and few people pay the full retail tuition rate at the most expensive schools. Its easier to get a higher % return on a cheap school.
So yeah Georgia Tech looks a lot better in % ROI terms than Stanford if you factor in the $150k difference in total cost of attendance. They say GT is 12.5% return and Stanford is only 8%. But if you look at total lifetime earnings of the graduates its more like $900k above high school grads for GT grads and $1.05M for Stanford grads over 20 years. Stanford grads make ~$5k a year more.
150K/5K = 30 years. So in 20 years, the Tech grad (which I happen to be) is still ahead even making 5K less per year. Go Jackets!
Yes tech grads make more.
I was comparing the difference between the more and less selective universities. The chart implies that you make the same amount if you go to a unselective school versus the most selective.
My wife paid $160K for her education at “Name Brand” school. I paid $16K for my state school degree and earn 3X my wife.
Maybe it matters what school you go to if your going to be a Doctor or Investment Banker, since they tend to recruit only out of those schools.
But other than that don’t waist your money. You don’t get a better education just because you spent more. And you damn well won’t make more money just because you spent more money. You get what you put into your education.
If you are smart and can sell yourself that is what matters. After your first, no one really cares what college you went to or what your GPA was.
Cheers!
Gen Y Finance Guy”
Your first paragraph depends on so many factors such as what you and she studied, how good the two of you were in your studies, where the two of you currently work, and the jobs that both of you do. You didn’t even think of outlining these variables before making such a generalized claim… …probably something your cheap state school degree never taught you!
And also, even though your wife earns less, I am assuming she knows the difference between “waste” and “waist”.
Cheerfully yours,
Glo
Hey Gloria,
Sorry if you felt offended by my comment. It is just one persons opinion, we are all entitled to that right?
You got me on the spelling and grammar. My wife would have caught that as well. A weakness I well aware of.
We both got degrees in Business. Mine was in Finance. My wife’s degree was in accounting with a minor in real estate.
My point was that you can’t expect to make a lot more just because you went to a prestigious school and paid a bunch of money for.
I think a lot of people would be better off considering a “cheap” state school.
Have a great weekend!
GYFG
School names do matter for getting the job- ask any lawyer. Alumni networks can also be huge in connecting with the right people to land a great opportunity.
I’m definitely sympathetic to the article, but each person has an individual situation based on what their goals are. I got way more teaching opportunities and a higher salary working in China than my peers because of an Ivy degree (which was in fine arts!).
Again, not disagreeing, but don’t underplay the potential benefits if you have a chance to go to a well known school. You’re paying for more than just job training. But granted, calculus is pretty much the same everywhere if that’s what you’re mainly going to work with in your career.
Didn’t some researchers do a study on the “value” of Ivy League schools vs state schools? I’m pulling this info from memory but I recall they looked at students who were accepted by ivies but chose to go to state schools and compared them with students who went to ivies. This theoretically can test the value of ivy schools since the students who didn’t attend ivies COULD have attended ivies. The result was that there was parity of income between both groups. Therefore if you are smart/hardworking, you’ll do fine no matter what school you go to. I’m sure there are certain professions and companies that REALLY care about degree, but they are the outlier not the norm.
*I mean “care about WHERE you got your degree”