NEW YORK (MainStreet)—Want to invest in your education like financial guru John Thiel, head of wealth management at Merrill Lynch? Then go to a public university.
"I'm a state school guy," the Florida State University graduate told his alumni newsletter. "I didn't go to the Ivy League; I didn't go to Stanford or UCLA. I'm a CPA who went to a state school, and I run the largest wealth management firm in the world."
Thiel gambled that he'd get back more bang for his buck at a public school than at a private one. By any measure, his bet paid off. And it turns out that his experience is typical: Students who go to public colleges and universities get a higher average return on their investment than their counterparts who attend comparably selective private institutions, according to data cited in a May 2013 Brookings study. In other words, any extra money students earn after graduating from a private university isn't enough to make up for the extra tuition they paid to go there.
Most students are "probably better off going to a state institution because it's so much cheaper," said Mark Schneider, a visiting scholar at the American Enterprise Institute and the author of the research on which the Brookings study is based. Schneider noted exceptions among a handful of top private universities, like Harvard, where "you get the magic handshake and the secret decoding ring" that lead to a "big bump" in salary.
But even within the broader "most selective" category, students at public schools on average earn two percentage points more on their investment than students at private institutions, after taking into account financial aid, the length of time students take to graduate, and the probability that they will graduate. Students who attend non-competitive schools earn about a three percentage point higher return at a public school compared with a private school.
And for students looking to meet other life goals – like buying a house or getting married – coming out of school without excessive debt, or with a salary high enough to pay it off quickly, is increasingly important. In 2012, for the first time in at least decade, people who were free of student debt were more likely to own homes by the time they turn thirty that those who were paying off their loans, according to an April report of the Federal Reserve Bank of New York Consumer Credit Panel. A survey conducted by Harris Interactive in March found that one in six people postponed getting married because of their debt and 41% waited to contribute to their retirement plans.
But beware before blindly choosing a public school over a private one. The value for money gap between private and public institutions may be shrinking. Public universities are increasingly adopting the financial practices of private universities, focusing on growing their endowments and "top heavy" spending on senior officials, which is driving up costs, said Troy Schader, a certified college planning specialist and owner of College Tuition Solutions of Florida.
"You can't just look at it as the difference between a public and private college, there are other factors," said Schader. Students need to be matched with universities in terms of career goals, academic ability, and cost, Schader said. And in many cases, they may be better off at a private institution.
Private colleges and universities also tend to be more willing to negotiate, said Christopher Payne, a certified college planning specialist in St. Petersburg, Flor. So people who learn how to bargain with universities—undertaking strategies like applying to competing schools in order to elicit a more generous financial aid deal—may find their financial advantage at private schools.
Still, Aakash Patel, who graduated FSU in 2006 with less than $10,000 in debt and is now president of public relations and business consulting company Elevate, plans to make sure his little brother, now a rising senior, at least applies to public universities this fall. He'll talk with him when he visits him this summer at a program for high-school students at Vanderbilt University.
"I don't want him to default to a private school," he said. "FSU made a big impact in my life."
--Written by Simone Baribeau