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Is ROI The Best Measure of Your College Education?

Janet Al-Saad

NEW YORK (MainStreet)—It's that time of year again: with graduation season winding down, the debate over the value of a college education is again gaining momentum. In his recent book, Is College Worth It? (Thomas Nelson, 2013), former U.S. Secretary of Education William Bennett is the latest to argue that for many, an investment in a college education may not offer the sort of ROI they'd anticipated. In fact, the book goes on to list several schools with a net negative ROI -- where the investment leaves you worse off than a high school graduate even after 30 plus years of career earnings.

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High School Diplomas Vs. College Degrees

Using data culled largely from PayScale.com's annual College Education Value Rankings, the book notes over 200 institutions of higher learning whose negative ROI suggests students may have been better off with a high school diploma, alone. In fact, Bennett's list of schools worth attending numbers only 150 – out of a possible 3,500 institutions.

Those are startling figures, especially considering the growing numbers of students seeking to improve their employment and lifetime earning prospects through higher education. The study only focuses on the relative value of bachelor's degrees, but some data suggests the picture may be even bleaker for those continuing on to graduate studies. In fields such as the humanities, for example, Master's degrees and Ph.D.s are yielding lower returns; meanwhile, the recession has lowered the value of all but the most elite M.B.A. and law degree programs.

The Best and Worst Values

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Elite private universities, such as Harvard, M.I.T., and Stanford are perennial ROI favorites; their strength of academics, reputation and networking opportunities produces consistently strong earnings returns for students. So, too, do engineering and science-heavy schools, such as Harvey Mudd and Cooper Union (the latter has historically been tuition-free, making the ROI calculation strongly positive).

The methodology, of course, has an impact on the outcome of low-ranked institutions: art schools and private colleges which graduate a large proportion of social work and criminal justice grads tend to fare poorly because of their high tuition costs relative to these careers' lifetime earning potential. When financial aid is factored in, the rankings also change somewhat, since fewer out-of-pocket costs are incurred. Still, due to declining state education budgets, it is those elite private institutions that tend to benefit most, as their enormous endowments enable them to extend aid generously.

Correcting for Accessibility

Bennett's book takes this methodology a step further, though, by assuming that for most students, ultra-elite institutions such as Harvard and CalTech are inaccessible. Instead, he focuses his revised ROI rankings on the schools that offer the best returns for most students. Specialty engineering schools, maritime institutions, and the like are also excluded, focusing instead on colleges costing under $125,000 for four years, but producing a lifetime premium of over $300,000.

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Unsurprisingly, this list reads like a ranking of top state schools, with colleges like Georgia Tech, UVA, and UCSD leading the pack. At top-ranked Georgia Tech, Bennett argues the four-year price tag of approximately $82,000 yields an impressive 30-year ROI of over $800,000.

But the Center on Budget Policy and Priorities reports state schools are spending 28% less per student post-recession. Meanwhile, costs for private and public universities, alike, have soared – in most cases well exceeding the rate of inflation. And with more deficit cuts still looming, state and federal funding may be cut further, making even state colleges less accessible.

Is ROI The Solution?

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The fractious debate on college costs has spawned various suggested solutions, ranging from the removal of all "non-market" forces (i.e. – government loans and grants) from higher education, to subsidies, vouchers and more.

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While taking a decidedly conservative view on the college worth phenomenon, Bennett offers some centrist solutions, such as considering trade schools or community colleges instead of four-year universities, and encouraging colleges to focus (and invest in) "core" activities, such as academics, more strongly than costly extra-curriculars.

He also discourages all but the wealthiest or most talented from majoring in the arts or humanities – subjects which admittedly have lower employability ratios.

While these are all sensible and worthy ideas, perhaps the solutions to this enormously knotty and spirited issue can better be defined by asking what measurements we use to value education.

If it's purely ROI – dollars in, dollars out – then Bennett's perspective and rankings make excellent sense. But if we are to consider all the possible broader benefits of education – such as improving social mobility, extending critical thinking skills and promoting rigorous thought in various areas of human endeavor (not just the currently lucrative ones), then this measure may be imperfect.

Economic trends have a way of unexpectedly reversing. The innovations and jobs of tomorrow can come from unexpected places. An economy poised for continuous growth requires a flexible and broadly trained workforce.

After all, didn't Steve Jobs once illustrate how a college course in calligraphy eventually blossomed into the sort of design aesthetic that made Apple the behemoth it is today?

This, alone, may not justify the burgeoning cost of college (or the growing numbers of indebted art history majors) – but it does beg the question of college's total worth more loudly.

--Written by Janet Al-Saad for MainStreet

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