June 30, 2010

Return on Investment by College

Business Week has a big table attempting to calculate return on investment for different colleges based on the PayScale database of salaries (assuming you pay full fare with no financial aid). Private colleges with high graduation percentages benefit in this calculation.

MIT comes in first and Cal Tech second, both with a 12.6% estimated return over 30 years, followed by Harvard and Harvey Mudd. Obviously, MIT and Cal Tech students are supplying resources (e.g., brains, hard work, etc.) beyond merely their tuition. The top of the list has a lot of Hard Major schools with high percentages of sci-eng grads.

So it's not clear that any colleges are particularly fantastic deals that will turn sow's ears into silk purses.

The rest of the top 10 are Stanford and Ivy League schools, with the exception of Notre Dame being #9, which is interesting. It would be great if somebody could build a multiple regression out of this using old SAT scores and GPAs to see if any college really beats the curve? Does going to Notre Dame get you plugged into a particularly strong alumni network that would benefit you more than if you went somewhere else? That would be a nice thing to know.

Some universities work particularly hard to foster emotions of solidarity conducive to alumni backscratching (and donating). For example, Princeton (#7 on the list) has about 20,000 people come each year to its class reunion weekend in late May. All reunions are at the same time and new graduates come too. Each class wears a jacket custom-made for the reunion. Last year the first ever 85th-year Princeton Reunions old boy, Malcolm Warnock (class of '25), marched in the annual P-rade.

The top public university is Berkeley, followed by Colorado School of Mines (but you have to work in a hole in the ground, so they'd better pay you a lot) and Georgia Tech. Berkeley is a good excuse for talking about a methodological conundrum. Berkeley grads tend to wind up in the Bay Area, which has a very high cost of living, so the real ROI would be less relative to, say, U. of Michigan. 

Yet, the adjustments needed are even more difficult. For example, although it costs a lot to more to live in the Bay Area than in Michigan, on the other hand you do get to live in the Bay Area rather than Michigan. And although it will cost a fortune to own a house in the Bay Area, your kids will presumably get to inherit a Bay Area house in 60 or 70 years, which is nice. 

How to account for all that in the calculations? Beats me.

They also offer a list of lowest ROI colleges, which tend to be expensive private liberal arts colleges in lower income parts of the country. But maybe you'll wind up marrying a rich family's heir.

36 comments:

Dutch Boy said...

Thomas Sowell wrote a book on American education a while back and he claimed the best bang for the college buck were small,private liberal arts universities (based on GRE scores, grad school admissions, etc.). "Prestigious" universities get that way by hiring prestigious faculty who don't want to teach undergrads. The peon undergrads are sluffed off onto TAs, some of whom speak marginal English.

Anonymous said...

Wonder if Rice would have made a better ROI showing had the university not ramped up tuition between 1980 and the present at a rate far above the mean for similar schools.

agnostic said...

One thing to worry about is that the 30-year period during which the respondents earned their money was mostly a house of cards for the graduates of the top ROI schools -- lots going into finance, banking-related law, etc.

Now that that's evaporated for the near future, I wonder how much leveling we'll see among today's grads.

Anonymous said...

"How to account for all that in the calculations? Beats me."

Funny about Berkeley. The University of Washington, the University of Illinois or UMich, and UCSD are also excellent public Universities. I think it is because graduates tend to stay in the Bay Area.

On the west coast, Seattle and San Diego are also beautiful. Vancouver (BC) is, in fact, more beautiful than the Bay Area. And quite a bit cheaper. Also, lower earthquake potential in these other areas.

Jeff said...

Do they factor in gender? The technical schools might get a boost from having a lower percentage of females who, of course, often stay at home with kids (in addition, females tend to choose less money driven careers)

In contrast, I'd imagine the liberal arts schools receive a blow from having a larger percentage of females.

They must factor this in, right?

Jeff said...

Just to answer my own question about gender, it appears they only count full time employees. So I'm guessing they don't include females who took off 5 years to raise their kids.

Not including grads with masters degrees seems like it might help the technical colleges.

Steve Sailer said...

Right, Rice used to be really cheap due to a big endowment due to inside information about the East Texas oil strike of the early 1930s. Now less so.

Anonymous said...

Can value-added be measured? Ie how would grads have done if the hadn't gone to university? grads should be compared with equally-bright people of the same class who chose not to go to university. In the UK Oxford and Cambridge take a large proportion of people who are already very well-connected and who put more effort into making contacts who will be useful in their future careers than into actually learning anything. A pity we can't try the experiment of having an elite university that offers no teaching at all. The job of the staff would be to make introductions.

Anonymous said...

FYI...the nominal return of the Vanguard S&P500 Fund since inception (1976) is 10.1%

So you can bust your ass for 4 years at Cornell or Columbia for an extra 1.2% ROI.

B.S. Electrical Engineering or an I.B.E.W card? Hmmmm

Bostonian said...

One study found that students accepted by the elite schools but go somewhere else earn about as much as the students that matriculate. Harvard students earn more because of the type of students Harvard accepts. They have higher IQs on average. I'm surprised Steve Sailer did not make this point.

http://www.theatlantic.com/magazine/archive/2004/10/who-needs-harvard/3521/
Who Needs Harvard?
Atlantic Magazine, October 2004
By Gregg Easterbrook

...

But what if the basis for all this stress and disappointment—the idea that getting into an elite college makes a big difference in life—is wrong? What if it turns out that going to the "highest ranked" school hardly matters at all?

The researchers Alan Krueger and Stacy Berg Dale began investigating this question, and in 1999 produced a study that dropped a bomb on the notion of elite-college attendance as essential to success later in life. Krueger, a Princeton economist, and Dale, affiliated with the Andrew Mellon Foundation, began by comparing students who entered Ivy League and similar schools in 1976 with students who entered less prestigious colleges the same year. They found, for instance, that by 1995 Yale graduates were earning 30 percent more than Tulane graduates, which seemed to support the assumption that attending an elite college smoothes one's path in life.

But maybe the kids who got into Yale were simply more talented or hardworking than those who got into Tulane. To adjust for this, Krueger and Dale studied what happened to students who were accepted at an Ivy or a similar institution, but chose instead to attend a less sexy, "moderately selective" school. It turned out that such students had, on average, the same income twenty years later as graduates of the elite colleges. Krueger and Dale found that for students bright enough to win admission to a top school, later income "varied little, no matter which type of college they attended." In other words, the student, not the school, was responsible for the success.

stari_momak said...

Even the costs to attend seem screwy. The UC's vary wildly, with UCLA being (from memory) 94,000 and UCSB being 117,000. Presumably the difference there is in (off campus) rent. Did the compilers just use an average rent for the nominal city in which the university was located? Presumably. But UCSB students live in a low rent student ghetto, not the nice part of Santa Barbara, while UCLA students live in the one of the higher rent areas of LA. Or, take UCI, which has a higher cost than UCLA (108,000? ), but I'll bet a hugh percentage of its students live at home compared to UCLA -- saving families a ton of money. Another factor, beside the value-added and opportunity costs thing, is the costs of additional education to reach potential earnings. For pre-med training mills like UCI and UCSD, their just might be enough students who go on to become doctors to skew results in income, but of course those kids have a lot more to invest, in time and money, before they start earning.

All in all, this seems interesting, but not super informative as it stands, in terms of making real world decisions.

Anonymous said...

Even the bottom schools list shows respectable ROIs (especially considering today's investment environment). I find that hard to believe.

jody said...

i still don't see how the best ROI is not for a good student to get a computer science or engineering degree at the state university.

i've seen dozens of high schoolers who were accepted into the ivy league, make this choice instead.

maybe becoming a physicians assistant or even a pharmacist at the state university or local big, good university offers equal bang for the buck.

Half Sigma said...

"Thomas Sowell wrote a book on American education a while back and he claimed the best bang for the college buck were small,private liberal arts universities"

Boy was he WRONG about that!

That's what happens when you base your advice on how you think the world SHOULD be rather than how it ACTUALLY is.

anony-mouse said...

Ah, just go to the service academies or Cooper Union and save all the trouble of calculating.

Anonymous said...

Thomas Sowell wrote a book on American education a while back and he claimed the best bang for the college buck were small,private liberal arts universities (based on GRE scores, grad school admissions, etc.). "Prestigious" universities get that way by hiring prestigious faculty who don't want to teach undergrads. The peon undergrads are sluffed off onto TAs, some of whom speak marginal English.

Sowell has been particularly reluctant to acknowledge the biological underpinnings of HBD theory.

Princeton, CalTech, and MIT are skimming off the cream of the crop - all the tutelage and discipline and good intentions and sweat equity in the world [which a young person might receive at one of Sowell's small colleges] simply cannot turn a child with an IQ of 115 into a young adult with an IQ of 140.

On the other hand, from the point of view of a parent with a child whose IQ was in the vicinity of 120 to 130, that child would probably do vastly better at a small college than at a mammoth, impersonal, uncaring, sterile NIH/NSF/DARPA/Hughes/Hertz industrial factory like Princeton, CalTech, or MIT [or even the second- and third-tier factories, like Michigan, Ohio State, UVA, UNC, etc].

Mark said...

I think the only really relevant measure would be "how did students who were admitted to Harvard but went to Nice State U" do compared to people who went to Harvard. How did comparable graduates from different universities perform?

Now that that's evaporated for the near future, I wonder how much leveling we'll see among today's grads.

You really think the folks in the finance industry are done? They'll continue to find new ways to suck us dry, often at taxpayer expense.

And although it will cost a fortune to own a house in the Bay Area, your kids will presumably get to inherit a Bay Area house in 60 or 70 years, which is nice.

You presume that in AD 2070 a home in the Bay Area, Alta California, Mexico will be nice. I guess it depends on what happens to the rest of America. Maybe we'll see a massive reshuffling with Hispanics moving to the interior while whites move to the more expensive, more desireable coast. Well whites, or else just Jews and Asians.

Luke Lea said...

"They also offer a list of lowest ROI colleges, which tend to be expensive private liberal arts colleges in lower income parts of the country."

Quite a few were in Connecticut and the Boston area, not exactly low-income parts of the country.

dearieme said...

"The job of the staff would be to make introductions." And to serve drinks, I hope.

Anonymous said...

I was going to make jeff's comment, but he beat me. Even with full time workers only counted, gender would account for different choice of jobs, different average time on the job at any age, and different hours worked per year. Of the ones in the Boston area, MIT, #2 highest, is mostly male, while Lesley, #4 lowest, is about 90% female, mostly teachers.

Anonymous said...

I don't understand why the ranking isn't very well correllated with the ROI calculation. Sorting that way it's all public colleges, and oddly BYU (which has a very low cost to attend, $53,000).

department11 said...

Dutch Boy's comment matches my experience. In the '70's at Cal, I nearly failed microeonomics because my TA spoke such broken English. Then again, the subject was deadly dry anyway, so who knows.

JW Ogden said...

Every year there are students that though accepted top private schools opt for cheaper Government schools any study of college returns that ignores those students is worthless.

helene edwards said...

which college should this guy go to?

http://www.youtube.com/watch?v=vt2i0ts-uck

Truth said...

"Wonder if Rice would have made a better ROI showing had the university not ramped up tuition between 1980 and the present at a rate far above the mean for similar schools."

Come on now. We all know the 1980 Yale graduating class would have a median income of about $22,600 if it wasn't for all of Sailer's millions screwing up the curve.

Anonymous said...

"In other words, the student, not the school, was responsible for the success"

Yes, the students make the school.Put a bunch of people with 90 IQ at MIT and see what happens.

jody said...

"just go to the service academies"

in summer 1994 i went to west point for 1 full week with 300 other recruits who were thinking about serving.

the cadets told us the commitment after graduating was 8 years. that was too long for me. i was not looking to spend 12 years in the US army. i decided not to serve. not an easy decision, because i wanted to serve and many men in my family have served. but i was sure i wanted to be in the army, and sure i was only going to do it right. i was not going to enlist or do ROTC.

one of the best decisions in my life, as US national politics took a turn for bizarro world in between 1994 and 2010. i would have been in iraq or afghanistan for years, maybe getting killed, but certainly doing a mission which i am 180 degrees against politically.

i actually know two officers who went over there in the first wave. one guy, a captain, was a surgeon who specialized in shoulder and arm surgery. another guy was a major in the infantry or artillery. the surgeon was in iraq for 3 years but came back to the states years ago. i don't know what happened to the major. i wonder what he's doing now. he might still be deployed somewhere. he might still be in iraq or afghanistan 8 years later!

i have some other neighborhood friends from a long time ago, enlisted guys, who actually killed enemy troops. mostly army, but one guy is a marine. it's kind of scary how low the standards are for the US marine corps and who they will let be nuclear ordnance disposal specialists.

Truth said...

"US national politics took a turn for bizarro world in between 1994 and 2010."

American politics did not change in 1994, as a matter of fact they have been somewhat consistent over the last 200 years:

Before ragheads where "taking over the world and must be stopped!" It was

Poorer Ragheads
Latino cocaine dealers (Panama)
Gooks
Chinks
Commies
Krauts
Spaniards
Rednecks
Mess-Kins
Brits
and
More Brits

And that does not even count the people who were only taking over part of the world such as the Barbary Pirates and the like.

The thing that changed in 1994 was that suddenly you were old enough to actually catch bullets in your ass rather than just fantasizing about it.

I'm sorry Jody, the truth is often bitter.

Anonymous said...

Paul Gottfried once remarked that the real dividing line among colleges is selective vs non-selective rather than the various rankings. As a professor at a state university and alumnus of a (selective, academically and socially) liberal arts college, I see how this works. And how the article doesn't work. The bottom 20 schools may be private, but none of them are academically selective or prestigious in any way. Sowell, quoted above is absolutely right, about the advantage of a selective liberal arts college. Williams, Swarthmore, Pomona, Davidson, the University of the South, Washington & Lee provide an outstanding education with a critical mass of engaged students. And some of them would introduce you to old money. University of Bridgeport or Harvey Mudd, not so much.

David said...

Truth's list is true.

"The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary." - Mencken

BamaGirl said...

"Every year there are students that though accepted top private schools opt for cheaper Government schools any study of college returns that ignores those students is worthless."

Agreed.

Anonymous said...

A few other thoughts:

1) The ideal study would compare ROI for students of the same IQ and the same major - e.g. what's the ROI for a student with an IQ of 140 and a Bachelor's in Electrical Engineering from CalTech -vs- MIT -vs- RPI -vs-CMU -vs- Georgia Tech -vs- NCSU?

2) How does the ROI vary historically if the school and the major remain constant? E.g. how does the ROI for a Bachelor's in Mathematics [or Chemistry?] from Princeton or M.I.T. look for the classes of 1900, 1910, 1920, 1930, 1940, 1950, etc?

[I'm assuming that they had a "Chemistry" degree in 1900, although the major might not have existed for a few more decades yet - it might still have had a name like "Natural Sciences" or some such. And they surely didn't have an EE degree until maybe 1940s-ish, or thereabouts.]

Anonymous said...

This study examined college grads that had been in the labor force for 30 years, which implies they graduated in 1980. My sense is that for a kid starting out in 1980, a college degree helped but was not essential to getting a good job or moving up the corporate ladder. Nowadays you can't even become a retail outlet manager without a degree and having a prestigious education is that much more important. Not to mention that a lot of the well paying finance and technical jobs that used to go to people that were trained on the job, but now you got to have a degree for quite a few of them.

The gap between the educated and non-educated is pretty large now and will get larger over time.
If anything has changed, I'd say ROI is way up for college. Especially for engineering and science.

Anonymous said...

"in 1980, males with a bachelor's or higher degree earned 19 percent more than male high school completers, while in 2004 they earned 67 percent more."

For a kid starting out in 1980, college degree not so important. For a kid starting out in 2010, crucial. ROI on college is up immensely.

I would also guess that back in the day, a lot of bright poor and middle/working class kids didn't go to college, but were given opportunities to prove themselves. These day, if you didn't go to college, everyone assumes you are lazy/stupid.

Nine-of-Diamonds said...

" truth is often bitter."

Yep.

Bostonian said...

According to a 2010 Journal of Finance article, until regulation FD was passed, going to a school that produced lots of corporate officers gave you an edge as a stock analyst:

Sell-Side School Ties
LAUREN COHEN, ANDREA FRAZZINI, and CHRISTOPHER MALLOY*
ABSTRACT
We study the impact of social networks on agents' ability to gather superior information about firms. Exploiting novel data on the educational background of sell-side analysts and senior corporate officers, we find that analysts outperform by up to 6.60% per year on their stock recommendations when they have an educational link to the company. Pre-Reg FD, this school-tie return premium is 9.36% per year, while post-Reg FD it is nearly zero. In contrast, in an environment that did not change selective disclosure regulation (the U.K.), the school-tie premium is large and significant over the entire sample period.