What’s the Best Return on Investment for College?

by | Nov 18, 2022 | Analysis and Commentary

Image above: Duke University Chapel, Durham, North Carolina

Make the Right Decisions for College, Get the Biggest Bang for your Buck

Mitch Daniels, President of Purdue University, discusses the current job market for college graduates on CNBC’s Squawk Box.

Autumn is college application season for high school seniors. And with the growing price tag that comes with 4-year schools, many students and parents are scrutinizing the return on investment (ROI) associated with higher education.

“When we graduate [college], reality hits. When you are barely managing to pay your bills, your paycheck might become more important,” says Sinem Buber, ZipRecruiter’s lead economist.

The Value of a College Major

When entry-level pay is broken down by areas of study for graduates, the salary levels are remarkably skewed: STEM disciplines earn the most right out of college. Data from the National Association of College and Employers show that the average starting salary in 2018 for those holding an Engineering BA degree was significantly higher than those with a Humanities degree — $69.2K versus $56.7K.

Below: Average starting salaries by major for those with bachelor’s degree. (Source: National Association of Colleges and Employers via CNBC)

Starting Salaries for BA Degree CNBC graph - SORUCE Natl. Assoc. of Colleges and Employers

College Major Regrets

Students should pick their majors wisely. The salary disparity across chosen majors has a long-term abrading effect on certain degree-holders; many later regret their choice of major because of poor salary potential. A ZipRecruiter report published this month (November 2022) presents the most loved and the most regretted majors. The report stated:

“Job seekers’ feelings about their college majors are strongly tied to their job prospects later. Computer science graduates are in high demand across a wide range of industries, from science to tech to consulting and management. They are securing highly paid jobs, with an average annual salary of almost $100K, according to BLS [U.S. Bureau of Labor Statistics].

“Within each field, the most highly paid respondents are much more likely to be happy about their college major choice. Among communications graduates, grads who are happy about their field are earning 1.6 times more than those who would choose a different major. The same goes for marketing management and research grads: those who are satisfied with their major choice are making 3 times more than those with regrets.

“Among graduates who regret their major, the top majors they wish they had chosen instead are computer science (selected by 13%) and business administration (selected by 11%). Computer science is substantially less popular among women. Only 8% of women who regret their majors wish they had studied computer science, compared with 19% of men.”

Below: The top 10 most regret-free college majors. Source: ZipRecruiter
(click to enlarge)
Most Regret-free College Majors - ZipRecruiter
Below: The top 10 most regretted college majors. Source: ZipRecruiter
(click to enlarge)
The Most Regretted College Majors - ZipRecruiter

Is College Still Worth the Cost?

Even with increasing costs, college degrees continue to be worthwhile. According to a Georgetown University report (2011), a bachelor’s degree is worth as much as $2.8 million on average over a lifetime. And, bachelor’s degree recipients generally earn 84% more over a lifetime than those with just a high school diploma. 

The Georgetown University report not only examined lifetime earnings by education levels, but also earnings by occupation, age, race/ethnicity, and gender.  The authors of the paper conclude that a college degree is crucial to lifelong economic opportunities, showing much higher earnings on average for college graduates.

Below: Average lifetime earnings with bachelor’s degree compared to other education levels. (Source: Georgetown University, Center on Education and the Workforce report, The College Payoff)

Georgetown University report college payoff overlap

Many in the education industry now tell students looking a higher education to get the best value for their money by researching the cost-reward equation on the field of study (the Major) and the institution (College or University) issuing the degree.

Below: Examples of how different degrees pay across occupation groups. (Source: Georgetown University, Center on Education and the Workforce report, The College Payoff)

George Town University College Payoff report

Return on College Investment: the Institution’s ROI

Determining the average lifetime income based on a major is one thing, but does it matter where the degree comes from? Can a degree from one college be more valuable than from another college? Conventional wisdom is likely to show that a job candidate with an Ivy League diploma is more likely to beat out a State University graduate.

But does a degree from a State University or small private college have better value?

Answer: in many cases, it does.

The ROI on Specific Colleges

Georgetown has another report called Ranking 4,500 Colleges by ROI (2022). This is a return on investment scorecard based on colleges and universities attended. This report ranks schools by average earnings every ten years after graduation (10, 20, 30, and 40-year milestones) and compares income against the cost of attendance (tuition, fees, books, living expenses, minus any aid provided to students).

The ROI rankings are remarkable. A simple query of four-year schools in California presents a surprising ROI for a small private university, Harvey Mudd College. This college ranked #2 for return on investment, besting Stanford University, University of Southern California and University of California, Berkeley. The average 40-year Net Present Value (NPV) for a Harvey Mudd graduate is $2.37Mil. The only university in California to best Harvey Mudd is the California Institute of Technology having a 40-year average NPV of $2.49Mil.

The Current Job Market is as Good as Ever

For recent and soon-to-be college grads, there is great news. Even with media reports of a possible recession, there is a serious labor shortage with a very strong market for job seekers.

Mitch Daniels, President of Purdue University, said recently that the market for college graduates is “not just the best since I’ve been here [at Purdue], it’s the best this century, as far back as our records go.”

He further described the job market as becoming vulnerable for not having enough college graduates,

“…I think we’re running a risk now, after a 20-some-point drop, of too few seeking the credential that’ll serve them so well throughout their lives.”

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