College ROI: What We Found

The PayScale methodology reveals which schools prepare students for well-paying careers and which schools make for poor investments

All eight members of the Ivy League ranked in the top 30 for return on investment. Princeton, shown above, was No. 4 Princeton University

By Louis Lavelle

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When Bloomberg Businessweek and PayScale last year inaugurated their ranking of the top U.S. colleges for return on investment, the main finding was a shocker. At a time when experts were trumpeting the value of a college education, our analysis showed that it was worth a fraction of what was previously thought, less than $400,000 over 30 years' time. Only four schools had 30-year ROI in excess of $1.6 million, the highest previous estimate.

This year, we did things a little differently, but the results did not change that much. By calculating the cost of a degree at each school and incorporating the average financial-aid grant award—instead of using the school's "sticker price," without aid, as we did the year before—we lowered the cost and improved ROI for many schools.

But the average 30-year ROI ended up being about $6,000, or 1.5 percent, less than last year, or $387,501. One reason was that this year we ranked 693 schools, up from 554 last year, an increase of 25 percent, and many of the new schools suffered from poor ROI, due largely to low graduation rates. Since all the data used to calculate ROI—including tuition and fees, graduation rates, and graduate salaries—have been updated since last year, changes to the findings were expected. With tuition costs growing and wages stagnating, it should come as no surprise that ROI declined.

Cream of the Crop

So who ended on top? Last year's No. 2, the California Institute of Technology, unseated MIT at the No. 1 spot, with a 30-year ROI of more than $1.8 million. A degree from the highly selective science and engineering school costs nearly $200,000, but the cost is cut in half for grant recipients, and graduates have the highest cash compensation in the study. Last year's No. 4, Harvey Mudd College, moved up to No. 2, with ROI of $1.7 million. And MIT, with ROI of more than $1.6 million, came in at No. 3. MIT was followed by Princeton University (up from No. 7) and Stanford University (up from No. 6).

All eight members of the Ivy League—Princeton, Dartmouth, Harvard, the University of Pennsylvania, Yale, Columbia, Cornell, and Brown—all landed in the top 30. Elite private universities in general dominated the top of the ranking, accounting for 26 of the top 30 schools, as did engineering schools, a list that starts with Cal Tech and MIT but includes Worcester Polytechnic Institute, Rensselaer Polytechnic Institute, and Stevens Institute of Technology, among others. Schools in California, Massachusetts, Pennsylvania, and New York accounted for 21 of the 30 top spots, with No. 18 UC-Berkeley laying claim to the highest ROI for a state institution, more than $1.2 million.

Some schools saw a surge in value. Thirty-year net ROI without grant aid factored in grew 4.2 percent at Cal Tech, while Duke, the University of Michigan, and the University of Illinois at Urbana-Champaign registered increases of 7.6, 8.3, and 16 percent, respectively. But the winners were the exception that proved the rule. At the University of Chicago, the 30-year figure dropped 11.1 percent, to $937,600. Carnegie Mellon had a 10.1 percent decline. Dartmouth, Notre Dame, and Lehigh all saw single-digit drops.

Overall Earnings Decline

Al Lee, PayScale's director of quantitative analysis, said that average 30-year earnings for alumni of the more than 500 schools ranked both last year and this year fell about 2 percent. The drop, he said, was due largely to smaller bonuses, laid-off employees forced into lower-paying jobs, and recent college graduates opting for low pay over unemployment. That, combined with higher tuition at many schools, lowered ROI across the board.

"College graduates, in terms on earnings, are not immune to the recession, and overall the average college has become a less good deal than the year before," Lee says. "Graduate earnings have not held up, and costs have gone up."