Return on Investment (ROI)

Parents Forum
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I’m unable to spend much time perusing the linked article and rankings…I’m on vacation…but thought I’d post it.

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No surprise that the high ranking colleges tend to be those with high percentages of enrollment in majors associated with high pay jobs (health professions, computer science, engineering, elite business).

For example, here are the top colleges in the 40-year NPV of that ranking:

  1. University of Health Sciences and Pharmacy in St. Louis
  2. Albany College of Pharmacy and Health Sciences
  3. MCPHS University
  4. Massachusetts Institute of Technology
  5. California Institute of Technology
  6. Charles R Drew University of Medicine and Science
  7. Harvey Mudd College
  8. Bentley University
  9. Babson College
  10. University of Pennsylvania

However, a general biology major at MIT may be less likely to hit the level of ROI assumed by this ranking than a CS major at MIT.

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Shhhh!!

You are starting to make too much sense. Before you know it, parents/active posters will come at you with pitchforks for stating facts.

I mean how can you ever put a ROI on your kid’s happiness?

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This is actually really helpful data. Thank you to the original poster. Some CA state universities have higher ROIs than UCs. That’s an eye opener but I wonder if those collecting the data are accounting for cost of living. For example, SJSU has higher ROI than UC Riverside, but the San Jose region and jobs are much higher than LA region. Does this mean that SJSU is a better option than UCR or just more expensive and the salaries reflect additional cost of living ?

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SJSU has 47% of BA/BS graduates in business, computer science, engineering, or health professions. UCR has only 27% in business, computer science, or engineering (no BA/BS health professions). So no surprise that financial ROI is higher averaged over all SJSU BA/BS graduates versus all UCR BA/BS graduates.

But that does not necessarily mean that ROI will be that different for the same major at SJSU and UCR. Nor does it mean that an SJSU biology major will derive an ROI benefit because there are many business, computer science, engineering, or health professions majors there.

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There are many problems with lists ranking ROI of particular colleges to the point of being an exercise in futility. It can be amusing to view such lists, but they are not especially relevant for estimating actual ROI of a particular student. Some of these problems include:

Numerator (Gain)

  • Incorrectly assumes salary/earnings are the same for all students, with no dependence on major, field of study, or desired field of work. Such factors often have huge contributions to earnings. For example, the average earnings for English majors who get no further degrees is probably going to be different from the average earnings for CS majors, regardless of college attended.
  • Incorrectly assumes that salary/earnings/success has no dependence on individual student characteristics. For example, it assumes that a high achieving, gifted Harvard admit who comes from a wealthy and connected family will suddenly become the average Alabama student who has 30% chance of not graduating, if he/she chooses to take a full ride academic scholarship to Alabama instead of attending Harvard.
  • Ignores cost of living differences, which can have a large influence on earnings. For example $100k/year salary goes farther in most areas of the midwest than in Silicon Valley
  • Uses College Scorecard earnings, which have a biased and often small sample group
  • Assumes that gains are entirely financial, and non-financial aspects have no influence.

Denominator (Cost)

  • Assumes all students pay the same cost, with no dependence grant based financial aid, scholarships, and living at home vs on campus. I believe this report assumes everyone pays sticker price, yet at some colleges <10% of students pay sticker price. At many of the colleges that get the most discussion on this forum, the majority do not pay sticker price. To estimate financial ROI, it is critical to use your actual cost, which varies from one student to the next.
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That’s like comparing apples to potatoes and calling one “better.” Job prospects and salary depend on your major and what location you actually found a job in. If I spend 20 years in Dallas vs Los Angeles, even though I have more purchasing power with my Texas salary, did my school not payoff? That’s why I pay no attention to “ROI” with colleges.

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