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We were doing a bit of research on college education and costs, and came across a pretty surprising piece of analysis. According to payscale.com, a number of colleges in the United States yield, on average, negative 20-year returns on investment (ROI). What that means: for these colleges, the difference in salary from attending (compared to not) is not high enough to make up for the cost of attending–sometimes by a long shot.

Sometimes politicians react to this by trying to lower student loan interest rates. But on a 5-year loan of $30,000 (which is typical) at 6% interest, total interest payments are less than $10,000. Some of the worst schools in the list have 20-year ROIs of negative $100,000 or more.

Something to consider: should people even go to these colleges? If the government covered the bill at these schools, it would still mean a large net loss on its investment over 20 years. Can society justify the cost of students attending many of these colleges, regardless of who pays?

But is there something else going on? Do college educations and experience have an intrinsic non-monetary value that makes the investment potentially worthwhile even if there’s no economic payback?

As always, let us know what you think in comments below.

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11 Comments

  • svetlana ., July 22, 2015 @ 7:16 pm Reply

    Their methodology is kind of problematic: http://www.payscale.com/college-roi/methodology
    For instance, they don’t include students who go on to get a master’s or higher degree. That’s basically like cutting off the top tail of the distribution, if we are dropping the arguably more successful graduates. Those included all work for a wage full-time, so we don’t see how small business owners, contract workers, or self-employed/entrepreneurs do — if they do better, then again the numbers are artificially deflated. The way they calculate the net 20-year wages is also somewhat iffy, since they sum up what the median graduate from each of the last 20 cohorts got in the past year. I understand that making 20-year predictions is hard, but it also seems like quite a stretch to say that someone who graduated two decades ago followed a path that’s similar to the path one of today’s graduates will follow. Also, they subtract off the total 4-year cost, but it looks like the vast majority of students don’t pay that. If the school offers most students a scholarship, then the "price" is just a number that means little… It would be more interesting to separate state/gvt/private grants from those given by the school. I’m also confused by their "average loan amount" — is this the average over only those who take out any loan, or all students? And given the low graduation rates at some of these schools, do those who drop out feature anywhere in the calculations? Finally, if I understand them correctly, the number they use for a high school grad’s 20-year earnings is based on high school graduates nationwide. It would be more interesting, although certainly more difficult, to compare graduates’ earnings with nongraduates’ more locally, for instance in the state(s) where they’ve lived post graduation.
    I guess what I’m trying to say is, while there well may be a point to Payscale’s observation, their actual numbers and returns on investment need to be taken with a major grain of salt. The thing I find more concerning than the negative ROIs is the low graduation rates some of these schools seem to have… If only 30-50% of students graduate with a degree, that’s a problem and the schools need to step up their teaching.

    • Something to Consider, July 23, 2015 @ 3:38 pm Reply

      These are all great points–thanks for digging in.

      No doubt there are some serious limitations to being able to approximate the numbers, yeah. Though I had decided that most of these are forgivable and don’t affect the big picture (just, to your point, the actual number).

      To your last point: I wonder if "stricter recruiting" would also be part of the bill there.

  • Molly Rubenstein, July 26, 2015 @ 9:04 am Reply

    First of all, I think the methodology questions svetlana brought up are important ones. But presuming Payscale’s data have some truth to communicate, I would argue that there are non-monetary factors that might justify the investment of resources.

    For many individuals, how they earn their money, i.e. what it is they’re paid to do with most of the waking hours of their lives, is more important than how much they earn. A number of colleges low down on the list have strong arts programs, for example. For those who wish to have a creative outlet in their paid work, it may very well be worth the investment of money to deepen their craft and qualify for jobs in creative cultural industries that might not be available without certain academic credentials — even though those jobs may have equal or lower earning potential than some positions that don’t require a college degree. Similar logic might apply to those looking for work in education or the non-profit charitable sectors.

  • Thomas Weber, July 31, 2015 @ 7:11 pm Reply

    The way I see it, it’s less about the interest rate, and more about how people think about college in general, and particularly when it comes to taking out loans to finance education.

    I think the challenge facing college students today stems from two beliefs: (1) a college degree guarantees you a better salary than not going to college (independent of major), and (2) you should be able to major in whatever you want ("find your passion" and the like).

    I don’t remember many of my classmates in college considering the ROI when deciding their major, or classmates in high school considering ROI when choosing a college (though total cost was certainly considered). I find it quite fascinating since determining the ROI of an investment happens in nearly all other areas in modern life (perhaps college is always assumed to have a positive ROI?).

    Colleges are certainly have the financial incentive to perpetuate the beliefs above. I’m not sure where the intervention should happen to start the conversation or who needs to lead the discussion – students should consider ROI when choosing a school and a major. This is not to say that everyone should pick a high paying degree (you can still follow your passion), but everybody should at least be aware of the investment they are making.

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