Return on Investment in Paying for College

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Paying for college is a big investment. A wise investor wants to know what the return on investment (ROI) will be, but how can you find the ROI for paying for college? And how can you figure out the ROI of paying for a particular major, or for a particular college?

The website payscale.com provides starting and mid-career salary information reported on the site by graduates of about a thousand colleges, and the site also computes the ROI for an undergraduate degree at about 1500 colleges. It might or might not surprise you to learn that the top 9 colleges in terms of return on investment all specialize in engineering. The top Ivy League college in terms of ROI is Harvard (14th in return on investment).

As a report in the New York Times indicates, there are some problems with the payscale.com data. One is that the number of reports is relatively small, and is restricted to people who visit payscale.com and volunteer the information. Also, the median salary reported depends on the careers of the reporters, and those may not match the distribution of programs in the school, or provide much guidance to someone who plans to major in a different program than those reporting. And a realistic comparison would also take into account the failed investment for those who start but do not complete college by adjusting for graduation rates. But the comparisons may help in selecting which of two similar schools might be better, or in finding surprising bargains in paying for college. For example, a regional state college might be a better bargain in terms of return on investment than the flagship school.

A few states report the in-state first-year earnings for every graduate of their two-year and four-year state schools who is working in the state. The results are available at collegemeasures.org, which also provides data for other states on completion, retention, average loan debt, and debt to salary ratios for both public and private schools.

Georgetown University studies both the earnings and unemployment rates for recent college graduates in various majors. While the data are national averages across all schools, they can provide a warning about majors in which a student is likely to have a harder time finding a job after graduation, or may not earn much if he does.

As the site collegerealitycheck.com emphasizes, the key points to bear in mind are: the actual net price (what you will have to pay out of savings or borrow after taking into account any scholarships or grants from the school or other sources); whether or not you’ll graduate on time; and what you can expect to make after graduation. Each school has a Net Price Calculator. Frank Palmasani, the author of “Right College, Right Price,” points out that for a strong candidate from a family of modest means  the net price for a highly selective school like Harvard might actually be much less than that for attending a local state college, because of offers of scholarships and grants.

So what to do to maximize the return on investment (ROI) for paying for college?

  1. Make sure you’re comparing apples to apples, net price to net price.
  2. If you’re torn between possible majors, consider opting for the one that will pay the best and/or have the best chance of landing a job after graduation.
  3. Don’t pass up any possible money from scholarships for which you qualify. Go to ScholarshipAdvisor to be sure you’ve applied for scholarships you might receive to help in paying for college.
  4. Once you’ve started college, do your best to graduate within four years. In particular, if you decide to change your major, the sooner the better.

The less you spend paying for college, the better the return on investment will be. So once you’ve chosen the right major and focused in on your candidate schools, increase the return on your investment by earning as much money in scholarships as possible.

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