The new research is based on self-reported compensation data collected through PayScale’s online pay comparison tools. PayScale examined pay reports from 1.4 million graduates of U.S. colleges and universities with no advanced degrees to calculate the ROI of each school. One reason the PayScale study resulted in a far lower estimate of the ROI on a college education is the way it calculated college costs. Instead of assuming everyone graduates in four years, as some do, PayScale used the actual number of years it takes students to graduate from each institution4, 5, or 6 years. Another reason for PayScale’s far lower ROI estimate is that it accounts for the fact that many students never graduateand go on to earn little more than a high school graduate. For them, the ROI on their college education is effectively zero.
Of the two, graduation rates had a far bigger impact on ROI. Of the 554 schools in the study, the net ROIfor graduates onlywas $627,239. But once adjusted for the average six-year graduation rate of 58 percent, the average overall net ROI shrank by 37 percent, to $393,574. Schools with the worst graduation ratesat some schools, fewer than 20 percent of students graduated in six years fared even worse in the PayScale analysis.
Also, While private schools dominated the top of the list, public schools proved to be far better value overall, at least for in-state students. Because of the lower costs paid by in-state students$82,301 compared with $126,933 for out-of-state students at public institutions and $170,219 for students at private schoolsthey enjoyed the best net annualized ROI: 9.7 percent. The worst deal: paying out-of-state tuition at a public university. Doing so results in an average annualized net ROI of 8.4 percent. Private schools yielded a net annualized return of 9.1
One big conclusion that can be drawn from the PayScale data is that collegeand college alonemay not be the great investment it was once thought to be