The lifetime financial rate of return on a college degree has long been very high in the U.S. – much higher than the financial rate of return on other investments available (stock market, real estate, bonds, etc.).
And, of course, many of the best things about a college education and experience can’t be measured in dollars.
There has been some recent concern that rising college costs, rising debt levels for students and a changing job market are reducing the financial returns from college. But, in the current recession, college graduates have an unemployment rate about half that of the non-college educated workforce.
And, a new study reported in The Wall Street Journal shows that the financial returns to a college investment remain high – about 10 percent on average.
The study, using some great, self-reported compensation data from graduates, also shows costs and earnings by specific institutions. The top rates of return tend to come from top engineering schools and elite universities, but in-state tuition at good state schools remains an excellent investment.
As state higher education funding in Colorado continues to plummet, and as tuition increases more and more, these figures are worth keeping in mind.
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Paul beat me to this post (early bird, worm, etc). Two small points:
The return counts only college graduates — it does not mention the financial return (or lack) to a student who does not finish, which I would wager is meager (if any). Census data from 2000 (i’m sure there is some more recent data) had 1 in 3 students dropping out; and some estimates have 40% of enrolled students not receiving a degree.
Now, maybe some students are Bill Gates, but if you don’t graduate, you don’t get the financial return. And I’m betting that being academically unprepared is a major factor in dropping out. Getting students into college is important; getting them ready for college is at least as critical. And if you don’t get them through college, the first two are probably squandered.
I found the following point really interesting:
“Overall, the best value proved to be public schools attended by in-state students, yielding a 9.7% average net annualized ROI. The worst deal was attending an out-of-state public school, yielding an annualized net ROI of 8.4%. The net annualized return for private institutions was 9.1%.”
The biggest difference between the public institutions? In-state v. out-of-state tuition (for these are the same schools, the difference in ROI is the geographic location of the students) — like anything else, it’s easier to have a high return when you have a low cost basis. What this tells me is that college costs are very important, and as they continue to outpace salary gains, the ROI is going to drop, and dramatically (increasing the denominator has a bigger impact on the ratio than increasing the numerator).
The cost of college is critically important, and many IHEs are going to need to modify and minimize increases if they are going to attract — and most importantly graduate — students. While I am partial to Paul’s point about funding for Higher Ed, if you really want there to be a financial incentive based on ROI, keep costs low.
The short answer to Alex’s question on earnings for those who don’t complete college are in the Digest of Education Statistics (see http://nces.ed.gov/programs/digest/d09/). Those with some college, but no degree on average earn $4,000 more per year than a high school graduate (about $32k vs $28k per year).
For more detailed information on earnings by state and education level, check out http://www.higheredinfo.org–run by our pals at NCEMS in Boulder. There you will see a college degree is worth more in Colorado than the great plains (in terms of added income). But a college degree is much more valuable in California and Texas.