College: Big Investment, Paltry Return

The value of a college degree is a middle-class article of faith. But exclusive new research suggests it may be far less than previously thought

By Francesca Di Meglio

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If there's one truism that goes virtually unchallenged these days, it's that a college degree has great value. Beyond the great books, beyond the critical reasoning skills, and beyond the experience itself, there's another way that a college degree has value: Over the course of a working life, college graduates earn more than high school graduates. Over the past decade, research estimates have pegged that figure at $900,00, $1.2 million, and $1.6 million.

But new research suggests that the monetary value of a college degree may be vastly overblown. According to a study conducted by PayScale for Bloomberg Businessweek, the value of a college degree may be a lot closer to $400,000 over 30 years and varies wildly from school to school. According to the PayScale study, the number of schools that actually make good on the estimates of the earlier research is vanishingly small. There are only 17 schools in the study whose graduates can expect to recoup the cost of their education and out-earn a high school graduate by $1.2 million, including four where they can do so to the tune of $1.6 million. At more than 500 other schools, the return on investment, or ROI, is less—sometimes far less. College, says Al Lee, director of quantitative analysis at PayScale, "is not the million-dollar slam dunk people talk about."

The top of the list was dominated by elite private universities, with the Massachusetts Institute of Technology taking the top spot. Its net 30-year ROI of nearly $1.7 million makes it the most valuable undergraduate degree in the nation. The large number of MIT students who enter such high-paying fields as engineering and computer science certainly helped, but the school's advantages go well beyond that, says Melanie Parker, executive director for global education and career development at MIT. "All the students at MIT, regardless of their major, take a strong core curriculum, which exposes them to more in-depth science and math than students at most other programs," Parker says. "Employers look for any major from MIT, because our students are prepared for almost anything."

A Taste of the Ranking

The next best education bargain was California Institute of Technology in Pasadena, Calif., where students out-earned high school grads by about $1.6 million, followed by Harvard University in Cambridge, Mass.; Harvey Mudd College in Claremont, Calif.; and Dartmouth College in Hanover, N.H. For the complete ranking, and an in-depth explanation of the methodology, check out our interactive table

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 institution—4, 5, or 6 years. Another reason for PayScale's far lower ROI estimate is that it accounts for the fact that many students never graduate—and 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 ROI—for graduates only—was $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 rates—at some schools, fewer than 20 percent of students graduated in six years— fared even worse in the PayScale analysis.

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