Philadelphia Inquirer, August, 3 2010
A recently released study graded institutions of higher education by “return on investment,” taking the college rankings game to a new low.
Return on investment, or “ROI,” is calculated by dividing an investment’s proceeds by its cost, yielding a percentage or ratio. Sounds reasonable: How nice for high school students to be able to compare, in dollars and cents, the long-term payoffs of investments in colleges they’re applying to.
But, as one dictionary noted, a downside of ROI is that it “can be easily manipulated to suit the user’s purposes.”
The college ROI study, by PayScale, produced numbers for about 850 colleges by analyzing surveys of 1.4 million graduates’ self-reported income. Impressive. But what do the educations of 100 students at a particular college have to do with 100 shares of common stock? Each share in a given company will perform exactly the same way. Each student at a particular college will not.
Averages are notoriously misleading. Even frequently cited and sometimes useful ones, such as class size, may obscure as much as they reveal. At many universities, the average class size is lowered (i.e., improved) by many small upper-level courses in less well subscribed majors, but a student in a popular degree program such as business or education may find herself in large lecture halls most of the time.
The point is that the experiences of individual students vary too much at many institutions for averages to be meaningful. Unfortunately, an official-looking list of such figures based on so-called hard data will always attract the attention of students, parents, and the institutions themselves.
To complicate matters further, prospective buyers of college educations are not entirely free to choose where they invest. All of the institutions listed in the ROI study’s top 20 are very difficult to get into. Roughly half turn down about 90 percent of applications, and ability to pay rarely influences the decision. Companies with stocks and bonds to sell, on the other hand, happily do business with anyone who has the cash.
Selective admission means the “top schools” get to pick their “investors” from huge, clambering crowds of qualified buyers. As a result, the return on investment of the most sought-after institutions has much more to do with the capabilities of the students they accept than it does with what happens to them after they enroll.
The best use of the ROI data might be to compare the returns for institutions with more or less open admissions. At least those schools are competing on a more level playing field and are open to most potential investors (formerly known as students).
Technical universities, as well as those with strong science and engineering programs, dominate the ROI rankings. Here ROI is more clearly connected to specific fields rather than institutions, which makes sense. Engineers generally find well-paying jobs and enjoy more protection from the ups and downs of the economy.
Some excellent but less widely known schools also appear in the list’s top 20 – among them, Worcester Polytechnic Institute and Union College in New York. Not surprisingly, both offer engineering degrees. At least the ROI study, with its inclusion of institutions such as these, might help get the message through to some that the “name game” in higher education – the practice of ranking institutions by how well they are known – is of equally dubious value. Perhaps in this respect PayScale’s research will have made a valid contribution to the college selection process after all.
Just about the most unconvincing argument possible. One thing I’m sure Mr. Calder doesn’t teach at Friends is logic.
Please tell me which argument is unconvincing. I would love to know.
Grant – A degree and a GPA of 3.8 from a Harvard, MIT or WPI simply means more than the same degree and GPA from a Rowen or Rutgers. Prospective purchasers of a college education are well aware of this and typically try to get accepted into the best school that they can afford. Hiring managers are also well aware of this and are eager to hire the best and the brightest (and pay more to attract them) because that is what improves their organization. A brilliant student who is capable of achieving a 3.8 GPA at Harvard but instead chooses to go to Rowen, where he then achieves a 3.9 GPA, has probably damaged his potential career earnings with such a decision. First by attending a less prestigious school, and second by never gaining access to the high end network that a top notch university can provide. Of course, this assumes that student had the financial wherewithal to attend Harvard. ROI may not be the perfect metric as applied to higher education, but it is certainly a valid metric.
I see your point but…. you mention WPI along with Harvard and MIT. WPI doesn’t have nearly the name recognition – with the general public or hiring managers – of the other two but grads seem to earn just as much (on average) over the years. To say that a student who chooses to attend Rowan instead of Harvard has made a career damaging choice doesn’t necessarily follow. For many of us career success is not measured in income earned. Your hypothetical student might have been unhappy at Harvard and performed much better in the more supportive environment at Rowan. And as a satisfied Rowan graduate that student might well go on to earn lots of money. A given college graduate’s ROI is what it is and rarely the average. Much better to choose a college for reasons that make it a good fit – programs, size, location, campus culture, cost, etc. The likelihood is that the well-placed student’s ROI will be higher.
I’d beg to differ when it comes to WPI and hiring managers in the tech and engineering industry, though I’ll admit my evidence is purely anecdotal. You’re also changing the game a bit with your last post. The metric of ROI will be used by those seeking to maximize their career potential. Certainly this includes the degree itself, the business/social network they can tap into, the size of the paycheck they can earn or all of the above. Such decisions aren’t made in a vacuum, so of course the specific course of study undertaken and the culture of a school will play a role. As I stated previously, ROI isn’t a perfect metric, and its use doesn’t guarantee a happy outcome. However, I still contend that it is a worthwhile tool that can be used to help students in reaching for that happy outcome.
The other thing that makes ROI bogus here is that college is NOT about job training. It is about getting a well rounded education, to learn how to analyze issues and problems that one hasn’t seen before. It’s about knowing our place in the universe, knowing our place in history. How do you measure the ROI on the joy of understanding Shakespeare? Of seeing the enmity of France and Germany all the way through WWII from the feuds of Charlemagne’s grandsons? Finally, the skills gained through *education* can make one successful in or out of ones defined major.
drklassen – In regards to your first comment please read my posts. As for your second comment, spoken like a true academic (no slur intended). However, while your stated objectives for attending college are admirable, I’d hazard a guess that they’re not the primary motivating factor for the great number of students who attend colleges and know they will be leaving the academic fold in four years or so to earn a living.
“Prospective buyers of college educations are not entirely free to choose where they invest.” Absolutely incorrect. Students have the freedom to choose whatever major they want, at the same cost as someone who chooses something else. What you need to realize is, when they start cutting doctor’s reimbursements, the prospective for new doctors will decline. Instead of investing in that type of education, which costs about $200K, people will look for other fields that will require less of a financial commitment and less government intrusion on what they will be paid. That’s ROI.
The point is that one must be admitted before one can “invest.”
I understand your thinking but one idea really has to be considered. When a person graduates from college, they need to look for a good job. They are already burdened with a heavy financial loan debt. Corporate recruiters or hiring managers will tend to look at resumes with names like UPenn over schools like Ursinus. Although Ursinus is quite a good school, its value maybe lost on a recruiter who is unskilled at their job. And unfortunately, this often happens.
Few would deny that a college education is an investment in someone’s future. Mr. Calder’s opinion aside, (“College isn’t common stock”, Aug 3), the time has come when the high cost of higher education needs to be more closely examined. His view is typical of too many academics, who refuse to accept any attempt to measure the value of an education. Websites like PayScale offer valuable data that can be used to ask some hard questions about the real worth of a college education today.
As a high school science teacher, with 25 years of experience in industry, I am quite comfortable with the concept of return on investment (ROI) as a means test used not just for common stock, but for any project that a young entrepreneur might propose when seeking support for an idea or project. Not only does it give us a marker for comparing the relative value of various career paths and college choices, it also allows us to assess just how high the cost of college education has become today.
My undergraduate degree in Chemical Engineering cost $14,000 for 4 years at the New Jersey Institute of Technology, (NJIT). Upon graduation in 1976 I landed a job making $15,000/yr. for an ROI of over 100%. Today that same education at NJIT would cost $80,000, in state, as I was at the time. On a comparable basis, a BS Chem Eng starting salary is around $80,000, for an ROI of about 100%, so this still seems like a great value, especially when compared to other engineering schools like MIT or Copper Union which have ROIs of around 30-35%.
However, if one looks at the data on PayScale, the starting salary for graduates of NJIT today is only $53,200. Does this support concerns about the reliability of such databases? Well, if one looks at the degrees NJIT is offering today, they are much more diverse than when I attended and many of the majors that are now offered are degrees in technology fields that have traditionally paid less than those in engineering. The same trend has no doubt taken place at the other institutions I mentioned, as colleges everywhere try to remain competitive by offering an ever expanding array of career paths to choose from. (Choice does have a price!) But the data still provide important insights that a little bit of research can reveal.
College is an investment in a young person’s future and hopefully most people would agree that the main reason for attending college is to start a career that will provide a better than average income. With double digit tuition increases and costs for 4 years of tuition/room & board running $200,000 and more, people need to consider very carefully what they are getting for their investment.
Instead of criticizing any attempt to measure education as people in academia are so prone to do, educators could view such indicators as an opportunity to demonstrate the value their craft provides to our economy. Refusing to do so puts education on some kind of pedestal that seems to make it exempt from inspection of its true worth. This results in the ever increasing cost of a college education, to the point where those graduating have loans equal to the cost a decent size home mortgage. We can’t continue to take a soft approach with an area of our economy that is increasing out of control. Parents should shop around for the best value and best match for their students, considering many factors, including the one that measures the key end result of this 4 year excursion.
We can’t keep turning a blind eye to the cost of higher education while holding a college degree out as something every student should be striving towards. Such unquestioned dedication, nay, foolishness, will only justify the continued out of control increases in the cost for this much sought after goal.
Arthur J Zadrozny
Physics Teacher, WCASD
Arthur –
I completely agree with your point that college costs must be addressed. And I have no problem with attempts to measure the value of education, if they work, but how can Harvard or Princeton’s ROI mean anything when they are admitting 6 or 7% of their applicants? If they can be that selective about who their “investors” are then they don’t deserve much credit for turning them into smart, ambitious and eventually successfull earners. If those same students had chosen to attend other universities with lower average ROIs, they would in all likelihood still have gone on to earn very good salaries and have had individual ROIs well above those averages.
Another problem with this list is that the public is primarily interested in the “top” group of schools on it and, as I see it, they are the ones for whom the data is the least meaningful.
It would be interesting to compare the ROI averages for state universities with more or less open admissions, say a minimum 2.0 GPA and 1000 (CR & M) SAT. Then we would at least be dealing with a relatively level playing field. In that case, if the ROI for one institution in that group were significantly higher than another, it might be fair to call it a better value.
Grant
Thanks for the dialog. As an engineer and science teacher, I am always going to default in favor of more data than less, so that kind of sets one of my ground rules on issues like this.
As a former businessman I am also always looking for ways to affect supply and demand curves. Institutions like Harvard and Princeton can afford to increase tuition as long as demand for admissions remain high. If more parents would look at the ROI for these schools, which are not that great, they might find them to be less attractive than state schools and other lower cost options. With that in mind, fewer parents might be inclined to have their kids apply there with the result being that these schools would not be in such high demand and their ability to increase tuition was be favorably impacted.
Admittedly, this would be a small overall impact, but one that is needed and might be the start of a trend to question the continued increases in tuition costs for all colleges, which continues unabated. When I hear of students looking at $200,000+ for a college degree which may at best qualify them for a job at $10,000 more a year than a state school changing only $100,000, I think things have gotten way out of hand.
The most information people have the better chance they will make the right decision!
Art Z.
Art –
There does seem to be a bigger discrepancy than ever between the cost of the private college degree and typical starting salaries.
The current economic climate is certainly causing many families to rethink their college options. The leading state schools (especially their honors colleges) are swamped with applications from very well qualified middle class kids.
Unfortunately, the applicant pools at places like “the ivies” continue to climb with the unemployment rate because families assume their best shot at a good financial aid package (and/or a job after graduation) is at such institutions.
I have a hard time seeing how the effective monopoly of the ivies and a handful of other schools with similarly large endowments and applicant pools can be broken. They seem to benefit whether the market goes up or down.
Grant
This is what happens when you void the forces of supply and demand by making it easy for students to apply for loans and other forms of aide. Students don’t see the full cost and parents have a hard time not giving their sons and daughters the best education, on the presumption that it will lead to the best career options.
Knowledge is power and people need to start looking at all the facts.
Good luck in the upcoming school year and stay in touch.
Art