Higher Education ROI: How good was your investment?

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higher education, ROI

Via the WSJ’s Real Time Economics blog, PayScale has released the results of a study that attempts to provide an ROI for college education.  From the WSJ:

The study surveyed results from self-reported compensation data from 1.4 million college graduates across 852 public and private institutions. ROIs were calculated based on the cost of college — tuition and fees, room and board, and books and supplies — and the estimated median pay for that graduate plus four-to-six years to compensate for time spent in school. Costs don’t account for financial aid. The 30-year returns are reflected in real terms and the annual ROI figures include a 4.3% yearly wage inflation.

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 study suggests that a bachelor’s degree has been devalued with lower ROIs over the years, though advanced and professional degrees are seeing greater returns. It also points to the longtime belief that attending an elite university matters — Ivy League schools take up five spots in the top 10.

The top-10 colleges ranked by 30-year ROI were:

1. MIT
2. CalTech
3. Harvard
4. Harvey Mudd College
5. Dartmouth
6. Standford
7. Princeton
8. Yale
9. Notre Dame
10. UPenn

Not a whole bunch of surprises there.  However, this just looks at the total dollar amount.  If you sort by Annual Rate of Return (a measure of the value of the investment, not just the total return) my alma mater, The College of New Jersey, outranks UPenn, Yale,  and Notre Dame.  Plus, there are all sorts of questions one can raise about their methodology (which can be found here.).

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Spending: How Much vs. How

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military spending, resources, ROI

When I used to teach undergraduate courses in International Relations and Security I would typically start any balance of power lecture by making students guess how much the United States spent on the military versus the rest of the world.  At that time, the United States spent as much as the next 12 largest spenders combined.  That gap has only widened.

While the relative difference is incredible, I would caution that it isn’t simply how much you spend, but how you spend it.  There are numerous debates about whether the military is spending its funding appropriately (case in point, the debate over the F-22) given current and likely future opponents.  One can easily relate this to business.  It isn’t simply how much a business spends on R&D, sales and marketing, etc.  It’s how the firm spends those dollars.  Are they allocated efficiently?  Are you tracking the progress (or lack thereof) of the spending, calculating an ROI, and shifting course if the return and outcome is not what you originally sought?  It’s a key distinction, one that organizations often lose sight of.