Tools for Judging College as an Investment

Nancy Folbre, an economics professor at the University of Massachusetts, Amherst had a thought provoking post on the Economix blog on the economics of universities, and the value of a college education.

She brought up three interesting problems:

  1. Difficulty the "buyers" of a college education have in judging value
  2. Rising costs and questionable approaches for new revenue (e.g., marketing for out of state students)
  3. Poor outcomes such as low graduation rates particularly at for-profit and large state universities

I have blogged comparing private and public universities before. In this post, I just want to point out the resources that are most useful in judging the economic value of a 4-year bachelor's degree education from a particular institution.

Bachelor's degree or not, are you earning what you are worth? Spend 5 minutes completing the PayScale online salary evaluation survey and know.

Government to the Rescue: College Navigator

An excellent source of very detailed data on a college's success in educating students is the Department of Education's College Navigator.

How do I use College Navigator to judge universities? I look at the 4 and 6 year graduation rates, enrollment by major, tuition charges and financial aid stats.

Until I starting using this site, I had no idea how poor the 4-year graduation rates were at some state universities. I went to a small private liberal arts college (Swarthmore), where 90% of students graduate in 4 years or less. I assumed all schools were similar.

I should have known better. I grew up in Massachusetts; a lot of my high school friends went to the University of Massachusetts – Amherst, affectionately ZooMass, and then flunked out in the first year. I just thought it was only my friends :-)

It turns out that U Mass – Amherst has a 50% 4-year graduation rate now. It is not that most students are just taking an extra year to finish; only 68% finish after even 8 years. This is dramatically lower than Amherst College across town, where 85% finish in 4 years, and 95% eventually.

College Navigator also has the breakdown of majors of graduates. This is a stronger statement about the academic attitude of students than many college brochures. Every school talks about their great science departments, humanities, business programs, etc., but what the students actually take sets the character of the school, and what the future graduates will earn.

For example, 25% of U Mass grads major in business, communications, and journalism, while only 1.5% major in computer science and 0.5% in physics. This is very different from Amherst College across town, where social sciences are king at 25% of grads. Computer science and physics are each only 2.5%.

College Major Matters: The PayScale College Salary Report

Not every degree is equal: a university that may be a good investment for an engineering major may be a horrible one for an elementary education major.

Before picking a major and school, every student and parent should look at the PayScale College Salary Report. While the information by about typical graduate earnings for each school is interesting, the telling page is the comparison of pay by college major.

As was painfully brought into the public notice by the Huffington Post, the future earnings prospects of a social work bachelor's graduate ($42,000/year, without further education) is very much less than that of the typical engineering major ($95,000/year at mid-career).

While the long term satisfaction of those who earn each type of degree and pursue each career is subject to debate, it is important for undergraduates to have a realistic view of future earnings.

Education is an investment, but, just like stocks, it can be a poor one if you pay too much for your future return. Understanding what the typical graduate with your major earns helps you plan your current borrowing and spending appropriately.

What if you are a parent who has to pay for the education? You need to make sure you are earning what you are worth. For powerful salary data and comparisons customized for your exact position or job offer, be sure to build a complete profile by taking PayScale's Full Salary Survey.


Al Lee
Director of Quantitative Analysis, PayScale, Inc.


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