College ROI: What’s Different for 2014?
Today PayScale released our 2014 College Return on Investment (ROI) Report and for those who are avid consumers you might notice some changes from previous years. We have refined our methodology this year to deliver what we believe is the most accurate representation on monetary ROI of a college degree.
The biggest change is from a 30-year Net ROI in previous reports to a 20-year Net ROI in the current report. This is why you may have noticed the Net ROI numbers are lower this year than in 2013. Harvey Mudd, who topped the list in 2013 with a 30-year Net ROI of $2,113,000, tops the list again but with a 20-year Net ROI of $980,900.
The reasons for doing this are twofold. First, previous PayScale research has shown that pay goes nowhere after age 40. In other words, the only pay growth seen on average after age 40 is inflationary (2-3 percent a year). Of course, this is just an average and isn’t true for everyone. For example, pay for lawyers can have very real growth until close to retirement, while pay for pharmacists flattens out not long after they graduate.
Considering the majority of college graduates are in their early 20s when they graduate with a bachelor’s degree, we focused on a 20-year ROI to bring us to the average point when pay stops experiencing real growth. Therefore, the 20-year ROI measures the additional income a bachelor’s only graduate earns over a high school graduate given the costs of their education at a particular school during the period when they experience the highest average pay growth.
The second reason for switching to a 20-year ROI was completely data driven. We take data very seriously at PayScale and when we examined the numbers this year, the pay values for older graduates from a number of schools had a higher variance than our allowable amount for reporting. Therefore, we made the decision to remove these older graduates from the entire sample for all schools. By doing this, we are reporting pay values that are within are standard thresholds for reporting and thus our uncertainty on these numbers is lower than they would have been if we stuck with the 30-year ROI.
With the exception of switching from a 30-year ROI to a 20-year ROI, the standard methodology is the same. The focus of the ROI report is to examine the additional salary a college graduate earns over the typical high school graduate, given the costs they incurred for their education. Just like last year, we are reporting the ROI for graduates and do not weight the result by the overall graduation rate.
Another notable change this year is the inclusion of many more variables from the Integrated Postsecondary Educational Data System (IPEDS). These variables range from additional cost structures to represent on-campus versus off-campus costs to the percentage of graduates receiving Pell grants. These variables and how they interact with the PayScale ROI variables are surfaced through a number of interactive visuals, as well as the added functionality to build your own ranked list according to your specifications.
Therefore, we invite you to dive in and geek out on the new 2014 PayScale College ROI Report. Explore all it has to offer and as always we welcome feedback, observations and assertions about what you find.