Methodology and FAQ
Why is this year’s methodology different? [+/-]
This year we made some changes that we believe help us create the most meaningful ROI figures possible. The most notable of these changes was to switch from a 30-year ROI to a 20-year ROI. You can find more information in this blog post.
Why don't I see my school in the 2014 College ROI Report? [+/-]
Only schools which grant bachelor degrees and for which PayScale had a statistically significant sample were considered for this study. Exclusion from the study is not a reflection on the quality of the institution, but simply indicates that we did not have enough verified data from the school to publish an ROI ranking for it. We acquire our data from individuals filling out the PayScale Salary Survey.
Are the sample sizes reported in the Research Center for my school the samples utilized for the College ROI study? [+/-]
PayScale’s public-facing Research Center only samples a portion of our overall database and does not fully represent the sample utilized for calculating the earnings figures in the PayScale College ROI Report. The size of a school's sample is strongly correlated with the size of the school. Therefore, our samples are larger for larger schools. The average sample size for the included schools is 445 profiles.
PayScale’s core business is building software that utilizes our data and compensation algorithm. Our public Research Center is only meant to give a glimpse of our full data set.
Why doesn’t PayScale include alumni with graduate degrees or produce an ROI for graduate degrees? [+/-]
There are two main reasons why we don't include alumni who went on to obtain a graduate degree. First, it is difficult to tease out how much of an individual’s earnings are impacted by their undergraduate education and how much is impacted by their graduate education. For example, if a student obtains a bachelor's degree from the University of Washington and then goes on to earn a Master's degree from Harvard University, we can’t objectively quantify what portion of their earnings is driven by their undergraduate education and what portion is driven by their graduate education.
Secondly, the cost structure of graduate school is highly variable and not easily obtained from one data source, whereas undergraduate education costs are recorded by the Department of Education. When costs are so varied and do not come from a single data source, it is near impossible to calculate a "typical" cost of a graduate degree. Somebody who goes on to earn a PhD may be able to waive all tuition costs through grants, teaching, etc., while an MBA student may be responsible for costs of up to $200,000.
The main question we are addressing with the College ROI study is the typical financial return an undergraduate student receives from their educational choices. By focusing on those with only a bachelor's degree, we can more explicitly answer this question.
How does PayScale collect the data used in the College ROI Report? [+/-]
The data used in PayScale's College Return on Investment (ROI) Report is collected through our ongoing, online compensation survey. People complete the PayScale survey to understand their price in the labor market. Users provide data about their jobs, compensation, employer, demographics and educational background. In return, PayScale provides them with a detailed compensation report that compares their compensation to others like them.
This data is rigorously tested and verified before it is considered for reporting. Please see the PayScale methodology for more details.
The sample considered for the 2014 College ROI report was 1.4 million bachelor graduates with no higher degrees. The average sample size across the set of schools included was 445 profiles.
Data Set Characteristics:
Bachelors Only: Only employees who possess a Bachelor’s Degree and no higher degrees are included. This means Bachelor graduates who go on to earn a Master’s degree, MBA, MD, JD, PhD, or other advanced degree are not included.
For some Liberal Arts, Ivy League, and highly selective schools, graduates with degrees higher than a bachelor’s degree can represent a significant fraction of all graduates.
Careers that require advanced degrees, such as law or medicine, are not included.
U.S. Only: All reports are for graduates of schools from the United States who work in the United States. This sample does not include U.S. territories, such as Puerto Rico or Guam.
Full-Time Employees Only: Only graduates who are employed full-time and paid with either an hourly wage or an annual salary are included.
Bachelor Degree Granting Institutions: Only schools which grant bachelor degrees and for which we had a statistically significant sample were considered for this study. Exclusion from the study does not reflect on the quality of the institution.
Self-Employed, project-based, and contract employees are not included. For example, project-based graphic designers and architects, and nearly all small business owners and novelists, are not included.
Definitions of Variables:
Full-time Undergraduates: (as defined by the Integrated Postsecondary Educational Data System (IPEDS)) A student enrolled for 12 or more semester credits, or 12 or more quarter credits, or 24 or more contact hours a week each term.
First-time Undergraduates: (as defined by IPEDS) A student attending any institution for the first time at the undergraduate level. This includes students enrolled in academic or occupational programs. Also includes students enrolled in the fall term who attended college for the first time in the prior summer term, and students who entered with advanced standing (college credits earned during their high school education.)
Overall Graduation Rate: This rate is calculated as the percentage of full-time, first-time degree seeking undergraduate students who began their studies at the given school who graduate within six years. It is provided by the Integrated Postsecondary Education Data System (IPEDS) produced by the National Center for Education Statistics (NCES).
Percent of Graduates who graduate in 4/5/6 Years: Utilizing graduation rate data from IPEDS, we calculate the percentage of graduates who graduate in 4 years, 5 years and 6 years relative to the Overall Graduation Rate.
Percent of full-time, first-time undergraduates receiving grant aid: This is the percent of full-time, first-time undergraduates who received local, state, federal or institutional grant aid in the 2011-2012 academic year, as reported by IPEDS.
Average Amount of Grant Aid: This is the average grant aid received by those who get grant aid. It is the average of local, state, federal and institutional grant aid for the 2011-2012 academic year, as reported by IPEDS.
On Campus Cost: This cost is comprised of the sum of Tuition and Fees, Room and Board, as well as Books and Supplies for each academic year used in the analysis. We utilized on-campus living costs for Room and Board. Data supplied by IPEDS.
For public schools, we calculate the cost for both an in-state student and an out-of-state student.
Off Campus (Not-with-Family) Cost: This cost is comprised of the sum of Tuition and Fees, Room and Board (off campus), as well as Books and Supplies for each academic year used in the analysis. Data supplied by IPEDS.
For public schools, we calculate the cost for both an in-state student and an out-of-state student.
Off Campus (With-Family) Cost: This cost is comprised of the sum of Tuition and Fees, Room and Board (living with family), as well as Books and Supplies for each academic year used in the analysis. Data supplied by IPEDS.
For public schools, we calculate the cost for both an in-state student and an out-of-state student.
Disclaimer: All costs are collected from IPEDS, which collects its data directly from schools. Not all costs are available for all schools.
Weighted Total Cost for a Graduate in 2013: Utilizing the percent of graduates who graduate in 4, 5, or 6 years (as reported by IPEDS), we calculate the average cost based on the number of years it actually takes students to graduate. This cost is calculated in three steps:
- Of those who graduate, we find the percentage that graduate in 4, 5, or 6 years.
- We calculate the 4-year, 5-year, and 6-year cost by summing the Total Cost (defined above) from 2010-2013, 2009-2013 and 2008-2013 respectively. For Public Schools, this is done for both in-state and out-of-state students.
- Lastly, we calculate a weighted average by first multiplying the percent who graduate in 4, 5 or 6 years by the 4, 5 or 6 year cost respectively and then summing across these three products.
For schools where the majority of undergraduate students graduate in 4, 5 or 6 years, this weighted calculation will have little to no effect on the cost reported as opposed to a straight summation of the total cost.
However, for schools where the percentage that graduate in 4, 5 or 6 years is fairly split, the cost will more accurately represent the average cost faced by students based on the number of years it typically takes to graduate.
For example, assume we have a school with a 45% 4-year graduation rate, a 65% 5-year graduation rate and an 80% 6-year graduation rate. Then, of those who graduate, 56% do so in 4 years, 25% do so in 5 years and 19% do so in 6 years. Now let’s assume the total cost for each academic year is simply $10,000. Then the 4, 5 and 6 year costs would be $40,000, $50,000 and $60,000.
Now we can calculate the weighted cost: (56% * $40,000)+(25% * $50,000)+(19% * $60,000) = $46,250.
Note: This cost is roughly between the 4 year and 5 year cost since the majority of those who graduate do so in 4-5 years.
Net Cost: We calculate net cost as the difference between Total Cost and the Average Amount of Grant Aid. Due to the unavailability of grant data from IPEDS for each academic year, we use the most recent data on the average amount of grant aid for the entire period considered, whether it be 4, 5 or 6 academic years.
Weighted Net Cost for a Graduate in 2013: Similar to the Weighted Total Cost, we calculate the average cost utilizing a weighted average of the net cost paid by those who graduate in 4, 5 and 6 years.
Total Cash Compensation (TCC): TCC combines base annual salary or hourly wage, bonuses, profit sharing, tips, commissions, and other forms of cash earnings, as applicable. It does not include equity (stock) compensation, cash value of retirement benefits, or the value of other non-cash benefits (e.g. healthcare)
Median Pay: The median pay is the national median (50th percentile) annual total cash compensation. Half of a school’s employed graduates earn more than the median, while half earn less.
20 Year Median Pay for a 2013 Bachelor’s Graduate: Using PayScale’s database, we calculate the expected 20 year median pay for a bachelor’s graduate of 2013 from a specific school by summing up the median pay for bachelor graduates who graduate between 1994 and 2013 from that school. We are using data over the last year so these earnings figures are in current dollars.
By using this method we are effectively taking future potential earnings and deflating them down to current dollars by wage inflation. In other words, this amount represents a present value of future earnings discounted by wage inflation.
We are effectively assuming the (wage inflation adjusted) earnings 20 years from now for a 2013 graduate is the same as the current earnings of a 1994 graduate. If the character of a school’s graduates has changed substantially in the last 20 years, this measure may be inaccurate.
For example, a school that has added or substantially expanded an engineering program in the last 20 years, such that the mix of graduates today are much more likely to be engineers than 20 years ago, would tend to have a 20 year median pay that underestimates the future earnings of the typical 2013 graduate.
Weighted 24-26 Year Median Pay for a 2013 High School Graduate: We calculate the weighted average median pay for a high school graduate by utilizing a weighted average of the median pay for those who graduate between 2013 and 1990, 1989 and 19888 (24, 25 and 26 years of earnings post high school). Similar to above, we are using data over the last year so these earnings are in current dollars.
Type of School (IPEDS): We separate schools into 4 categories: Public (In-State), Public (Out-of-State), Private for-profit, and Private not-for-profit. Schools are deemed either Public or Private by IPEDS, while In-State or Out-of-State refers to the tuition used to calculate the Return on Investment.
Census Regions (CENSUS): Regions of state grouped by the US government (http://www.census.gov/geo/maps-data/maps/pdfs/reference/us_regdiv.pdf).
Percent Male (IPEDS): Percent of the first time, full-time undergraduate student body that is male.
Percent Female (IPEDS): Percent of the first time, full-time undergraduate student body that is female.
Percent of total enrollment that are American Indian or Alaska Native (IPEDS): (as defined by IPEDS) Percent of student body that is American Indian or Alaska Native in the fall of the academic year. This variable is derived from the enrollment component that is collected in the winter and spring surveys.
American Indian or Alaska Native - A person having origins in any of the original peoples of North America and who maintains cultural identification through tribal affiliation or community recognition.
Percent of total enrollment that are Asian/Native Hawaiian/Pacific Islander (IPEDS): (as defined by IPEDS) Percent of student body that is Asian or Pacific Islander in the fall of the academic year. This variable is derived from the enrollment component that is collected in the winter and spring surveys.
Asian or Pacific Islander: A person having origins in any of the original peoples of the Far East, Southeast Asia, the Indian Subcontinent, and Pacific Islands. This includes people from China, Japan, Korea, the Philippine Islands, American Samoa, India, and Vietnam.
Percent of total enrollment that are Asian (IPEDS): (as defined by IPEDS) Percent of total enrollment that are Asian.
Asian (new definition): A person having origins in any of the original peoples of the Far East, Southeast Asia, or the Indian Subcontinent, including, for example, Cambodia, China, India, Japan, Korea, Malaysia, Pakistan, the Philippine Islands, Thailand, and Vietnam.
Percent of total enrollment that are Native Hawaiian or Other Pacific Islander (IPEDS): (as defined by IPEDS) Percent of total enrollment that are Native Hawaiian or Other Pacific Islander.
Native Hawaiian or Other Pacific Islanders (new definition): A person having origins in any of the original peoples of Hawaii, Guam, Samoa, or other Pacific Islands.
Percent of total enrollment that are Black or African American (IPEDS): (as defined by IPEDS) Percent of student body that is Black non-Hispanic in the fall of the academic year. This variable is derived from the enrollment component that is collected in the winter and spring surveys.
Black non-Hispanic: A person having origins in any of the black racial groups of Africa (except those of Hispanic origin).
Percent of total enrollment that are Hispanic/Latino (IPEDS): (as defined by IPEDS) Percent of student body that is Hispanic in the fall of the academic year. This variable is derived from enrollment component that is collected in the winter and spring surveys.
Hispanic: A person of Mexican, Puerto Rican, Cuban, Central or South American or other Spanish culture or origin, regardless of race.
Percent of total enrollment that are White (IPEDS): (as defined by IPEDS) Percent of student body that is White non-Hispanic in the fall of the academic year. This variable is derived from the enrollment component that is collected in the winter and spring surveys.
White, non-Hispanic: A person having origins in any of the original peoples of Europe, North Africa, or the Middle East (except those of Hispanic origin).
Religious Affiliation (IPEDS): (as defined by IPEDS) Indicates religious affiliation (denomination) for private not-for-profit institutions that are religiously affiliated.
% STEM Degree Awards (IPEDS): (as defined by IPEDS) Percentage of students awarded degrees in Science, Technology, Engineering, or Mathematics.
Value of Endowment Assets at the End of the Fiscal year (IPEDS): (as defined by IPEDS) Value of endowment assets at the end of the fiscal year.
This consists of gross investments of endowment funds, term endowment funds, and funds functioning as endowment for the institution and any of its foundations and other affiliated organizations.
% High Job Meaning (PayScale): Percentage of respondents who answered “Yes” or “Very Much So” to the question, “Does your job make the world a better place?”
% Stay in State Post Graduation (PayScale): Percentage of respondents who said that they work in the same state as the college that they attended.
We categorize the schools into eight categories.
Research University: A school categorized by the Carnegie basic higher education classification system in one of three categories:
- RU/VH: Research Universities (very high research activity)
- RU/H: Research Universities (high research activity)
- DRU: Doctoral/Research Universities
Research Universities are the ones that grant Ph.D.s and do at least some research.
Liberal Arts School: Any school with a Carnegie basic classification of “BAC/A&S Baccalaureate – Arts and Sciences”. These generally are non-pre-professional undergraduate focused institutions, and usually have smaller enrollments.
A Liberal Arts designation includes science majors. It does not include pre-professional degrees like business, nursing, and engineering.
Arts, Music & Design School: Any school with a Carnegie basic classification of "Spec/Arts: Special – Arts" and which grants bachelor's degrees according to IPEDS.
Business School: Any school which grants more than 50% of their undergraduate degrees in business, accounting, entrepreneurship, finance, human resources management, management information systems and marketing majors based on data from IPEDS. The idea is to identify business focused schools, not necessarily schools that only have business programs.
Engineering School: Any school which grants more than 50% of their undergraduate degrees in math, physical sciences, computer science, engineering and engineering technology majors based on data from IPEDS. The idea is to identify science, engineering and technology focused schools.
Ivy League School: One of the 8 schools in the Ivy League.
Party School: One of the 20 schools on the 2013 Princeton Review “Party Schools” list.
Sober School: One of the 20 schools on the 2013 Princeton Review “Sobers Schools” list.
Private School: Any school identified by IPEDS as being privately funded, and not otherwise identified as a Liberal Arts School, Research University, Arts, Music & Design School, Business School, Engineering School, or Ivy League School.
State School: Any school identified by IPEDS as being publicly funded and not otherwise identified as a Liberal Arts School, Research University, Arts, Music & Design School, Business School or an Engineering School.
Return on Investment (ROI) Calculations:
In calculating the return on investment, we must first determine the investment in college and the return from attending college. The investment is the cost of college as determined by the actual cost of attending college. The return (gain) is the additional expected future income stream received for being a college graduate.
Investment in College: This investment in college is the cost of attending college, as calculated by the Weighted Total Cost for a Graduate in 2013 or the Weighted Net Cost for a Graduate in 2013 (for those who get financial aid) as defined above.
Return from Attending College: The main financial benefit of attending college is the gain in income received by a college graduate over a high school graduate. However, by choosing to attend college, one is giving up 4-6 years of income one could have received if one went straight to work after high school. Therefore, we calculate the gain in median pay over a high school graduate (Earnings Differential) as the difference between the 20 Year Median Pay for a 2013 Bachelor’s Graduate and Weighted 24-26 Year Median Pay for a High School.
Using the Return and Investments above, we calculate 12 measures of ROI in two overall ways:
1. 20-Year Return on Investment (2013 Dollars): To calculate the 20-Year Return on Investment, we use the Earnings Differential less the Weighted Cost for a Graduate of 2013 On Campus, the Earnings Differential less the Weighted Cost for a Graduate of 2013 Off Campus (Not-with-Family), and the Earnings Differential less the Weighted Cost for a Graduate of 2013 Off Campus (With-Family).
>In past versions of the ROI we adjusted the earnings differential to account for the graduation rate of the school they’re attending to give an expected net return, since not all people graduate from college. However, starting last year, we no longer discount the earnings differential by the graduation rate so we can show what the typical earnings potential would be if a person did indeed attend the school and graduate.
For example, a school with a $1,000,000 Earnings Differential for graduates and $200,000 in Weighted Costs would have an $800,000 Net Return on Investment.
Note: This figure is in 2013 dollars and thus represents a real return rather than a nominal return.
This ROI represents a net return on investment after the opportunity cost (High School Graduate Earnings) and cost of investment (tuition, room, board, books, etc.) have been taken into account.
This measure is useful for high school seniors evaluating their likely financial return from attending and graduating college.
Note: This ROI is calculated for two measures:
- 20-Year Net ROI: The Earnings Differential is the difference between the 20 Year Median Pay for a 2013 Bachelor’s Graduate and the Weighted 24-26 Year Median Pay for a 2013 High School Graduate. The cost utilized is the Weighted Total Cost for a Graduate of 2013.
- 20-Year Net ROI including Aid: This uses the same Earnings Differential as the 20-Year Net ROI, but now the cost utilized is the Weighted Net Cost for a Graduate of 2013.
2. Annualized ROI: This is the Earnings Differential divided by the Weighted Cost for a 2013 Graduate, annualized to represent the percent of expected ROI received each year after graduation.
For example, a school with a $1,000,000 Earnings Differential for graduates and $200,000 in Weighted Costs would have an annualized return of 8.38% if we are looking at the 20-Year Return.
In order to compare this percentage to the rates of return on other investments (e.g., return on the S&P 500 and interest rates on bank accounts), we convert the earnings differential to a nominal rate using the Social Security Administration’s National Average Wage Index, by multiplying the real earnings differential by this rate of wage inflation and then annualizing the return. This then results in an annualized return of 8.56% in the above example.
Note: This ROI is also calculated for two measures:
- 20-Year Annual ROI: The Earnings Differential and Weighted Cost utilized are the same as the 20-Year Net ROI. The wage inflation between 1993 and 2012 (20 years) reported by the SSA is 3.3%.
- 20-Year Annual ROI with Aid: This uses the same Earnings Differential and wage inflation as the 20-Year Annual ROI, but now the cost utilized is the Weighted Net Cost for a Graduate of 2013.
Since 20-year wage inflation is 3.3%, schools with graduates whose expected value of the Earnings Differential is just enough to pay back their investment in college will have an annualized nominal return of 3.3%.
For comparison, as of February 11th 2014, 20 year U.S. Treasury bonds were yielding an annual return of 3.42%. The average 20-Year Annualized ROI of the included schools is 10.39%. Therefore, the typical person that attends a school in this report and graduates will earn more in 20 years as compared to someone who takes the tuition money and invests it in a 20-year Treasury bond and works straight out of high school.
90% Confidence Interval on the 20 Year Median Pay: For all schools, the 90% confidence interval on the 20 year median pay is ±5%, with the following exceptions:
- Due to large variation in the pay of graduates from elite schools (Ivy Leagues, Stanford, Caltech, etc.) the confidence interval is ±10%.
- Due to smaller data sets, the confidence interval for small liberal arts schools or schools where a majority of undergraduates complete a graduate degree is also ±10%.
To translate the impact this error has on net ROI, we need to examine how 20 year median pay is included in ROI. For example, a 5% error on a 20-year median pay of $1.8 million is ±$90,000. If we are dealing with a small school, or a school where a majority of undergraduates go on to a graduate program, the error increases to 10%, or ±$180,000.
Since ROI includes the sum of the 20 year median pay, high school earnings and cost of education, both of which have much smaller errors, the uncertainty in the 20 year net ROI is about the same as the uncertainty in the 20 year median pay. For an example school with $1.8 million 20-year median pay, $100,000 in education costs, and given $1.1 million high school graduate earnings, the ROI would be $600,000 ±$90,000 for most schools and ±$180,000 for the aforementioned exceptions (90% confidence interval).
Special Case Schools:
- College of the Ozarks forces students to participate in a work study program that covers any portion of tuition that isn’t covered by other forms of aid. To compensate for this we averaged the cost of tuition for College of the Ozarks over the past 4 years and used that as the average amount of federal, state, local or institutional grant aid received. This is also represented in the non-financial aid cost of tuition since no student pays for tuition.
- Northeastern University is a co-op so that over 90% of students take between 1-3 semesters off to work at an internship. Therefore, typically those who graduate in 5 years only pay 4 years of tuition. To compensate for this we subtracted the oldest total cost from the cost calculation. The 6 year total cost is the weighted sum of 2007-2008, 2008-2009, 2009-2010, 2010-2011, 2011-2012 and 2012-2013. To reach the six year cost we subtracted the cost from 2007-2008 out of the calculation.