PayScale College ROI Report - 2017 Methodology and Notes

Household Income

PayScale provides median earnings data of workers who attended college based on where their household fell in the income distribution when they attended college. Median earnings by household income is provided overall and by job level. Data was obtained from 150,000 U.S. workers who took the PayScale survey between February 2015 and February 2017.

Data Set Characteristics

All data used to produce the PayScale College ROI rankings were collected from approximately 1.3 million college-educated workers who successfully completed PayScale's Employee Survey between 2/26/2007 and 2/12/2017. The average sample size for an included school is 792 alumni profiles.

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.
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 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).

Typical Time to Graduation: Utilizing graduation rate data from IPEDS, we calculate the number of years it takes for at least 65 percent of graduates from a given class to receive their diplomas.

Percent Receiving Grant Money, Overall: This is the percent of full-time, first-time undergraduates who received local, state, federal, or institutional grant aid in the 2014-2015 academic year, as reported by IPEDS.

Average Grant Money Received: 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 2014-2015 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 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.

Cost, With Aid: This cost, calculated for both on and off campus costs, is simply the reduced price of education accounting for average grant money received over four years of education.

Effective Annual Compensation (EAC): EAC combines base annual salary or hourly wage, bonuses, profit sharing, tips, commissions, and other forms of cash earnings, as well as equity (stock) compensation.

Median Pay: The median pay is the national median (50th percentile) EAC. Half of a school's employed graduates earn more than the median, while half earn less.

20-Year Pay for a 2016 Bachelor's Graduate: Using PayScale's database, we calculate the current 20-year median pay for a bachelor's graduate of 2016 as follows:

  • Calculate years since graduation at time of response for each individual in the sample by subtracting graduation year from survey response year
  • Inflate pay to current dollars using the consumer price index (CPI)
  • Model pay as a function of years since graduation, squared years since graduation, and school to produce school-specific curves of pay over years since graduation ranging from zero through 19
  • Sum all 20 pay estimates for each school to get 20-year pay

This approach allows us to estimate 20-year pay more precisely and stably than previously possible. First, by calculating years since graduation directly, we were able to include data collected as early as 2007 and therefore drastically increase the number of individuals included in the report. Further, in previous versions of this report, we calculated median pay for people 0-4 years out of college, 5-9 years out of college, and so on and aggregated those four bins to get median 20-year pay for graduates of a given school. With our new method, we can estimate pay among people 0 years of out of college, 1 year out of college, and so on through 19 years out of college, creating a more precise fit to the data. Finally, our model considers all schools simultaneously, allowing it to improve estimates in schools with sparse data by "borrowing" information from schools with more data.

Note that this model assumes that pay trajectories for a given school do not change substantially over time. In other words, it assumes that an individual who graduated in 1997 and responded to the survey in 2007 has had basically the same post-college experience as an individual who graduated in 2007 and responded to the survey in 2017. Both individuals were 10 years out of college at time of response, so our model assumes that they are directly comparable. This assumption could be violated for any number of reasons; for instance, many schools have rapidly increased investment high-paying STEM education, which means that a typical graduate from the Class of 2007 might have a better pay trajectory immediately out of college than a typical graduate from the Class of 1997. That said, we did not see a significant difference in pay trajectories over time after accounting for inflation; people who were 10 years out of college were similar to each other regardless of year of graduation.

24-Year Pay for a 2016 High School Graduate: We calculate the 24-year pay for a high school graduate by finding the median pay for high school graduates zero through 23 years after graduation and aggregating all 24 median values. We do not need to use the modeling approach described above because we have ample data in each year-after-graduation.

School Type: We separate schools into 4 categories: Public (In-State), Public (Out-of-State), Public (Federal), 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.

Religious Affiliation: (as defined by IPEDS) Indicates religious affiliation (denomination) for private not-for-profit institutions that are religiously affiliated.

Census Regions: Regions of state grouped by the US government (http://www.census.gov/geo/maps-data/maps/pdfs/reference/us_regdiv.pdf).


Household Income Distribution in College:

  • Bottom 25%: Respondents who answered "Bottom 25%" to the question "Where in the income distribution was your household when you attended college?"
  • Middle 50%: Respondents who answered "Middle 50%" to the question "Where in the income distribution was your household when you attended college?"
  • Top 25%: Respondents who answered "Top 25%" to the question "Where in the income distribution was your household when you attended college?"

Current Mid-Career Income Distribution:

  • Currently in the Bottom 25%: Respondents with 10 or more years of experience whose earnings are in the bottom 25% of the mid-career pay distribution of all U.S. workers with at least a bachelor's degree.
  • Currently in the Middle 50%: Respondents with 10 or more years of experience whose earnings are in the middle 50% of the mid-career pay distribution of all U.S. workers with at least a bachelor's degree.
  • Currently in the Top 25%: Respondents with 10 or more years of experience whose earnings are in the top 25% of the mid-career pay distribution of all U.S. workers with at least a bachelor's degree.

School Categories

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.Ds and do at least some research.

Liberal Arts School: Any private school with a Carnegie basic classification of "BAC/A&S Baccalaureate – Arts and Sciences" and identified as private by IPEDS. 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 private school with a Carnegie basic classification of "Spec/Arts: Special – Arts" and which grants bachelor's degrees according to IPEDS.

Business School: Any school (public or private) 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 (public or private) 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 2016 Princeton Review "Party Schools" list.

Sober School: One of the 20 schools on the 2016 Princeton Review "Sobers Schools" list.

Private School: Any school identified by IPEDS as being privately funded.

State School: Any school identified by IPEDS as being publicly funded.

Religious: Any school with a religious affiliation, as defined by IPEDS.

For Sports Fans: Any school with a Division 1 Football or Division 1 Basketball team

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 cost for a Graduate in 2015, on and off campus, or the Cost, With Aid for a Graduate in 2015 (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 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 Pay for a 2016 Bachelor's Graduate and the 24-Year Pay for a 2016 High School Graduate.

ROI by Career and by Major: For the second year, we have included ROI calculations by major and by career, where possible. This does not change the investment required to attend a given school, but does affect the return one gets from attending college. This is due to differences in yearly salary and the maturity curves of a graduate over 20 years of employment. ROI by Major represents graduates of a school with the given major. ROI by Career represents graduates of a school who work in the given job category.

Note that only School-Career and School-Major combinations 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's alumni to publish an ROI ranking for it. We acquire our data from individuals filling out the PayScale Salary Survey.

Using the Return and Investments above, we calculate 8 measures of ROI in two overall ways:

1. 20-Year Return on Investment (2016 Dollars): To calculate the 20-Year Return on Investment, we use the Earnings Differential less the On Campus Cost, and the Earnings Differential less the Off Campus Cost.

For example, a school with a $1,000,000 Earnings Differential for graduates and $200,000 in Costs would have an $800,000 20 Year Return on Investment.

Note: This figure is in 2016 dollars and thus represents a real return rather than a nominal return.

In past versions of the ROI Report we adjusted the earnings differential to account for the graduation rate of a given school to give an expected net return, since not all people graduate from college, or calculated a weighted cost based on graduation rates over 4, 5, or 6 years. Similar to our 2016 methodology, we don't discount the earnings differential by the graduation rate. We show what the typical earnings potential would be if a person did indeed attend the school and graduate in 4 years. 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 2016 Bachelor's Graduate and the 24 Year Median Pay for a 2016 High School Graduate. The cost utilized is the Total Cost for a Graduate of 2016.
  • 20-Year Net ROI with Aid: This uses the same Earnings Differential as the 20-Year Net ROI, but now the cost utilized is the Cost, With Aid for a Graduate in 2016.

2. Annualized ROI: This is the Earnings Differential divided by the Total Cost for a 2016 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 Total Cost would have an annualized return of 8.38% if we are looking at the 20-Year Return.

In past years we have calculated annualized ROI in nominal terms using average real wage change over the past 20 years, but we have switched to real terms (current dollars).

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.
  • 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 Cost, With Aid for a Graduate in 2016

Uncertainty in ROI Estimates

PayScale does not provide confidence intervals for the estimates of 20-year earnings at the school level for the sake of brevity and the computational intensity of including when generating these estimates.

We calculated uncertainty intervals for a random subset of 100 schools, split between large and small institutions. For this subset, the average normalized error for a large school was ±2.6%, and ±7.0% for a small school. We defined large schools as those with more than 1250 graduates last year according to IPEDS, and small as those with fewer.

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