College ROI: Is a Degree Worth the Cost?

Some may have been surprised, during the 2013 State of the Union, when President Obama said, "So, tonight, I ask Congress to change the Higher Education Act so that affordability and value are included in determining which colleges receive certain types of federal aid."

For decades, it has been an article of faith that more education was good, while less education was bad. Hence, increasing access to higher education through a variety of federal programs has been widely supported.

In general, the programs come in the form of either gifts or loans. The gifts are not required to be repaid and can be viewed as the country’s investment in human capital. The loans, on the other hand, are required to be repaid, and the substantial increase in college-related indebtedness is gaining attention and concern.

Are all colleges good investments?

The question and references made by the president and Marco Rubio drew the attention of the Wall Street Journal’s esteemed David Wessel.

Anyone in the business of selling something expensive — and higher education is undeniably expensive — will devote considerable time to helping customers pay for the service on offer. Colleges have entire offices devoted to helping students navigate through the maze of scholarships, grants, and loans to enable the students to pay the increasing cost.

Is it possible that the availability of such programs does more to increase the costs then to make the product more affordable? Some make this argument as to the mortgage interest deduction and to federal homeownership programs.

Colleges are probably not pleased that studies (you can follow the link to check on your own school) have been done as to return on investment and those institutions that rank lower on the list will dispute the methodology.

Whether or not you agree with taking the four-year cost of the college and measuring it against the median increase in lifetime earnings compared to a high school graduate, the results are at least "directionally accurate."

According to the analysis, 28% (351 out of 1248) colleges provide a negative return on investment, meaning the student would have been better off financially by not going. If the cost conscious student began at a two-year community college and transferred to a four-year college, the number of colleges with a negative return on investment drops to 11.5% (144 out of 1248).

If cost-benefit is your preferred measure, your best public choice is Colorado School of Mines and your best private choice is Harvey Mudd College.

The presence of Georgia Tech, Cal Tech and MIT on the top eight public and private lists shows the value of engineering degrees, while the listing of Berkeley, Stanford, Princeton, Harvard, Dartmouth and Duke show the value of prestige and high admission standards.

The other five Ivies rank: Penn #9, Cornell #13, Columbia #15, Brown #23 and Yale #32.

Langston University (#896) earns you $8 over a lifetime and the University of Southern Mississippi (#897) costs you $127.  Below that, you had better be getting something else out of the four years because your decision was not financially beneficial.

Unless the president’s suggestion is followed, loan programs will not discriminate between four years at Savannah College of Art and Design (#1248 with a negative return of $189,000) and Harvey Mudd (#1 with a positive return of $1,467,000).

No value was attributed to Jell-O shots, bong hits, mating opportunities, or big time football.

This post originally appeared on libertyPell.

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Haven Pell

Haven Pell is the CEO (Chief Everything Officer) of www.libertyPell.com Formerly financial advisor, investment banker, lawyer and Navy Officer

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