Getting the greatest value or highest return on your invested money should be a goal for every dollar you spend in life. As the dollar value of that investment goes up so does the importance of making a more-informed decision. Investing in college is one of those investments. Included in this post are frameworks and tools to help you better understand:
- How to determine when you can expect to receive a return on your diploma;
- Which colleges offering bachelor’s degrees are most effective at helping you achieve a return on your investment (ROI);
- How the Field of Study you choose impacts your ROI
Investing in a college education is expensive! If your goal is to optimize the return you get from that investment, then the quantitative analysis provided in this post should be a useful data point for making the most-informed decision about your future.
What is the financial benefit of getting a college degree?
The return you have received from obtaining your college diploma can be estimated thanks for research initially conducted by the Pew Research Center. Pew provides an annual earnings benefit for college-educated individuals.
Using the benefit provided by Pew as a starting point, I’ve created a spreadsheet you can use to estimate your Return on Diploma (ROD). In the illustration provided below, this individual has been working for ten years since graduating college, realizing an average annual earnings benefit of $18,033 per year over that time. With a total investment in college of $150,000, that person broke-even in 2022 (8.3 years) and can expect a positive and growing ROD (as long as they keep earning income).
To determine your annual earnings benefit and calculate ROD, use this excel worksheet: Return on Diploma (ROD) worksheet
What is CES and why is it important?
The ROD provides evidence that getting a degree is worth the time and money, but which colleges provide the best value. To figure that out, I developed the College Effectiveness Score or CES.
CES is a single number that measures a college’s ability to effectively transition its students to a profession/career. As such, it helps prospective students and their parents more easily compare and prioritize the relative financial value of different colleges.
The CES formula is: (earnings/avg total cost) * graduation rate, where:
- The average annual earnings of individuals that began college at this institution 10 years ago, regardless of their completion status.
- The average total cost to attend is the average annual cost multiplied by degree type, e.g., 2x for Associates and 4x for Bachelors. (note: calculation does not include annual inflation amounts.)
- Graduation rate – Completion rate for first-time, full-time students at four-year institutions. Graduation rate is applied to gauge the probability that a prospective student will realize the projected earnings associated with getting the diploma.
Which bachelor’s degree institutions have the highest CES?
Based on data provided to the DOE by educational institutions, I’ve calculated the CES for 1,648 institutions offering bachelor’s degrees and show the rankings for institutions with the 50 highest CES scores below :
How do I find the CES for a specific institution?
To find the CES for all educational institutions, download the CES spreadsheet to quickly find your institution. To aid in your analysis, the spreadsheet includes five tabs:
- Rankings – top 20 for highest CES, lowest average costs, highest median earnings, and highest graduation rates.
- CES for institutions offering bachelor degrees (n=1,648)
- CES – all educational institutions (n=6,045)
- Glossary – definitions of DOE data used in producing CES
To download the analysis, please click here.
How does the Field of Study impact my ROI?
To calculate the CES for each institution, median earnings across all fields of study (i.e., “Majors”) was used. However, the Field of Study you choose can have a “major” impact on both the CES for that institution and your ROD.
To illustrate this point, I’ve compiled data in the table below from DOE for three different colleges all in the same state and included median earnings for four popular Fields of Study. As you can see, the CES for all Fields of Study for “College A” is the highest based on average median earnings for all individuals that attended that college.
But, when the formula is applied based on median earnings reported by Field of Study, the CES provides different results. For example, the CES for an individual that studies Accounting at “College C” (the lowest cost option) is higher than the CES for an individual that studies Communications & Media at “College A”.
So, this means that while CES applied across all majors is a good indicator of a college’s effectiveness as an institution, calculating CES based on an individual’s chosen Field of Study is the best indicator of a college’s ability to effectively transition its students to a profession/career.
Field of Study data for each institution can be found the on the DOE’s College Scorecard website.
What else should I consider?
Please note that this analysis and the associated tools provide a framework and data points for supporting your understanding and decision-making, but there are other factors to consider when choosing a college such as:
- A student’s readiness to get a bachelor’s degree – obtaining a two-year associate’s degree also provides a strong ROI, and a potential pathway to getting a bachelor’s degree
- Your budget
- Acceptance rate – can you realistically get into the college?
- Actual amounts of federal and college aid (e.g., grants, academic/athletic scholarships) offered by the institution
- Location (e.g., your state of residence, proximity to family, access to post-grad jobs)
- Field of study