A couple of weeks ago an article from SmartMoney about college education costs and salary caught my attention. In particular the chart caught my attention. Being the math dork that I am, if there's a table of numbers, I'll often skip to that before reading the article. This article had one of the most interesting charts I've seen.
The chart showed a bunch of public schools at the top as having the best value. I'm not going to claim that public schools don't have great value - they do. However, since the top 18 were public schools, I knew more or less their methodology - which is one I greatly disagree with.
Before I get to their methodology, let me reference my previous article on The 15 Most Profitable Movies of All-Time. CNBC went through box sales and divided the box office sales by the costs to make the movie. The number 1 movie there was My Big Fat Greek Wedding. How is that the case? When the calculation is down as a ratio keeping a small numerator pays off big. Almost all the movies on the list cost very little to make. A movie like the Blair Witch Project (which was inexplicably missing on the CNBC list) could be considered quite profitable in terms of return per dollar spent, but was it as profitable as Avatar? Let's run the number from IMDB:
The Blair Witch Project
Budget: $60,000 (estimated)
Net Profit: $248,579,099
Budget: $237,000,000 (estimated)
Net Profit: $1,802,472,387
Using CNBC's calculation of "profitable", the Blair Witch wins. Using my definition of "profitable" (which made more money after its cost) Avatar blows it out of the water. I'll let CNBC have their Blair Witch any day, as along as they give me Avatar.
How does this apply to SmartMoney and their rankings? Let's look at their methodology:
With help from PayScale, a Seattle-based compensation-data company that maintains salary profiles of 29 million workers, we collected median pay figures for two pools of each school's alums: recent grads (who've been out of school for an average of two years) and midcareer types (an average of 15 years out). For each class, we divided the median alumnus salary by tuition and fees (assuming they paid full price at then-current rates), averaged the results and, finally, converted that result to a percentage figure. The outcome: a measure of return on (tuition) investment that we've dubbed the Payback Score. For example, a hypothetical grad who spent $100,000 to attend college and now earns $150,000 a year would score 150. The higher the score, obviously, the better.
Does that seem a little familiar? I helped you out a little above by highlighting the key word - "divided." In other words, they are giving you the math that makes the Blair Witch the most profitable movie, not the math that makes Avatar the most profitable. When division is used in calculations like these, keeping the denominator low is the key to ranking on top. That's why you see all the public schools ranking at the top. Like Avatar, people may have made more money at colleges that cost more.
Here are a few other things details that may sway these numbers:
- The source of the information is from PayScale, a site that generally covers a broad middle class range. Are people who are unemployed reporting to the site? Are CEOs entering their salaries to the site? Is it more likely that a graduate from University of Florida (to pick a top ranking school) is unemployed than one from Harvard? Which is more likely to be a CEO?
- The methodology uses two sample years instead of a more comprehensive salary history. The tuition and fees are paid only for the 4 years that one attends the college. The salary earned is typically for around 40 years. To put this in perspective, in 1996, four years of Princeton cost $50,000 more than four years of University of Georgia. In just year 15 salary, the Princeton graduate earned around 45,000 more than the University of Georgia graduate. What about years 16, 18, 20, etc... This is where the Smart Money (pun intended) should go with the Avatar method.
- Public school costs more now. As the article mentioned, "Private tuition has increased 70 percent since 2001, to an average of more than $27,000 annually, according to the College Board; public tuition more than doubled over the same stretch." This tells me that the cost of the public schools from 1996 are not relevant to today. They were a good deal then, but many of the top schools on the Smart Money list have tripled their costs since 1996, while Princeton has an 80% increase in that time. None of the private schools on the list had tripled their costs from 1996 to 2009. Mathematically, it looks like the schools at the top of the Smart Money list, made it because they were bargains - not necessarily because they still are bargains.
What can we take away from this?
The math that SmartMoney uses is helpful if finances are tight in your household. The people who made Blair Witch didn't have the money to put together an Avatar. That's understandable - few people do. Give those Blair Witchians (Witchers?) a lot of credit for making the most out of the dollars they had.
In the same vein, I don't want to come off as someone against public schools. There are a lot of good deals at them. Plus if you are going to go into something like blogging as I did, the degree doesn't mean a thing - there's little use in spending the big bucks on it.
It's possible to recognize the value of public schools, without going overboard and making the private ones look like poor use of money. They appear to be anything but that.
Finally, be skeptical of articles that try to use division that favors small denominators. Sometimes, you actually get what you pay for.
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