Over the last year, I've been collecting little snippets from the web on colleges and getting your money's worth. I may have collected too much information, because my brain is swirling trying to figure out how to organize it all.
Let's start with student debt
Most of this is a summary of the insights I heard from Mark Cuban on student debt, but it makes sense. Americans have 1.2 trillion dollars in student debt. That's a number so large that it drags on the economy. This debt causes young adults to delay buying houses, cars, and investing in their retirement.
In short, instead of creating jobs by consuming or securing their future, they are funneling money back to schools. That wouldn't be a problem if schools are spending it well. As Mark Cuban points out, they aren't. They build new buildings when they don't need because they have to compete with other schools. In fact, it turns out that research says, colleges are likely to gain applicants by spending more on amenities than academics.
This might be why we are seeing lazy rivers, steakhouses, and ski reports at colleges. Yes, it's true.
It occurred to me that maybe John Oliver did a bit on student debt on his HBO show Last Week Tonight. It felt like the huge topic that he'd cover in depth. I was half-right. He did cover student debt, but most of his rant was at the particular evils of for-profit colleges:
That was quite a learning experience, right? Rather than beat that dead horse, let's just assume that we're going to eliminate any for-profit colleges from any discussion of getting an ROI on college. I realize it is a blanket statement, and maybe there's a good one out there, but for the sake of narrowing down this long list, we'll have to concede any potential one as collateral damage.
My Take on Student Debt
Access to money has gotten too easy for colleges. It seems to be a never-ending cycle. Raise tuition to build awesome stuff to recruit students. Students get bigger loans to cover tuition. Student debt grows and grows.
It seems like the housing bubble to me. Let's create a way to allow people to borrow more and more money, even if they can't afford it. Let's push people to interest-only loans and 50-year fixed loans so that they can buy even more house. We'll all show off our nice homes to our friends the way colleges show off their lazy rivers.
The whole thing is bananas and it isn't going to end well, but that should be obvious by now.
So what can we do about it?
Get Value for Your College Dollar
When I was choosing a college in 1993, there seemed to be one or two lists. They were the top 25 schools in the country. They were only helpful if you were in the position of trying to decide between MIT, Harvard, Princeton, Yale, and Stanford. Then you could decide to put Berkeley, Brown, or Dartmouth as your safety schools. It was ridiculous.
I've noticed that the lists are not as much about the top schools as they are about the top values. Perhaps that's in direct response to the aforementioned mounting student debt problem.
I've bookmarked 4 lists over the last few months:
- Princeton Review's Colleges That Pay You Back
- Kiplinger's Best College Values
- Money Magazine's Best College Values
- PayScale's College ROI Report
Kiplinger's and Money magazine seem to list a good mix of top schools (Princeton, Harvard), while mixing in some lesser known schools as values (Babson, Haverford). Princeton Review's seem to focus on how awesome Massachusetts schools are, which is something I won't argue (Boston Strong!). You have to be careful with Princeton Review's list as the top few colleges are "Featured", which I think is a way of saying that the position was paid for and not part of the natural ranking (I could be wrong). I think I like PayScale's list the best, it fits with what I would have imagined if someone asked me.
Each list processes a bunch of statistics to help them come up with value. You can read their methodology and use tools to tailor it to your situation.
I can't tell you which school is the best value for you. I ended up going to a school that was top 15 on at least one list. If I had to do it again, I'd probably shoot for Stanford and MIT, but have Babson and a few of the under-the-radar ones as back-ups. I know these lists have made me curious to see what's so great about Harvey Mudd. I know nothing about the school except that it turns up time and again.
I wouldn't use these lists as a definitive source of where to go college, but as a way to generate some ideas and narrow down the field.
It's Not the School. It's the Study
As I've been writing this article, my wife has been on my mind. I know that's nothing unusual, but it's actually relevant to college ROI. She went to a state school to get her Pharm. D. That's the champion of all college ROI moves. Pharmacy pays very well and state school is generally a lot cheaper than private school. The end result was a small student loan debt that melted away quickly.
With that in mind, I want to present you another set of lists. This is also from PayScale. It allows you to find the best school based on your major. See PayScale's ROI by Major.
You might not know what your major is when you choose college. Even if you don't, this data is useful. If you click on the art majors you'll see that the 20-year ROI is less than $450,000 for the top school. It quickly drops under $400,000. In computer science and math, the same 20-year ROI is $1.6M and drops down to under $1,200,000. The ROI over 20 years is roughly 3x more for computer science than for art.
That might not be a surprise, but it is worth emphasizing. If you are art major outside of top 105 schools, college has a negative 20-year ROI. After the the top 105 schools for computer science, you'd still handily do better than the very best art school.
These are extremes and there are clearly many majors in the middle. The point is that going to Harvard might not necessary be the best college ROI choice even though it at the top of several lists.
You have to know how to get the most of the school you are choosing.
Next: Financial Freedom Through Live-In House Flips?