click for larger graphic
costs
Source: Radio Open Source

 

When it comes to paying for college, lots of people are asking “why does it cost so much, and it is it worth it in the end?”

Radio Open Source has a scattergram chart above that helps answer the question. It shows the increasing cost on the horizontal (X Axis) and the return on that investment on the vertical (Y Axis).

There seems to be a slight advantage in returns to private schools versus the (In State) public colleges, but at a very great additional cost.

Eyeballing this, the area under the curve shows a fairly poor return on investment. No wonder so many college graduates are unhappy with their student debt.

Category: Employment, Markets, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “College ROI”

  1. djmayer says:

    It really is tragic and clearly the old model is broken for the vast majority of college students. There are important efforts which are reshaping education with an eye towards giving students relavant skills that will with greater certainty guarantee them a job. I highly recommend for all those interest to look up a recent articel in Time Magazine labeled “The School that will get you a Job” from their February 14, 2014 issue. Here they profile programs such as the one run by the Sarah E. Goode school in Chicago. Students there, called innovators, spend two extra years getting the STEM (Science, Technology, Engineering and Math) skills that they need to so as to the move on to a guaranteed job at IBM which is the school’s corporate partner. The article outlines other similar programs that I hope become more of a norm in the US in the coming decades.

    • Iamthe50percent says:

      Tell that to the unemployed STEM workers over 50.

      This crap is peddled because employers want unlimited H1-B’s to work for peanuts or be shipped home.

  2. johnnywalker says:

    Two quick points: 1). the curve was not present in the Radio Open Source article. I don’t know what program was used to generate the curve, but it’s always dangerous to extrapolate beyond the range of data. 2). If curves must be made to fit the data, why not separate curves for public and private universities? It seems like higher cost public universities are more similar to higher cost privates. This could suggest something about relative value and ROI. Btw, public out of state should match public in state but shifted to the right. I can’t tell if that is so.

    Full disclosure, I’m a graduate of the University of California

  3. Alex says:

    What is the curve? A least squares fit? If so, it’s an excellent example of where a least squares fit can be meaningless.

    And what is the area under the curve? Total money earned times total money spent on education? If so, that doesn’t seem a very useful statistic.

    What is going on with that?

  4. chartist says:

    Obviously from this graph, when you went to college has a great impact on ROI….I graduated in 1983 having spent a whopping $12,000 for four years at a state school….Jobs were so plentiful in my field that often I was the only one who applied for the position. I was often offered the job on the first interview. I was on the ground floor of a brand new field created by the government. Today things are different with phone screens and multiple interviews….But man, there was a time when, if you could fog a mirror, you were hired.

  5. ottnott says:

    The source of much bad policy in the U.S. is the treatment of so many important life events and decisions as if they were primarily economic transactions (and, worse, economic transactions simplified for Econ 101 analysis).

    I fully understand that attending 4 years of college is a huge commitment of time, money, and energy, displacing whatever else you might have done with those resources, but economics hasn’t the tools to measure the benefits.

    Extend the analysis down to preschool children, and it would be pretty clear that, according to Econ 101, we should waste no money on education and should be selling our children’s labor as soon as they can do anything that will bring in cash.

  6. Hoosier89 says:

    As a father of a high school junior currently looking at colleges, is there any way to see what the scatter plots represent in terms of specific colleges?

    • Frilton Miedman says:

      I’m in the exact same boat.

      After pummeling my kid to get his grades up for years with constant reminders that the better college he goes to, the higher his income after the fact, he presented the argument that college might not be worth the cost…..and the chart above shows he may have a point.

      He even hinted at just getting into a trade after high school to avoid the debt, while I advised against it, my strongest argument against it was “coming home dirty and tired each day”.

      Knowing a Chinese engineer with a degree makes $260 a month, comfortably, it’s a fair conclusion that globalization has reaped havoc on labor demand, even for college level STEM workers, not just menial factory workers as originally presented.

      Meanwhile, you can’t outsource electricians, plumbers, builders, auto/marine/aviation repair and other service fields, these vocations are relatively easy to start a business in, compared to climbing a corporate ladder atop the burden of tuition. (though I suspect there’s a corporate board room somewhere working on how to use the H-1B to import non-citizens for these vocations via their K St lobby)

  7. DeDude says:

    Huge problems with how to use this data. Your ability to recover college cost is highly dependent on what kind of job market you graduate into – a 2-year period right after graduation with no relevant job experience can make a huge difference (as student loans accumulate interest and your resume is “destroyed”). The field you study makes a big difference in how important the institution is for future earnings. Yes an MBA from Harvard will give you some big advantages in the form of “prestige” and networking. However if you are going into a field where 90% become grade school teachers, take that cheap state school instead.

  8. Whammer says:

    For the folks wondering about specific colleges, the data on the scatter plot comes from Payscale.com. You can see the report here: http://www.payscale.com/college-roi/

    The chart is pretty clear that going to an out of state public school might not be such a great plan. Nevertheless, a lot really depends on what the “actual price” is for any given student — the data is based on list price.

    Frilton Miedman has a good point about jobs you can’t outsource. If you can stomach the work, I feel like being an exterminator might be pretty good — the demand curve is pretty inelastic if you have roof rats, for example ;-)

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