Return on Investment (ROI) Analysis of College Education in the US

return on investment college education

In the United States, tuition for college education has become increasingly expensive. In order to justify this expense, it is important to understand and calculate the return on investment (ROI) of a college degree. This analysis will compare various factors, including income potential, unemployment rates, and cost of attendance, to determine the overall value of a college degree in the USA.

The return on investment of college education in the United States is not always what it seems for many students who pay extremely high tuition rates at private colleges and universities. A recent study by the Brookings Institution revealed that low-income students who enter elite private schools leave with heavy debt loads but don’t increase their earning power because they are unable to find well-paying jobs after graduation. 

Moreover, the study found that nearly half of all graduates from top-tier liberal arts colleges took positions in relatively low-skilled fields within five years of graduating—positions that did not require bachelor’s degrees.  Some graduates changed careers to avoid dead-end paths or took lower-salary positions instead of continuing in a field related to their major. 

“Students are making choices that will have a profound impact on the rest of their lives,” said Paul Taylor, vice president for special projects at the Pew Research Center. “In some cases, students are going to end up in careers that, frankly, don’t require a college degree.”

Statistics of ROI college education

Many top-tier universities in the USA (United States) graduate most of their students in low-skilled fields such as education, social services, and health care—careers with relatively low starting salaries. Only about one in four American graduates who majored in science or engineering were employed in those fields within five years.

The study found that even though the average tuition at leading private colleges was about $30,000 annually ($120,000 for four years), room and board can bring total costs up to $47,343 a year—almost 35% more than the median annual household income. The study found that only 18 percent of students from low-income families at top-tier schools have professional jobs nine years after graduation, compared with 50% of children from wealthy households.

Employers often look for education beyond high school as a measure of a candidate’s ability to be successful in a given career path and/or industry–and find someone who is going to take the initiative and show initiative. The Brookings Institution report has revealed that college graduates across all groups are moving into fields that do not require their degree or seeking further education because they can’t find employment in their chosen profession. 

According to U.S News & World Report, the majority of bachelor’s degree holders either do not pursue advanced degrees or return to higher education later. The U.S. Bureau of Labor Statistics data shows that ten years after receiving their bachelor’s degree, 62% of students had failed to attain a higher level of education, compared with 35% in 1970 when the figures were first collected. 

Key findings on the ROI on college education in the US

The Federal Reserve Bank has warned that the college earnings premium—the percent by which wages exceed those of high school graduates—has fallen in recent decades for both men and women mainly because the wage increases have not kept up with increasing levels of educational attainment among workers entering or reentering the workforce after spending time in other careers. 

“Even if you go into an occupation that typically requires a four-year degree, there are so many things that can happen along the way,” said Al Lee of PayScale, a firm that collects compensation data. “There’s an enormous amount of variation on how long it takes to get a degree.”

The Brookings Institution has highlighted some key findings on the ROI on college education in the USA (United States) from July 2013:

  1. High-income students have greater access to higher education than ever before. 
  2. Unemployment is high among recent college graduates, especially those who do not earn a four-year degree. 
  3. College grads entering low-skilled professions continue to earn more than their counterparts with only high school degrees over time. However, they also take longer to earn this premium, and a significant minority of 4-year college graduates find themselves in a broad range of non-college jobs.
  4. College is expensive, even at public institutions, leading students to incur substantial debt that they struggle to repay. 
  5. The college earnings premium has been rising since the late 1990s, but this growth has been concentrated among top earners who have seen greater gains than those with lower wages. 
  6. Gains from attending college vary across racial and ethnic groups and by gender; white and Asian men benefit more from attending college while Hispanic women see little improvement in their wages after finishing their degree program.
  7. Students who attend public colleges and universities disproportionately increase their economic mobility, ie., rise the income distribution ladder) overtime, while those who earn their degree from expensive private colleges see no increase in mobility. 
  8. Students who study science, technology, engineering, and mathematics (STEM) are far more likely than other college graduates to pursue further education; they also appear to be doing well professionally with relatively low unemployment rates.

Conclusion

Students today are faced with a dilemma. They have to decide whether they want to go into debt for four years of college or invest in themselves by starting their own business and building valuable skills to help them thrive as adults. In this article, we’ve discussed the pros and cons of both sides, but what about ROI?

What is the return on investment of going to a university versus learning everything you need from books and online courses? These stats show some statistics on degrees attained per capita in various countries around the world – which one has the highest percentage of people who completed an Associates Degree or higher? This might be helpful information when deciding on your future education plans in the USA.

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