The Return on Investment for an MSU Education

Written by: Corey Washington

Primary Source: Zero Ideology

With rise of student debt and many recent college graduates having a hard time finding good jobs, there is a lot more attention focused on the cost-effectiveness of education. What do students get out of their years on campus and the money they pay to attend college?   Payscale recently released its 2014 study of the ROI for 896 US colleges and universities.  It ranked MSU 184th for in state students and 308th for out of state students out of 1312 entries (private, public in state, public out of state).

Payscale calculates ROI in two ways: Net ROI and Annualized ROI (methodology).  Net ROI is the total increase in income a graduate will receive over 20 years relative to what she would have received had she not attended college. The calculation begins with the college differential, the amount of money a graduate will make over and above what she would have made had she skipped college and gone straight into the work force. Net ROI is the college differential less the cost of college.

College differential = total income over 20 years of work after college – total income after 24-26 years of work starting after high school without college

Net ROI = College differentialCost of college

The annualized ROI is the “bang for your buck” from a college education on an annualized basis. In business and econ speak it is CAGR of the ratio the Net ROI/College costs annualized over 20 years.

Annualized ROI = {    Net ROI        } ^(1/20)-1
{Cost of college }

This unpleasant formula tells you how much money graduates earn on an annual basis from their investment in college in terms of increased wages over 20 years per dollar invested in their education. For comparison, according to Forbes, if you took the money a student would have invested in college and put it into the stock market in 1992, it would have returned 7.8% over the next 20 years.

In a previous post I compared MSU’s culture and mid-career salary to 5 institutions that I have had some experience with along with the U Mich. It showed MSU students entering with lower SAT scores, working a shorter work week, and making less money at mid-career than graduates at other institutions.  The ROI calculation, which takes into account the cost of college, has in state graduates doing better in their investment returns compared to their out of state counterparts. MSU’s ranking does not change in the two main groups, but its in state students close the gap with other schools.

Public out of state COST 2013 NET ROI ANNUAL ROI
MSU (out of state)
$135,200
$355,100
6.8%
University of Michigan (out of state)
$150,300
$482,300
7.6%
University of Maryland
College Park (out of state)
$138,700
$458,200
7.7%
University of Washington (out of state)
$111,800
$464,700
8.7%
Everything Else COST 2013 NET ROI ANNUAL ROI
MSU (in state)
$56,140
$434,200
11.6%
Amherst College
$84,530
$649,900
11.6%
University of Maryland
College Park (in state)
$66,620
$530,300
11.8%
MIT
$80,710
$973,800
13.9%
Columbia University
$81,220
$769,600
12.6%
University of Michigan (in state)
$47,490
$585,200
14.0%
Stanford
$74,870
$950,800
14.2%
University of Washington (in state)
$37,640
$538,900
14.8%

Source: http://www.payscale.com/college-roi/full-list

Payscale’s methodology has some limitations. They do not count students who go on to get graduate degrees because they cannot separate the influence of their undergraduate from their graduate education. This exclusion may have unpredictable effects on schools like Amherst with high proportions of liberal arts majors who go on to graduate school.

Return on investment depends on many factors: the cost of the school, how much a student learns, what the student learns (major) and the social network the student develops at school. How much students learn rests, in turn, on their innate ability, how much time and effort they spend focused on the material, how that material is presented and how that time is distributed.

It is not surprising that public schools yield lower ROIs for out of state students than for in state students. The two applicant pools are usually similar and schools give them the same education, but out of staters pay more, in effect, subsidizing the education for in staters. For in state students the lower college costs make up for the income gap between them and private school graduates, giving the two groups roughly the same return on their investment dollars.

MSU is not going to lower the tuition for in state or out of state students. So if MSU students want better return on the time and money they are spending, something that out of state students should be especially interested in, they should focus on what they are learning,  how much time and effort they spend studying and who they are meeting during their time on campus.

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