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PayScale's Top 25 Return On Investment Colleges For 2014

This article is more than 9 years old.

It’s the season of college acceptances. High school seniors have gotten the news about where they’ve been admitted and the lucky ones are choosing between more than one school, with a May 1 deadline to put down a deposit. There are many things to consider, from academic requirements to geography to cost to schools’ rankings on various lists, like Forbes’ annual roster of top colleges. When we put together our list, which comes out in July, we take into account a range of attributes, including debt load, graduation rates and student satisfaction. Fifteen percent of our ranking comes from alumni compensation reported on the salary listing website, PayScale.

But what if a student is concerned mainly with the money they will earn, compared to the amount they will have to pay to get a degree, which exceeds $200,000 at most private colleges? PayScale recently released its annual list of more than 1,200 schools measured purely by the 20-year return on investment (ROI) for Bachelor’s degrees. The site also tracks typical starting salaries for graduates of most of these schools.

The list is informative, if not surprising. The three schools at the top are elite private institutions that emphasize technology and engineering. No. 1: Harvey Mudd College in Claremont, CA, a school with just 783 undergraduates that is part of the five-college consortium that includes Pomona and Claremont-McKenna. According to PayScale, Harvey Mudd’s annual ROI is 8.8%, for a total return of $980,900 over 20 years. Harvey Mudd ranks at No. 52 on the Forbes list. A typical starting salary for a Harvey Mudd grad, according to PayScale: $73,300.

In second place is California Institute of Technology, known as Caltech, a research university in Pasadena, CA with 997 undergraduates, which many consider the west coast rival of the Massachusetts Institute of Technology. The 20-year ROI at Caltech is 8.3%, or $837,600. It ranks high on Forbes’ list as well, at No. 18. A typical starting salary for a Caltech grad: $68,400.

Right behind Caltech is MIT, with an ROI of 8.2%, or $831,100. MIT is high up on the Forbes list too, at No. 10. Its undergraduate enrollment, at 4,528, is much larger than Harvey Mudd’s and Caltech’s, and it has the longest pedigree. Founded in 1861, it has produced 78 Nobel Laureates, 53 National Medal of Science winners, and 41 MacArthur “genius” Fellows. A typical starting salary for an MIT grad: $68,600. (See above for a slide show of the top 25 schools.)

The rest of the top 25 are mostly well-known private schools that rank high on college lists, including Forbes’, like Stanford, Princeton, Harvard and Dartmouth, plus engineering schools like the Georgia Institute of Technology, the Stevens Institute of Technology and Worcester Polytechnic University.

There are also a few lesser-known schools. One is Manhattan College, No. 233 on the Forbes list, which despite its name is located in the Riverdale section of the Bronx. Founded in 1853, it is affiliated with the Roman Catholic Church. While it’s considered a liberal arts college, it has schools of engineering and business that graduate career-ready students. Among its 3,200 undergrads, some 300 intern each year at well-paying New York firms including PwC and Goldman Sachs, setting them up for jobs after graduation. There is also a state maritime school in the top 25, Massachusetts Maritime Academy. Based in Buzzards Bay, it dates back to 1891 and has 1,100 undergraduates, known as cadets, who are not required to join the military when they graduate (Forbes doesn’t rank the school). The 20-year ROI is a high 11.3%, in part due to the low price tag of just $18,300 a year. PayScale calculates its 20-year ROI at $702,100.

While PayScale focuses purely on ROI, its methodology bears some explanation. First, where does it get its data? People use PayScale to find out what a potential new job pays and/or whether they are earning a fair wage in their current posts. If they want detailed data, they must fill out a questionnaire that asks them for their job title and compensation. Based in Seattle and launched in 2002, PayScale has accumulated a data set of some 40 million profiles. From these, it gleans the salaries of alumni from various schools, examining the years those people graduated from college going back 20 years. Then it takes the mean salary for each graduate year and uses that to do its calculation. Example: it looks at Harvey Mudd alums who graduated in 1994, 1995, 1996 and so forth and takes the mean salary those grads are earning, which it adds up to get a 20-year ROI. PayScale’s paying clients are companies, law firms, nonprofits and state and local government, who use its data to help them set compensation levels.

One more important note: If an alum goes to graduate school, including business or law school, they don’t get counted because it’s impossible to know how the graduate school degree affected their earning power. This explains why some top schools, like University of Chicago, No. 14 on Forbes’ list, are farther down PayScale’s roster; U. Chicago ranks at No. 154, with an ROI of just 5.4% or $418,300. But that doesn’t count the formidable number of doctors, lawyers and MBAs the school has produced, like billionaire Morningstar  founder Joe Mansueto, who got his undergraduate degree at Chicago and his MBA at the university's Booth School of Business.

Another note about PayScale’s calculation: It compares the mean amount earned by alums, compared to what they would have earned had they only gotten a high school degree. PayScale also considers the number of students who finish their Bachelor’s degrees at each school in four, five and six years and weights the cost accordingly. In addition, its main list assumes that students have paid the full sticker price, without aid, though for public schools it does two separate calculations, one for in-state tuition and the other for out-of-state. That’s why state schools like Colorado School of Mines appear twice on the list. At a school like U. Chicago, 60% of its students receive aid and don’t pay the $62,500-a-year sticker price. PayScale gives users the option to filter for financial aid, which in Chicago’s case, moves it up to No. 103.

I covered the list last year and there has been an interesting change in the 2014 calculations. In 2013 PayScale measured 30-year ROI, but in a blog post, the company’s economist Katie Bardaro says the site reconsidered data that shows that on the whole, people’s salaries top out at around age 40, and then just rise with inflation. There are exceptions of course, but it figured that the 20-year mark was more meaningful.

One final note about the PayScale data: According to economist Bardaro, PayScale only ranked schools where it has gathered sufficient data to calculate salaries within a 10% margin of error. If too few alumni have posted their salaries, their school doesn’t get ranked. That doesn’t mean that its alums aren’t earning well; it just means they haven’t input their salary data on PayScale.

While I believe the PayScale list is useful, it’s important to consider its limits, some of which I’ve mentioned above. In addition, after Slate covered the list, focusing on the schools at the bottom, Cedar Riener, a professor of psychology at Randolph-Macon College in Ashland, VA (No. 197 on the Forbes list but unranked by PayScale), wrote a blog post that makes several vital points: Through their admissions processes, schools already filter out the people who are most likely to earn well. Before they get to elite colleges, students have demonstrated their diligence and aptitude, and in many cases, their parents’ ability to help them succeed. Riener contends that some of the schools that land at the bottom of PayScale’s list, like the Maryland Institute College of Art, which PayScale says has a return on investment of negative $90,900, are unfairly maligned because students who choose to go to art school know that they are not as likely to find a well-paying job as those who study engineering or computer science. Writes Riener, “I imagine that most students entering art school are fully informed (by parents, teachers, classmates, strangers in the grocery store) that their choice is disastrous and they will never find a lucrative job doing art. They choose to pay for training anyways. Is the art school making them poorer?”

Bardaro’s response: “In no way are we saying, “Don’t major in art,” instead we are saying, “If you want to major in art and not live in debt, potentially consider these schools.” In fact this year PayScale has included helpful features that allow users to see lists of different types of schools. Filter for art, music and design schools and you find that alums of Academy of Art in San Francisco, Rhode Island School of Design in Providence and Massachusetts College of Art and Design (in-state) have a 20-year ROI of more than $200,000. (The list has no music schools; maybe PayScale should change the title of this category.) To be sure, selective schools are likely picking the applicants who are most talented, and thus most likely to earn a living in an arts-related field. But it’s worth considering that the selection process could help a student decide whether they have promise in their chosen field. If you can only get into the Maryland Institute College of Art, perhaps you should consider a different career path. At the least it’s helpful to realize that if you go there, your diploma isn’t going to guarantee that you make a good living.

As I wrote last year when I covered the PayScale list, it may be most important to keep in mind that it doesn't count  the many valuable intangibles of a college education—the opportunity to enrich students’ intellectual and emotional lives, to deepen their understanding of history, English, art, foreign languages, mathematics and the sciences, to make connections with professors and other students that can last a lifetime, and to grow as informed, critical-minded members of society. It’s impossible to put a price on any of those benefits.