Choosing a College: Which Schools Offer the Best ROI?

Earlier this week, President Obama weighed in on college loan debt, telling students at the University of North Carolina, Chapel Hill that he and his wife had only finished paying off their loans "eight years ago." Put another way, the Obamas -- a pair of highly-educated lawyers with high-profile, high-paying jobs -- were still working on their student loan debt when he was 43 years old and his wife was 40.

As the president's experience demonstrates, the classic perception of a college degree as a solid investment that will quickly pay for itself is starting to come under fire. Rather than offering a ticket to a stable, high-paying job in return for a few thousand dollars worth of loans, today's educational model is, all too often, offering students little more than a ticket to underpaying jobs, coupled with a near-insurmountable debt load that, for many, will take a lifetime to pay off. As the President has noted, the anticipated rise in Stafford student loan interest rates -- they're slated to increase to 6.8% this year -- will only make things harder on students.

Weighing Options

Not surprisingly, collegians are having to become more thoughtful, careful consumers. As we've noted in the past, there are several ways to improve the return on a college education -- between taking community college courses, comparing the financial viability of various majors, carefully weighing graduate school choices, and exploring creative scholarship options, it's possible to keep tuition costs down while maximizing a post-college paycheck. But for many students, there is still one major question to consider: How much does college choice translate into earnings potential? Or, to put it another way, can post-graduation earnings justify the $40,000 yearly cost of a Harvard education?

PayScale, an online salary, benefits and compensation information company, may have found an answer. The site just released its 2012 ROI Rankings, a comparison of the average return on investment for over 1,200 American colleges and universities. Pairing tuition and student aid information from colleges and universities with self-reported data from graduates, the site compares the likely cost of an education with the likely return.

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Some of PayScale's findings are surprising. For example, it shows that Ivy League schools, which are generally regarded as the gold standard of college investments, don't top the list of best deals. In fact, the top four schools are Harvey Mudd, Caltech, MIT, and Stanford, all of which have an average 30-year net income of $1.1 million or more. Looking solely at net return on investment -- basically, the amount of money that a graduate will earn over 30 years -- PayScale's analysis suggests that private schools are by far the best choice. In fact, taken from this perspective, only three public schools crack the top 20.

Best Return on Investment

But net return on investment might not be the best measure of a college's profitability. After all, while Cornell, an Ivy League school, has an average ROI of $857,500 in salary over 30 years, its steep $209,600 price tag means that its actual profitability is fairly low. In fact, if one compares tuition cost to salary return, public schools quickly soar to the top of the list: the Georgia Institute of Technology, the Colorado School of Mines, the State University of New York's Maritime College and the University of Virginia take top honors with a yearly return on investment of 11.4% or more. Meanwhile, Princeton, the highest-ranked Ivy League, tumbles to number 17 on the list with a yearly ROI of only 10.6%.

Granted, college choice is only one of many factors that determine how profitable a degree will be. But for parents and students who are trying to decide whether to take out tens of thousands of dollars in loans to pay for a Harvard degree, the fact that the school's average yearly return on investment barely tops 10% may make the decision a lot easier -- especially if they're looking at making 20 years of loan payments at interest rates of close to 7%.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at@bruce1971.