What forces compel today’s high school graduates to attend particular colleges and pursue specific careers – passions, aptitudes, geography, genealogy, social networks, social media influences, guidance counseling, luck, economic prospects? I was fortunate to grow up near the campus of an outstanding Midwestern U.S. college – Purdue University. My father and mother owned and operated a small business and my school and undergraduate-major decisions, relatedly, proved rather straightforward. I chose a business major that included concentrations in accounting and computer science.
I lived in my parents’ home, mostly, and worked part-time during many of the academic terms. I finished my undergraduate degree with $800 in student loan debt. Quality employers, the likes of Hewlett Packard, General Electric and others came in droves, seemingly, to the Purdue placement office seeking prospects. I interviewed extensively during the final year of my undergraduate program and recall receiving 7-8 viable job offers. The interview and “plant visitation” process as it was then called, perhaps based, in part, upon a different U.S. economic composition at the time, proved to be an education itself. Again, I was fortunate.
After completing the Bachelor of Science in Industrial Management degree from Purdue in May of 1980, I accepted employment as a Programmer / Analyst with Cummins Engine Company at a starting annual salary of approximately $18,000. According to NCES statistics, average total tuition, room and board at a four-year public university, encompassing the 1976-77 through 1979-80 academic years, was approximately $9,000, or 50% of my starting salary. I chose my major and career wisely, with material parental influence, kept my costs low and worked hard / did well academically. Gainful employment came easily, in hindsight, as a natural outcome.
The career selection process and postsecondary economic proposition for today’s youth is so different. A young, passionate family member of mine graduated mid-academic year from Purdue in December of 2016 with a Bachelor of Arts in Education. Her total tuition, room and board as a 4 1/2 year in-state Purdue undergraduate, across the 2012-13 through 2015-16 academic years, was approximately $98,000 (this number does not include other expenses including books and miscellaneous costs). The median starting salary for an undergraduate degree teacher in the state of Indiana was approximately $35,000 in 2016 – resulting in a ratio of tuition, room and board / starting salary of approximately 280%.
Viewed alternatively, an $88,000 cost of tuition, room and board for a 4 year Purdue undergraduate, rose at a compound annual growth rate of 6.5% between the 1979-80 and 2015-16 academic periods – over twice the compound annual growth rate in the consumer price index during that time frame.
Although grants and scholarships may materially reduce costs for certain of today’s college students, financial considerations must factor prominently into their postsecondary education decisions. Their education-driven economic outcomes seem so much more uncertain than the prospects I enjoyed during my undergraduate days.
In this light, I recently reviewed and analyzed data presented in the 2016 PayScale College ROI Report. This tool allows one to review cost and median return on investment (“ROI”) data by institution and field of employment – the latter across 7 categories of professional endeavor. Of particular interest to me is PayScale’s calculation of the “20 Year Net ROI” which it defines as “the difference between 20 year median pay for a bachelor’s graduate and 24 year median pay for a high school graduate minus total 4 year cost of attendance” (see methodology). I prepared some analyses of PayScale ROI data by general field of employment as presented for on-campus students with costs net of financial aid awards. The employment categories in the PayScale studies include careers in art, business, engineering, healthcare, marketing and sales, science and technology. My observations are presented in the following commentary.
Access
More schools offer business programs than any other category of programs. The distribution of 2,005 total programs available across the various schools included in the PayScale study is reflected in the following chart.
Completion Risk
Any suitable ROI decision-making framework should factor risk considerations into the process. One such risk might be considered an input risk – what are the general prospects for degree completion? Interestingly, the Payscale data does not reflect substantial graduation rate differences across employment categories – with one exception. Students pursuing PayScale-defined science careers tend to complete undergraduate degree programs, on average, at a nearly 80% rate. Students pursing business careers, alternatively, graduate, on average, approximately 60% of the time. The other 5 employment categories maintained average graduation rates ranging from 61.5% to 67.4%.
Cost
The median cost for completing undergraduate degrees, similarly, did not vary substantially across most career categories but those costs nonetheless represent impressive figures by historical standards. Cost presented in the PayScale data includes tuition & fees, room & board, and books & supplies for a 2014 graduate. The lowest median cost of $111,500 was attributed to health careers and highest median cost was $134,500 for science careers.
Return On Investment
The following chart presents median 20-year net return on investment for the 7 career categories.
Earnings Risk
What about output risk or the degree of dispersion of median ROI outcomes across the various career categories? I calculated the coefficient of variation (“COV”), defined as the standard deviation / mean, for the median 20-year net return for the 7 career categories. Interestingly, technology and engineering, the two highest median 20-year net return career categories, possessed the lowest coefficients of variation: 0.20 in the case of engineering and 0.24 for technology careers. The 2 lowest median 20-year net return categories maintained the highest COV: 0.62 for art and 0.47 for health. In very general terms, risk-adjusted ROI for technology and engineering majors, therefore, appears materially superior to health and art majors.
The collective impression from the data supports the notion that investment in a COMPLETED postsecondary degree, across many fields, is worth the time and money. Some fields are decidedly more fertile than others from the perspective of economic returns. Significant institutional, economic and geographical differences will obviously exist for individual students considering enrollment in particular schools and programs. The PayScale data may nonetheless serve as a good starting point for weighing economic prospects connected with general categories of employment, major and school.
Data Table
The following table presents a summary of descriptive statistics I prepared from PayScale’s median ROI data for the various career categories. Note that distinct distributions of ROI outcomes presumably underlie each PayScale median ROI calculation by career by school; hence, the median statistics in the table do not represent absolute minima, quartile thresholds, maxima, etc. across entire career subgroups.
| Number | Mean | First | Third | Standard | Coefficient | |||||
| Program | Colleges | Grad Rate | Minimum | Quartile | Median | Quartile | Max | Mean | Deviation | Of Variation |
| Art Careers | 67.40% | |||||||||
| 20 Year Net Return | 114 | ($27,000) | $120,000 | $183,000 | $276,000 | $597,000 | $202,764 | $125,033 | 0.62 | |
| Total 4 Year Cost | $69,400 | $94,950 | $127,000 | $159,000 | $248,000 | |||||
| Business Careers | 59.50% | |||||||||
| 20 Year Net Return | 636 | $91,700 | $293,000 | $371,000 | $486,000 | $1,150,000 | $400,737 | $160,349 | 0.4 | |
| Total 4 Year Cost | $55,700 | $91,400 | $120,000 | $153,000 | $251,000 | |||||
| Engineering Careers | 62.80% | |||||||||
| 20 Year Net Return | 280 | $168,000 | $569,000 | $640,000 | $721,000 | $1,020,000 | $640,746 | $126,516 | 0.2 | |
| Total 4 Year Cost | $68,200 | $92,575 | $124,000 | $158,250 | $247,000 | |||||
| Health Careers | 61.50% | |||||||||
| 20 Year Net Return | 164 | ($46,000) | $205,000 | $270,000 | $345,000 | $657,000 | $279,017 | $131,045 | 0.47 | |
| Total 4 Year Cost | $67,800 | $91,125 | $111,500 | $144,250 | $250,000 | |||||
| Marketing & Sales Careers | 65.70% | |||||||||
| 20 Year Net Return | 334 | ($5,400) | $278,000 | $363,000 | $467,000 | $1,100,000 | $384,729 | $162,016 | 0.42 | |
| Total 4 Year Cost | $66,400 | $93,925 | $124,500 | $159,000 | $250,000 | |||||
| Science Careers | 79.50% | |||||||||
| 20 Year Net Return | 44 | $117,000 | $213,000 | $290,000 | $372,000 | $557,000 | $294,409 | $105,920 | 0.36 | |
| Total 4 Year Cost | $78,900 | $100,750 | $134,500 | $167,250 | $225,000 | |||||
| Technology Careers | 62.60% | |||||||||
| 20 Year Net Return | 433 | $240,000 | $551,000 | $645,000 | $746,000 | $1,580,000 | $662,182 | $162,072 | 0.24 | |
| Total 4 Year Cost | $66,400 | $92,900 | $122,000 | $153,000 | $251,000 |