How to Calculate a College’s ROI – Daily Flash Briefing

May 1st, College Decision Day, is approaching fast. This is undoubtably a stressful time for students and parents still in the decision-making process. As you balance variables like cost and fees, location and distance from home, campus life, and more, here’s one suggestion: Ignore a school’s ranking by U.S. News & World Report.

The best way to approach a college decision is to rely on measurements that are meaningful. Because the U.S. News & World Report’s rankings are flawed, focus instead on a college’s return on investment for its graduates, as well as the ROI of individual academic majors.

There are free tools for doing just that:

The first is Georgetown University’s Center on Education and the Workforce.

Using new federal data, the Georgetown center ranked 4,500 colleges and universities by return on investment, looking at an institution’s net present value at five different time intervals — from 10 years after graduation up to 40 years after graduation. The center defines net present value as how much a sum of money in the future is valued today.

The second free tool is found through the Foundation for Research on Equal Opportunity.

While Georgetown provides an institutional-level view of ROI, it is also important to explore what the economic return is for individual academic disciplines. The think tank Foundation for Research for Equal Opportunity has calculated the estimated earnings and lifetime ROI for nearly 30,000 bachelor’s degree programs.

You can see the financial value of individual degree programs within an institution. To make the calculations, the researchers looked at earnings at ages 25 and 45.

And finally, there’s Third Way, another think tank, but this one takes a crack at department-level earnings and earnings by type of higher-ed institution, such as liberal arts colleges, doctoral universities, master’s level universities and special schools.

It does so by measuring what is called the Price-to-Earnings Premium (PEP) calculated as the time it takes students to recoup their postsecondary educational costs based on the earnings premium that the typical student obtains by attending an institution of higher education.

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