January 14, 2011
Many high school seniors yearn to be accepted to top private colleges and universities such as Harvard and fear that they might get stuck at a lowly "state school." But are public universities in the United States really that bad? asks Kevin A. Hassett, a senior fellow and director of economic policy studies at the American Enterprise Institute.
A new study by the website Payscale.com estimated the rate of return on investment in higher education for people who attended a wide array of U.S. colleges and universities.
- The public institutions trounce the private ones in terms of the percentage return on investment (ROI).
- With the exception of Brigham Young University, which is somewhat unrepresentative because it receives much support from the Mormon Church, the top 16 rates of return were all posted by public institutions.
- All told, the average annual ROI for the top 10 public institutions is 13.4 percent; the average annual ROI for the top 10 private institutions is 12.3 percent.
The study also provided a clue about why the public institutions are such good buys.
- The average total cost for a bachelor's degree from a public institution is $83,695.
- For a private institution it is $171,026.
- The higher tuition at top schools brings diminishing returns.
While annual ROI is a useful measure of bang for the buck, one caveat is in order. Even though the rates of return are lower for private schools, they are compounding off of an investment that is larger, so the actual cash haul associated with a private college education can be higher.
In most cases, the impact of ending up at a state school rather than a "first choice" will be small, says Hassett.
Source: Kevin A. Hassett, "Ivy Chase," American Enterprise Institute, January 10, 2010.
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