The Real College Rankings

I got bored one night a few months ago and decided to see if there were any value in investing in a top-tier private college over a decent in-state college. The rankings provided by US News and other sources are all based on test scores, graduation rates, something called "selectivity" and several other variables all equally unrelated to an actual return on investment. I wondered if there would be a difference in the rankings if I treated the investment in an education like, say, an investment.

Just like any investment, I wanted to know the cost of the education and the return. (Technically, I should also include risk but I assume the risk is the same across all colleges. That is, there is just as good a chance that my daughter ends up moving to Australia with a tattooed surfer regardless of whether she attends UNC or Cal Tech.)

I calculated cost as the total tuition plus room and board less the average financial aid award (not loans, actual aid that would reduce the cost). For the return, I looked at salary information at 3 and 15 years after graduation, assumed a straight-line growth rate and then calculated the NPV of the entire 19 years.

The results are better aligned with intuition than with US News. In general, engineering schools and the traditional top-tier Ivy League schools provide the best return on investment. With the exception of Rice and Georgia Tech, the top 10 is not a surprise. But there are a few surprises. Columbia, Duke and Chicago sink in the NPV rankings. Vanderbilt, Northwestern, Washington University, Cornell and Johns Hopkins drop from the top 25 altogether. Also, if in-state tuition is used, Georgia Tech jumps ahead of Harvard and Georgia lands on the list somewhere near UCLA and University of Chicago. In general, residents of Virginia, Georgia, Michigan, California, Illinois, Texas and Florida have a significant incentive to stay in state. The top 25 are listed below - normalized against the highest NPV school, Cal Tech.

1. California Institute of Technology (CIT) 1.00
2. Massachusetts Institute of Technology (MIT) 0.96
3. Stanford University 0.96
4. Princeton University 0.93
5. Harvard University 0.87
6. Rice University 0.86
7. Dartmouth College 0.85
8. Georgia Institute of Technology 0.84
9. Yale University 0.84
10. University of Pennsylvania 0.82
11. University of California, Berkeley 0.80
12. Carnegie Mellon University (CMU) 0.79
13. Rensselaer Polytechnic Institute (RPI) 0.78
14. University of Notre Dame 0.76
15. Lehigh University 0.75
16. Duke University 0.75
17. Columbia University 0.75
18. Brown University 0.73
19. University of Virginia (UVA) 0.73
20. University of Illinois at Urbana-Champaign (UIUC) 0.72
21. University of California at Los Angeles (UCLA) 0.71
22. University of Chicago 0.71
23. Georgetown University 0.71
24. University of California, Davis 0.70
25. Case Western Reserve University 0.70

Before you send emails outlining the faults in my model, let me admit them. First, this model assumes your kid is average in almost every way: average financial aid award, average salary, average salary growth, etc. It also assumes that your kid will get the "average" degree, which is to say an engineering degree from an engineering school. The only assumption this is not average is that your kid will graduate in 4 years. Most schools' average graduation rates are longer but the model does not include 5 or 6 years of tuition and the cost of the lost wages from those years. Also, the salary data does not include those who went on to get advanced degrees. It only compares investments across colleges, not alternatives to college. Lastly, this is a purely financial analysis that does not accommodate the qualitative aspects of the experience at each school (e.g. - who has better beer pong skills at graduation).

There are other flaws, I'm sure. But even if my calculations are only mostly right, it turns out that an in-state education in Georgia (and several other states) is a terrific investment. For now, I'm off to tell my girls that classic bedtime story about the Bulldog and the Yellow Jacket.