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How to Evaluate ROI on Different Colleges and Majors

When choosing a college and major, students often think about their interests and academic strengths, but there is another important factor to consider: return on investment. Understanding the potential return of investment (ROI) can help you assess the value of a degree from a particular college or within a specific major. This monetary-based perspective can provide a tangible approach to making this significant educational decision, allowing you to align your career goals with financial considerations.

In This Insight

Understanding the Concept of ROI in Higher Education

In its most simplistic form, the concept of ROI or Return on Investment in higher education pertains to gauging the value of the financial investment put into a college education in relation to the financial gains achieved after graduation. It essentially represents the ratio between the net income from your career post-college and the costs of your education.

This is often calculated over a specific period of time. To assess this efficiently, all expenditures during college - tuition fees, accommodation, books, and other ancillary costs - are factored in, along with average income garnered from a job in your chosen field post completion of the degree. Factoring in ROI while considering higher education is an exercise in long-term planning that takes into account future earnings and career prospects. This lens allows prospective students to evaluate the costs and benefits not only need according to their current financial status but also based on anticipated returns.

Moreover, it also encourages a holistic analysis of a course or a college, taking into account factors like quality of education, job placement rates, and income trajectories of alumni - thereby allowing one to compare different colleges and majors effectively on economic grounds. It is important to note that studying ROI in higher education also comes with it the understanding that return on investment is not just about monetary gain. While financial return is important, individuals ought to remember that value in education is much broader. The value of increased knowledge, skills gained, personal development and satisfaction, enhanced employability and job security, and the prestige associated with higher education are all key non-measurable returns.

Determining the Cost of Your College Education

Understanding the full cost of a college education is the first step in determining the return on investment (ROI) you can expect down the line. The cost doesn't simply encompass tuition fees alone. There's a multitude of other factors to take into account such as the costs of books, housing, meals, and additional fees.

For some majors, supplies and equipment can also add significant costs. Additionally, remember that prices can escalate over the years due to inflation or institutional increases. Therefore, your initial estimate may end up being lower than the actual costs incurred over the course of your education. A common mistake is overlooking the opportunity cost of attending college. This is the income you forego while studying full time. If you were to enter the workforce immediately instead of attending college, you could be earning an income and gaining experience for those 4 years.

In considering the ROI of a college education, this unrealized income can be calculated and added to your total college cost. Moreover, the potential interest or investments you could have earned with that income also plays a role and should be assessed accordingly. Financial aid and scholarships also factor significantly into the cost of a college education. When analyzing the cost-effectiveness of different colleges and majors, consider the financial aid packages that different institutions offer. Scholarships can often make a significant dent in the overall cost, and work-study opportunities can both alleviate the financial burden and provide valuable experience. While these do not affect the actual cost, they can significantly reduce the burden on the student, and therefore should play a role in any ROI calculations.

Assessing the Potential Earnings of Different Majors

Assessing the potential earnings of different majors is an instrumental part of determining the best college return on investment (ROI). A common mistake is to equate the prestige or popularity of a college major with high earnings potential.

Reality, however, may offer a different perspective. For example, a STEM (Science, Technology, Engineering, and Math) degree from a second-tier university might have higher earning prospects than a liberal arts degree from an Ivy League school. Therefore, potential students should critically analyze the salary outcomes of different majors to make an informed decision. Comparing historical salary data associated with different college majors can provide significant insight into earning potential. This data can be found on various online platforms such as the Bureau of Labor Statistics, Payscale, or Glassdoor.

These resources provide average starting salaries, mid-career salaries, and potential salary growth trajectories. While averages provide a good general idea, keep in mind salaries can vary considerably based on location, industry trends, and individual skills, making it important to use such data as guiding indicators rather than definitive predictors. The earning potential of a college major should also be evaluated against its cost of studying. For instance, consider a scenario where two majors – A and B – have average starting salaries of $50,000 and $70,000, respectively. At first glance, Major B seems to offer better returns. However, if studying Major B costs $200,000 more than Major A, the latter might be a better financial choice in the long run. It's therefore essential to calculate the time it would take to break even or recover the investment in education to gain a comprehensive understanding of potential earnings and returns.

Factoring in Job Market Trends Into Your ROI Calculation

Understanding the market trends for different jobs can aid significantly in predicting the potential ROI of a chosen college major. This requires an understanding of both current and projected trends in the job market.

For example, if a major is chosen in a field with a high demand but low supply of professionals, it is likely that job opportunities and salaries in that field will be better upon graduation. A detailed analysis can better prepare you for the harsh realities of today's competitive job market, and consequently, could lead to a better return on your college investment. The geographic location of jobs in a particular field can also impact the ROI calculation. If the majority of job opportunities for your chosen major are in areas with a high cost of living, this can affect the ROI. A major that leads to jobs primarily in high-cost areas might not be as profitable as it initially appears.

This is an important consideration that can impact your potential profits later in life. Conversely, a major that leads to job opportunities in a lower cost of living area might not pay as much, but the lower expenses could yield a higher ROI. Also, take into consideration the growth rate of the industry you're interested in. Fast-growing industries often yield a high ROI because there are more job opportunities and typically higher salaries due to demand. Majors aligned with stagnant or shrinking industries might offer fewer job opportunities and lower salaries, leading to a lower ROI. It’s essential to extensively research the job market trends related to your chosen major to fully anticipate the potential return on your investment.

Measuring Non-Financial Returns of College Education

Measuring non-financial returns of college education involves considering aspects beyond the monetary gain. It involves assessing the value of the personal growth, social connections, intellectual stimulation, and the skills or knowledge that are acquired during the college years.

Personal growth comes in various forms, such as maturity, better decision-making abilities, and an improved emotional, physical, and mental well-being. These personal gains have the potential to contribute to a successful life beyond just the financial status one acquires.

Therefore, while it may be challenging to quantify these gains in dollar terms, measuring non-financial returns includes recognizing the value in the personal growth one experiences in college. Social connections formed during college or university years can also be quantified as part of non-financial return. Colleges provide platforms for students to network with professors, classmates, alumni, among others in their field of study.

These relationships can lead to mentorship opportunities, job references, collaborations, and even friendships that can last a lifetime. In the world of work, networking is instrumental, and it's often through these connections that many professionals land job interviews and subsequent employment.

Consequently, the quality and quantity of relationships formed during college life can be a metric of non-financial return of investment in equivalent value to the benefits they provide. Intellectual stimulation and acquisition of knowledge define significant non-financial returns on a college education. This aspect refers to the knowledge and skills that a student acquires in their field of study. The intellectual growth and insights obtained from completing a degree can significantly influence an individual's viewpoint and understanding of the world.

Measuring non-financial returns of a college education involves recognizing the value of personal growth, social connections, and intellectual stimulation attained during this pivotal period of growth and learning.

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Final Thoughts

The evaluation of ROI on different colleges and majors doesn't just boil down to generating a higher income, but also involves understanding the holistic value provided by your college education. It's essential to consider the total cost of your education, the earning potential associated with different majors, and take into account the shifts in the job market that could affect your future income. While these financial metrics are vital, it's equally crucial to measure the non-financial benefits such as the skills, knowledge and networking opportunities that you gain along the way. By considering all these factors, you can make a more informed and personally beneficial decision about your path in higher education.


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