With the cost of college rising each year and questionable career prospects awaiting college graduates, some people are wondering if a college education is still worth it. If you took all of the money you would spend on a college degree and invested it, would you come out ahead? Is the loan worth it?

One of the ways to figure this out is by looking at your return on investment (ROI). This figure measures how an investment's efficiency, but also compares it to other investments during a similar time period. Calculating the ROI is easy—dividing the benefit or return is divided by the cost of the investment. The result is expressed as a percent or a ratio. In this article, we look at the return on investment for college degrees based on a few different factors and compare them to other investments.

Key Takeaways

  • Quantifying some of the value of a college education—namely, the skills you acquire—is difficult, but you can figure out the return on investment using key data.
  • Factors such as annual percent return, 20-year net ROI, and majors can help you determine which colleges rank higher.
  • Other investments may not give you a better ROI, but it's important to look at them individually.
  • Keep in mind that you cannot factor in important things like networking, raises, and other opportunities when you calculate your ROI.

The Best Schools for Return on Investment

The value of a college degree can be hard to quantify. In addition to the tangible value of your future income, there are many intangible benefits including learning, independence, improved social skills, and general skills such as working with teams, developing good working habits, and much more. Because those skills don't have a dollar value, it's important for us examine the numbers we can quantify if we're going to determine the ROI of your education.

According to the most recent study by popular career website Payscale, not all degrees and colleges are created equally. The study, reported in 2018, looked at more than 1,900 schools across the country. All calculations noted from the study for the purpose of this article assume the option of on-campus housing and no financial aid.

The Results

If we look at specific universities, the ROI for a college degree is a compelling investment. The United States Merchant Marine Academy's Service Academy ranked at the top for with the best ROI at 19%, with the total cost of a four-year degree coming in at $34,900. SUNY Maritime College's in-state program came in next with an ROI of 13%, while Brigham Young University-Idaho rounded out the top three with a 12.6% return. Tuition for the second and third spots were $95,300 and $48,200 at those two schools.

If we look at the total income graduates can expect rather than the percent return, the results are a bit different. The U.S. Merchant Marine Academy still ranked in the top spot with a 20-year net return of $1.094 million. The U.S. Military Academy came in second with a $1.041 million return, and Massachusetts Institute of Technology rounded out the top three with a $1.015 million return. SUNY Maritime College and Brigham Young University-Idaho ended up in the fifth and 158th place. Incidentally, the University of Washington-Seattle Campus tied with Brigham Young for ROI.

Remember, these are the best case scenarios. Other schools, including Ivy League heavyweights Harvard and Yale, do not reach the top spots thanks to a high cost of attendance. The median annualized ROI for all schools comes in around 6% for public schools and 4% for private schools.

The high cost of attending Ivy League schools like Harvard and Yale keep them out of the top spots.

The Best Majors for Return on Investment

Of course, looking at the ROI of a college degree by school has some flaws. An art major has very different career prospects from an engineering major. Let's take a look at how majors factors into ROI.

For a humanities major, the best option is Brigham Young University-Provo, with a 9.9% ROI. A business major at the same school can expect a 13.7% ROI, a full 2.6% better. An engineering major at BYU averages a 14.2% ROI. Computer science and math majors fare similarly at 14.7%.

Keep in mind, this is just looking at one school with a very targeted student population, and one that is consistently at the top of the list. The average for other schools can be quite a bit lower.

Benchmark Investments

Now that we know the 20-year ROI of top degrees from some top schools, let’s take a look at how those same dollars invested in a college degree compare to financial investments.

The safest investment in general for most retail investors is a U.S. Treasury bond. Because these investments are so safe, the return paid by the U.S. government is very low. Over the last 20 years, this would have resulted in a 2.1% ROI. This rate is as of Oct. 25, 2019. Compared to the average college degree, an education would fare much better, yielding about double.

Other investments that fared similarly to a college degree are investments in:

  • Ford (F) with a -0.4% ROI
  • Bank of America (BAC) with a 1.2% ROI
  • Gold with a 3.96% ROI

Some stellar investments beat a college degree investment several times over. For example, an investment in Apple (AAPL) stock in 1999 returned 105.2% over the last 20 years, while Microsoft (MSFT) returned 3.7%.

The benchmark for the market return is the S&P 500 index. Over the same period, the S&P 500 returned 4.3%—higher than the average degree, but far from matching the ROI from the top degrees at the best schools.

Understand Your Personal ROI on a College Degree

No college experience or career is exactly the same, so your best bet is to estimate your own ROI based on the school and degree of your choice.

I earned a business degree from the University of Colorado at Boulder. The typical ROI for that specific degree is 8.2%, better than the S&P 500 and a safe investment. However, that number does not tell my whole story.

After earning a bachelor’s degree at CU, I went on to earn an MBA from the University of Denver. That private school MBA cost about 33% more than my in-state cost of attendance at CU. While some people might argue that I had a better use for $90,000, I was debt free two years later and my income has had several large jumps, which I attribute to my MBA.

Right after I graduated from my MBA program, I found a new job that would never have happened without the networking I did at school. It brought me a modest $5,000 raise, but over 20 years that covers my entire cost of attendance plus an extra $10,000. Any raise over that increases my ROI. Three years later, I received a 40% raise when I accepted a job—one that I would not have been qualified for without the MBA. If I stay at the same salary as today and never get another raise, that is an 889% ROI on my MBA.

Of course, my results are better than some and worse than some. Your results will vary.

The Bottom Line

While we all want to be like Warren Buffet and beat the S&P for nearly our entire career, Buffett is not the average investor. You can safely invest in the S&P 500 and bring in a steady return, but your growth potential is fairly limited.

If you are like most people, your career is going to be your primary income source for most of your life. A college degree does increase income and lower the chances of unemployment—both valuable factors to consider when weighing a college degree against a market investment.

If you’ve made it this far, you know that all degrees are not created equally. If you go to a quality school and earn a business, engineering or computer science degree, you will beat the market. And, if you work hard and do well, your income will continue to increase. A college degree may not beat the market on its own, but coupled with hard work, your return on investment has unlimited potential.