Financially Speaking

New tools help weigh investment merit of college choices

A college education is one of life’s costliest investments,
so you want to maximize your return on that investment. Parents naturally
want their children to have the brightest future possible, which
traditionally meant sending junior to the “best” school he or she can get
in. According to conventional wisdom, buying the “best” education possible
is an “automatic/no brainer” investment decision that offers prestige (for
parent, as well as student), opens doors and enhances earning potential.

Unfortunately, conventional wisdom can be anything but wise,
whether you’re talking about investing in your child’s college education or
your retirement. As with any investment, price is what you pay, but value
is what you get. An 18-year old making the “wrong” decision about what
school to attend and/or what to study can negatively impact the financial
lives of both child and parent for decades after graduation.

Fortunately, there are new tools available to assist
families in weighing the objective investment merit of schools and fields of
study and making more informed decisions.

On November 20 the Department of Education for the first
time uploaded data on student debt levels and first-year earnings of
graduates for a particular college based on what they studied on its College
Scorecard ( <collegescorecard.ed.gov>
collegescorecard.ed.gov) consumer website, which provides
information on more than 36,000 programs at about 4,400 colleges.
Previously, users could only see median earnings and debt for all graduates
of a given school. Different majors obviously have a wide range of starting
salaries, so for a school offering numerous majors, median figures combining
all majors were not particularly useful.

For instance, if you select Purdue University-Main Campus,
you’ll see its graduates have “Salary After Completing” ranging from
$24K-$85K (one year after graduation), “Median Total Debt After Graduation”
ranging from $14K-$27K and Average Annual Cost of $14K (for federal
financial aid recipients, the in-state cost of attendance minus any grants
or scholarships received). You can “drill down” to see the Average Annual
Cost ranges from $5,019 (Family Income $0-$30K) to $21,159 (Family Income >
$110K).

You can see Purdue’s 10 highest earning fields of study, all
of which are degrees in “STEM” (Science, Technology, Engineering and Math).
Computer Science majors led the way with $84,800 in median earnings.
Similarly, you can see the 10 fields of study with the least amount of debt.
Graduates with degrees in Agricultural Mechanization had the lowest median
total debt of $14K and monthly loan repayment of $145 (assuming a 10-year
loan).

While you can look-up every program Purdue offers, the data
on earnings and debt represent only students who received federal financial
aid. It’s also important to note the data on debt and payments exclude
private and Parent PLUS loans, which can be significant. Finally, to protect
privacy, there is no salary data published on programs with few students.

PayScale’s 2019-2020 College Salary Report (
<www.payscale.com/college-salary-report>
www.payscale.com/college-salary-report) utilizes alumni salary data of 3.5
million respondents, representing more than 4,000 colleges and universities
across the U.S. to rank individual schools and majors. Ranking schools
based on “Mid-Career Pay” (median salary for alumni with 10+ years’
experience) for alumni with bachelor’s degrees, Harvey Mudd College comes
out on top at $158,200. “Majors that Pay You Back” uses the same criteria
to rank Petroleum Engineering as the highest earning degree at $176,900.
PayScale also lists the “Best Schools for Majors” and “Common Jobs for
Majors.”

There are important differences between the College
Scorecard (“CS”) and PayScale (“PS”). PS offers data on salary-only, “Early
Career” and “Mid-Career,” but cost and attendant debt are also very
important considerations. Unlike CS, PS doesn’t restrict its data to
students receiving federal financial aid, so its rankings may be more
robust. Similarly, whereas CS salary data is limited to one-year from
graduation, PS accounts for individual majors/careers having different
earnings trajectories.

There’s more to the decision of where to go to college and
what to study than dollars, but both students and parents must know how much
their college experience will cost and how they’re going to pay for it.
“We’ll figure it out later” is a recipe for financial pain that can be a
soul-crushing reality long after the fond memories of college have faded.

As my friend Pete the Planner says, “If done correctly, the conversation
about money and college between a parent and their child will be some of the
most difficult conversations they ever have. There’s much at stake.
Stability, independence, retirement, careers and relationships all hang in
the balance.”