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Short-term vs. Long-term

Georgetown’s Center for Education and the Workforce recently released a report on the monetary payoffs of different colleges and universities. The authors compared schools for payoff at 10 years and at 40 years after graduation.

Of course, a variety of assumptions were necessary to estimate these payoffs. First, there were data available on earnings based on IRS records after 10 years, but not after 40 years. (The authors, for comparative purposes, assumed the median earnings remained the same across schools after 10 years.) Second, the authors assumed about a 2 percent inflation rate each year, so that $1000 today would be worth $980 next year. Third, there were no adjustments for economic shocks or cost-of-living differences across geographies. There were other necessary assumptions, for example, that the changes in tuition rates over the coming years would not be different across institutions.

Given those assumptions, the authors attempted to estimate what economists call the net present value of the degree. Each year in college means reduced earnings during that year, as few students garner the income they could have received if they were not in school. Tuition costs vary across schools. When the graduate hits the job market, first year, fifth year, and tenth year salaries vary across schools’ graduates. The net present value combines all those factors and estimates in shear dollars, what is the current value of the degree. This permits an estimate of the “return of the investment” of tuition.

What are the findings? First, community colleges and some certificate programs have the highest return on investment (ROI) in the short term (10 years). Second, colleges that offer 4-year bachelor’s degrees offer the highest ROI in the long term (40 years). Third, public institutions have higher ROI in the short run than privates, but privates, better in the long run than publics.

Georgetown’s ranking among 4,500 US institutions is 215th for the 10-year ROI but 9th for the 40-year ROI. In contrast, for example, St. Louis College of Pharmacy is ranked 5th for 10-year ROI and 2nd for 40-year ROI. In general, among the 4-year degree institutions, the highest ROI for both short run and long run are very specialized bachelor’s degree programs.

It is heartwarming to see Georgetown’s long run value empirically estimated. Of research universities, only MIT, Stanford, and Harvard have higher ROI at the 40-year mark. Hence, Georgetown is a long-term value, as measured by income achievement.

But many of my colleagues would place relatively little weight on the analysis of the report. They would argue that the singular notion of income as a basis for comparing institutions is myopic. In that regard, it would be nice to expand the data available for outcomes. One can imagine that measures of civic participation, of psychological and spiritual health, of creative skills, and of physical health would be useful additions. Using the matched records to IRS filings, could provide charitable deductions, but many of the other outcome measures are not routinely obtained.

So, for the time being, we’ll have strong result based only the ROI based on income. My biased hope is that Georgetown would be even stronger on the other dimensions.

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