Should We Rank Colleges Based on Alums’ Salaries? (You’ll Never Guess Which School Is No. 1.)

Commentary about business and finance.
March 31 2014 8:15 AM

Should We Rank Colleges Based on Their Graduates’ Earnings?

Academics might not like it, but schools should be held accountable.

Students in an outdoor class on the Harvey Mudd College campus in March 2006.
Students in an outdoor class on the Harvey Mudd College campus—according to PayScale, the school with the best financial return on investment.

Photo courtesy Creative Commons

I recently reported on PayScale’s newest batch of college rankings, which compare how much a school’s graduates earn to how much they pay for tuition. In other words, it calculates each institution’s financial return on investment, which seems a far saner way to look at the value of a degree than anything that U.S. News, for instance, has cooked up. (In case you were wondering, PayScale ranked Harvey Mudd College at No. 1, with a $1.094 million 20-year net ROI on $116,800 tuition; MIT, Caltech, and Stanford came in at Nos. 2, 3, and 4, respectively.)

Jordan Weissmann Jordan Weissmann

Jordan Weissmann is Slate's senior business and economics correspondent.

But not everybody feels so warmly about the idea of judging schools according to their ROI—particularly academics, who expressed qualms last year when President Obama proposed his own ratings system for colleges that would take into account how much graduates make. With the PayScale list out, Cedar Riener, a professor of psychology at Randolph-Macon College, took me—and PayScale—to task with a blog post titled “The Absurdity of Ranking Colleges by Graduate Salaries.” Riener was particularly irked by my decision to focus on colleges at the very bottom of PayScale’s list that offered alumni a negative return—meaning students spent more on their education than they made back in extra earnings. 

Like many in higher education, Riener thinks some colleges are simply too different from one another to be judged on a single scale. You can’t mash together Harvard, with its well-off and well-prepared student body, with an institution like second-to-last-ranked Fayetteville State University, where 78 percent of students received Pell Grants in 2012. There’s no logical way to compare engineering and tech schools, which dominate the top of PayScale’s list, to art schools, which tend to fall at the bottom. He writes:

Sure, a dollar is a dollar is a dollar, but saying that a mineral engineer makes twice what an artist does, and therefore this particular art school isn’t worth it, that just seems absurd, but it is exactly the logic that their ROI tanking system encourages, and that Weissman’s [sic] article adopts in using language like “to be blunt, these schools make students poorer.” No they don’t. I imagine that most students entering art school are fully informed (by parents, teachers, classmates, strangers in the grocery store) that their choice is disastrous and they will never find a lucrative job doing art. They choose to pay for training anyways. Is the art school making them poorer?
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My short answer is: Yes, the art school really is making students poorer if it delivers a negative ROI. And there’s nothing absurd about holding colleges accountable for what their students earn.

The art school question is actually a small piece of a much bigger quandary: When we look at the earnings of a college graduate, and try to decide whether their education was financially worthwhile, whom should we compare them to? PayScale answers this in a reasonable, though imperfect, way. They calculate the predicted lifetime earnings of alums from each institution, then subtract the cost of their schooling and the pay that the median high school graduate can expect to make over their working life. The ROI is whatever’s left. So when the site says that certain schools offer a money-losing proposition, it means that typical alums fare worse than the typical American with a 12th-grade education.

In a more ideal world, with better data available, PayScale would be able to compare students from similar race and class backgrounds, and who work in similar industries. Attending the Maryland Institute College of Art might be a less lucrative choice than getting a job working in a Ford factory or becoming the manager of a Chipotle. It’s certainly a less promising option than going to a higher-ranked arts program like the Rhode Island Institute of Design or the Art Institute in Chicago, which both offer positive returns. But is it a more financially ruinous decision than trying to become a painter or photographer without a B.F.A.? PayScale doesn’t say. Likewise, some historically black colleges (such as Fayetteville, Savannah State University, and Shaw University) rank at the bottom of PayScale’s list. But the results might turn out differently if their alms were compared to other African-Americans—who systematically make less than whites—with similar family incomes who decided not to get a degree.

Be that as it may, I think many students would like to know whether their college education is likely to leave them poorer than an adult who started their career right after prom. And it’s strange to argue schools should be let off the hook because their students have dimmer earning prospects to begin with, or choose less remunerative majors. It might not be absolutely necessary to rank colleges based on ROI. But in the age of massive student debt, it is absolutely fair and far from absurd to ask whether schools are charging appropriate tuition, given students’ realistic earning prospects.

Moreover, there is a very wide—and very accurate—consensus in academia that holds that for-profit universities vastly overcharge their students, given the actual value of their degrees. Why not apply that standard to traditional higher ed as well? To put it another way: It may be that art schools are at a disadvantage compared to engineering programs because painting don’t pay very much. But it may be equally true that some art schools are a rip-off.

At the same time, overemphasizing salaries would be dangerous. As Riener argued in so many words on Twitter, judging colleges based on their students’ expected salaries could theoretically penalize schools that admit low-income students, who have lower earnings expectations to start with. If the government were to use a ranking system just like PayScale’s to reward or punish colleges, it would almost certainly be a disaster—college administrators would start jettisoning poor and minority students like sailors bailing water out of a ship.

Thankfully, nobody is suggesting we do such a thing. Obama’s proposed rating system would look at a whole slew of factors—such as graduation rates, student debt defaults, and number of low-income admissions—and would compare them to similarly situated institutions. PayScale is merely a consumer tool, meant to give prospective students some concept of what their future earnings might look like. In an ideal world, there would be a better, more precise option. But sadly, colleges and universities have successfully lobbied Congress to ban the Department of Education from gathering more comprehensive data on graduates—if not for that, we wouldn’t have to rely on self-reported surveys by consumer websites. The really absurd thing, in the end, is that we still have to battle for such basic information.

Jordan Weissmann is Slate's senior business and economics correspondent.

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