College Isn't Common Stock

Return on investment (ROI) may be a useful measure for deciding whether to buy shares in a bond fund or a software company but, college is not just a commodity, it's a process, in the best cases a transformative one. A recently released study, attempts to grade institutions of higher education by their ROI and in doing so takes the college rankings game to a new low.

ROI is calculated by dividing an investment's proceeds by its cost, yielding a percentage or ratio. Sounds reasonable, but, as one dictionary noted, a downside of ROI is that it "can be easily manipulated to suit the user's purposes."

The college ROI study, courtesy of a company called PayScale, produced averages for about 850 colleges by analyzing surveys of 1.4 million graduates' self-reported income. Impressive. But what do the educations of 100 students at a particular college have to do with 100 shares of common stock? Each share of a particular type of stock in a particular company is identical to every other. Students on the other hand...

Even frequently cited and sometimes useful averages, such as class size, obscure as much as they reveal. At many universities, the average class size is lowered (i.e., improved) by many small upper-level courses in less well subscribed majors, but a student in a popular degree program such as business or education may find herself in lecture halls most of the time.

The experiences of individual students vary too much at many institutions for the ROI data to be meaningful, but the best use of it might be to compare the returns for institutions with more or less open admissions. At least those schools are competing on a more level playing field and are open to most potential investors (formerly known as students).

The more competitive applicant pools become, the less free students are to choose where they invest. The institutions listed in the ROI study's top 20 are all very difficult to get into. A few admit less than 10% of their applicants, and ability to pay rarely influences a decision. Companies with stocks and bonds to sell, on the other hand, happily do business with anyone who has the cash.

Selective admission means the "top schools" get to pick their "investors" from huge, clambering crowds of qualified buyers. As a result, the return on investment of the most sought-after institutions has much more to do with the capabilities of the students they accept than it does with what happens to them after they enroll.

Technical universities, as well as those with strong science and engineering programs, dominate the ROI rankings. Here ROI is more clearly connected to specific fields rather than institutions, which makes sense. Engineers generally find well-paying jobs and enjoy more protection from the ups and downs of the economy than psychology majors, for example.

Some excellent but less widely known schools also appear in the list's top 20 - among them, Worcester Polytechnic Institute and Union College in New York. Not surprisingly, both offer engineering degrees. At least the ROI study, with its inclusion of institutions such as these, might help get the message through to some that the "name game" in higher education - the practice of ranking institutions by how well they are known - is of equally dubious value. Perhaps in this respect PayScale's research will have made a valid contribution to the college selection process after all.