Apr 15, 2021

PUBLIC VS PRIVATE COLLEGES: AN ROI ANALYSIS

According to the most recent data provided by The Department of Education’s College Scorecard, the median net price to attend 1 year of an American private university is $21,892 compared to $14,333 to attend 1 year of an American public university, assuming in-state net prices only for the public schools (n=1300 and n=570 respectively). In spite of the extra cost to attend a private school, the median earnings 10 years after entry at a private school is actually $200 lower compared to a state school: $47,300 vs $47,500. Digging deeper though reveals a very interesting reversal of the trend. When comparing the top 50 public vs. private schools1 in each category, the return on investment going to a private school is much more promising. While the median net price of a top 50 private school jumped to $25,976, much higher than the $16,393 median net price for a top 50 public school, (again assuming in-state net prices for the public schools), the median earnings 10 years out more than made up for this difference. Students at these private schools had median earnings of $89,300 compared to $63,250 for public students.

The above analysis, as mentioned, only considers in-state applicants when calculating the net price. For example, let's say you are a student with residence in NJ and you go to a public school in the state of NJ, such as Rutgers University. You’ll pay less than a student from a different state to attend that University because in-state tuition is less than out-of-state tuition at public colleges, with the average in-state tuition savings to be $11,914 across public colleges (n=549). Therefore, the above findings would not include the net price of a student with residence in NJ that attends an out-of-state public school, such as The University of Michigan. If you are going to attend a public school that is out-of-state, realize you are paying more than the in-state students for the same degree, it will likely be harder for you to get aid as an out-of-state student, the state aid that you could qualify for might not be transferable, and it is much harder to switch your state residency to qualify for another state’s in-state tuition than it once was. All else being equal, paying out-of-state tuition at a public school does not make much financial sense for the above reasons.

Takeaway:

There are too many private colleges charging students an uneconomical amount to attend their school. Because there are more than double the private colleges compared to public ones, the incredible historical earnings data of the best private schools’ graduates are quickly drowned out by the underperformers. If you’re going to attend a private college, it might be especially worth looking at the decision through a return on investment lens, especially if it does not rank as highly. There are many reasons to pick a school, but if return on investment is the number one priority, picking a mediocre private college or attending a public school out-of-state is not likely to make the most sense financially all else being equal.

1. Rankings provided by niche.com

Notes and Disclaimer: This analysis used the most recent metadata (as of 4/21) from The Department of Education’s College Scorecard, but each statistic mentioned in this post is a secondary calculation from said data that has not been reviewed by The Department of Education. These statistics are out of students who have received federal aid and are an internally generated meta-analysis of data available on the remoteUprep College ROI Generator.