Evaluating College Price, Value and ROI

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When it comes to matters of college, three terms appear to dominate the landscape: price, value and return on investment. As far as price goes, that's one category that can easily get out of hand. Most think it already has. I've mentioned numerous times that the rate of college cost increase has dramatically outstripped that of inflation. There are many reasons for that.

Some of the primary contributors to cost escalation include the demand for more "luxury" accommodations to accompany residential college life. Who doesn't want a private room with its own bathroom? Also, ever-expanding administration, especially in the area of diversity oversight, has added to the collegiate overhead budgets. There are other issues, but these are two prime concerns.

Value can be defined, loosely, as "bang for the buck." In other words, how much mileage can one get from the dollars spent on higher education? Value may also have some stealth aspects attached to it, according to some who value the element of prestige. For them, it's worth a huge outlay of cash to have an "Ivy" crest as part of their CV. Granted, the Ivies have impressive alumni networks, but so do other "less prestigious" schools. That's an endless argument, by the way.

Finally, return on investment (ROI) is something that usually can only be measured a considerable time after graduation. I'm sure that there are complicated formulae that compare earnings, job satisfaction, career advancement and other factors that generate specific numbers indicating a level of ROI, but I'm unfamiliar with them. Measuring ROI is, in my view, a quite subjective process. Ask college graduates ten years after graduation how they feel about their lives and their responses will likely be pretty close to (or even better than) anything mathematics can measure.

Students Have Preference Points During College Search

Applying the foregoing thoughts to today's high schoolers, we can see that there are two camps of students: (1) seniors, who have already made their enrollment decisions via Early Decision and possibly Early Action, plus those waiting for their Regular Decision outcomes this spring, and (2) juniors who are "on deck," ready to take the plunge into the full-blown college admissions process soon. For seniors, the hunt is pretty much over. They are eagerly anticipating the dramatic new adventure that awaits them later this year. Juniors, on the other hand, have miles to go before they can settle into their higher education futures.

I have discussed at length the preference points that comprise the college search. Distance from home, curriculum offerings, size, political leanings, and (among others) -- yes -- The Big One, as mentioned above: cost. Of course, there are additional, more subtle preference points that go into making college choices, but allow me to focus on cost, which can be deceiving.

Marketing is a powerful tool in selling a college. Higher education, like most other consumer products (yes, a college education is a "product"), is couched in a variety of ways in order to appeal to prospective students. When it comes to marketing and advertising, I always recall a story about a company that sold a line of women's fragrances (a.k.a. "perfumes"). They had put a lot of research and development into producing one particular perfume, but it wasn't selling very well. So the advertising firm representing this line of products held a series of meetings to explore what could raise the appeal of this underperforming product.

After a couple weeks of futile brainstorming, one low-level employee from the copywriting department blurted out "Just raise the price!" Well, that's what they did, and guess what? Sales took off. The target demographic for the perfume now considered its quality to be superior, even "exclusive" (prestigious?) since the price was now so high. That's called perceived value. Now, I'm not suggesting that colleges raise their prices artificially just to make them appear more exclusive or prestigious, but some, maybe many, high schoolers and parents equate price with value.

Does Cost Equate to Value?

Aside from its Nobel-laureate-laden faculty, one aspect of the top-priced schools that struck me recently while walking the grounds of a picturesque Ivy League university is the advantage of a quality physical plant. By this I mean modern facilities: newer classroom buildings, clean and shiny living accommodations, sophisticated sports facilities, comfortable dining amenities and so forth. You can't appreciate the value of such things unless you've attended an institution where the facilities aren't up to par. Nice stuff isn't cheap, though.

This fall, the nation's most expensive schools will have student budgets (tuition, room and board, fees, books, and travel) hovering in the high $70,000 range. That's right -- $75,000+! That's per year. These are not just the Ivy League schools. Some highly selective non-Ivy colleges and universities have price tags in that region.

But does that enormous cost represent the best value for you? That's the price vs. value conundrum. To give you some insights into this issue, let's look at a few conclusions from a Pew Research Center survey, the thrust of which is still relevant today.

Cost and Value. A majority of Americans (57%) say the higher education system in the United States fails to provide students with good value for the money they and their families spend. An even larger majority — 75% — says college is too expensive for most Americans to afford. At the same time, however, an overwhelming majority of college graduates — 86% — say that college has been a good investment for them personally.

Monetary Payoff. Adults who graduated from a four-year college believe that, on average, they are earning $20,000 more a year as a result of having gotten that degree. Adults who did not attend college believe that, on average, they are earning $20,000 a year less as a result. These matched estimates by the public are very close to the median gap in annual earnings between a high school and college graduate as reported by the U.S. Census Bureau in 2010: $19,550

Student Loans. A record share of students are leaving college with a substantial debt burden, and among those who do, about half (48%) say that paying off that debt made it harder to pay other bills; a quarter say it has made it harder to buy a home (25%); and about a quarter say it has had an impact on their career choices (24%).

Why Not College? Nearly every parent surveyed (94%) says they expect their child to attend college, but even as college enrollments have reached record levels, most young adults in this country still do not attend a four-year college. The main barrier is financial. Among adults ages 18 to 34 who are not in school and do not have a bachelor's degree, two-thirds say a major reason for not continuing their education is the need to support a family. Also, 57% say they would prefer to work and make money; and 48% say they can't afford to go to college.

Granted, since this survey was published, there has been a downturn in college enrollment, a topic about which I have written before. However, while the percentages cited in the Pew survey may have changed somewhat since its publication, the trends noted are still valid.

Less Expensive Options Abound

Other higher education options, such as two-year, community commuter schools, can cost as little as $10,000 or less per year. That's over 80+ percent lower than the Big Guys. What's the difference? Can one school be seven times better than another one can?

It depends on what you're looking for. Many people seek the least expensive route to a professional or technical credential that can move them into a highly skilled job. For them, the live-at-home, commuter option makes the most sense. If you're looking for a broader, more diversified approach to education, then some variation of the live-away-from-home choice makes sense, though it's more expensive.

Keep in mind that many expensive schools may have superior financial aid available. This can bring their net cost much closer to the lower-priced schools. One challenging theory says, "Get into the best and most expensive school you can." Financial aid is the reason for that. The more expensive schools many times have more money to give in financial aid, thus making their true cost much lower for families who really need the help. Don't be blinded by the cost of a potential college, but probe for value points.

Lastly, keep in mind the ominous words of Forbes' William Baldwin: "Is this system nuts, or what? College has gotten insanely expensive, and the tuition aid formulas have gotten insanely complicated. But if you don't figure them out you will be crushed." So, to avoid being flattened by the realities of today's higher education environment, do your homework and figure out where the value of college lies for you.