Are Private Colleges Worth The Extra Money?

Public colleges and universities are definitely the more affordable way to go, but do private schools offer a better return on your investment?

Mar 23, 2014 at 8:00AM

We've all seen the headlines. College costs more than ever before, and student loan debt is rising at an alarming rate. For students entering college and their parents, it is becoming more important than ever to find the best value in a college education, which means that there are tough choices to be made. Are private schools really worth the extra cost, or do public colleges and universities offer the better return on investment?

Comparing tuition
Tuition is rising at a very rapid pace for both public and private institutions. The difference is substantial, with the average tuition and fees totaling about $9,000 for an in-state public college compared with over $30,000 at a private school. Even out-of-state tuition at public schools is substantially cheaper than private, with students paying around $22,000.


Source: Flickr / Tax Credits.

To get a more accurate picture of the difference, however, we should look at the total cost of attending college, not just the cost of tuition, which is just one of the costs associated with attending college. Total cost takes into account such expenses as room and board, books, school supplies, and pretty much everything else involved with living at and attending college.

Recent data indicates the average total cost of attendance at a public four-year university is around $23,000 per year. In contrast, the annual total cost of attendance at a private institution averaged just under $45,000, and this can vary tremendously among the various types of private schools.

So, it is roughly twice as expensive to go to a private school than to attend an in-state public school. Is it worth the extra cost?

What makes it "worth it"?
There are several factors which can make a private school more appealing to prospective students. Private schools tend to have smaller classes, more involved students, and a very close-knit community. If money isn't much of an object for you, there are many valid reasons why a private school could be a better choice.

For our purposes though, I'm really only worried about the value of education as an investment. In other words, will graduates of private schools earn high enough salaries that make the extra costs worth it? Do they earn significantly more than their counterparts who graduated from public universities?


Source: Flickr / audio-luci-store.

Dollars and cents
A recent study indicates graduates of public schools earned just 80% of what private school grads earned, with starting salaries averaging about $40,000 and $50,000 for public and private schools, respectively.

Remember, this is just an average. If you want to be a teacher, the college you went to plays no role in determining your salary, as the pay scale is based on level of degree and years of experience only. By the same logic, the data may be skewed because those who plan to choose more lucrative majors (engineering, computer science) may gravitate toward prestigious private schools, while those in lower-paying fields (education, social sciences) may be more inclined to choose a public school.

Figuring out return on investment
Salary website came up with a complex methodology for calculating return of investment (ROI) for college educations, comparing the total costs of attending a school and the earnings differential between a graduate of the school and a high school graduate who doesn't go to college.

Interestingly enough, when ranking all U.S. colleges to annualized ROI, 13 out of the top 15 are public institutions. However, 10 of the 13 are classified as "engineering" schools, which goes to show that one's major plays a very significant factor in earnings potential.

However, when ranking the schools by total ROI (total earnings power over a high school graduate), nine of the top 15 are private schools, meaning that although tuition is high, total career earnings are high as well. Of the public schools on this list, all six are engineering schools.


Source: Flickr / Kevin Dooley.

So, is it worth it?
Assuming a 40-year working life and 3% annual raises, the average graduate of a public university could expect to earn just over $3 million throughout their career, as opposed to about $3.75 million for a private school grad.

One way of looking at the data is how a private school education costs about twice as much (or 100% more) than a public school education, but will only earn you about 25% more over your lifetime.

However, another way to look at it is an additional $750,000 in earning power over your career, for only an extra $88,000 or so in additional investment. This additional investment will be recouped within the first eight years of employment, on average, meaning the salary gap for the rest of the graduate's career (let's say after age 30) will truly be "more salary."

Of course these are just averages, and everyone's education is different. We already mentioned the choice of major, but other factors such as geographic location and the "prestige" of your particular school also play a significant role in determining starting salary. While public school is definitely the more inexpensive way to get your degree, there are indeed some measurable financial reasons indicating private schools may be worth the extra initial investment.

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A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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