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When Ryan McMullen was a senior in high school, he had dreams of working in international relations. So when it came to choosing a college, he was looking for an academic program that would set him up for success. But even he admits there was something else guiding his search.
I was also conscious of the reputational and brand value, and that was also something at the forefront of my mind. A lot of my peers ended up matriculating at a lot of private and a lot of ivys, and that was also kind of a factor as well, just thinking about the stamp of approval that you get by being associated with an institution like that.
Ryan had a few schools in mind. One was an IVY league, the University of Pennsylvania. Another was Georgetown University, his dream school, but he didn't get into those. He did get into the other schools on his list, penn State, University of Pittsburgh, and George Washington University. In the end, he went with what he considered his next best option.
I basically went to the school that I got accepted to that most resembled my dream school. So I ended up going to George Washington, and it honestly didn't feel like a decision so much. I don't really know that I gave fair consideration to some of the other options.
Ryan figured going to a prestigious school would be his ticket into a dream job, but one thing he didn't fully wrap his head around at the time was the price tag. Now, almost five years after graduating, that's all he can think about. Today. He's making about six figures at a consulting job, but there's another number that hangs over him, the one hundred and forty five thousand dollars
of student loan debt he took on. He's been paying it off month by month in installments that are higher than his rent.
Every major life decision that I've made since graduating college has been informed and in some capacity dictated by that loan balance.
GW did end up having a great international relations program, but Ryan still says if he could go back in time, back to senior year, back to that college decision, he's not sure he'd have picked the same school.
It's not fun, especially when you grow up in an area where people have pursued those alternative options. I grew up around folks that went to the military, or went through vocational training, and it looks like they came through it with flying colors. You know, they're established, they are settled. It's frustrating to see that the reality that I desperately want for myself was possible without having gone through this path. I'm paying severely for something that I didn't need.
Today on the show show, it's college admission season and a lot of students are gunning for a brand name university. But if they're looking at college as an investment in their future, what metrics should they really be looking at. A new Bloomberg analysis suggests that, given the ballooning costs of higher education, prestige doesn't always pay off. From Bloomberg News,
this is the big take. I'm Sarah Holder. A lot of people are in the process of making the same decision Ryan once made, Where should they go to college?
Paulina Cacero, a personal finance reporter for Bloomberg, recently tried to help answer this question using a classic financial method calculating college's return on investment based on future earnings, and she says that if you're purely looking at that financial ROI Ivy League schools do pay off, but popular second choice private schools, the ones a lot of students who are gunning for ivy's turn to next don't pay off off nearly as much.
For high school seniors that are trying to make this really difficult decision. If you didn't get into your ivy of choice, a public school is actually the safer bet. While there's a whole bunch of elite private schools out there that are often a plan B for students when they don't get into their top choice school, we found with our data that the ROI is the same at
public schools, which are a fraction of the cost. So you know, at a time when some of the country's most expensive schools have sticker prices stretching past ninety K and people want to go there because they think that they'll have great employment opportunities and career opportunities, you actually probably should just go to your seat school.
To calculate return on investment, Bloomberg worked with the Georgetown University Center on Education and the Workforce. Francesca Maglione, a personal finance reporter who teamed up with Paulina on the story, walked us through how the math works.
They data from College Scorecard, which basically takes data from graduates that took on federal aid or accepted federal aid. What Georgetown does is that they want to give people a dollar amount when it comes to thinking about their college.
So what they do is that they take how much people paid for college, and then they take their earnings ten years after they enrolled in college, and they subtract those numbers, and that lands you at a dollar amount, which is basically, this is how much your college degree is worth in real time.
I mean, you dug through a lot of this data, you looked at so many colleges across the country. What did you find?
So unsurprisingly, the eight traditional IVS institutions that have big endowments and a really powerful alumni network that people think about. Those get the average graduate a really high ROI of two hundred and sixty five thousand. But realistically, most people
don't get into the IVY league. So when you start looking at these other elite private schools that often become a plan B for students when they don't get into their top choice, return on investment actually drops a lot so degrees from what we call hidden IVS have a typical ROI of one hundred and thirty five thousand. Ten years later, Paulina says, hidden ivs are schools that offer a broad liberal arts education like Skidmore, Vassar, Oberlin, Wake Forest,
and Tulaane. That's actually less than those who graduated from public universities, which offer an ROI of one hundred and forty eight thousand, and So we're throwing a lot of numbers at you, but if you think about it, these are striking gaps when you consider that many students choose the next most prestigious school they were admitted to over a local state college. I think people assume when you go to that brain name college, there's this intangible value
of going there. It's going to open career opportunities, it's going to open doors that you might not have had access to, and that people tend to think comes with higher pay. And while college graduates from prestigious universities do tend to get higher pay than maybe those less prestigious universities, the cost of actually going is now eating away at that ROI.
Francesca, what about major in college? How does that factor into this ROI?
Yeah, so that's actually something that we really started to think about when we looked at the top performing schools when you think about ROI, and so although Georgetown's data is just by institution level, it doesn't go into program level. The schools with the highest ROI were schools that you've probably never heard about, the Colorado School of Mind, the Albany College of Pharmacy and Health Sciences, and other pharmacy and tech schools, And so we started to think about
why are these schools really high up. The reason is these technical majors, these schools that have more of a direct career path into the labor force end up having a higher ROI because their graduates really get a job right away. And so that kind of led us to try to evaluate what schools are maybe not performing as well and why might they be not doing as well, and that led us to liberal arts schools. Liberal arts
schools are great. People love them. They're very intellectual, but they don't have as big endowments to provide as good financial aid as maybe an ivy would. And what happens in many cases is that Liberal arts graduates end up going to graduate school where they take out loans. These schools are really expensive, but they feel like that's the next step that they have to do after receiving their liberal arts education, right.
I mean I could imagine the liberal arts colleges might argue, like, isn't the value of an education measured by more than just the monetary benefits you get later through income. What would you say to that?
Yeah, I think that's something we really talked about, the intangibles. You know, we're really trying to put a number on an answer that is really personal for many people. And I think that when looking at this data, we're trying to talk to people that really have to think about their finances when thinking about college. You know, a liberal arts can give you great skills, can help you think critically,
maybe you will get an amazing alumni network. But if you took on so much debt to go to college, it might not end up paying out.
You know, today we're seeing millions of Americans buckle under the burden of one point seven trillion dollars in student loans. For some people, it takes as long as twenty years to pay off that debt. So that financial burden is forcing people to delay important financial milestones like buying a home, starting a family. And in fact, the Federal Reserve Bank of Saint Louis found that while college graduates do enjoy higher salaries, the wealth building advantages of college has declined
for recent graduates. This growing amount of debt is forcing people to really consider the value of a college degree.
When we come back, we hear from Ryan again about how that debt is shaping life post graduation, and Paulina and Francesca help us understand how the value of a college education continues to be a moving target on paper. Ryan McMullen, who you met earlier, is living a version of the American dream. He has a six figure income, he has job security, and he lives in a major city.
But for him, the decision to take on debt to go to an expensive college like George Washington, has put other dreams on hold.
I'm probably living somebody's dream somewhere out there. It's not mine. And if your goal was to live in a major city and work in a shiny office building, you probably do need to go to college. To be honest with you, I was referred into my current position by somebody I went to school with, somebody that I met through school. I'm very thankful for that, and this certainly wouldn't have
happened without that connection. I think equally, you could make the argument that had I not gone there, I wouldn't necessarily need this job, right, it was a manufactured necessity because of the debt burden that I'd taken out.
Ryan says if he didn't have loans, his life might look very different. He wasn't the same person when he was a high school senior stressing about which big name school would be the best on a resume. Like anyone, his dreams now are a little different than they were then.
I just want to be, you know, settled in a suburb and you know, drive to soccer practices like much of the country does, and for that, you know, that being my goal. I don't think I'm anywhere close to that.
Paulina and Francesca say many people they've spoken to are feeling pressure to make sacrifices like these. College has long been framed as an inevitable step to success, but increasingly people can't afford not to think about the return on investment. Just this week, Biden announced an attempt to forgive student loans for tens of millions of borrowers after an earlier effort was blocked by the Supreme Court. But students making
decisions about schools today can't necessarily count on that future relief. Paulina, can you say more about how much college costs and why that starts to matter so much more today?
Definitely. I think that it's important to note that college is often one of the biggest financial decisions that most people will make in life, and people are making that decision at eighteen. So I think a lot of the people that we spoke to thought they were making a calculated decision by taking on more debt to go to a prestigious school. But I think the gravity of how much that debt will impact them doesn't quite you know,
hit home. And part of that is because, you know, I think the last few years, graduating from college has almost become a prerequisite to achieving the American dream. Right. A lot of Americans and people beyond were raised to believe that higher education will guarantee a higher paying job, grant you, you know, greater stability and a better quality
of life. And for many people it does. But you know, I think the rising cost of college is really changing that you know, conversation and to the scales, like when you look at the data, how do you.
Think this perspective that you guys are sharing on the return on investment from college could shift the way we think about the value of a degree.
Yeah, I think that's kind of what led to us coming up with this idea. We were talking to a bunch of families, students, college counselors that kept saying people are obsessed with the brand name, with getting into these really prestigious schools, no matter the costs, and so we kind of wanted to answer the question does prestige pay off? Do people really see a difference if they choose the brand name over their public school or their state university.
What we're trying to do with this project is provide a tool for people to think about this in a more strategic way of being. Like, yes, if you look at the Ivy's prestige does pay off, but then it's kind of dropping off at a very significant rate when you start to look at just elite colleges and you start to look at public flagships which offer really goodhar roi is when compared to other private schools as well.
Yeah, so I think a lot of people base their decision off of these ranks, Like everyone is obsessed with school ranks, But you know, after a certain point, it gets really murky. There's no guarantee that going to a brand name college is going to guarantee success. It's a risk. And I think that the whole point of this is to show that, like people can make a calculated risk. And I think people were already kind of making these
doing this calculus, trying to do it by themselves. But we wanted to aggregate like real data and answer these questions for people, and we thought it was valuable to look at what is the average person graduating from a specific institution, what do they get out of it?
It seems like this is another tool in the toolbox. People are already weighing so many different things. It's such an overwhelming decision for so many people, and this might help them understand better what they're getting into.
Its super complicated calculus.
Yeah, And I think it's not that we're telling people don't go to college, it's not worth it. It's more there's ways that you can go about this in a smarter or more informed manner that might set you up for success in a better way that maybe just thinking about these intangible aspects that people honestly way more than anything when looking at colleges.
I think what's really hard is like something that we've heard from a lot of the high school seniors is like, when you have worked so hard in high school to get to a certain place, to become the best Ivy League or whatever college candidate that you can, it's hard not to want to pick the most prestigious school. People associate that as like a testament to their work and to everything that they've achieved thus far, and they think
it will continue to do so in life. But hopefully we can equip people with the numbers be like, hey, this is not the only thing that you should consider, But it's really hard not to think that way when you are in the moment and thinking of like, oh my god, my senior year is so awful. I spent all this time working on my essays and working so hard to get these grades. It might be like kind of earth shattering to not be able to go to
your top choice school as a high school senior. But I when faced with a lifetime of paying off student loan debt, it may be better to just come to terms of that like earlier on than having to deal with paying this off for the rest of your life.
Thanks for listening to The Big Take podcast from Bloomberg News. I'm Sarah Holder. This episode was produced by Thomas lu It was edited by Aaron Edwards and Jennifer Bissell Linsk. It was mixed by Ben O'Brien. Naomi Shavin is our senior producer. Our senior editor is Elizabeth Ponso. Nicole beemster Bor is our executive producer. Sage Bauman is Bloomberg's head of podcasts. Please subscribe and review The Big Take wherever you listen to podcasts. It helps new listeners find the show.
Thanks for listening. We'll be back tomorrow.