KIM: New tools help families weigh investment merit of college choices

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INVESTING: Mickey KimA college education is one of life’s costliest investments, so you want to maximize your return on that investment. Parents naturally want their children to have the brightest future possible, which traditionally meant sending junior to the “best” school he or she could get in. According to conventional wisdom, buying the “best” education possible is an “automatic/no brainer” investment decision that offers prestige (for parent, as well as student), opens doors and enhances earning potential.

Unfortunately, conventional investing wisdom can be anything but wise, whether you’re talking about your child’s college education or your retirement. As with any investment, price is what you pay, but value is what you get. An 18-year-old making the “wrong” decision about what school to attend and/or what to study can damage the financial lives of both child and parent for decades after graduation.

Fortunately, new tools are available to assist families in weighing the objective investment merit of schools and fields of study and making more informed decisions.

On Nov. 20, the U.S. Department of Education for the first time uploaded data on student debt levels and first-year earnings of graduates for a particular college based on what they studied. It put the information on its College Scorecard (collegescorecard.ed.gov) consumer website, which provides information on more than 36,000 programs at 4,400 colleges.

Previously, users could see only median earnings and debt for all graduates of a given school. Different majors obviously have a wide range of starting salaries, so for a school offering numerous majors, median figures combining all majors were not particularly useful.

For instance, if you select Purdue University—Main Campus, you’ll see its graduates have “Salary After Completing,” which is defined as one year after graduation, of $24,000 to $85,000.

“Median Total Debt After Graduation” ranges from $14,000 to $27,000 and “Average Annual Cost” is $14,000 (for federal financial aid recipients, the in-state cost of attendance minus any grants or scholarships received).

You can drill down to see the “Average Annual Cost” ranges from $5,019 (family income under $30,000) to $21,159 (family income above $110,000).

You can see Purdue’s 10 highest-earning fields of study, all of which are degrees in STEM fields. Computer science majors led the way with $84,800 in median earnings.

Similarly, you can see the 10 fields of study with the least debt. Graduates with degrees in agricultural mechanization had the lowest median total debt, $14,000. That results in monthly loan repayment of $145 (assuming a 10-year loan).

While you can look up every program Purdue offers, the data on earnings and debt represent only students who received federal financial aid. It’s also important to note the data on debt and payments exclude private and Parent PLUS loans, which can be significant. Finally, to protect privacy, salary data is published on programs with few students.

PayScale’s 2019-2020 College Salary Report (www.payscale.com/college-salary-report) uses alumni salary data of 3.5 million respondents, representing more than 4,000 colleges and universities across the United States to rank individual schools and majors.

Ranking schools based on “Mid-Career Pay” (median salary for alumni with at least 10 years of experience) for alumni with bachelor’s degrees, Harvey Mudd College comes out on top at $158,200.

“Majors that Pay You Back” uses the same criteria to rank petroleum engineering as the highest-earning degree at $176,900. PayScale also lists the “Best Schools for Majors” and “Common Jobs for Majors.”

There are important differences between the College Scorecard and PayScale. PayScale offers only salary data, but cost and attendant debt are also important considerations.

Unlike College Scorecard, PayScale doesn’t restrict its data to students receiving federal financial aid, so its rankings might be more robust. Similarly, whereas College Scorecard salary data is limited to one year from graduation, PayScale accounts for individual majors/careers having different earnings trajectories.

There’s more to the decision of where to go to college and what to study than dollars, but both students and parents must know how much their college experience will cost and how they’re going to pay for it. “We’ll figure it out later” is a recipe for financial pain that can be a soul-crushing reality long after the fond memories of college have faded.

As my friend Pete the Planner says, “If done correctly, the conversation about money and college between a parent and their child will be some of the most difficult conversations they ever have. There’s much at stake. Stability, independence, retirement, careers and relationships all hang in the balance.”•

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Kim is chief operating officer and chief compliance officer for Kirr Marbach & Co. He can be reached at [email protected]

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