With recent college tuition payments skyrocketing to $90K / year, many parents and students are asking: is it worth it? While I was extremely fortunate to graduate from an ivy league, I accumulated over $120K in student loan debt upon graduation when the annual tuition inclusive of room & board fees was $60K per year! Given that many are questioning the value of an ivy league degree, I will share my perspective on worth, an estimated 10 year return on investment and how future employment trends might influence your decisions.
What influences the perception of worth?
For new graduates, securing a high-paying job with a strong career trajectory is one of the most important factors impacting the perception of worth.
When I decided on applying to an ivy league college, my parents believed that the investment would be worth it because of the following reasons:
- It seemed like a “safe” bet for semi-guaranteeing their child’s future career success
- The opportunity for upwards mobility across socioeconomic classes
- The opportunity to be part of an elite society of leaders
Every parent wants the best for their child and I am grateful for their guidance.
For me and other graduates, the ability to secure a high-paying job with a strong career trajectory mattered the most. If you were able to achieve this, you felt your tuition was “worth” it. If not, this is when you questioned your investment and some even felt regret towards their college experience. For me, the primary reason was the financial pressure of having to pay off my student loan debt. For my peers, it was the pressure to follow the traditional career playbook that taught you marketable skills. Of course, there are others that were lucky enough to pursue jobs based on their passion and not based on earning potential. However, I would say that this was not the majority.
Will recent tuition increases accelerate this trend to secure a high-paying job? Sorry, Biden’s student loan forgiveness program does not include students that graduate from “tier 1” academic institutions.
What is the 10-year ROI for an ivy league?
Depending on your financial aid package, the 10-year ROI for an ivy league could range from 1.8X to 8.2X of your initial cost. Lower income households have higher ROIs than higher income households.
(Yet, ironically, most ivy league students come from higher income families that receive the least amount of aid.)
While there are already studies discussing the “worth” of an ivy league degree, these studies focus on the gross tuition and not the net cost of attendance after financial aid. We performed a 10 year ROI analysis comparing the after tax return on investment for attending an ivy league vs. a state university as an in-state resident. The 8 ivy league schools included Brown, Cornell, Columbia, Dartmouth, Harvard, Princeton, University of Pennsylvania and Yale and 1 SUNY college as a comparator.
Our ROI analysis consisted of evaluating two hypothetical household income scenarios:
- Scenario 1: $91K median household income for a family of 4 (US Census Bureau)
- Scenario 2: $189K median household income based on ivy league student demographics
Key data sources included: US Census Bureau, University Net Price Calculators, Redfin, and Fidelity’s recent analysis of the average 401K balance by age. We summarized our income and asset assumptions in the table below:
In our analysis, we only used the median starting salaries in 2022 for early career graduates based on the most recent data from PayScale which defines “early career” as three years of work experience.
Key revenue inputs include:
- Pre-tax starting salary was $86K (Ivy-graduate) vs. $58K (SUNY graduate)
- Annual bonus assumption of 6.8%
- Annual raise: 4%
- Taxes: 40%
- No income or ownership in businesses, real estate or farms for parents
- No income or investments for the student
Key cost inputs include:
- Estimated family contribution based on the financial profile entered into the net price calculator for the 2023-2024 calendar year and then projected through 2026-2027 using a 4% annual increase
- The estimated OOP of the EFC was assumed to be 4% of the annual household income based on average savings rate, with the difference requiring student loans
- The student loan term was assumed to be 10 years at 6% interest rate
- Private college admissions / test prep fees of $5,000 applied to ivy league schools only. We excluded recent reports of wealthy families spending up to $750K for college admissions prep because we assume this is not the majority of students.
We defined ROI as the cumulative earnings after-tax, after student loan payments for the 10-year loan payment period over the initial estimated family contribution after financial aid.
For a household income of $91K, the ROI is ~8.2X return for an Ivy league vs. 2.7X return for a state school. This is largely attributed to a 46% difference in the starting salary and a generous financial aid package. The quoted financial aid reduces the total cost of attendance by 84% vs. only ~17% from our SUNY college comparator. If you went to Princeton, you would be able to attend for free!
However, for a household income of $189K, the ROI might actually be better to attend a SUNY vs. an ivy league. Ivy league colleges provide aid for only 47% of the cost (down from 84% for lower income families). Therefore, there are much higher costs for these students. On average, the 10-year return is 1.8X your investment if you go to an ivy-league vs. 2.8X if you attend a SUNY school.
To improve the ROI, students from middle income families experience greater pressure to pursue high-paying jobs well above the average $86K starting salary. Keep in mind that ~50% of ivy league students come from families making above $189K, with ~14.5% students with families in the top 1%. The higher your family income, the less aid you receive and thus, making the ROI more difficult to achieve.
These results suggest that for most ivy league students, the 10-year ROI is questionable if they struggle to secure a six-digit starting salary. Strictly based on the financial ROI and not the intangible benefits, the opportunity cost appears to favor a state school for middle income households.
Key caveats to highlight with this analysis include:
- Student graduates college within a 4-year period with no added costs for switching majors
- ~47% difference in average starting salary between Ivy and SUNY graduates ($86K vs. $58K)
- Assumes fixed interest rate for student loans through the entire loan term. It does not take into account variable rates or consolidation of student loan debt.
Our results may not apply to all families because every child’s situation and earning potential is different. We used median starting salaries and our analysis does not account for salary differences by school, major, prior work experience, and family relationships. For example, STEM graduates will likely have substantially higher starting salaries than liberal arts majors (e.g., $300K to work at big tech companies). Also, our analysis does not capture earnings from entrepreneurs that start their own companies during the first 10 years post graduation, which could materially change the ROI.
Pick a major that teaches you how to think critically, provides you with training and specialized skills and offers a high starting salary. There will always be exceptions like the Art History major that lands a six-digit starting salary job at a hedge fund, but the likelihood of achieving a positive ROI may be low. Don’t automatically assume that your ivy league degree will help you secure a high-paying job.
What intangible career benefits does an ivy league degree provide?
The benefits include being prepared to succeed in highly competitive environments, better access to job opportunities and alumni networking and mentorship opportunities.
Based on my own career path in consulting, investment banking and startup companies, I have realized the following intangible benefits:
- Better preparation to succeed in highly competitive environments among other talented leaders
- Greater access to job opportunities given requirements for a “premier” university (e.g., some companies only recruit at a specific list of schools made up of primarily Ivy-league institutions)
- Interview candidate prioritization (e.g., consulting, investment banking)
- Motivation for excellence and leadership based on highly competitive culture
- Access to employers and alumni for recruiting, networking & mentorship opportunities
However, I’ve learned that the name of the school may open some doors for you, but there are no guarantees. Your success is influenced more by hard and soft skills (EQ), your work ethic and your ability to build relationships.
What employment trends can influence your college investment decision?
Future workforce trends towards specialized and technical skills and experience in emerging technologies will have a significant impact on career planning over the next decade.
These trends will influence your career choices, desired fields of study and the skills you want to acquire. If we examine the jobs for the next decade, we clearly see that there are many paths to a six-figure income without requiring an ivy league degree.
According to employment trends, the top careers ranked by median salary, work-life balance and future outlook include:
- Technology (e.g., AI, clean energy, cybersecurity)
- Medical (e.g., nursing, physical therapists, dentists, genetic counselors)
- Specialized service workers (e.g., electricians, plumbers, mechanics)
- Data scientists
- Other skilled professional services (e.g., CPA, lawyers)
The demand for these careers is projected to be high, with a shortage of supply. Therefore, these careers are highly desirable and likely have a strong ROI.
In summary, I believe that my ivy league degree was worth it. I graduated with an engineering degree which allowed me to acquire marketable skills to employers and I maximized every career opportunity available to me. My practical advice to current parents of prospective college students is the following:
- The name of the school does not matter as much as your child’s acquired skills, experience, career choices, and work ethic.
- Research emerging employment trends before declaring majors and fields of study. Analyze the job postings for their job requirements, skills and salary ranges as well as the career trajectory of these roles. Once you’ve done the research, this will help inform your anticipated field of study.
- For your anticipated field of study, don’t pick colleges but pick programs. Choose programs that have the most rigorous curriculums, teach relevant skills and have high starting salaries.
- Develop a thoughtful career plan and start gaining relevant work experience as early as possible.
- Teach your child how to build professional relationships and the importance of networking.
I hope my experience as an alumni provides a valuable perspective to parents and students during this time and best of luck in your future!
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