This is the time of year when high school seniors and their parents make their final decisions about which college they will attend over the next four years. It can be a gut-wrenching ordeal especially given that it now costs nearly $250,000 for four years at a private college. For many families, it’s a bigger financial decision than buying a house.
One of the perennial topics of discussion among parents and pundits is which schools provide the greatest return-on-investment (ROI)?
Economists have long debated this and a slew of Web sites and college rankers report stats (including Forbes) to help you make your decision. Given the obvious affordability issues and out-of-control student loan situation, the Obama administration recently launched an interactive College Scorecard web site to help families make smarter college planning decisions. The problem with the White House’s new offering is that it gives you little guidance about the“return on investment” part of the college planning process. The government’s scorecard web site has yet to report any specific employment data by college.
I have an idea for an alternative measure to determine the ROI of a particular college and I call it the
Grateful Graduates Index. It’s a pretty simple formula that measures of the amount of private gifts given to a four year college over time, divided by the number of full time students it has. After all, private donations are typically an indicator of two things: how successful an alumnus is and how grateful he or she feels toward her alma mater.
The idea for the Grateful Grads Index actually came from a friend of mine who is a graduate of Harvard, who had just returned from his 30-year college reunion. During a barbecue, he asked me if I knew what Harvard’s core competency was. I replied “Educating super smart students?” He laughed and replied, “No, it’s getting its alumni to give donations, they are really good at it.”
My friend touched on an important point. Private donations are also a function of how proficient a particular school’s development department is at extracting money from its graduates. But given how difficult it is to judge the merits of one fundraising department’s skills over another, my Grateful Grads Index doesn’t adjust for this fuzzy measure and just looks at the raw donations data.
In the end, the fact that my friend is a very successful surgeon at prestigious hospital and happily donates to an already well-endowed Ivy League school gives you an idea of the kind of “return” he feels he got from attending Harvard. Harvard ranks 8th on our Grateful Grads Index, right behind Dartmouth College with a median donation per student of $25,122. My surgeon friend would be the first to tell you that attending Harvard changed the course of his life and he shows his gratitude every year.
For the purposes of our Grateful Grad’s Index I used the government’s extensive online database of information about institutions offering post secondary school education. I went back ten years, looking only at private-not-for-profit colleges that offered four-year degrees and had more than 1,000 full time students. Thus, you won’t see some great schools on our list like University of California at Berkeley or University of North Carolina or University of Michigan. These public colleges file different financial forms so it’s a bit more difficult to extract the appropriate data.
I also ranked schools by median donations per student over the last decade rather than average donations to avoid the problem of the occasional outliers you get when uber-rich alums like Michael Bloomberg (Johns Hopkins ’64) donate gobs of money in a single year. In 2007 for example, Claremont McKenna College alumnus Robert Day, founder of Trust Company of the West, donated $200 million to this elite liberal arts school in Southern California. If I had used average donation per student over the last ten years, Claremont McKenna would rank second with $36,737 per student in donations, versus a rank of 17 with a median donation of $17,634 per full time student.
One other important caveat to our Grateful Grads Index is that colleges were only required to separate out private gifts from grants and contracts after 2009. Thus several of years of data we collected include grants and contracts in the figure and therefore give a boost to certain bigger research oriented universities like Stanford and Duke University. However, for nearly all of the colleges on our list, private gifts account for the vast majority of the “gifts, grants and contracts” revenue source. In fact for certain prominent liberal arts colleges on the list like Vassar College, Pomona College and Amherst College, private gifts from grateful graduates account for nearly all of their income outside of tuition, fees and investment returns.
While our Grateful Grads Index contains most of the usual suspects of the best colleges lists – Caltech, MIT and Stanford top it — there are a few surprises, like tuition-free Berea College of Kentucky. Liberal arts-oriented Berea was founded in 1855 by an emancipation-minded landowner and a local scholar who attracted teachers from Ohio’s Oberlin College. The school, whose motto is “God Has Made Of One Blood Peoples Of The Earth” has graduated such notables as Nobel Prize winning chemist John Fenn and Nascar magnate Jack Roush.
In some ways The Grateful Graduates Index is a vindication of the old fashioned idea of getting a good liberal arts education. Our Top ROI colleges list is chock full of small liberal arts colleges like Williams, Wellsley and Bard. This may provide some comfort to parents who have recently sent in deposits and are worrying about the futility of a liberal arts education versus more practical degrees in engineering, computer science or say, nursing.
Says John Linehan, head of U.S. equities and portfolio manager at T. Rowe Price who received a bachelors degree from Amherst College in 1987 and MBA from Stanford 1998 “I am a donor to both, but I actually donate more to Amherst.” Linehan remembers fondly how other Amherst alums acted as mentors to him at his first job. “I’ll plug Amherst any chance I get. It was extraordinarily beneficial to me going into the business world. My liberal arts background taught me how to think.”
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