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New research finds private colleges pay off more than public colleges—but it's complicated

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Earning a college degree is one of the most expensive investments Americans make. Each year, millions of students pay thousands of dollars and take on piles of debt with the understanding that their investment will pay off.

Today, this remains true.

In 2018, college graduates earned weekly wages that were 80% higher than those of high school graduates. The Bureau of Labor Statistics reports that Americans with a bachelor's degree have median weekly earnings of $1,173, compared to $712 a week for those who have a high school diploma.

But unlike other major investments, such as buying a house or a car, students are often left without crucial information about how much a degree from any given school will pay off, making it difficult to decide where to study and how much to pay.

A new report from the Georgetown Center on Education and the Workforce titled "A First Try at ROI: Ranking 4,500 Colleges" attempts to address this issue and provides new insight into the exact return on investment for different kinds of academic degrees.

"Everyone is asking, 'Is college worth it?' and we set out to try to find an answer," says Dr. Anthony P. Carnevale, lead author and CEW director in a statement. "Not only will it help students, but this kind of information on the costs and benefits of higher education holds institutions more accountable."

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The CEW analyzed data from the expanded College Scorecard, which was announced by the Obama administration in 2013 as a sort of "Consumer Report" for colleges, to calculate the value of a degree from 4,500 colleges, including traditional two-year and four-year public and private colleges, as well as for-profit colleges and training academies.

Researchers found the median "net present value" for all colleges 10 years after enrollment is $107,000. By 40 years after enrollment, as wages rise throughout graduates' careers, that net present value reaches $723,000.

Net present value is a term used by economists to measure how much an investment is worth, adjusted for differences in the value of money over time, due to inflation.

As CEW researchers put it, "Net present value can be summed up with the idiom 'a bird in hand is worth two in the bush.' We tend to place more value on what we possess now than on what we might attain in the future if we take a risk."

A man walks through Killian Court at the Massachusetts Institute of Technology (MIT) in Cambridge, Massachusetts, U.S.
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According to the report, there are significant differences in the value of degrees earned from different kinds of universities, such as for-profit, nonprofit private and nonprofit public universities.

Researchers determined that the economic gains for attending a private for-profit college are $551,000, compared to $838,000 for a private nonprofit college and $765,000 for a public college.

"The type of institution makes a difference in overall return on investment," reads the report. "Public colleges, where tuition is lower and students accumulate less debt, lead to better returns than private colleges at the 10-year horizon. But degrees from private nonprofit colleges typically have a higher return on investment when measured in the long-term. Even though students, on average, take out more than twice as much in loans to attend private colleges."

All of the top 10 colleges with the highest long-term value are four-year institutions. Eight are private nonprofit schools, such as Massachusetts Institute of Technology and Stanford University, and completed degrees at both of these universities are estimated to be worth more than $2 million for graduates.

Of course, getting into these elite schools can be incredibly difficult. For average students who cannot attend these kinds of prestigious institutions, the decision becomes more complicated.

"Private institutions over a 40-year period, on average, outperform public institutions. But that general relationship hides a much more complicated one," Carnevale tells CNBC Make It, pointing much lower on the CEW's list. "If you look at the 50th percentile, the solid middle of education institutions in the United States, what you find is it's made up of a mix of schools."

Carnevale says that two-year, four-year, private and public schools can all pay off for students. The key is researching each individual school you are interested in.

For instance, prospective students should always look at a school's four-year graduation rate. At many schools, students struggle to graduate on-time, which can drive up the cost of their higher education.

According to the National Center for Education Statistics, just 41% of first-time, full-time college students earn a bachelor's degree in four years, and only 59% earn a bachelor's degree in six years. Of note, four-year graduation rates tend to be highest among private four-year schools.

Still, "you can't say that all private colleges are good, and you can't say that all public colleges are good," says Carnevale.

Aside from the top-tier of colleges, he adds, "there are no clear winners."

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