Return on Investment: Public Schools Rock

Few measures of a b-school's performance hit home quite like return on investment, or ROI. In an era when salary freezes and layoffs are the order of the day, a school that can deliver the goods—decent-paying jobs for the vast majority of graduates—is golden. If it can do so without charging an arm and a leg, well, so much the better.

That's why BusinessWeek undertook an extensive analysis of ROI for the 50 top schools in its 2009 Best Undergraduate Business Schools ranking. The results were enlightening: While the top-ranked private schools such as No. 2 Notre Dame and No. 3 Wharton get all the attention, it's the big state schools (and their lower tuition costs) that fare the best on this measure.

To determine ROI, BusinessWeek gathered information from all 50 schools about their annual tuition and required fees as well as the median starting salaries for 2008 graduates, then divided the salary figure by the annual costs to calculate "salary per tuition dollar"—or bang for the buck. Overall, public universities did far better than elite private schools, averaging $5.98 in pay for every tuition dollar spent, compared to $1.87 for the privates.


The best of the best was Brigham Young University's Marriott School of Management, a private school where business grads earned more than $12 for every annual tuition dollar spent—in no small part thanks to the cut-rate $4,110 annual tuition paid by students who are members of the Church of Jesus Christ of Latter-day Saints, which make up about 95% of BYU's undergraduate business enrollment. The remaining 5% who are not Mormons pay double the tuition.

Brent Wilson, director of the undergraduate business management programs at BYU, says Marriott students, in part because of their Mormon background, have an extra level of maturity at graduation that recruiters are willing to pay for. He added that BYU's ROI—like that of any school that places a large number of grads in the financial services industry—may take a hit this year, if students have a tough time finding high-paying jobs as a result of the industry's implosion. "The majority of our students would [typically] go someplace in finance or corporate finance or financial services," Wilson says. "I don't know whether that's going to be the case this year."

Cornell University came in a very distant second among the privates, with business grads earning $2.70 for every annual tuition dollar spent. Cornell is an anomaly in that the university is private but the business program is in a state-assisted portion of the school, which brings down the tuition to $20,364, which is somewhat more manageable when compared to annual costs well north of $35,000 for many private programs.


Among the public schools, none did more for students salary-wise than the University of North Carolina's Kenan-Flagler Business School, where students earned nearly $10 per tuition dollar. That was followed by SUNY Binghamton ($8.52) and James Madison University ($7.18). Kenan-Flagler, where starting salaries were a middle-of-the-pack $53,500, topped the list of publics in large part because of its low cost—$5,397 a year. Lawrence Murray, director of UNC's undergraduate business program, says recruiters are willing to visit the school, and to pay top-dollar for grads, because of the school's excellent academics. "I think our students are competitive with anyone," Murray says. "We do our best to tie academics and career services together."

A glance at our ROI ranking might lead some to believe that the public schools are hands-down winners. But private schools, while faring poorly on the ROI measure due to higher costs, also have a lot to offer—features that might trump ROI for many prospective students as they're shopping around for a program.

So how can a student justify paying up to quadruple the tuition to attend a private institution? For one thing, private school programs, many of which have rich endowments, often have more resources to spend on instruction, which translates into better student-teacher ratios and smaller classes. By law, public schools are often less selective than private schools, so those smaller private-school classes are more likely to be jam-packed with real talent, making for a more engaging learning environment.


The founder of Curran Career Consulting, Sheila Curran, formerly the undergraduate career services director at Duke University, says another big advantage shared by many private programs is size. While there are exceptions, many are far smaller than their public school counterparts. Curran says some students may feel overwhelmed by a larger program. "If you're very bright and very resourceful, you can probably be just as well off in a public institution," Curran says. "But most students may not know exactly what they want or how to use the resources specifically." She also notes that alumni networks tend to be stronger at smaller institutions, which often have more tightly knit communities because they are smaller.

The ROI advantage that the public schools enjoy, while significant, shrinks—or disappears entirely—for out-of-state students. Because our analysis relies on in-state tuition, students paying the higher out-of-state rates don't see the same advantages. Consider UNC. Using in-state tuition and fees of $5,397, the school had salary per tuition dollar of $9.91, the highest among the public institutions. But using the amounts paid by out-of-state students, $22,295, the salary per tuition dollar falls to just $2.40—a performance that would have placed it at No. 3 on the private school list.

In addition to lower ROI, out-of-state students face admissions hurdles. Because most public schools are required to admit a certain percentage of students from in-state, admissions for out-of-state students can be extremely competitive. At UNC's undergraduate business program, about 70% of all students are required to be from North Carolina, leaving out-of-state students at a disadvantage.


David Gautschi, director of the undergraduate business program at Rensselaer Polytechnic, which had the worst return on investment of any school on our list, says starting salaries are only a part of the equation. "If you just want to focus on the return on the tuition paid relative to the starting salary, then you're missing what happens to a typical RPI graduate, which is a career path which very often leads to amazing things," he says. Graduates of Rensselaer's Lally School of Management and Technology have gone on to land top positions at Intuit—including the co-founder, Tom Lefevre—and IBM, where three Lally grads are now vice-presidents. Gautschi also points out that the school's rigorous admissions process results in driven, academically focused students who often receive scholarships and merit-based financial aid, meaning they pay only 60% of the "sticker price" on average.

Financial aid may help—it may even help a lot. But with the economy in a tailspin, private school tuition like Lally's $37,900 is going to become more and more difficult to justify—or afford—absent a compelling starting salary at graduation. "This recession will force people to really do the cost-benefit analysis much more than they have in the past," says Curran. "It's going to be increasingly difficult to justify how much higher education costs."

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