Just a few weeks ago, I congratulated the Class of ’13 not just on finishing college, but on making one savvy investment. As I noted, researchers at the Hamilton Project recently calculated that the annual ROI for a college education has stayed at around 16% for the past few decades — better than the S&P 500‘s impressive run so far this year — not even including financial aid.
Of course, that return varies widely depending on countless factors, which is why Bankrate.com broke down tuition and salary data for different degrees.
I had a chance to chat with Jessica Patel, an analyst who worked on the report, to find out what paths provide the best value. Here are a few highlights of the interview:
Q: What degrees did Bankrate find were the best investments?
A: The best one that we found was an advertising, marketing or public relations specialist. Those who majored in that field found the best return on investment and were able to pay off their student loans in less than six years. You are likely to only need an undergraduate degree and to make higher median pay.
Q: Bankrate’s Student Loan Calculator considers the interest on student loans and the percentage of your salary that you put toward them. What numbers did Bankrate use for its calculations and what salary percentage do you think recent grads should put toward their loans?
A: Based on a lot of financial aid data, we used an annual repayment of 10% of your salary going to student loans, with your student loan interest being an average of 6%. Student loan rates vary obviously, depending on what loan you take out. Subsidized loans currently are running around 3.4% and unsubsidized or federal student loans are running around 6.8%, but it really depends, so we just took that middle ground of 6%. But as you know, everyone is different. That’s why we created the calculator: to let each individual create their own return on investment so they could see how long it would take to pay down their student loans.
Q: How important do you think the amount of time it will take to pay off your loans should be? This study is very data-based, but someone who wants to become a teacher, for example, might argue the intangible value of a degree — like the chance to make a difference in someone’s life — is important too.
A: I definitely agree with that. Teachers are a great necessity and, from this study, seem to be grossly underpaid. Still, if you’re going to take out student loans, you need to think about how you’re going to pay those back. If you know you want to be a teacher and will need loans, maybe you will think about other ways to get your degree — two years of community college, for example.
Q: What do you think is the best way to make people think more about the cost of college when they are making their decision of where to go and how to get a degree?
A: That’s part of the reason why we created the calculator and the chart — so that students and parents can open that area of discussion. When picking a major and career, they can do that extra legwork and see what it’s going to take, how much these job pay and, if they do need student loans, how much it is going to cost them in the long-run.
Q: Do you think would you say college remains a good investment despite the growing level of debt out there?
A: I definitely do. No matter what major you choose, just think about what you’re doing ahead of time and make sure your ROI is decent. But a college education is still very important.