Understand how colleges work so that you can avoid those with low ROI (UG)

By Rajkamal Rao  

Go Back to Our 7 Steps To Improve ROI For Undergrads

Most of us are fascinated by Google Earth, a computer program which lets you fly anywhere in the world and then zoom in to a desired region with amazing, granular clarity of your surroundings even as you descend.  This is what we have done thus far.  We have chosen the top states and narrowed them down to specific high-performing regions so that we can look for colleges and universities to add to our shortlist.

But you will quickly notice that this exercise still gives you too many college choices and we need additional, objective filters to exclude some unworthy institutions so that we can narrow our list down even more.  In other cases, we may want to add colleges to our shortlist because they may be exempt from our state/region macro analysis.

This page is dedicated to all these exceptions where we either exclude schools or include additional schools.

Exception to include additional colleges:  Reputed institutions  
The brand name/reputation of your target school matters a lot because you can carry that brand with you for the rest of your career.

It is important not to confuse reputation with rankings.  School rankings may ebb or flow with the tide and are dependent upon the outfit that publishes them.  This is such an important topic that we devote an entire page to it.  But school reputation is earned over generations and decades of hard work and accomplishment.

Luckily, we don’t have to look too far to find reputed colleges and universities.  We hear about them often or read about them in the media.  These elite and highly-selective institutions also consistently make the top tier of all rankings lists, no matter who publishes them.

Our exception allows for, indeed encourages, such institutions to be added to your college shortlist even if they are in underperforming states.  If you are lucky enough to get in to these schools and graduate, local economic conditions matter very little.  Companies from across the country, indeed from around the world, are eager to hire their graduates.  Here is our list of the nation’s 40-most reputed, elite and selective institutions.

1.    Brown University   Providence, RI
2.    California Institute of Technology   Pasadena, CA
3.    Carnegie Mellon University   Pittsburgh, PA
4.    Columbia University   New York, NY
5.    Cornell University   Ithaca, NY
6.    Dartmouth College Hanover, NH
7.    Duke University Durham, NC
8.    Georgia Institute of Technology   Atlanta, GA
9.    Harvard University   Cambridge, MA
10.    Johns Hopkins University Baltimore, MD
11.    Massachusetts Institute of Technology   Cambridge, MA
12.    North Carolina State University   Raleigh, NC
13.    Northwestern University Evanston, IL
14.    Princeton University, Princeton, NJ
15.    Purdue University—West Lafayette   West Lafayette, IN
16.    Rice University Houston, TX
17.    Stanford University   Stanford, CA
18.    Texas A&M University—College Station, College Station, TX
19.    United States Air Force Academy, USAF Academy, CO*
20.    United States Coast Guard Academy, New London, CT*
21.    United States Merchant Marine Academy, Kings Point, NY
22.    United States Military Academy, West Point, NY*
23.    United States Naval Academy, Annapolis, MD*
24.    University of California - San Diego, CA
25.    University of California—Berkeley   Berkeley, CA
26.    University of California—Los Angeles Los Angeles, CA
27.    University of Chicago, Chicago, IL
28.    University of Illinois—Urbana-Champaign   Urbana, IL
29.    University of Maryland—College Park College Park, MD
30.    University of Michigan—Ann Arbor   Ann Arbor, MI
31.    University of Minnesota—Twin Cities   Minneapolis, MN
32.    University of North Carolina—Chapel Hill   Chapel Hill, NC
33.    University of Pennsylvania   Philadelphia, PA
34.    University of Southern California  Los Angeles, CA
35.    University of Texas—Austin, Austin, TX
36.    University of Virginia   Charlottesville, VA
37.    University of Washington   Seattle, WA
38.    University of Wisconsin—Madison   Madison, WI
39.    Virginia Tech   Blacksburg, VA
40.    Yale University   New Haven, CT

* US military institutions do not charge tuition but require you to serve the nation for a certain minimum period after graduation.

Exception to avoid colleges that aggressively recruit foreign students
The world of higher education has gone through dramatic shifts in the last 25 years.  While the United States continues to be the best country in the world for higher education - especially at the prestigious schools - numerous changes are occurring at lower-tiered schools which can have a profound impact on the country at large.

The biggest change now is that higher education is big business in the United States.  Many public colleges and universities - that used to get most of their financing from state governments - are now relying on student tuition for more than half their budgets.  Nowhere is this change more pronounced than in the field of international student recruitment.

While it is true that adding more foreigners to their student bodies creates a more diverse educational and cultural exchange experience for US students, there is another reason too.  Foreign students pay out-of-state tuition fees at all public schools and help states subsidize tuition costs for in-state residents.

Universities have become so aggressive that it is common for them to now have a separate department devoted to international student recruiting.  Linden Educational Services, a Bethesda, MD company specializes in organizing these recruiting tours.  Its website says that it has conducted more than 230 tours around the globe and it counts over 600 colleges as its clients.  The travel schedule for the recruiting staff resembles that of senior State Department officials - covering multiple countries on a single tour, staying at five-star hotels, meeting students and promoting their programs.

What is surprising is not that these tours take place but the names of schools which participate in them.  For a recent Asia trip, the site listed more than 25 colleges and universities including Albany College of Pharmacy & Health Sciences, Alma College, Augustana College, Felician College, Foothill and De Anza Colleges, High Point University, Keystone College, Roger Williams University and Salve Regina University - institutions which may be fine places of learning but are not necessarily known even in the United States.

To make matters worse, many universities resort to commission-based recruiting worldwide.  Simply put, this practice enables colleges and universities in the United States to pay commissions to foreign agents to recommend (and recruit) foreign students to apply to their schools.  If the foreign student enters the said school and stays in it for a year, the agent gets a commission on the student's first year fees.  Cash from full-tuition paying international students has become such a vital source of funds for schools that universities are beginning to even set quotas to their commission agents to herd in more international students.

You don't have to be a rocket scientist to see the conflict of interest here.  When an agent promises an international student admission to a school and gets a commission from the school after the student gets in, several ethical questions arise.

•    Did the agent really act in the student’s best interest or did he place her in a mismatched school because he was motivated by commissions?
•    Did the school really evaluate the student’s application truthfully or simply award admission knowing that she will pay the school full tuition?
•    Had the student shopped around, could she have found a better agent who could have her placed at a better school - unrelated to the merit of her profile?
•    Would the agent be willing to split his commission with her for retaining him?

The New York Times explains that commission based recruiting was made illegal in the US 20 years ago because of widespread abuse by agents who signed up anyone they could, regardless of academic potential.

But colleges continue to use this practice to recruit students from abroad where the arm of US justice doesn’t reach.  The Wisconsin State Journal reported that seven University of Wisconsin campuses pay foreign agencies to help them recruit international students, sometimes spending more than $1,000 per student. US News publishes lists of schools that rely heavily on international students.  In 2012, it reported that at the University of Bridgeport (CT), 94.4% of all engineering students in its Graduate School were international.   This institution is known to use commission based recruiters.

Commission based agents are fighting back.  They have formed a standards group "American International Recruitment Council", which, despite their insistence, looks and feels like a lobbying arm.  In June 2012, the Chronicle of Higher Education reported that AIRC charged that the "U.S. Department of State has overstepped its authority in issuing a policy against the use of paid recruiters for overseas students."

As a rule, we advise students to avoid colleges that resort to aggressive international student recruitment because this impacts academic quality.  Also, fewer companies network at these institutions resulting in fewer opportunities for US students to find internships, locate mentors and ultimately find jobs.

The AIRC website lists colleges which use commission based recruiters abroad.  If such colleges are in your target state/region, we recommend that you call the school to understand the percentage of international students attending and the steps they take to recruit such students.  If you are not satisfied with the conversation, you may be better off leaving the school off your shortlist.

Exception to avoid party colleges
When the Princeton Review ranks colleges, it also publishes a list of the so-called party schools.  These institutions are famous among students for promoting a party culture and paying less emphasis to education.  Some examples here are DePauw University (Greencastle, IN); Ohio University (Athens, OH); University of Florida (Gainesville, FL); and West Virginia University (Morgantown, WV).

Lynn O'Shaughnessy of CBS News puts it best:  “So should parents have concerns if a teenager's dream school is also a party magnet? Of course, that largely depends on individual students' level of responsibility -- plenty of young people attend supposed party schools without ever encountering any problems.  Still, some factors are worth considering in choosing a school. Many of the campuses on the party-hearty list have active fraternity scenes, which often serve as a huge source of partying and booze.”

You could Google Princeton Review’s party school rankings for consecutive years.  If a school is consistently mentioned, it is probably best to avoid adding it to your shortlist.

Exception to avoid schools with low graduation rates  
The US Department of Education defines three key statistics to measure why and when students leave an institution after initially enrolling in it.

Graduation rate is the percentage of a school’s first-time, first-year undergraduate students who complete their program within 150% of the published time for the program. For example, for a four-year degree program, entering students who complete within six years are counted as graduates.

Retention rate is the percentage of a school’s first-time, first-year undergraduate students who continue at that school the next year. For example, a student who studies full-time in the fall semester and keeps on studying in the program in the next fall semester is counted in this rate.  This is therefore a measure of continuity - or frankly, a measure of the dropout rate.  Students who start college and don’t finish it are at serious risk of loan default because they tend to get hit in three ways - they accumulated loans which they cannot walk away from; they lost time in college when they could otherwise have been earning an income and any ROI models which assumed higher levels of post-college compensation are worthless because these incomes are unlikely to materialize.

Transfer rate is the percentage of a school’s first-time, first-year undergraduate students who transfer to another college within 150% of the published time for the program. For example, a student who is in a four-year degree program is counted as a transfer if the student goes to another college within six years.

We have already shown in previous chapters that delayed graduation rates have a serious and detrimental effect on ROI.   Studies show that students from elite and highly selective schools graduate mostly on time.  However, those attending schools with open admission policies (where just about everyone who applies gets in) have a much harder time with graduation rates.  These students complain about confusing graduation requirements, insufficient counseling on campus about structured paths to graduating on time and too many distractions.  A new report from the nonprofit Complete College America says, "The reality is that our system of higher education costs too much, takes too long and graduates too few".

We recommend avoiding any school that has six-year graduation rates of lower than 70%.  To find graduation rates for your school, visit the government’s College Navigator website and type in the name of your desired college in the search box.  Clicking on the Retention and Graduation Rates link gives you the required information.

Exception to avoid colleges with high student debt
We believe that a school's responsibility is not only to provide an excellent education but also to empower the student to have a reasonable chance of pursuing an appropriate career after graduation - given all the constraints a student faces.

College in recent years has become so expensive while family incomes have not risen as fast meaning that for most students taking on a college loan is the only way to afford college.  According to a CNBC analysis, about 70% who graduated from public and nonprofit colleges in 2013 had student loan debt, with an average of $28,400 per borrower.

But at many colleges, the burden of loan debt is much higher.  These are institutions where graduation rates are low, tuition is relatively high and employment opportunities are limited.  The Project on Student Debt is an initiative of The Institute for College Access & Success (TICAS), an independent, nonprofit organization working to make higher education more available and affordable for people of all backgrounds. Its 2013 report published a list of both public and private institutions whose students have high debt.  It is best to avoid such colleges.

We have described how to use objective techniques to narrow down potential schools all with a focus on improving ROI.

A Note About Rao Advisors Premium Services
Our promise is to empower you with as much high-quality, ethical and free advice as is possible via this website.  But parents and students often ask us if they can engage with us for individual counseling sessions.

Individual counseling is part of the Premium Offering of Rao Advisors and involves a fee.  Please  contact us for more information.

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