Public vs private colleges: which type of college is the best investment?

While public universities offer students a lower price, privates claim to unlock better earnings. But is private college worth it? We examined 1,489 institutions of higher learning in the US – 962 not-for-profit private colleges and universities and 527 public ones – to compare the value propositions of bachelor’s degrees at various types of 4-year institution. Our data set did not include for-profit colleges (they perform far worse on all metrics) or special-focus colleges like art schools.

Private vs public colleges: the big picture

We found that public universities, on average, tend to be a better deal than private colleges. There are several reasons for this:

• Public universities are less pricey. When all associated costs (like textbooks and room/board) are accounted for, they’re far less expensive than private colleges – even after financial aid. Students who attend private colleges pay an average of $37,417 more for their education than those who go to a public university. While public colleges cost an average of $69,882 (in-state), private university students can expect to pay $107,298. This is a 54% price hike.
• Due to this cost disparity, public university goers need less time for their investment to pay off: payback for public university students is an average of 2 years 8 months, compared to 4 years 4 months for private colleges.
• But private colleges “open doors” to better jobs, right? 10 years after students start their degree, private colleges do provide slightly better earnings on average than public universities, but only by 3.5%. People who went to public university make an average of $51,551, while the average salary for private college grads is $53,366 per year – a difference of roughly $1,800 per year.

These factors result in an average economic score of 2.9 for public universities and 4.6 for private ones (remember – a lower economic score is better).

Some expensive private colleges have their own, non-economic advantages: they may align with a student’s religion or provide a closer-knit sense of community, with smaller classes and a more personal relationship with faculty. But from a purely economic standpoint, most private colleges in the US probably aren’t worth it.

The best colleges for low-income students

Low-income students who qualify for government Pell grants are eligible for more financial aid. As a result, Pell students pay $22,551 less for their education than the national average for all students at not-for-profit institutions. However, 10 years after starting college, they also earn $5,594 less per year, and it takes slightly longer for their investment to pay off.

Many assume that most private colleges have large endowments, making them a better deal for low-income folk. But is this true? The short answer is no, unless you get into one of the best private colleges.

• Even after financial aid, Pell students pay $35,585 – or 74% more – to attend a private college over a public one. Although Pell students get a big discount at private colleges, it isn’t enough to compensate for the price hike vis-à-vis public universities.
• On average, private colleges do not unlock better salaries for Pell students. In fact, Pell students who go to public schools earn $1,084 more per year than those who attend private universities. Meanwhile, payback time is 3 years and 2 months longer. In other words, Pell students are not deriving the same benefit from attending private schools as their more affluent peers.
• Public universities are attracting and graduating far more Pell students. This is reflected in their higher EMS, which is 23.5 for public universities vs 12.8 for private (for EMS, a higher score is better).

Public colleges vs private colleges: breaking it down

Public and private are very broad categories that do not reflect the diversity of higher education in the US. How will the picture change if we take a more granular view? To get a better idea of the ROI of various types of public and private colleges, we split private and public establishments into the 3 groups described below. Then we compared their ROI.

• First are national universities. These are your big research institutions that offer PhDs and attract researchers from the world over. The largest share of students goes to public national universities.
• Next come regional universities. On this site, we define regional universities as those colleges that offer mostly undergraduate courses with some master’s programs added on. They do not offer PhDs, and they are not research oriented. Private regional colleges (which are quite numerous) often have religious affiliations and tend to be small.
• Meanwhile, liberal arts colleges are defined as colleges that limit their degree offerings to the bachelor’s level. They are usually small and provide a more intimate learning environment. They are also overwhelmingly private; in fact, only 15 public liberal arts colleges were included in our dataset.

Below is a depiction of the 1,489 colleges and universities in our data set, by number of institutions and student population.

When we break down the public vs. private dichotomy into national, regional, and liberal arts schools, some clear winners and losers emerge. Our findings are presented below.

On average, national public universities are the best performers in terms of their economic score and payback, thanks to their relatively low cost and good future earnings, which are slightly higher than the private college average of $53,366. Their high economic mobility score indicates that these universities are highly effective social equalizers in the American university system.

Regional public colleges are the cheapest type of university. This earns them a relatively high economic score, placing them just above private national universities in terms of ROI. Their low price and short payback make them a safe bet for those who want to minimize their college debt.

However, their cheap price belies low earnings, which are 10% below the average for all the schools we examined. The high economic mobility score of regional public universities indicates that they are successfully graduating many low-income students. Likewise, they have the smallest earnings gap between Pell and non-Pell students 10 years after starting college.

Public liberal arts colleges perform similarly to public regional universities – there just aren’t very many of them. With average earnings of $45912 and a payback rate of 3 years and 1 month, public liberal arts colleges get an economic score of 3.3, the second best in any category.

Although they are the most expensive type of school, graduates of private research universities earn the highest average salaries. Earnings are 14% better than at public research universities – a difference of $7,729 per year. Despite their high cost, national private universities are the “best deal” economically in the private education sector.

Private research universities have a low EMS score, but Pell students who are willing to endure the longer payback can look forward to an average salary that is 16% higher than the Pell-student average.

Compared to public universities and national private colleges, private liberal arts schools are a pretty bad deal, economically speaking. Their high cost does not secure graduates correspondingly better salaries. In fact, 3-year earnings are comparable to the weighted average for public schools.

Private liberal arts schools are indeed generous with financial aid: Pell students pay $28,610 less than affluent students, making them the cheapest type of private college for low-income learners. But their total cost for Pell students is still 57% higher than public universities, while earnings for Pell students are actually 6% lower than the public university average.

Across almost all indicators, regional private colleges are doing the worst job at providing their students with a good return on investment. Although they are the cheapest type of private institution for the average student (but not Pell students), they still cost 37% more on average than public universities. 10 years after starting college, the average graduate makes the least amount of money in the private-college sector, although this figure is not so far below the weighted average for all US universities in our data set ($52,093).

Regional private colleges also have the lowest EMS score and the longest payback due to low earnings.

Final thoughts

The big takeaway of this research is that as a prospective student, your state’s flagship public university is probably your best bet, unless you get into a top private college. However, it’s best to compare individual schools before making a decision. Search for the best colleges on your list and compare them using various parameters. Which has the best economic score? Where are the best programs for the field you’re interested in? Also consider financial aid: a full-ride scholarship is a game changer. Going to college involves making multi-faceted and often very expensive decisions. But a strong understanding of which colleges provide the best ROI will help you make wise educational investments, paving the way to a financially secure future.