Everyone knows that college costs a pretty penny. Tuition costs are constantly on the rise and more and more students find themselves taking out student loans in order to fund their higher educations. While college is definitely a smart investment to make for your future, it is crucial to choose one that will give you the best chance of financial success in the future. What does this mean? Well, first off, you should consider how much the college costs in relation to schools of similar prestige. This is important because the more the expensive it is, the more debt you will potentially have to take on. After looking at the costs of colleges, you should look at how much the average graduate makes. This will give you an idea of how much debt you might be in and how long it will potentially take you to pay it off.
A recent study by LendEDU, considered both of the above statistics for over 1,000 schools and created what we call the College Risk-Reward Indicator, or CRRI. The CRRI is simply defined as the average early career pay divided by the average student debt at graduation. Average early career pay was defined as the median salary for alumni with 0-5 years of experience.
For schools with CRRI values over 1, students can expect to make more money after graduation than the amount of student loan debt they will hold, and vice-versa for CRRI values less than 1. Schools with high CRRI ratings should be considered the least financially risky schools to attend and schools with low ratings should be considered the most risky.
We found the average CRRI to be 1.68—meaning that the average early career salary will be around 68% greater than the average debt at graduation. Princeton University had the highest CRRI value at 9.29, while the lowest was 0.77 by Springfield College.
The reason we looked at early career pay was because the first few years after graduation are the most critical for student loan repayment. Right after graduation, the principal balance on loans is the highest, which means more interest accrues each month. Falling behind on payments has a much greater affect early on in the repayment phase as compared to years later when the principal balance is much lower.
A report from the Federal Reserve revealed that 10.3% of graduates from public 4-year universities, and 11.6% of graduates from 4-year non-profit private universities, are delinquent on their student loan payments. Many of these people most likely had significant student loan debt and low-paying jobs or were unemployed.
If you are applying for colleges, make sure you consider both the average debt at graduation and the average early career pay—two metrics that are often overlooked. You can check out the full list of schools that we analyzed and their corresponding CRRI values here. In addition, the following infographic shows the top 25 and bottom 25 schools in the nation in terms of CRRI.
Dave Rathmanner is the Director of Content Management for LendEDU, a marketplace for student loan refinancing. LendEDU helps student loan borrowers compare prequalified quotes from the leading refinancing lenders in the industry with one free application—saving the average user over $14,000.