“But What’s the ROI?” – Why That Question Misses the Point

I hear some version of this question regularly, usually from a parent who has done their homework: “We’ve run the numbers. A private university just can’t match the return on investment of our state school. The tuition is three times higher, and the degree gets you to the same place.”

It’s a reasonable-sounding argument. But it’s built on a flaw that economists have a name for, and once you see it, you can’t unsee it.

A Useful Tool, Applied to the Wrong Problem

Return on Investment (ROI) is a financial concept designed to compare options that produce a measurable, comparable output. For example, if you’re deciding between two index funds, ROI is exactly the right lens. 

However, it breaks down when you apply it to goods that aren’t actually the same thing. Economists call this the problem of heterogeneous goods: products that appear to be in the same category but differ meaningfully in their attributes. And when that’s the case, a straight price comparison isn’t apples to apples. It’s apples to something else entirely.

A private university and a state university are not the same product. They may both issue degrees in similar fields, but what they actually offer can differ significantly: class sizes, faculty access, advising depth, research opportunities, specific program strengths, alumni networks, and more. 

Treating them as interchangeable because they both result in a bachelor’s degree is a little like saying a tailored suit and an off-the-rack one have the same ROI because they both cover your shoulders.

What You’re Really Evaluating

Here’s a useful way to think about it: any product’s price is really a bundle of individual attributes, each valued differently depending on the buyer. Economists call this hedonic pricing. 

When a family says, “a private university is worse ROI,” they’re implicitly claiming that none of the differentiating attributes of a private university are worth a premium to their student. That may be true. But it deserves honest examination, not a quick assumption.

For a student aiming toward competitive graduate programs in a specialized field, smaller seminars, closer faculty relationships, and real undergraduate research access can produce different outcomes than a flagship state university with lecture halls of 300 or more. For that student, the “expensive” option may not be expensive in any meaningful sense.

The Right Questions to Ask

To be very clear: I am not arguing that private universities are always worth the premium. 

They aren’t, not for every student. There are exceptional state universities, and there are overpriced private ones. My point is that the ROI framing, applied carelessly, can cause families to skip the more important analysis.

Better questions to ask: 

• What specific attributes does this student need to reach their goals? 
• Which schools actually deliver those at a high level? 
• And what is the true cost differential after merit aid and financial aid are factored in? 

That last one matters more than most families expect. The sticker price of a private university often bears little resemblance to what a family actually pays, especially for strong students. The real gap between private and state can be much narrower than the headline numbers suggest.

Don’t Let a Formula Do the Thinking

I respect the instinct to apply rigorous logic to a major financial decision. But “ROI” used loosely becomes a shortcut that can close off real analysis. 

The right approach isn’t to dismiss private universities on principle or to assume they’re always worth the cost. It’s to apply the right formula to your analysis: 

• Consider what this student actually needs 
• Research what each school genuinely offers 
• Evaluate if the difference in price is justified by the difference in fit

That kind of careful, student-specific thinking is exactly what I help families work through.

If you’d like help sorting out which schools are truly the right fit for your student—and whether any price premium is genuinely worth it in your situation—I’d welcome a conversation. You can reach me through my contact page.