Are public universities better investments than private universities?

From the inbox:

The January 2009 issue of SmartMoney magazine ranks The Ohio State University 11th in the nation in a study that measures the long-term value of a college education. In what it called a "twist on traditional college rankings," the magazine examined the relationship between tuition costs and graduates' earning power to measure which schools deliver the best return on tuition investment.

...

With an average payback of 315%, Texas A & M ranked first in the survey, delivering a payback nearly three times that of 20th ranked Princeton (139% payback), the top ranked Ivy League school. Ohio State ranked 11th with an average payback ratio of 179%.

This sounds fishy to me...so at the risk of biting the hand that feeds my family, I dug a little deeper.

Some highlights from the original SmartMoney article:

• But if long-term career and salary are what matters—and what else should, especially in today's economy?—then a growing chorus of private-school critics point out that the public-school scenario may actually deliver a far better bang for your buck.

• Ultimately, we weren't trying to measure the quality of education or colleges' selectivity. Other rankings take ample care of that, and dedicated students will thrive at any of these fine schools. But with boutique private colleges coming under heavy criticism for spiraling costs, our payback numbers certainly raise questions about the actual "return" on an educational investment. For parents fretting about sending their kid to the University of Washington versus, say, Columbia or Brown, they can rest easier knowing that Husky alums recoup their tuition costs, on average, twice as fast as grads from those two Ivies.

But how do they measure "bang for your buck"?  Using data from their on-line slide show, I figured out the secret formula.  To calculate the return on college tuition you:

1. Divide the 2008 median salary for a 1993 graduate by the (4-year?) out-of-state tuition from 1993 to obtain a 15 year return on tuition investment.
2. Divide the 2008 median salary for a 2005 graduate by the (4 year?) out-of-state tuition from 2005 to obtain a 3 year return on tuition investment.
3. Average the 3 year return and 15 year return to get an average return on tuition investment.

YIKES! So many problems.  Too many to list, so I'll focus my concerns on the basic premise: Someone earning a 132% "annual return" on a $150,000 investment will earn a lot more money over their lifetime than someone making a 179% return on a $50,000 investment. 

Forgiving me the possibly sloppy math, which of the following would you choose?

1. A salary of $198,000 per year after you graduate until retirement, but you have to pay off a loan of $150,000.
2. A salary of $89,500 per year until retirement after you graduate, but you have to pay off a loan of $50,000.

The SmartMoney rankings say 2 (approximately Ohio State) is preferred to 1 (approximately Princeton) solely on smart investing grounds. 

Doesn't look like smart money to me.