Years of research show that, when it comes to your future paycheck, the name on your degree really does count.
Meet Ben. He's a high school senior from a middle class family in Massachusettes who is choosing where to attend college next year. He's down to two schools: prestigious Boston College, or the University of Massachusetts at Amherst, his state's top public campus. Even with the generous financial aid package from BC, he would still graduate with a big mound of loans. UMass, meanwhile, would be more than $15,000 a year cheaper.
Which should Ben pick? Prestige or price?
With the cost of higher education climbing every year, and student debt surpassing $1 trillion, more and more young people will have to decide whether to make that trade-off. It begs the question: Does it really pay to go to an elite university, financially speaking? Researchers have been investigating this issue since at least the 1980s. And their findings tend to show that when it comes to future earnings, where you go to college counts.
Study 1: DO THE RANKINGS MATTER AT ALL?
Yes. The more elite the school, the better its alums' paychecks.
Figuring out the payoff of an elite education is a tricky task for economists because of the sheer number of variables that can come into play. Some students are smarter than others. Some are richer, or more motivated. A few students may pick a lower-ranked university to take advantage of a particular program -- say, a science whiz who chooses to attend the Colorado School of Mines in the hopes at landing a lucrative engineering gig in the oil industry. For academics, controlling for all these factors is a bit like trying to rid mosquitos from a swamp -- pretty close to impossible.
That hasn't stopped them from trying. One of the earlier such efforts was a 1999 paper in The Journal of Human Resources that looked at data on thousands students who went to college in the 1970s and 80s. The researchers grouped their subjects' schools by reputation using old college guide books, then compared their post-campus wages.
The rankings, it turned out, mattered a great deal. The more elite a school, the better its alums' paychecks. The effect also increased over time. Among students who had graduated high school in 1980, those who had gone on to a top private university eventually made 20 percent more than their counterparts from bottom tier public school. For the class of 1972, the wage boost was just 9 percent.
The graph below shows data from the high school class of 1982. Again, whether public or private, a college's quality (or at least its reputation for quality) had a significant impact.
The study did have a large hole: It didn't separate students who actually graduated college from the dropouts. That likely pulled down the wage averages at less renowned institutions, which tend to have lower completion rates. But studies since have still detected a similar pattern. In 2000, a Department of Education report found that, overall, the quality of a college decided 2-to-3 percent of earnings among men and 4-to-6 percent in women -- making it less important than how they actually performed in class. But in some cases, the effect was much larger. Men who went to an institution that was one standard deviation better on its quality measures saw their salaries jump 8.1 percent. For women, the boost was 17.4 percent. The report's author calculated that for males, the increase could translate to an extra $107,000 over the course of a lifetime. For females, it might mean an extra $173,000. To put that in context, people who go to college make somewhere between $412,000 and $570,000 more on average than those who don't, according to various estimates.
Study 2: IF YALE REJECTS ME, AM I DOOMED?
Nope. There's evidence that where you apply is more important than where you attend.
In studies this decade, academics have gone out in search of naturally occurring experiments to try and figure out if it's the school that counts when it comes to earning potential, or the student. One of the best known efforts was by Stacy Berg Dale of the Andrew Mellon Foundation and Alan Kreuger of Princeton, who came to the unexpected conclusion that, in some respects, where you went to college was less important than where you applied.
Here's how they got there. Using information on undergraduates from the late 1970s, the authors matched students who had been accepted and rejected by similarly selective colleges.* In effect, they created imaginary groups of academic siblings. As expected, most of these siblings chose to attend the most selective school they got into. But a few decided to attend a less selective college. That gave the researchers a chance to see what would happen when young people who were equally talented in the classroom -- at least on paper -- picked different quality institutions.