Graduating from America’s Elite Colleges – The Path to High Earnings?

Sometimes you read a report and your response is “but of course!” However, before you read it, you actually may have thought differently.

Such is the case with the study Estimating The Payoff Of Attending A More Selective College: An Application Of Selection On Observables And Unobservables. The focus of the study is “On the Payoff to Attending an Elite College” and the basic findings are straight out of the textbook:

“Students who attend colleges with higher average tuition costs or spending per student tend to earn higher incomes later on.”

Such findings often lead to yet another textbook response – if accepted at an elite school, you should attend. After all, the name recognition of the school and its overall prestige will more than compensate for the additional costs of attendance.

Two Wrongs Don’t Make a Right

The general consensus today is that it pays to get a college degree. In addition, the general consensus today is that the quality of education varies from one college to another.

Given the above data regarding career earnings, parents and students often take some liberty regarding basic cause and effect. Because elite colleges have a stronger reputation and graduates from these more expensive institutions tend to earn more money, the belief is that the college is somehow the critical factor in future success and earnings.

According to this study, the problem with this logic is that it is not one of cause and effect. Instead, the findings note that the students who attend selective schools are likely to have higher earnings potential for the very same reasons that they were admitted to the more selective schools in the first place.

So to get at the heart of the question, Stacy Berg Dale and Alan Krueger tried two novel approaches to answering the question, “Does the school make the student? Or does the student make the school?”

The researchers used data from the College and Beyond Survey to examine more than six thousand students who were accepted and rejected by a comparable set of colleges in 1976. They contrasted that information with the labor outcomes of those students in 1995. In this instance, they were looking at the students who had the same menu of school choices yet some chose to attend more or less selective schools.

In addition, the researchers compared this data to that of the National Longitudinal Survey of the High School Class of 1972. In this instance, the researchers sought to estimate the impact on students’ earnings when compared to the average SAT scores of all the schools the students applied to and the average SAT score of the school they attended.

School Selectivity Immaterial

The results – school selectivity is enormously overrated and does not necessarily pay off in a higher income over time.

“Students who attended more selective colleges do not earn more than other students who were accepted and rejected by comparable schools but attended less selective colleges,” the researchers concluded.

In simplest terms, a student accepted say to Brown but rejected by Yale (perhaps their first choice) sometimes goes on to attend their own state university. In such instances, the student in question still might well achieve significant earning power.

In fact, when it comes to the best predictor, the researchers found the average SAT score of the schools students applied to but did not attend was a much stronger predictor of students’ subsequent income than the average SAT score of the school students actually attended. This big fish in a small pond view is often dubbed the Spielberg Effect (famed movie director Stephen Spielberg was rejected by two upper echelon film schools, USC and UCLA and ultimately attended Cal State Long Beach).

In a nutshell, the findings are most obvious. A student’s motivation and desire to succeed are far more important than the average academic ability of the other students around them.

However, we must recognize the authors do offer some speculation that tuition may indeed affect future earnings. The reason that this could well be part of the equation is that schools with higher tuitions can offer more resources and therefore, the potential of a higher quality product. But the researchers point not just to overall cost but to the resources schools devote to instruction.

And there is in fact one instance where the cost of an elite college does seem to matter. No matter what measurement of college quality is used, students from disadvantaged backgrounds record the greatest gains from attending an elite college.

The abstract is available online.