Is That $50,000-a-Year College Worth It?

Last Updated Apr 28, 2010 7:49 PM EDT

With the baseball season started and the tax season finished, it is time for the final rite of spring: Where to send the college deposit check. That is the dilemma facing many families of high school seniors who have been accepted to multiple places.

Economics can help.

Suppose you are fortunate enough to have a child who has gotten into one of the country's 30 or so super-elite colleges -- the likes of the Ivies, Chicago, Duke, Stanford, MIT, Pomona, Rice, and especially Amherst (my alma mater).

The total costs at these schools are around $50,000, though most students pay less, thanks to financial aid packages. But public universities cost much less and the best of them -- UCLA and Berkeley, Michigan, Virginia, maybe Wisconsin and Texas -- are every bit as good as the best private places, and often have real football teams, too. A bright young thing might also be offered an academic scholarship from a school with a lesser reputation. So the question is: Will going to the $50,000 school translate into making enough more money over time to justify the cost? (For the purposes of this article, non-economic factors are not taken into consideration.)

To start, the obvious assumption is true: People who go to elite colleges on the whole make more money than those who don't. But that doesn't mean much: The qualities that get you into Amherst are also valued in the workplace; moreover, the elites tend to have very few dropouts, who can drag down average earnings.

When asked graduates to report their earnings, a lot of familiar names are at the top of the list - Dartmouth, MIT, Harvey Mudd, Harvard and Stanford reported the highest mid-career median earnings:

But that doesn't really answer the question of whether going to Dartmouth pays off compared to going somewhere else. A 1998 study on the subject got a lot of attention. Economists Alan Kreuger and Stacey Dale looked at more than 14,000 people who had started at elite colleges (as defined by SAT scores) in 1976, and compared their earnings 19 years later to those who had applied to the elite but gone elsewhere. The math is not easy, but in simple terms, what they found, in effect, is that it didn't matter where students went as long as they were capable of going to the elite colleges.

As Kreuger explained it:

Our research found that earnings were unrelated to the selectivity of the college that students had attended among those who had comparable options. For example, the average earnings for the 519 students who were accepted by both moderately selective (average College Board scores of 1,000 to 1,099) and highly selective schools (average scores greater than 1,275), varied little, no matter which type of college they attended.
(An interesting exception to this rule: The earning power of children from lower-income families definitely improved by attending elite colleges.)

That was pretty compelling stuff, not that it did anything to lessen the elite-school admissions frenzy.

Then Caroline Hoxby, who might just be the most respected educational economist in the country, looked at the subject. Hoxby divided colleges into eight groups, based on selectivity, then looked at the earnings of college-educated men at age 32 from each group in three different cohorts (entering college in 1960, 1972 and 1986). She, too found, that graduates of more selective colleges earned more than those who went to easier ones to get into.

The difference is that when she controlled for ability - in the form of SAT scores - the difference was reduced (by up to 75%) but did not disappear: "If we compared two men with the same measured aptitude, the one who graduates from a more selective college still tends to earn more over his career" - about $100,000 more for those who entered college in 1982.
Moreover, the returns on an elite education are growing over time, even taking into account higher debt. Someone offered a free ride to an excellent school like Carleton, for example, would still be better off paying for Yale, Hoxby concluded:

The data indicate that people who invest in education at more selective colleges generally earn back their investment several times over during their careers, and that the return has been growing over time.
One possible reason: The most selective colleges are getting even more so because they are increasingly drawing from a national and international pool, as attending college close to home has become less important to students. (So when my 1980s Amherst classmates and I laugh that we could never get in if we were applying today, we are probably right.)

Well, that seems fairly conclusive ... except it isn't. It doesn't take into account parents' income, which bears an important correlation to their children's future income. Nor does it consider choice of profession. If you want to be a librarian or an elementary school teacher, for example, even an Amherst degree is not going to boost your earnings much. In general, if you are good at math and choose a major to match, you are going to do very well indeed. The top majors in terms of high salaries, according to PayScale, are aerospace engineering, chemical engineering, computer engineering, electrical engineering, economics and physics.

Finally, all of these studies measure the effect of bachelor's degrees. With more and more students going on for higher higher education, it might well turn out that the best strategy, economically, is to excel at a state university, then treat yourself to an elite law degree or MBA.

So where does this leave the family of an aspiring student?

For those who do not have a vocation for something like the ministry and are interested in earning as much as possible (be honest!) in economic terms, it probably makes sense to suck it up and go to an elite school, if you can. If you are lower income, definitely do so. And of course, those accepted by Amherst should go.

If the super-selective colleges don't seem to want you for some reason, the evidence is that there is no reason, economically, to go to an expensive private one. So financially savvy parents not averse to bribery might cut a deal along these lines: Go to State U instead of Middling-and-Expensive Private U and we'll throw in a car. Or a summer in Europe. Or both.

However the numbers are sliced and diced, though, one other thing is clear: Character, ability, career choice and of course serendipity also matter. Warren Buffett went to Nebraska, for example; Steve Jobs dropped out of Reed, and Steven Spielberg went to Cal State Long Beach when the USC film school rejected him - repeatedly.

It can be a rich and wonderful life, even if Amherst turns you down.