Money Smart Kids
Does it Pay to Go to a Big-Name School?
Attending an elite college may not translate to higher pay. It's best to focus on schools that are a good fit for your student and your finances.
By Janet Bodnar, Editor, Kiplinger's Personal Finance
September 3, 2008
Isn't it true that it pays to go to a higher-ranked (and in most cases more expensive) college because you can earn more money when you graduate?
You've put your finger on a hot-button issue to which there's no easy answer. And you're making several assumptions that may not be true.
1. Financial aid. For starters, don't assume that a "higher-ranked" college is necessarily more expensive. A number of elite institutions have made their financial-aid offers more attractive by replacing loans with grants and giving aid to families with higher incomes. Depending on your aid package, an elite private school may actually be less expensive than a state institution.
2. Future earnings. That being said, however, the vast majority of students won't get into elite schools. And not every institution can afford to be so generous with financial aid. If you have to pay full freight (or close to it), don't assume that the extra expense will necessarily lead to a big payoff.
There's no consensus on the relationship between elite schools and future earnings. One landmark study, by Stacy Berg Dale and Alan Krueger, found that 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.
In other words, if students were good enough to get into selective schools, they were good enough to succeed wherever they went.
With families taking on more debt to pay for college, this issue becomes more critical. If sending your child to the elite school he has his heart set on means borrowing tens of thousands of dollars, it may not be worth the price -- especially if your child plans to go into a profession with low earnings potential.
To help you decide how much debt is sensible based on future earning power, use the Student Loan Advisor calculator at Finaid.org, or go to Sallie Mae's new Education Investment Planner.
3. Fit. Aside from academic and economic concerns, don't assume that an elite institution will necessarily be the best fit for your student.
Barbara Tornow, formerly senior adviser to the vice-president for enrollment at Boston University, says one of her frustrations as an educational consultant is hearing students say that "they must go to school X or their life will be over."
That's not the case, as Tornow can personally attest. Accepted at Barnard College (with no financial aid), she chose instead to go to William Smith, a liberal-arts college in Geneva, N.Y., where she received a full scholarship. At William Smith, says Tornow, "I was one of the top students, which wouldn't have been the case at Barnard, and I thrived." She eventually spent 12 years on the school's board of trustees.
When choosing a college, the emphasis should be on what's best for the student, not bragging rights for the parents.
Reader Comments (6)
Posted by: scott at 09/03/2008 02:29:18 PM
In my exprience, the clout of coming from a big name school definitely pays off in getting your foot in the door for initial interviews and such.
Posted by: Chris at 09/03/2008 03:59:15 PM
The name of the school is only important for the interview of the entry level job. A year after you graduate- nobody cares where you went to school. More important than the name is the opportunities the school will open up, and sometimes the two are linked.
Posted by: paul at 09/03/2008 04:32:17 PM
Forbes.com published an article on July 30th entitled Top Colleges for Getting Rich. The article compared the median salaries of graduates with 10 to 20 years experience. The top 20 schools were listed, and they were primarily Ivy League schools.
Posted by: CAM at 09/04/2008 10:03:16 AM
In my opinion, a degree from a top liberal arts school will give you a big boost if your carrer goal is to get into a top graduate or professional school. If you look at the entering Harvard Law School class, I bet most came from the Yale, Stanford, Princeton and similar schools.
Posted by: Bill at 09/04/2008 12:08:54 PM
Paul you are missing the point of the Krueger study. Of course the Ivy League grads have higher earnings. The reason is that they cherry pick their students. Those students have the advantage before they ever set foot on a college campus. The study shows that students who are good enough to be accepted at top schools but end up going to a lesser school will end up earning just as much as the Ivy League grads.
Posted by: Brad at 09/04/2008 06:46:25 PM
I was always at odds with my company's policy on selecting students to interview. There was a definite bias for name schools. As a manager, I saw that job performance, and success in the company, were totally unrelated to their school. In addition, the specific knowledge they acquired beyond the basics, regardless of school, didn't matter matter a year or two. What did matter was what they learned about how to learn, work with others, and work for what they wanted. Most of my best hires came from no-name schools.