Are expensive big-name colleges worth it?

A recent salary survey has been making the rounds. It lists median starting and mid-career salaries by college attended. The usual suspects appear at the very top of the list with Dartmouth having the highest mid-career salary of $129,000. However, my own alma mater Virginia Tech appears surprisingly high (to me anyway) on the list for a large, land-grant, public university, having a mid-career salary of $97,400. I suspect large engineering colleges receive a nice bump in the rankings.

These data allow certain calculations to be made. Suppose you are a high school senior in Virginia having the choice of attending Dartmouth and Virginia Tech. Is it worth it to pay a lot more to attend Dartmouth instead of VT? Let's do some back-of-the-envelope calculations.

Total cost of attending VT (instate) for four years: $60,000
Total cost of attending Dartmouth for four years: $210,000

Ceteris paribus, the relevant question becomes, "Is the $150,000 upfront marginal cost of attending Dartmouth worth earning $30,000 more per year during your peak earning years?"

(Yes, I know there's a discounted rate of return of the forgone cash to consider, along with potential attendance of graduate and professional schools, and choice of major, etc. That's why I called it a back-of-the-envelope calculation.)

I suspect that for most people, if they have the means to pay, the answer is Yes. That $150,000 can be made up in five years, say from age 40 to 45, a blip in time if you ask me. This leads me to wonder not why private elite colleges are so costly, but rather why they aren't even more expensive.

Having said that, attending a state school as an engineering major seems like a steal.

Requisite woof: Looks like VT beats UVA in more than just football.

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Dude, correlation does not

Dude, correlation does not equal causation!

I realize that

I know that just because you choose to attend Dartmouth doesn't mean you'll end up magically being bumped up the pay scale.

But...

...if you were that high school senior, wouldn't you make this calculation, or a similar one?

Are colleges simply conglomerations of high-aptitude people? Or do they provide some reciprocal value in education, brand name, and networking?

...if you were that high

...if you were that high school senior, wouldn't you make this calculation, or a similar one?

No. One of the best stats is to compare earnings of those who got into an ivy and matriculated to those who got in but went to a state school. The most prominent study of this kind was done by Alan Krueger: http://www.irs.princeton.edu/pubs/pdfs/409.pdf Of course, this study has been hotly debated and contested. As with any social science, it's hard to walk the line between not controlling for anything, and having so many controls and adjustments that the results are just a consequence of your assumptions.

The best thing for a high school senior would be to talk to a lot of people who went to both state and private institutions and ask if they felt it was a good decision.

I haven't read the study,

I haven't read the study, I'm skeptical. Doesn't it imply that one's college choice doesn't matter in the long run, that talent/aptitude alone is enough? Would I be where I am today if instead of VT, I had attended any other university?

The best thing for a high school senior would be to talk to a lot of people who went to both state and private institutions and ask if they felt it was a good decision.

What does this accomplish?

That $150,000 can be made

That $150,000 can be made up in five years, say from age 40 to 45, a blip in time if you ask me.

But when you're 40 or 45, presumably you are making much more money, and won't miss as much the $30,000 penalty for having gone to a state school. I have no idea what the student loan payments to finance an extra $150,000 in education are, but I imagine they aren't terribly pleasant for a 22-year-old. On the other hand, that's assuming no parental payments at all. Then again, there's nothing to stop Mom and Dad from giving Jr. the money they were going to use to send him to Dartmouth if he goes to VA Tech.

causality is backwards

It's not that going to Dartmouth increases your earnings over going to VT, it's that people who will earn more in life are admitted to Dartmouth and tend to choose to go there.

If you want to do a proper comparison, divide the set of students who were accepted to Dartmouth into two groups, those who went there and those who chose VT instead. The earnings gap will vanish.

causality runs both ways

I've went to VT and have also spent a lot of time in the Harvard system. The best students at VT are as good as the average student at Harvard. If someone gets into both, then the important causality is, "What can the college do for me?"

Name brand and networking are big effects of places like Harvard that increase a student's earning potential.

This is the Dale and Krueger

This is the Dale and Krueger result from the 2002 QJE.

Estimates of the effect of college selectivity on earnings may be biased because elite colleges admit students, in part, based on characteristics that are related to future earnings. We matched students who applied to, and were accepted by, similar colleges to try to eliminate this bias. Using the College and Beyond data set and National Longitudinal Survey of the High School Class of 1972, we find that students who attended more selective colleges earned about the same as students of seemingly comparable ability who attended less selective schools. Children from low-income families, however, earned more if they attended selective colleges.

Disclosure: Haven't read the paper, but find it plausible.

Noah, What you say sounds

Noah,

What you say sounds quite plausible, but its validity may depend on the fact that Dartmouth is not at the very top level of selective schools, and it is unlikely that applicants for both Dartmouth and VT would be competitive at that next level.

However, there needs to be a distinction made between high earning employees and high earning company founders. The characteristics that distinguish company founders are likely to be no more than weakly correlated with the highest level of admissions competitiveness.

Regards, Don

college is a scam

A 4 year degree at a state school have become dime a dozed thanks to grade inflation. It now takes 2 years of college for most students to get a high school education. 2 years of junior college now grants one a "degree" which is the economic equivalent of a high school diploma 50 years ago. Who will drive garbage trucks in our new world? People with a 2 year degree or robots? Illegal aliens?

With this miserable job market employers can get college grads for what they were paying high school kids. Who are they going to hire?

Half the kids in college now will never break even with a kid who got union apprenticeship right after high school - plumber, electrician, crane operator . . . .

Forgetting the cost of

Forgetting the cost of delaying your career by 4-6 years as well.

College is a scam.

I do better than a dartmouth grad, younger, and I went to a crappy school-- and didn't graduate!

College is for people who can't think for themselves, I think.... and they get hired by other people who can't think.

The thinking-people market is a whole different one, and when selling your services into that market, they care more whether you can think than whether you got a piece of paper-- because they can actually evaluate your skills themselves.]

The whole purpose of the college degree is to tell people who aren't capable of telling on their own (and thus not people you want to waste time working with) that you're worthy of working for them.