Is The Ivy League Worth It?

Harvard Yard CropContinuing the seasonal back-to-school theme, two blogs recently addressed essentially the same question, namely are elite colleges worth the elite price?

Last week, Silicon Valley Blogger at The Digerati Life gave us a long and methodical discussion, complete with charts, Should You Invest In An Ivy League College Education? The post tees up the major issues, but stops short of presenting a definitive answer to its own question.

In contrast, Zac Bissonnette’s post at The Consumerist, 5 Reasons Why Every Single College Ranking Is a Pile of Crap, makes it clear where he stands. “A student’s success or failure in college and in life will ultimately be determined by who they are, not which college they attend.”

It is hard for me to avoid thinking that this question is overly, you will excuse the expression, academic. All parents should be so fortunate as to wonder if shelling out $200K to send the kid to Yale for four years is really worth it.

When we talk about the elite schools we are talking about maybe two dozen schools out of the 4,100 colleges and universities in America. This is not a personal finance question like “Should you buy a car new or used?” It is a hypothetical exercise along the lines of “Is a house on Nantucket a better value than one on Martha’s Vineyard?”

But just for fun, I am going to pretend it is on the list of personal finance problems that all consumers need to be able to tackle. Cuz ya’ never know.

To begin with, let me define the question more precisely. We are not talking about going to Elite University or not going to college at all. The choice is really between Elite U. and the University of Your Home State or similar. Put another way, you can go to an expensive top 20 school or a much cheaper place that merely ranks in the top 100.

Further, for the purposes of our analysis, we assume that money is your only concern. The only downside to going to Elite U. is that it is more expensive, and the only upside is an increased income later in life. We ignore, for example, the non-trivial advantages Elite would give you in the dating and marriage market.

We will further assume that Elite will set you back $200K. That’s a nice round number cited in the Digerati post, but it is something of a worst-case scenario. Although places like Harvard and Yale charge around $35K/year for tuition, with room, board, and other expenses not included, that’s more of an asking price than a firm quote. The majority of students receive financial aid of some kind.

And let us arbitrarily peg the cost of the lesser alternative to Elite at $80K, that is, $20K/year, a big slice of which is living expenses. Thus the net cost of Elite is $120K.

How much more income would you have to get over your working life to justify paying $120K now? Not that much. Even assuming an unrealistically high 10% discount rate, you would only have to increase your annual pay by more than $12,271 a year for 40 years to make Elite worth it.

A website called PayScale runs an annual survey of the salaries earned by the alumni of American colleges. Their top 20 have median “mid-career” incomes that range from $126K down to $109K. I have a lot of problems with their methodology, chief among those being that they exclude alumni who later got graduate degrees and use what can only be small and skewed sample sizes for some schools. But I think they hit the side of the barn, more or less. Let us assume that Elite grads pull in an average of $118K a year in mid-career.

As a representative lesser and cheaper school, I will use The University of Virginia, fondly known to its friends as UVA. (Actually, it’s only cheaper if you are a Virginian, and even then won’t quite squeeze into $20K/year.) PayScale does not number its list, but I have counted out UVA as having the 81st highest alumni pay at $93,900. The gap between Elite and UVA is then $24,100 a year, roughly twice the difference that would be needed to justify the additional expense of Elite.

So, assuming the “mid-career” difference in salary is a good estimate of the average difference throughout a working life, there really is no question. Elite is a buy.

Bissonnette makes the argument that comparing median salaries is misleading because it assumes that the only difference between the median grads of the schools is that they went to different schools. What we really want to know is the salary difference for an individual person should they attend one college or another. It seems reasonable that a given student might expect to make less than the Harvard median if he went there and higher than the UVA median if he went to that school.

I am sympathetic to that argument, in fact I’ve made it myself. But I won’t go so far as to say that which college you go to has no economic impact at all. And although the difference in tuition may seem staggering when you are about to write a check, spread out over a lifetime of working it is comparatively small.

Again, the Ivy-or-not question is not likely to be a practical issue for most people. Many more people are, or will be, confronted with the state school vs. Ivyish school conundrum. And then the results can be quite different. Imagine a resident of Virginia choosing between UVA and comparatively swanky Middlebury college, which weighs in at a hefty $52,120 a year for tuition, room, and board. It also ranks one slot lower than UVA on the PayScale survey at $93,600 for mid-career salary.

No Comments

  • By The Digerati Life, August 24, 2010 @ 12:55 pm

    I don’t answer the question because everyone arrives at their own answer based on various factors. It will depend on whom you ask: those who can afford it will say “yes of course” and those who can’t will probably say it’s a waste of good money.

  • By The Digerati Life, August 24, 2010 @ 12:56 pm

    Oh and thanks for writing about this topic of course! This topic is a curious one.

  • By Coley, August 24, 2010 @ 1:11 pm

    “A student’s success or failure in college and in life will ultimately be determined by who they are, not which college they attend.”

    I was certain that Frank would cleverly mock the irony of a grammatical error in this sentence.

    Anyway, the more important comparison is not the difference in future earnings between grads of Elite U. vs. grads of U. of State. A better indicator is the difference in earnings between the Elite U. grad and one who was accepted by Elite U. but elected to attend U. of State anyway. Controlling for professions might be a good idea, too.

  • By Lance, August 24, 2010 @ 1:21 pm

    “We ignore, for example, the non-trivial advantages Elite would give you in the dating and marriage market.”

    Actually, going to Your Home State U gives you an advantage, in that you don’t have to worry about how to avoid the sort of person who will only date/marry somebody who went to an Ivy League School. They’ll avoid you. Which is nice.

  • By Adam, August 24, 2010 @ 1:57 pm

    Other than law schools, it really doesn’t seem to matter where you go to university up here in Canada. The snobbery factor only comes into play when you say if you went to university or not, or if you have a graduate degree or not.

    Maybe that’s because all schools cost roughly the same amount of money, and they are all roughly affordable? Even if the entrants requirements and University Rankings are vastly different.

    Lawyers are the only professions I know of up here that try to discern where someone went to school and judge by it. *shrug* I never cared much for lawyers.

  • By Ivy, August 24, 2010 @ 2:35 pm

    Other issues to add to this obviously not cut and dried issue:

    You’re right that Ivy League schools have more financial aid… and what we have to remember is that this aid can make those schools cheaper in the end (at least for the middle class attendee) than state school. If you are one of the tiny percent who gets in, there are often wonderful aid options.

    The benefits of networking. It’s not what, but who you know that can help boost your long-term earnings potential. The difference between a “soft” degree (history, English, etc.) at a state school versus a top-tier school is that you can actually find a great job through your friends and their family contacts you make through your Ivy League school.

    You will also potentially learn how to run in different circles (social skills, etiquette, etc.) by attending different colleges. This can be huge, especially in the corporate world.

  • By jim, August 24, 2010 @ 2:35 pm

    Financial aid at the Ivy’s can be so generous that this question is almost a moot point. If you can afford full sticker price then you’re probably stinking rich and this isn’t even a question for you. If you can’t afford full sticker price you won’t have to pay full sticker price. Average debt for 2009 Harvard grads is just $8100 which is much less than average for all colleges. If you make under $60,000 (about median family income) your tuition at Harvard is free. Yale states explicitly that they meet 100% of student financial need. 100%. Nobody can’t afford Yale.

    Most private or public schools don’t have the giant endowments of the Ivys so they can’t be as generous with the financial aid. If you aren’t in a high income bracket then an Ivy may very well be cheaper for you out of pocket then the lower ranked schools.

  • By Ron, August 24, 2010 @ 3:10 pm

    Funny. I went to Baker College in Flint Michigan and currently make over $175,000/yr in a small southern town. It really depends on what you do with what you have.

  • By mc, August 24, 2010 @ 5:48 pm

    I didn’t invest in an Ivy League education. I went to Cambridge and Yale (graduate school) on fellowships with full support. People should remember that this can be done.

  • By bex, August 24, 2010 @ 6:26 pm

    “A better indicator is the difference in earnings between the Elite U. grad and one who was accepted by Elite U. but elected to attend U. of State anyway.”

    That would be good… also, this doesn’t control for factors like cost-of-living in different regions. Many people get jobs near where they go to school, and “elite” schools are in high cost of living areas. If you went to school and work in Virginia, I’m not surprised that you make less than somebody else doing the exact same job in Boston.

  • By kitty, August 24, 2010 @ 6:37 pm

    There are other factors one needs to consider here, such as how good your home state university is in your field of study or whether Elite university matters in what you plan to do? Networking maybe more important for lawyers, but for engineers the quality of the program, courses offered and whether large companies come on campus to interview graduates (which is true for most large universities, both private and state) is more important.

    Additionally, state universities aren’t created equal and neither are Ivy League schools. A lot depends on your field of study.
    University of Virginia isn’t really representative of all home state universities. It’s one of several older and larger state universities which offer pretty good education, and may rank very high in a specific field of study.

    For example, my major was CS. In CS, a couple of state universities – University of Illinois at Urbana-Champaign (UIUC) and University of California at Berkeley rank very high, probably higher than some humanity-oriented Ivy League schools. Graduate CS program at UIUC for example is among top 5 in the US, at least it was last time I checked.

    But if you live in another state, then going to one of those better known state universities would probably be more expensive.

    One other thing. I got my BS in Math/CS from a state university that wasn’t that good, and MS/CS from UIUC. The difference in requirements, courses offered, material covered in similar courses and competition was huge. Basically, a straight A in the university where I got my BS didn’t provide enough knowledge for Advanced CS GRE while similarly titled courses at UIUC did.

    So it’s really depends.

  • By Frank, August 25, 2010 @ 12:00 am

    Here is the question I have: How does a firm decide at which schools to recruit? Why CS grad from UMass and accounting majors from Bentley vs. CS majors from MIT and economics majors from Princeton?

    I’ve been involved in the recruiting process before but only years after the company decided where it wanted to recruit. So, I was never able to gain much much insight into the decision making process.

    If we can get some insight into these questions, I think it can help people decide what kinds of oppertunities to pursue.

  • By Dan, August 25, 2010 @ 12:46 pm

    Frank,

    I have to “me too” the argument that says a better approach would be to compare the salaries of those admitted to an elite but chose to attend a state school instead.

    You say, on average, salaries for those who went to an elite school are higher than those who went to a state school. But, if a student was admitted to Harvard and went to UVA, he’s no longer an average UVA student, is he?

    And thanks to the poster who brought up cost of living arguments. We hear about folks who end up on Wall Street (lawyers, bankers) making $120,000 right out of school. Sounds great, hm? Sure, but when one considers that it’s an 80 hour work week and the cost of living in Manhattan is so high, I can’t say I’m impressed by that.

  • By kitty, August 25, 2010 @ 4:49 pm

    “Here is the question I have: How does a firm decide at which schools to recruit? Why CS grad from UMass and accounting majors from Bentley vs. CS majors from MIT and economics majors from Princeton?”

    No insight here, have never been involved with recruitment. I’d imagine large IT corporations go to most large universities as well as a few smaller ones, with smaller companies – no idea. There is also university reputation in a specific field and company’s experience with specific graduates. But I’ve no idea how companies decide.

    But from a student perspective, a college may have historical information of which companies (and how many) have recruited in the past.

    If this is difficult, comparing courses offered, material listed as covered in courses, degree requirements, professor credentials (e.g. in research in specific field) would be helpful. This requires advanced knowledge of what one plans to study which is very useful in choosing one university over another.

    Salaries comparison, IMHO, only works by field. Does a music major cares how much money a lawyer makes?

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  • By bill Seeot, May 21, 2013 @ 6:21 pm

    If you are poor and go to IVY league, you don’t need to pay for it. it is need based.

  • By bill Seeto, May 21, 2013 @ 6:22 pm

    If you are poor and go to IVY league, you don’t need to pay for it. it is need based

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