Just a Piece of Paper?
By Lenora Chu

New evidence cites that a diploma from one of the nation’s elite universities may not be worth as much as society seems to think. Whaaat?

A 1999 study released by the National Bureau of Economic Research found no economic advantage in attending a selective college—one of a prestigious group of universities boasting those stratospheric average student SAT scores.

Princeton economist Alan Krueger and Mellon Foundation researcher Stacy Berg Dale reviewed the 1995 incomes of over 14,000 adults who entered 30 colleges in 1976. They found that students enrolled in colleges with an average SAT score of 1200 earned about $76,800—while students who were accepted by elite schools but chose to attend lower-ranked colleges earned more, at $77,000.

While the average dollar amount earned by the latter group is only a few hundred more than that earned by the “elite college” group, the study’s finding is still significant. It implies that contrary to popular belief, the quality of the student—rather than the school—more reliably indicates future earning success. Stated another way, Krueger and Dale found that intelligent, motivated students who attended less selective colleges did just as well in their career paths as those who attended elite universities.

Surprise! This throws a new twist into the endless debate that thousands of high school seniors face every year—is an expensive education worth it? Does a prestigious private university merit the $125,000 average cost of tuition and expenses?

In economic terms, analysts have found that attending a top-tier school makes more of a difference to students from lower-income families. Krueger and Dale found that a 200 point-increase in the average SAT score of a college attended correlates to a 7 percent increase in the earning power of students from the lowest fifth of income distribution.

Most likely, this increase in earning power can be attributed to the less affluent student’s exposure to a critical network of affluent, well-connected students and alumni as well as top employers—who often pay the highest salaries—that come to the school.

But there are advantages to attending highly selective colleges that cannot be easily measured in economic terms—such as access to valuable professional networks and world-class faculty.

The value that society places on an Ivy League education is sometimes indicated in the strangest ways. In 1999, an anonymous couple placed an ad in Ivy League newspapers seeking an “intelligent, athletic egg donor who is at least 5' 10" with an SAT score of 1400 or better.” And the infertile couple was willing to pay $50,000 for a single cycle of viable eggs.

Ivy League eggs at a premium? The notion seems a bit ridiculous. But perhaps the couple was buying into what employers have long recognized—that due to the nature of its selectivity, a university such as Stanford or Harvard corrals a higher concentration of smart, ambitious individuals. Recruiting efforts at these schools are likely to yield a higher hit-rate of talented young hires.

The 1995 book The Winner-Take-All-Society documented the increasing concentration of the nation’s top students at a few prestigious colleges. According to its authors, over the last decade fully 44 percent of the average 1.1 million students who scored over 700 on the verbal portion of the SAT each year graduated from a college on the Barron’s list of “33 most competitive schools.” The book also cited the finding that companies termed elite—either the largest firms in their industry or a stalwart on lists of the best places to work—conducted 70 percent or more of their recruiting interviews at the top 25 schools.

Even with its advantages—whether tangible or intangible—the skyrocketing cost of attending a prestigious private college surely compels many parents consider other options for their child. But events in recent years may signal hope for those families unable to pay full tuition, room and board. It seems that the Ivy League and its honorary members—namely Stanford and MIT—have engaged in a battle for the nation’s top students.

Two years ago, Princeton University became concerned that its prohibitive costs were keeping smart, less affluent kids from attending the school. So the board decided to offer full scholarships for those with family incomes below $40,000 and increased aid to students with family incomes under $90,000. Easy enough for America’s richest university, with over $750,000 in endowment for every student.

Other competitors—schools that draw from the same talent pool every year—quickly followed suit. Stanford and MIT immediately announced similar plans, while Harvard increased its financial aid budget by 20 percent. And Cornell soon unveiled its intention to raise $200 million in new endowments to increase its financial aid offerings.

Interestingly, up until just a decade ago the Ivy League schools colluded to prevent price competition of this nature by neutralizing the effect of financial aid—so that a student may “choose among Ivy institutions for non-financial reasons.” Basically, the Ivy Leaguers—along with MIT—had agreed to use a common identical financial aid formula and prohibit the use of merit scholarships. The Justice Department put an end to this practice in 1991.

But what is the Ivy League anyway? Funny that what was once simply an Eastern U.S. intercollegiate football league has now come to symbolize the best of what you can get in America—the hallowed ground of elite educational institutions. The Ivy League was formed in 1945, when the presidents of its eight member schools—Harvard, Yale, Princeton, Columbia, University of Pennsylvania, Brown, Dartmouth and Cornell—signed an agreement to improve and promote intercollegiate football competition. The agreement was later amended to include women’s athletics and other sports like soccer and basketball.

The Ivy League’s symbolic transformation from an athletic league to a marker of prestige is indeed a testament to the way perceptions and beliefs can radically shift—not always logically—over time.

In the end, the decision to attend a prestigious university calls on more than just economics. After all, it is difficult to assign an economic value to relationships, personal growth and discovery cultivated during the college years. Some economists go so far as to label a college education as a “prestige good”—one for which demand is essentially unlimited regardless of price.

But rest assured that America is indeed the land of opportunity for all; overall, the selectivity of a college attended matters less than the ability and drive of an individual student. If these published studies have anything in common, it is their finding that talented students everywhere will bubble to the top.