Buying Futures

In early 1998, Princeton University boosted its financial aid rates, triggering a rash of aid increases among top colleges. It also made people across academia wonder: is an Ivy education worth the price tag?

Kahn Associate Professor of Economics Caroline M. Hoxby '88 had done previous research on the topic, and in a week she pulled together a study. Her answer, reassuring to check-signing parents, is that at high-dollar colleges you get what you pay for.

Hoxby's study, "The Return to Attending a More Selective College: 1960 to the Present," analyzed survey data showing how quickly students who went to top colleges got their money back in the form of higher wages.

Using data from the 1960s through the 1980s, she found that choosing a college two "tiers" above another, the cheaper school in an eight-tiered national rankings system usually paid back the extra tuition money within a few years, and students always broke even within a decade.

And so Hoxby recommends that students with a chance to study at an expensive, top-tier school like Harvard or Princeton should take that chance--even in the face of a full scholarship offer from a state school or even a well-established public university--because it is the most lucrative in the long run.

Plain and simple

Princeton's financial aid increases triggered other increases at Stanford, Yale, MIT and eventually Harvard, which last fall initiated a massive financial aid increase designed to give back $2,000 in loan or work-study debt in exchange for grants.

As Harvard hesitated over whether to increase its aid, many said this decision didn't make sense economically--Harvard's high yield in the admissions process despite its lack of an aid increase seemed to demonstrate that students would bear any burden to get into the University.

Hoxby's study, 18 pages of writing and 37 pages including tables and appendices, deals mainly with broad answers to questions raised during these debates over aid.

Her research seemed to affirm the conclusions of many at the time--Harvard would be forced to change only so as not to seem stingy, not to stave off any real loss of students.

Hoxby had long researched income and wage inequalities among recent college graduates, and this study sums up that work in laymen's terms. Its method is simple, comparing the amount of money paid for college and the amount received in wages.

"I am little bit floored about how many people are interested in this story," Hoxby says. "I have written on related topics. People could have done this before me."

Hoxby had originally planned not to publish the study, but the increased attention coaxed her to pursue the publishing process.

For Hoxby, Dean of the Faculty Jeremy R. Knowles was one of the many people who asked her if it was possible to put some of her previous research into more accessible, non-jargon-filled language.

However, the study still remains very numbers-based--a feature which Knowles praises for strengthening the argument that a large investment now will pay dividends later.

"She makes a very strong case that education at a more selective

institution is always worth the cost," he says. "I find her article splendidly analytical and very helpful, helpful in the sense that this is analysis and not anecdote."

By the numbers

Hoxby began her work by using the division of colleges into eight tiers done by the 1982 Barron's College Guide. This guide was chosen over other ranking systems, she said, because it uses a group-based ranking system which fluctuated little over the years.

The first tier includes the entire Ivy League as well as Stanford and top small schools including Williams and Amherst.

The second tier consisted of Northwestern, University of Chicago and Berkeley.

The third tier schools then included Georgetown, Duke and University of Virginia.

She then used data from the National Longitudinal Survey (NLS) showing what 1982 graduates from particular schools earned at age 32.

The NLS is an extensive survey which follows a small segment of the population through interviews over many years to provide a generational snapshot.

Hoxby used only data from male graduates--a decision she explained by saying that, since the 1960s, women's roles in the workforce and society have changed so much as to skew the data.

However, Hoxby wrote that women college students of today could still use her numbers as a reliable guide because the opportunities currently available to women are roughly equivalent to men, and thus their return on a top-tier degree the same.

For Hoxby, another struggle was to find the median where one could appropriately gauge the financial windfalls of a particular college degree. The mid-20s were too early, she says, because graduates have not become settled in their careers. While the earnings usually start to peak in the mid-40s, earnings potential can already be gauged by the early-30s.

She found that the fastest payoff came for students who chose top-tiered private schools with a financial aid offer over private schools two tiers below. These students, on average, made back the difference in tuition in less than six months.

For students choosing Harvard and financial aid over a third-tier public school like the University of Virginia, the difference in tuition was made back in a little over two years.

The longest a Harvard graduate could take to earn back the money they paid over a third-tier school's tuition--in situations where a lower, private school offered a full ride and Harvard gave no financial aid--was only 10 years.

"I'm trying to say to people that they'll collect on their dollar value," Hoxby says.

Of course, Hoxby's research depends on the assumption that a top-tiered private school will charge more than a lower-ranked school that is also private.

However, one of the reasons that it takes so little time to make back the difference between tuition at a top-tier school and a tier-three school is the difference in tuition between private schools in tiers one to four is small.

There is, however, a large increase in private school tuition from tier eight to tier five, Hoxby writes.

In all, she estimated that a typical man who graduated from a top-tiered college in 1982 can expect to earn a total of $2.9 million in real 1997 dollars over his career. A man who graduated from a college from the lowest tier could expect to make a total of $1.75 million before retirement. The study bases estimates on a working life of 34 years.

The career earnings numbers for top-tier graduates could even be higher because inflation is factored in and "topcoding" is used as well. By "topcoding," the study does not accommodate for the William H. Gates' III, Class of 1977, of the world. Top incomes are not factored in once they exceed $250,000.

She says the study is aimed at parents trying to decide between a more generous public school--whose offers motivated Princeton to raise its aid--and a less generous Ivy.

In recent years, inexpensive public schools like the University of Texas, the University of North Carolina and the University of California at Berkeley have gained reputations for academic excellence and have offered large merit-based scholarships to groups like National Merit Scholars.

In addition, other state schools can use the lever of a full scholarship or low tuition to attract students from their home state. Still, Hoxby says, graduates from these schools would see their education as no bargain--over their careers, tier-three graduates will make a total of about $400,000 less than tier one graduates.

"In many cases, even students who are offered a 'free ride' by a lower-ranked college would maximize their monetary worth by refusing the aid and attending the higher-ranked college," she writes in the study.

Hoxby tried to correct for the fact that very smart students could come out of lower-tiered schools and go on to great success--and for "late bloomers" who could become more motivated after college. By taking an "average" student, she found that going to top-level schools like Harvard will only continue to pay off--at least financially.

"For students with the aptitude to attend a rank 1 or rank 2 college, the returns to attending a more selective college has risen over the entire period since 1960," she writes in the final sentence of her study.

I-Banking=Happiness?

Office of Career Services Director Bill Wright-Swadel says he has seen Hoxby's conclusions borne out by his interactions with Harvard graduates.

But Wright-Swadel warns Hoxby's research only looks at one yardstick of success--money. He says many graduates look for more intangible rewards.

"For every person who does it and who succeeds at that visible level there are other people who are getting great joy from being in community theater...or a ranch in Wyoming," he says.

But even if a student does head back to the ranch, Wright-Swadel said, a student's intellectual experience while at Harvard may be enough of a reward for the large cost.

"And if you said to them, did Harvard make a difference in your life, they would say, 'Absolutely, without a doubt, I am much happier on my family ranch than I would have been,'" Wright-Swadel says.

You're still the one

But though Hoxby's conclusions depend on data 17 years old, today's college graduates say that, everywhere from a recruiter's callings to the staid halls of academia, dropping a high-prestige name has never been more important.

Carole S. Fungaroli, an English professor at Georgetown University and the author of Traditional Degrees for Non-Traditional Students, has personally experienced the effect of a big-name school--and it seems little to do with the actual education.

"If you want to get a degree, you need to get a high-prestige one. Harvard buys a lot," Fungaroli says.

"Once I started teaching at Georgetown, doors started opening. It is not P.C. to say this, but [a high-prestige degree] really matters in the real world."

Fungaroli, who attended George Mason University in Virginia, said that while she was pleased with her education, in the end she learned she needed the cache of a high-end degree.

"I was proud of [George Mason], but it did not open the same doors as Georgetown," she says.

And while sending her child to Harvard would be a steep cost, she would not hesitate for a second.

"If I could get my kid into Harvard, I would," she says. "If you have to go into debt, it is an acceptable debt."

Coke over Pepsi

While Hoxby's study does not differentiate between the top schools in the Ivy League, some students believe that Harvard really does offer more opportunities than Yale, its traditional rival.

Andrew M. Murphy '00, co-chair of the Harvard Student Agencies (HSA) Business Leadership Conference, says while some companies like Goldman Sachs and Boston Consulting Group focus mainly on the Ivy League, some are even more selective.

"I mean take the Walt Disney company...they recruit at Stanford, Princeton and Harvard and that's it," Murphy says. "If you go to another school other than those three, you can't get an interview there. Even if you go to Yale, they don't recruit there."

And while Murphy, a transfer student from Trinity College in Connecticut, says he does not necessarily believe Trinity students are of a lesser caliber, but rather that the opportunities Harvard students have sets them apart.

Murphy says he believes that people "brand" Harvard just as he says people choose Coke over Pepsi although Pepsi wins in taste tests.

"If you are in a restaurant even if they have Pepsi, you ask for Coke. You associate that with being the product. When you associate with it being top hires, you just think Harvard," he says.

The H-Bomb?

Ultimately, Hoxby wisely makes no attempt to try to explain why exactly a top-tiered education produces higher wages. The reasons could lie in selective admissions, network connections or the actual education itself, or in none of the above.

But she says she is sure the Harvard name, like other high-prestige universities, will get you far in the boardroom and the classroom alike.

But Wright-Swadel, who graduated from the University of Maine in 1972, says he is proof that a non-Ivy education does not preclude success later in life.

"See, you are taking advice from someone who did not go to Harvard. Did I have to go here to be here, to contribute here? No. Would I be different if I went here? Perhaps, I don't know. I might be an investment banker. Who knows?" he says.