Are Ivy League schools worth the price?

Are Ivy League and other "name brand" schools worth the high sticker price?

I would broaden the question to all of America’s well-endowed and highly selective colleges. That goes well beyond Princeton and Harvard of the Ivy League, and includes Stanford, Duke, and Swarthmore, which are not part of that sports conference known as the Ivy League!

At the most basic level, the answer is an obvious yes. The demand for places at these institutions tells us about "revealed preference," as economists like to say. Many of these "highly rejective" schools take only one in twenty-five applicants, and the yield on the acceptances is quite high. Very few students turn an acceptance to Stanford down, unless they have another acceptance from Princeton that they prefer. As an example, the yield at Harvard is above 80%, which means that for every 100 acceptances Harvard issues, over 80 actually matriculate at the university. In my own state, the yield at the University of Virginia is only 40%.

If you are asking about "return on investment," that is a more difficult question. Most of the ROI studies are fairly bogus because they do not begin at the individual level. They look at the average financial return to students as a group, but their calculations often consider only financial aid recipients and only use data from a few years in the workforce. They do a mechanical calculation to see if the average tuition payments are justified by the very short earnings stream that they can measure. This is crude. Students pay wildly different prices to attend many schools, and this is especially true of the elites, where low-income students go for free and high-income students pay the full list price. So, for low-income students, the ROI is usually a wild underestimate of the economic payoff. ROI studies also tend to ignore the way returns build after 10 to 20 years in the labor force, which biases against liberal arts majors, whose income often has a steeper upward trajectory long after the ROI studies have stopped measuring.

There are some very good "causal" studies, and they come to contrasting conclusions. Stacey Dale's and Alan Krueger's work from 2002 finds that there is a big payoff for "elite" colleges for low-income and first-generation students, but not for wealthier students. Caroline Hoxby (2009) and Massimo Anelli (2022) come to a very different conclusion. Attendance at elite institutions pays off well for graduates.

The whole "return on investment" approach is flawed in that it only asks a narrow question about financial payoff. There is more to education than making a bigger lifetime salary. Many graduates positively choose lower income pathways because that is their calling. I would not call that a failure. And the key to earning a good return on investment is to graduate. Schools with more resources tend to have very high graduation rates for all students, even those who are low income and Pell recipients.

What type of universities do you think provide the best return on investment?

It is fashionable today to note that many "elite" schools do not have a high "social mobility" score. That is because these schools do not take a high proportion of their students from low-income backgrounds. But they do very well with the low-income students that they do take. My answer is that the schools that have lots of resources to spend on students tend to produce the highest returns. That is because these schools graduate the bulk of the students they enroll, and they provide the best skills and networks that pay off throughout a graduate’s career.

Should college be tuition-free? How else can we work to make college more affordable?

No one is talking about free college for all post-secondary education, only about free public college. "Free public college" does have some plusses. It is a very simple message. Bad information is one of the big problems that reduces access to higher education for low income and first-generation students. People simply do not know the price they will have to pay until after they have gone through a months-long process of painful applications and forms. The message "public colleges are tuition free" allows people to make plans when their children are young enough (middle school) to effectively prepare. But the federal government has few levers to make this happen. Public higher education is financed primarily by states, and some states are very generous in their appropriations (Wyoming) and others are miserly (Vermont). This means any federalization of financing would create big state winners and big state losers, since the federal government will not allow its money to replace state contributions. I have had my say on this subject here.

What tips do you have for a student looking to graduate with minimal debt and great job prospects?

Go to the best school you can get into. Low-income students often attend local colleges that charge them more than better schools that their high school performance (grades, scores) would qualify them to attend. These better schools have more resources for financial aid, so the net price is actually lower than at the seemingly cheaper regional schools many choose to attend.

I would avoid most of the nation’s for-profit schools. These schools charge more and pile students with a large debt burden. The return from attending for-profit events is often very low or negative.

Given that the top 25 universities hold about 52% of all endowment wealth, should the government consider taxing endowments of the wealthiest universities?

The idea of taxing endowments makes for a great political soundbite, but does not do much for America’s students. Only about 100 schools have high endowments per student, and most of them are using these endowments to make education free for low-income students. Princeton, for instance, just announced that attendance will be free for all students from families making less than $100,000. Even families making up to $300,000 will receive some grant aid.

As published on WalletHub