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Does the Ivy League Pay Greater Dividends?

So, now that you know that higher education pays dividends, you might wonder whether the particular kind of college education you get makes a difference to how much you can earn over your lifetime. Is there a premium for an Ivy League education?

When my eldest daughter was born, more than 15 years ago, the first word I wanted her to learn—before the conventional mommy or daddy or bottle—was Harvard. I would buy her cute little shirts with Harvard logos; sweatshirts with Harvard emblazoned on the front; Harvard cups, mugs, key chains, and more. Then, when she was no more than seven or eight years of age I took her with me on a business trip to Boston and we visited the campus. (It was freezing and pouring rain all day. She hated it.) As you can tell, I was just a little obsessed with the idea that she should go to Harvard.

As my other children were born—I have four daughters in total—I taught them the words Yale, Stanford, and Princeton, in that order. In my mind, they were destined for the Ivy League with all the rewards and benefits this education brings.

Then I got real.

The cost of one year's (undergraduate) tuition at Harvard is now $33,700. At Yale, the number is $35,300. These numbers are not anomalies: The average cost of tuition at a private university (in the United States) is approximately $25,000 per year. And these amounts don't include another $15,000 or so in annual living expenses and other fees. In contrast, the average cost of state university tuition is a mere $6,600 per year. Now compare these costs (five to seven times more for Ivy League versus state college) to data published by Payscale.com, which indicate that the median starting salary for an Ivy League college graduate ranges from $56,200 to $66,500. This not much more—between about 7 percent and 21 percent more—than the median starting salary of $52,400 reported for the top state schools. At first glance, you might wonder if an Ivy League education is worthwhile. If you pay five to seven times more for tuition at an elite private college, shouldn't you earn five to seven times more right out of the gate?

However, research does tend to support the notion that it pays off (literally), over time, to attend an elite private college. In a report published by the National Bureau of Economic Research in the United States, the authors examined this specific question.12 Analyzing the payoff of attending Ivy League and other colleges is not as easy as you might think. Clearly, some graduates from Harvard and Yale are unemployed (or volunteering at the Peace Corps), and some graduates from the lowest-ranked state schools make millions of dollars playing professional basketball or football. Accordingly, studies of the earnings over time of graduates from Ivy League and state colleges focus on averages and medians.

How do these studies measure the quality of schools, and how do they measure the earnings of students from different schools over time? First, to gauge the relative quality of different colleges, our researchers used library budgets, the SAT scores of entering freshman, and the number of faculty per student. (Generous library budgets, high SAT scores, and lots of faculty per student drove the rankings up.)

Then, to investigate the earnings over time from graduates of different colleges in the United States, the researchers used results from the NLS 1972 dataset, which is conducted by the National Center for Education Statistics. This data contains detailed family and schooling characteristics for various cohorts of students: 21,000 students who graduated high school in 1972 and an additional more than 10,000 who graduated in 1980 and 1982. These groups were interviewed 6, 10, and 14 years after they completed high school, so the researchers extracted quite a bit of information on the relation between college quality and earnings, among a number of other variables.

Their results were conclusive and robust. The researchers concluded "There is a large premium to attending an elite private institution and a smaller premium to attending a middle-rated private institution, relative to a bottom-rated public school." They also noted that their analyses suggest the return to elite private colleges "increased significantly for the 1980s cohort compared to the 1970s cohort." As this research was conducted more than ten years ago, it will be interesting to see if a trend develops, and the 1990s cohort—people graduating from high school in the 1990s—does even better than the 1980s cohort does.

Yet, despite all the positive evidence, the authors were careful to end their study by saying: "We do not attempt to determine the cause of this change, but it is a potentially important finding in light of the large tuition increases concentrated at these institutions during the past two decades." In other words, although the authors could not pinpoint the specific reasons for the "large premium" accruing to graduates of elite private colleges relative to graduates of middle- and bottom-ranked schools, they suggest the high tuition and significant tuition increases at elite schools might be offset by later financial gains to the graduates of these schools. Keep in mind, too, it is not just the earnings and wages that are higher for (elite) college graduates—as you have explored, their personal balance sheets look quite different as well.

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