The Value of an Education

I've posted a few times before on the value of an education (see here, here, and here), so I had to post on this Money Magazine piece titled "The Value of an Education" when I saw it.

This article is a bit different that the others in that it asks a unique question:

Go for the expensive Ivy-League school or the cheaper state school? Which one will pay off better?

Here's the "answer" from a couple of scientific studies (really a non-answer):

So the question becomes this: after adjusting for the difference in tuition, would a bright student attending an Ivy League-caliber school earn more over his lifetime than he would have earned by going to a less prestigious and less costly school? In other words, the issue comes down to whether the superior earnings stem more from the institution or reflect the more qualified student's higher abilities.

After comparing their later earnings, Kreuger and Dale concluded in a research paper that the bright students who attended the costlier school did no better than similarly qualified students who attended less expensive schools. In other words, the students' intelligence and skills were more responsible for the higher earnings than the school.

A study on the same topic by Cornell economist Ronald Ehrenberg and two Rand Corporation researchers came to the opposite conclusion, finding that "even after controlling for selection effects, there is strong evidence of significant economic return to attending an elite private institution." What's more, this group even found some evidence that "this premium has increased over time."

So the experts disagree. Surely Money will take a stance, right? Don't bet on it:

So as much as I prefer giving definite answers, I don't think I can give one here. But, then again, I wouldn't get too worried about that. I mean, the mere fact that your girlfriend is going to grad school suggests the chances are pretty good she's going to have a nice life, financially and otherwise. I'm not sure it's worth getting overwrought about whether she's squeezing the absolute highest return out of her education dollars. Besides, the studies I mentioned didn't account for other types of returns: the people you meet in school, the activities you participate in, the whole experience.

I must admit, I'm biased. For graduate school, I opted for the (much) cheaper state school and got the same job that people from Duke, Wharton, Harvard, etc. got upon graduation. But I only had a few thousand dollars in debt -- they had tens of thousands, and several had debt approaching a hundred thousand. After getting the first job, no one cares much where you went to school -- experience and performance trump it by a long margin.

My income started at twice the amount that I would have received with only a BS degree and has increased about 9% per year since then. (That's 9% compounded growth over 17 years.) You do the math. I think I did ok. :-)

Update: Linking to the Beltway Traffic Jam.

Comments

[earnsmart.info]

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[geoff]

One of the things that wasn't mentioned in this article is the networking potential as well. Of course it depends on the school, but finding a school that can provide you with good connections while working through the education can be invaluable as well. I don't think that you need ivy league in order to have a good network of folk to work with.

[Steve Mertz]

Good point geoff! I don't think you can under estimate the value of meeting the best of the best and establishing life long contacts!

[Dave Lorenzo]

FMF,

You raise a good point about the quality of education. I received my MBA from Pace University and I am currently a Wharton Fellow. I am also finishing up a second Master’s degree (communications) at Columbia.

The quality of the education between the Ivy League schools and Pace was identical. The professors are terrific at all three schools.

Here is where the Ivy League Pedigree makes a difference:

When people read my resume I automatically get a second look. I don’t necessarily get the job but I almost always get an interview (in my case I get to pitch b/c I’m a consultant).

The alumni network is deeper into the executive ranks of companies with significant budgets. This is a big deal for me because consulting is as much who you know as it is what you know.

The bottom line I love the experience of learning. If I didn’t my MBA from Pace would have been more than enough.

Dave

P.S. You're right about the debt.

[Steve Herdina]

One would think it would depend in part on the nature of the degree (and subsequent vocation). Spending $40,000.00 a year for a masters in social work would not seem to pay off well, since MSWs make relatively low wages. It may well be worth it for higher expenses in fields like finance.