Where You Go to School Can Determine Your Earning Potential

Here's an interesting piece from the Wall Street Journal that says where you go to school can determine your earning potential. The reason why: some schools give you a higher starting pay. And since the rate of pay increases is constant no matter what school you go to, the schools with the higher starting pay win out. A few highlights with my comments thrown in:

Even though graduates from all types of schools increase their earnings throughout their careers, their incomes grow at almost the same rate, according to the survey. For instance, the median starting salary for Ivy Leaguers is 32% higher than that of liberal-arts college graduates -- and at 10 or more years into graduates' working lives, the spread is 34%, according to the survey.

If you had the choice between a higher starting salary or better pay growth, you'd make out better choosing the growth. But if all pay growth is equal, then obviously having a higher starting salary is the way to go.

One reason why Ivy Leaguers outpace their peers may be that they tend to choose roles where they're either managing or providing advice, says David Wise, a senior consultant at Hay Group Inc., a global management-consulting firm based in Philadelphia. By contrast, state-school graduates gravitate toward individual contributor and support roles.

Also, more Ivy League graduates go into finance roles than graduates of other schools, and employers pay a premium for them.

Contrary to what many parents tell their children majoring in subjects like political science or philosophy, these degrees won't necessarily leave you in the poorhouse. It can depend on what career path you choose to pursue with that degree. History-majors-turned-business-consultants earn a median total compensation of $104,000, similar to their counterparts who pursued a business major like economics -- whose grads earn about $98,000 overall at midcareer, the PayScale study shows.

This is (again) why selecting and maximizing your career is so important. If you manage it correctly, you'll do well no matter what your major and (almost) no matter the school you went to. Then again, if you simply "go with the flow", you're probably not going to be setting any career or pay-related records.

A few other comments on this piece:

• It's worth noting that the survey quoted here excluded respondents who reported having advanced degrees, including M.B.A.s, M.D.s and J.D.s. This is a HUGE point. In my case, getting an MBA was a big game-changer career-wise.

• This piece doesn't talk about the cost of various degrees. I'm guessing (kind of) that the Ivy schools are more expensive, so the net return isn't as good as the findings might imply. As I've said before, you need to balance what you borrow for college with what you think you'll make in your chosen profession.

• Even if you go to a school that's not on the highest-starting-salary list, you will still do better than most people financially if you manage your career and finances according to the principles I share here. My undergraduate school wasn't on the top 5,000 list of best-earning schools and my graduate school wasn't in the top 30. But I have managed my career well and followed the other personal finance tips here to end up with a net worth in the top few percent for my age. You can do the same.

Comments

[ToughMoneyLove]

An academic study was published a few years ago that compared the financial/career success of Ivy grads with comparable grads of non-Ivy universities. (The other grads had Ivy league admission credentials but chose to go elsewhere.) The results? No difference in money/career outcomes. Conclusion: It's not where you go but the aptitude and attitude you bring to the table. (Disclaimer: I am a recovering Ivy leaguer.)

[a]

This article really addresses correlation rather than causation.

Way back in the good ol' days when I was graduating high school we had a few people who went onto Ivy League schools. They weren't smarter or more competent or even harder working than the people who went to state schools. They had families that could afford to send them to expensive schools. And family connections loose enough to let them go across country for an education.

Certainly, for your first job flashing your Harvard degree is better than flashing your state school degree. But after a few years of experience, where you went to school starts mattering less and less.

all depends on the field guys. Yes, at some point experience trumps. But you have to be in a position to get that experience. For example, nearly every grad from Harvard, Yale, etc. law schools will get to go into i-banking or work for the top tier of law firms. If they stick it out they will make WAY MORE than any of their counterparts. Can someone who didn't go to a top law school get on that track. Sure, but the percentages are just not as high. In a profession like the law, where there really is a caste system to a degree, where you go to school is vitally important. It even can remain so. I still get job offers that my fellow colleagues who didn't go to an ivy don't get, and it's all because fortune 500 company X tells their recruiter that they want top talent and knowing nothing about the people they are recruiting, recruiters translate that into top-tier grad from a top-tier firm.

[Terry]

"An academic study was published a few years ago that compared the financial/career success of Ivy grads with comparable grads of non-Ivy universities. (The other grads had Ivy league admission credentials but chose to go elsewhere.) The results? No difference in money/career outcomes. Conclusion: It's not where you go but the aptitude and attitude you bring to the table."

How did this academic study qualitatively measure attitudes?

[Lord]

I would recommend avoiding 'fastest growing fields' as this means they are very small. Better to select a larger fields that offer broader opportunities.

[P]

How about the folks w/ MBA from top 10 or even top 20 schools w/ tuition bills of $100K+.

Assuming those grad do not go into i-banking or management consulting where the starting salaries are extremely high, how do the other folks balance out starting salary, with saving for retirement and paying off those loans. I guess what I'm trying to understand is that is going to a top 10-20 school worth the 100K+ or can one do just as well from say a top 30-40 school?

[P]

Forgot to ask this to FMF in my previous post:

Did you go to a top 10-20 MBA school? If yes, how did you cope w/ debt. If no, I guess you are another example of still making huge gains in your career and finance wise

[FMF]

P --

Top 25-30 school at the time -- now ranked in top 30-35 (or so).

Details on my debt (not much) here:

http://www.freemoneyfinance.com/2007/10/how-i-made-mill.html