What $80k More Gets You in Education

In his review of new pop economics books, Brad DeLong, a professor at Berkeley, says:

We here at Berkeley charge one-third the tuition of Stanford. Our students like a place where their peers don’t regard themselves as rich. We lose students who believe that the extra $80,000 is well worth paying to get Stanford’s smaller class sizes and better physical plant.

It’s a point I’ve thought about when I meet students at Claremont who, thanks to the $46,000 annual tuition, are taking on student loans which they’ll be paying off for years after graduation.

Sure, the small, private college atmosphere offers unparalleled facilities, access to top faculty, and overall very high quality of life. But is it really worth the extraordinary financial cost, particularly if it’s one you’ll be shouldering (and thus constrained by) several years after graduation?

I have my doubts. So I have enormous respect for those who choose a slightly less prestigious school for one which offers more financial aid, or those who go to public institutions to save money and keep their options open in the years after school.

Especially since it doesn’t matter a whole lot where you went to undergrad, I’m puzzled at those familes who bankrupt themselves in order to send Johnny to the most elite school he can get into.

12 comments on “What $80k More Gets You in Education
  • Ben, your link on whether it matters where you read your undergraduate degree is applicable in some, narrow contexts.

    What % of undergraduates are seeking angel or VC funding to start their businesses? A vast majority is not.

    When it comes to jobs, some of the largest and best firms (to work for) get a first bite of the cherry. A key role is played by signalling.

    This signalling comes from the school and its past graduates.

    Additionally there is the whole network effect of a well-placed alumni group, which has built enough credibility for their schools so that employers see them as ‘safe’ grounds to select high potential candidates from.

    In competitive cultures – such as the US is or my native India is – it matters considerably where you read your undergraduate. Even in Britain, where we are less stark in our differences, the lure of Cambridge (where I am just finishing a PhD) and Oxford is yet unmatched. They are highly coveted institutions for their pedagogy and their eventual product – a graduated student – is much better quality for the whole Oxbridge experience.

    On the money thing, well, we pay for what we value. Conversely we may value things less, if they came for free. Indeed some may be suspicious about small price tags. Rightly or otherwise, signalling plays a major role all through life.

    Is it worth it? That question can only be satisfactorily answered ex-post.

  • I thought a lot about what might be different if I had attended Stanford or Harvard versus The Ohio State University.

    As an entrepreneur, I knew I didn’t want a job at a big corporation, so my degree and education wasn’t going to determine success for me. What was going to determine success was the people I met in college and how motivated they were to start businesses.

    While I have met many great people at OSU, none of them started companies that you would have heard of. There are no Facebook’s here. I would argue that it MAY be worth attending Harvard or Stanford for the networking with other students and alumni.

  • Why did you decide to go to Claremont? You’re saying that small class sizes, top flight facilities and abundance of bright peers might not be worth the money if you have to go into debt to get them. You presumably do not have to go into debt, but you’re still paying ~$80,000 for those things. Is 80k a fair price, but any more than that overcharging? If you’re willing to pay that much, how much can you really believe that it doesn’t matter where you go for undergrad?

  • Schools like Stanford and Harvard have aggressively attacked the expense problem by providing enough financial aid such that no family with less than a certain income (I believe it is $60,000) has to contribute to the education costs.

    The short answer is that families aren’t bankrupting themselves…the ones that choose to spend more on their children’s education do so because they care about the ultimate exit, not the IRR.

    For some families, it may be worth investing $1,000,000 to get a $500,000 return, rather than investing $10,000 to get a $50,000 return.

  • Chris Yeh makes a very good point that reminds me that most premium products do not make sense when viewed through an objective value oriented lense. For example, in cars, wine, bicycles and numerous other products consumers pay exponentially higher prices for smaller and small increments of value. For example, $10-15K will buy a new car that gets from A to B representing maybe 75% of the value a car has to offer. How much more value does the style & performance one gets for $50K, $100K or $200K represent?

    I guess education is really no different.

  • Yeah, private schools can cost a lot. I have several friends who owe over $100K – mainly because of their private grad school programs.

  • In response to Chris Yeh, the problem with financial aid programs is that they’re dependent upon private alumni donations. This therefore has a result on the criteria used to select students. While at Oxbridge a student is selected solely on their academic potential, a student at HYPS is selected on their potential to be successful and wealthy and in turn donate large sums to their Alma mater. This explains the focus on academically trivial things such as extracurricular activities and success outside of the classroom. It also explains the ridiculous concept of legacy which is entirely unheard of elsewhere in the developed world. So I’m quite skeptical when people talk about financial aid as being a benefit.

  • @ Steve:

    “While at Oxbridge a student is selected solely on their academic potential, a student at HYPS is selected on their potential to be successful and wealthy and in turn donate large sums to their Alma mater.”

    I am afraid it is not so clear-cut.

    On Oxbridge applications, they explicitly ask if any members of the family have attended Oxbridge. Names have to be provided with matriculation year and college information etc. I cannot imagine what purpose it is put to except to know who has deep pockets, or worse to advance the cause of nepotism. 🙂

    Further, the tradition of giving to one’s school is not so ingrained in British minds. However increasingly the lure of seeing one’s name on buildings etc means wealthy people even those _totally unrelated_ to these Universities are now donating piles of cash. Alumni still have to be exhorted…

    Cambridge is in its 800th year and raising £1B and it is not proving easy because it appears the British folk have a greater sense of entitlement – and hence a lesser desire to give back – than their American counterparts. This may be changing but our press is full of discussion of student loans and debt and so on.

    Also these Universities (Oxbridge) have existed so long, while milking alumni for all they are worth is a relatively new 20th century concept. From a distance it seems Oxford does a better job of it but Cambridge is not at our throats for fund-raising. There are pleas and requests, no badgering tele-calls.

    I also think that both HYPS and Oxbridge place equal significance on academic fit of an applicant (I was accepted both at MIT and Cambridge for my second University stint, so I cite my experience in defence of this point).

    Just my tuppence. I do not know where you are located and what the basis of your points is, but since I disagreed a bit, it is worth saying it.


  • “Is it really worth the extraordinary financial cost, particularly if it’s one you’ll be shouldering (and thus constrained by) several years after graduation?”

    In other words, the question – is the glass half full or half empty? I go it depends whether you are drinking or pouring.

    Seeking to be a part of an elite network is good enough. But if that’s the basis for choice of a high cost academic destination, the end result often is frustration, despair and disappointment. My friends from Harvard, Yale and LSE tell me that most students bunch up and form uptight, closed circles on some metric and unless you match them in every parameter (that includes sports, hobbies, parties you attend etc.) you won’t be let in. You end up doing things you never liked but if you need to be in that circle, you have little to try else.

    The question that you face often is, “you think you had what it takes to let through my door?”. Next question: “You got what it takes to stay…??”

    I feel the whole thing sounds a bit like open source – Free as in freedom but not Free as in beer… 🙂

    In the end nobody knows who’s getting cut… Apparently it could be a lot of you !

  • Shefaly,

    I didn’t apply to study at Oxbridge so I’m quite surprised to hear that they ask if family members are graduates. I’ve had a quick check of the application forms and I can’t see it myself. Is this something that was done in the past, or perhaps is part of applying to a particular college?

    Secondly, my point about how Oxbridge and HYPS differ in selecting students only applies at the undergraduate level. At a graduate level (Masters/Phd), US and UK universities are quite similar in how they choose applicants.

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