A perusal of a few Web sites shows that applications for the class of 2015 at elite colleges are soaring—up 15 percent at Harvard, and up 17, 11, 10, and 7 percent at Penn, Northwestern, Duke and Stanford, respectively. Centre College, a very high-quality liberal-arts college, has applications up roughly 8 percent. In the past five years, applications at Northwestern have almost doubled—a 14 percent compounded annual rate of increase. Why, amidst sluggish economic growth and high unemployment, are applications soaring at expensive elite schools, far more so than at mid-quality state universities and liberal-arts colleges?
The answer is not, I think, that students are suddenly aware that these elite institutions are good schools. Rankings of colleges and universities have been around for decades; these rankings have not changed that much and were widely read years ago. Here is my explanation. At one time, having a college degree was a ticket to a good upper-middle-class job, because degrees were relatively rare. Now, a majority of Americans try to go to college, and a large minority actually get degrees. More and more degree holders are getting ordinary paying jobs, many which historically have not required a college degree. The bartender who served me a few days ago informed me that he had an above average (1187) composite SAT score, was a successful college graduate from a mid-quality university, and now, many years later, still serves beer and an occasional Long Island Iced Tea or Manhattan. That is not a rarity anymore. The value of a college degree as a signaling device denoting a high probability of vocational success has declined. Just as the value of money declines when there is too much of it, so too the value of a college education declines, for the same reason.
With big help from the indefatigable Chris Matgouranis, we calculated postgraduate earning differentials for colleges based on their selectivity. We used the Barron’s College Guide selectivity classifications, and then obtained earnings data (alumni median salary by years of experience) from Payscale.com. The analysis thus far is limited to 235 schools (out of a total of 1154) in the categories “competitive,” “very competitive,” “highly competitive,” and “most competitive.” Thus far, we have not yet analyzed the two least competitive categories of schools.
The results are summarized in the chart below. Whereas average earnings for the 71 schools we examined in the “most competitive” group were over $94,000 for alumni 10 to 19 years past graduation, the figure for the “competitive” group (many mid-quality state universities) was less than $63,000. I estimated the discounted present value of the lifetime earnings advantage for graduates of “most competitive” schools compared with “competitive” ones to be about $768,000. Since the incremental cost of attending “most competitive” schools is dramatically less than that, students correctly perceive that attending a prestigious school has big payoffs.
There is other revealing information. The earning differentials grow over time, so the postgraduate work performance by some indicators is better in an economic sense for graduates of the more elite schools. That very likely is because the persons entering the most competitive schools are smarter and more disciplined than those going to the less competitive schools. Employers do what the colleges did earlier—they identify the best, the brightest, and the hardest working.
We are expanding our sample, adding less competitive categories, etc., in an attempt to complete a more thorough analysis. To be sure, the Payscale.com data are not perfect, and involve nonrandom samplings of past students. But there is no reason to believe the data are biased in any particular direction, and the total number of students sampled when the project is completed will be rather large.
Only a certain relatively small percent of the labor force has what might be termed desirable, high-paying jobs—maybe 10 or 15 percent. But if 30 percent of adults have bachelor’s degrees, a large portion of them will not get those good jobs, but some will. Employers who formerly looked indiscriminately at college graduates as being similar no matter where they went to school are no doubt now screening applicants by school quality. Thus job recruiters for big companies often go to the prestigious schools, but not to the less selective ones. Students unable to get into the more competitive schools often seek to overcome that deficiency by acquiring advanced degrees. Thus the diploma explosion feeds upon itself.