Wednesday, April 02, 2008

Slamming the door, part II: Who needs the Ivy League?

PrincetonSlamming the door:
Restricting access to elite education and why it might not matter

A two-part MoneyLaw series

Part II: Who needs the Ivy League?

Slamming the door: Restricting access to elite education and why it might not matter, a two-part MoneyLaw series, examines College Admissions: A Game of Privilege?, a Justice Talking program that "takes a look at the ugly side of the economics of higher education."

Part I of this series discussed recent changes in financial aid strategy by elite colleges. Those changes strongly disfavor poor students, to the point that a talented student from a lower-income family has no greater chance of being admitted to an elite college, let alone affording it, than a mediocre student from a wealthier family. This segment will explain why this reduction in access to elite education might matter — or not.

Read the rest of this post . . . .Key to successIn College Admissions: A Game of Privilege?, host Margot Adler interviews researcher Stacy Berg Dale about a study on the impact of elite education on a student's future earnings. See Stacy Berg Dale & Alan B. Krueger, Estimating the Payoff to Attending a More Selective College: An Application of Selection on Observables and Unobservables, 107:4 Q.J. Econ. 1491-1527 (Nov. 2002) (prepublication .pdf). That paper's abstract states:

Justice Talking, Who needs the Ivy League?  (Interview with Stacy Berg Dale, Nov. 19, 2007)
There are many estimates of the effect of college quality on students' subsequent earnings. One difficulty interpreting past estimates, however, is that elite colleges admit students, in part, based on characteristics that are related to their earnings capacity. Since some of these characteristics are unobserved by researchers who later estimate wage equations, it is difficult to parse out the effect of attending a selective college from the students' pre-college characteristics. This paper uses information on the set of colleges at which students were accepted and rejected to remove the effect of unobserved characteristics that influence college admission. Specifically, we match students in the newly collected College and Beyond (C&B) Data Set who were admitted to and rejected from a similar set of institutions, and estimate fixed effects models. As another approach to adjust for selection bias, we control for the average SAT score of the schools to which students applied using both the C&B and National Longitudinal Survey of the High School Class of 1972. We find that students who attended more selective colleges do not earn more than other students who were accepted and rejected by comparable schools but attended less selective colleges. However, the average tuition charged by the school is significantly related to the students' subsequent earnings. Indeed, we find a substantial internal rate of return from attending a more costly college. Lastly, the payoff to attending an elite college appears to be greater for students from more disadvantaged family backgrounds.
The central finding of the Dale-Krueger study is that the academic prestige of the college attended by a student, generally speaking, has no bearing on future earnings. Greater selectivity in the admissions office simply sinks a student, ceteris paribus, deeper in the class by graduation. Employers are not wholly irrational: they discount class rank by the academic reputation of a job applicant's alma mater, and they discount the reputation of an alma mater by the applicant's class rank. And just as smart, motivated students can find suitable study partners at a less selective school, lazy students at an elite school can find plenty of counterparts with whom to loaf.

Success versus failureWhat does appear to correlate with future success is the tuition charged by the college. That is a fascinating finding. Does paying more for school and going further into debt motivate students to work harder and to find more lucrative postgraduation employment? Or does high tuition reflect expenditures by colleges that actually redound to their students' benefit? Dale and Krueger draw no firm conclusions.

Of course, to the extent elite education does make a difference, there is one class that appears to benefit most: "students from more disadvantaged family backgrounds." Poor students seem to benefit because elite schools give them connections they would otherwise never acquire. These are the very students being iced out of elite universities by emerging trends in admissions and financial aid.

In short: Elite education doesn't matter, except perhaps for the very students that elite universities' admissions and financial aid practices are excluding. The larger reality reflects a conclusion drawn nearly a century ago by Shane Hunt, Income Determinants for College Graduates and the Return to Educational Investment 56 (unpublished Ph.D. dissertation, Yale University 1963), published at 3:2 Yale Econ. Essays 305-57 (1963), and quoted by Dale and Krueger:
The C student from Princeton earns more than the A student from Podunk not mainly because he has the prestige of a Princeton degree, but merely because he is abler. The golden touch is possessed not by the Ivy League College, but by its students.
Once again, higher education, despite its worst instincts and weakest efforts, is redeemed by its students. For schools closer to Podunk than Princeton in mission, resources, and reputation, the lone challenge — indeed, our sole calling — consists of enabling those students to achieve the most they can through the value we provide as teachers, mentors, scholars, and role models.


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