Does School Prestige Affect Earnings Potential?

February 18, 2016

by Derek Loosvelt

According to a recent and rather extensive study of 7,300 college grads, how prestigious your school is might make little to no difference to your future earnings. That is, if you're a science, tech, engineering, or math major it won't.

For STEM-related majors, average earnings don’t vary much among the college categories. For example, we find no statistically significant differences in average earnings for science majors between selective schools and either midtier or less-selective schools.
Likewise, there’s no significant earnings difference between engineering graduates from selective and less-selective colleges, and only a marginally significant difference between selective and midtier colleges.
What’s going on? For potential employers, the skills students learn in these fields appear to trump prestige—possibly because curriculums are relatively standardized and there’s a commonly accepted body of knowledge students must absorb.

Here's an interesting example of just how much STEM majors can save when choosing a more modest institution of higher learning.

… if an engineering student chose to attend the University of Pennsylvania instead of Texas A&M, the average starting salary would differ by less than $1,000, but the tuition difference would be over $167,000. At that slightly higher salary, you’d have to work for more than 150 years before you make up for that vast tuition difference.

However, if you're more into econ than engineering, it might make more sense (that is, you'll likely make many more cents) if you went elite instead of mid-tier.

The starkest earnings differences are for business majors, where graduates from the selective institutions earn 12% more on average than midtier graduates and 18% more than graduates from less-selective colleges.
Likewise, social-science majors from selective colleges earn 11% more than their midtier counterparts and 14% more than those from less-selective schools.
In business, more prestigious schools may offer better alumni networks and other connections with potential employers. In other fields of study, more prestigious schools may offer better peer connections, faculty, university resources and, at least in social science and the humanities, access to better graduate programs.

In other words, in investment banking and other finance-related fields that typically look for business and business-related majors to fill their org charts, many employers only recruit for interns and entry-level employees from certain schools, often called "core" schools. And so, if you don't or didn't attend a core school, it will be nearly impossible to be recruited by these employers. And that could set you back years when it comes to earnings potential.

Also, if a graduate degree is your goal, there are certain "feeder" schools that typically lead to the more prestigious graduate programs, and if you don't or didn't study at a feeder school, it may be extremely challenging to get into one of these more prestigious graduate programs, which may offer better connections, more research grant money, etc. And so, again, earnings potential will be affected. 

That said, it's just as or more important when choosing which school to attend, on both the undergraduate and graduate levels, to take into account those factors that can't be measured numerically. You have to think psychically as well.

... it’s important to bear in mind that the monetary costs and benefits are just one part of the burden that students will be carrying. There can also be psychic costs to consider. Most people find studying and being evaluated to be stressful. The more competitive the institution, the more academically able are the peers, and so many students who were at the top of their class in high school will find they are average or lower at a highly competitive institution or in a particularly challenging major. This can be a difficult adjustment.
On the other hand, the emotional benefits of a school—such as living alone for the first time, experiencing campus life and being around new peers—may be more important to some students than a cold calculation of financial rewards.

Which brings to mind a well traveled quote attributed to Albert Einstein (who posthumously had a big week last week): "Not everything that counts can be counted, and not everything that can be counted counts." 

 

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