College Education: You Don’t Get What You Pay For
King Banaian studies the most recent literature and finds that students are leaving college with record debt levels and that, paradoxically, those attending more selective institutions not only get far more for their money but pay less.
Because students are now willing and able to select higher education in a national rather than regional market, colleges and universities compete more intensely for the best students. At the very best schools, that competition actually drives down the cost of an education that is borne by a student (or parents.) The remainder is paid by an endowment; each graduate in turn pays for good students to come after them. Even though the donations to the alumni fund are higher at the best schools, the total investment made on the best student, and the rate of return on the investment, generate both larger alumni funds and more income for those students.
[T]he share you pay to go to the less-selective college is higher, and the difference between the amount of spending done by a very selective college and a not selective college (per student) widened from a ratio of about 4 to 1 to nearly 8 to 1 (even though all schools spend more per student nowadays.) Getting into a 99th percentile school just gets you access to so much more, and it seems to get you access to mostly high-quality classmates, where there may be complementarities.
This means that for our public four-year schools, there are fewer high-quality students around; our students are borrowing more to come here, and relatively speaking getting less of an advantage than they would have thirty years ago.
Depressing, if not surprising, news. At less selective institutions, additional students are a net loss, since tuition is less than the cost of delivering the service. So students are paying something like full price.
Meanwhile, not only are the prestigious institutions competing for the best students partly on the basis of tuition waivers and stipends but the graduates benefit from the signaling and networking of the brand and are not only more likely to want to donate to their alma mater’s endowment but more likely to be able to afford to be generous.