The Economist College Value Analysis

Parents Forum
1

http://www.economist.com/blogs/graphicdetail/2015/10/value-university

I haven’t seen this discussed here yet, and it deserves discussion. A week ago, The Economist published a huge analysis it did of the effect on early-career earnings of specific colleges, which of course included a ranking based on how each college performed vs. demographic expectations for its students. The analysis certainly doesn’t resolve the question whether that’s a good way to judge colleges – something The Economist acknowledges – or whether the particular data it used was powerful enough to make college-to-college differences meaningful. But it’s the most sophisticated, thoughtful analysis of comparative earnings data I’ve seen, and the results are both interesting and surprising.

What The Economist team did was to take all of the data in the federal database and to develop a model of expected income based on factors other than which college people attended – demographic factors like family income at the time of first enrollment, race, sex, and other factors like college major, region, and subsequent education. Then it identified an expected median income level for each college based on the characteristics of its financial aid-applying students. Then it looked at how each college’s actual alumni did compared to the model’s predicted level. The brilliance of this is that is compares engineers in the southeast to engineers in the southeast and English majors in the midwest to other English majors in the midwest. It doesn’t simply tell you what you already knew.

What it tells you is that there are significant differences in college performance. The top of the list includes Harvard and MIT but also Babson, Villanova, and Cal State Bakersfield. And Yale – with demographic expectations a littel higher than Harvard’s – is near the bottom of the list. Harvard graduates earn more than Villanova graduates, but the two beat the averages by about the same amount (as does tiny Otis College of Art and Design, whose grads seem to be beating expectations by an astonishing 40%). And how can it not be interesting that Harvard’s 28-year-old former aid applicants out-earn Yale’s 28-year-old former aid applicants by almost a third? I find that stunning, and almost inexplicable, given how fundamentally similar they are.

2

I don’t find the H/Y difference stunning. I know that my sample size is small, but the finding is tiredly consistent with what I would have predicted based on DS’s classmates who chose to attend Y over H, and v.v.

Fwiw, DS will probably make a good bit of money, but he’d rather design autonomous cars than be involved in a startup related to autonomous cars. Both kinds of people are needed, but they’re different.

3

http://talk.collegeconfidential.com/college-admissions/1825774-new-college-ranking-by-the-economist-based-on-alumni-earnings-above-expectation-p1.html

http://talk.collegeconfidential.com/villanova-university/1826798-economist-rankings.html

http://talk.collegeconfidential.com/college-search-selection/1826040-the-economist-measures-colleges-value-added.html#latest

4

Yup, well I obviously don’t read the College Admissions or College Search & Selection forums much. Or the Villanova forum.

5

Presumably, there are some characteristics of the school or students that were not measured and put into the expectations. E.g. does one school have a higher tendency than the other of fast tracking students into Wall Street and consulting versus lower paid post-graduation destinations?

Also, the sample size may be small at those particular schools, since it is based on the students with federal financial aid (a small percentage at both Harvard and Yale).

6

All good points, but – (a) I think that, if it’s not too small, the group of federal financial assistance applicants is an important one, especially if you are talking about a 30% difference. That’s the kind of gap that never gets made up. (b) Of course it looks like there are some characteristics of the school or students that were not loaded into the expectations. That’s what the analysis is trying to get at: How is College A and its students different from College B and its students?

7

Yep, this ranking can tell you if kids at school A will make more than the kids at school B who have the same characteristics (but possibly not the same motivations). It can not tell you if the same kid would make more money coming out of school A vs. school B. Anecdotally, it seems that W&L practically selects for kids who want to make money while both Georgetown and Harvard seems to attract those who do even compared to peers.

Also, how do they account for unis having different disciplines? For instance, Northwestern has schools/departments in music, education, journalism, communications, and theatre. Most of those majors will not enter high-renumeration fields. Georgetown has none of those. How would you compare the 2 schools?

8

The SAT scores seem to be gathered from the college as a whole, rather than the federal loan recipients.

According to Washington Monthly’s ranking of colleges, Harvard and Yale do differ in the “Peace Corps” and “ROTC” categories.

Peace Corps: Harvard 177
Yale 57

ROTC: Harvard 214
Yale 134

http://www.washingtonmonthly.com/college_guide/rankings-2015/national-universities-rank.php

Class of 2014 career plans:

Harvard: 31% into finance/consulting
8.7% nonprofit/public service
6.3% research
14.8% engineering http://features.thecrimson.com/2014/senior-survey/

Yale: 26.2% into finance/consulting
33.3% nonprofit/government
16.2% research
2.2% engineering
http://ocs.yale.edu/content/first-destination-survey-class-2014-employment-choices

So the difference in earnings 10 years out among federal loan recipients likely reflects different career paths.

JHS, looking at the career paths immediately post-graduation, I would not say that Harvard and Yale are “fundamentally similar.” Newly minted Yale graduates are almost 4 times more likely to choose nonprofit or public service employment than Harvard grads, and almost seven times less likely to go into engineering.

9

What are the implications of this difference on the earnings of graduates from both colleges?

10

Hedge funders and tech entrepreneurs tend to make more money in their late 20s than foreign service officers, teachers, post-docs and military officers? On average, in the aggregate, etc. As the Economist is comparing the pay of a subset of students from both institutions, there’s no way of knowing how the particular professions were distributed among the two subsets.

It might be different if The Economist were to compare H&Y grads by undergraduate major. But they didn’t.

11

According to the article, The Economist used the following independent variables.

Average SAT scores
Sex ratio
Race breakdown
College size
Public or private
Mix of subjects students chose to study
Affiliation with the Catholic Church or a Protestant Christian denomination
Wealth of its state
Prevailing wages in its city
Ranked undergraduate business school
Percentage of its students who receive federal Pell grants
Liberal-arts college
Political leftism and “reefer madness” indexes

They do not publish the regression formula, but I would love to see what the positive and negative contributions are for each variable, particularly the leftism and reefer madness indexes.

12

I’m not sure I buy into their methodology. Any rankings that has Caltech at the bottom/u isn’t of much value.

13

A large percentage of Caltech grads go into academia which doesn’t pay well. I think their methodology is good.

14

They don’t claim their analysis and methodology is the be-all and end-all of college quality. In fact, they caution that it isn’t. But they say, with justification, that it’s worth knowing the results of this analysis.

As for Harvard vs. Yale, the larger number of engineers at Harvard shouldn’t have any effect, because that would be factored into the expected earnings numbers. (As the article says, that’s a fundamental flaw with most simple forms of this analysis: Engineers and pharmacists make more out of the box than almost any other field, so most analyses effectively wind up measuring the proportion of engineering and pharmacy grads a college has.) As it happens, notwithstanding that difference Yale actually has higher expected earnings than Harvard, although not by much.

I note, by the way, that my class of 2009 kid has worked nowhere but in government and nonprofit enterprises, and out-earns by some margin the median for her class at Harvard, not to mention her own college which is down around the Yale level. Her college roommate, who is a PhD student in English Literature and Gender Studies, however, does not. And the roommate would be in these numbers, while my kid isn’t.

15

Actually, the Economist states flat out that they’re trying to determine which colleges give the best value and why.

However, they miss the key component of motivations, without which, this study is no better and may be worse than something like the Payscale ranking.
For instance, schools that send a disproportionate percentage of grads in to academia instead of finance/consulting/law (like Caltech or Swarthmore) are penalized. So is a school like Yale that sends a disproportionate number in to public service/non-profits.

What good is a ranking that does that?

16

Also, they state that they take geography in to account, yet 17 of their top 20 are on the East or West coast, so in practice, just how well are they taking geography in to account?

17

If you read through the article in the magazine, or the blog I linked above, and still hold to that statement, I’m nicking your Critical Reading score. Both have qualifications out the wazoo, including (1) the sample isn’t representative unless you are a federal financial aid applicant, (2) the analysis essentially looks at earnings at age 28, a point when many people with high expected future earnings are still in graduate school, and (3) earnings isn’t the entire point of education. But even if you believe strongly in #3 – as I do – it would be unrealistic to suggest that people aren’t generally interested in maximizing their earnings without compromising their interests.

18

OK, @JHS, your arrogance justifies the gloves coming off.

I read the blog, not the article, and here’s what the blog said:

“The Economist’s first-ever college rankings are based on a simple, if debatable, premise: the economic value of a university is equal to the gap between how much money its students subsequently earn, and how much they might have made had they studied elsewhere.”

How do you suggest that I interpret that statement, other than that the Economist is trying to determine which colleges give the best value?

Yes, they give plenty of qualifications at the end. Qualifications that are so huge that it makes their ranking a joke compared to what they are trying to measure. How do you feel about a bank promotion that says “20% annual interest rate on your deposits if you bank with us!” and then in the small print, states “offer valid for one year only to 46-year old hermaphrodites who are missing a limb; for all others, the promotional rate ends after one day”. Would you state that that bank offers the best interest rate around?

I also have a problem with this statement:

“The bar is set extremely high for universities like Caltech, which are selective, close to prosperous cities and teach mainly lucrative subjects. If their students didn’t go on to extremely high-paying careers, the college would probably be doing something gravely wrong.”

Such as training their students for academia. The horror.

Finally, not to get too snarky, but I have to nick your critical thinking score since you either fail to comprehend or ignore my point in post #6. For sure, many people want to maximize their earnings without compromising their interests. But the Economist ranking does not tell them how to do that. Do you understand that, even though, when adjusted by the criteria that the Economist uses, the kids at Georgetown do better than expected than the kids at Caltech (because, for instance, a lot of the STEM kids in Caltech go in to academia while baseline STEM kids tend to start working in pretty good-paying jobs right after graduation and because a lot of the social science kids at Georgetown go to Wall Street while baseline social science kids generally don’t), for a particular kid, he may actually be maximizing his earnings and interests by choosing Caltech over Georgetown (for instance, if he is a CS major looking to found a start-up)?

19

Lets look at some schools I’m very familiar with since I currently have several nephews and nieces (and 1 child) attending these schools.

University of North Florida is ranked 406 (68% percentile)

University of Florida is ranked 904 (29% percentile)

Florida State University is ranked 918 (28% percentile)

COA is about the same at all three Florida public universities, and yet we’re to believe that UNF is by far the best value (ranked 500 spots higher!).Maybe UNF did better in the “reefer madness” indexes? If a Florida student had to pick between these three schools, which would they choose? UNF? Because of the “prevailing wages” in Jacksonville? :-??

20

No, it is saying the UNF graduates are relatively more financially successful than the characteristics of UNF and its students would indicate, compared to UF and FSU compared to their own characteristics and students. It does not say that a given student should choose UNF over UF or FSU.