Picking the Right College

Deciding where to attend college can be one of life’s pivotal decisions – one that can largely shape a student’s future. Every year, high school seniors across Montana apply to schools based on limited information, often making their decisions on vague rankings, a school’s reputation or how much they like the football team.

Making a cold, rational calculation on costs can be difficult. For example, how much would they earn down the road by attending one school over the other? To help students make a more informed decision, the Department of Education released a trove of data about colleges on the website collegescorecard.ed.gov. It allows a user to compare colleges based on a variety of metrics, including the net cost (after financial aid), the school’s graduation rate and their possible income 10 years after enrollment.

Some of the data presented could be confusing to young people, who might be led to choose one school over another due to what the data suggests. The biggest problem with the Department of Education’s website is its income data, which can be misleading.

To understand the problem, consider the mean earnings, median earnings and the share of students earning more than $25,000 ten years after enrollment for Montana’s main four-year universities presented in Table 1. (I’ve added Harvard University and the national average of all similar universities for comparison.) The table also presents the average net cost of each college.

Table 1. Comparative Earnings for Students from Montana’s Universities.

A couple of things stand out. First, the difference in average earnings between colleges is quite large and secondly, the earnings outcomes for all Montana’s colleges is relatively poor. Those earning fall below the national average. (And yes, for students who qualify for federal financial aid, Harvard is cheaper than the other universities.)

While it is tempting to look at these data and infer that colleges with higher earnings are better, in that they are doing a better job preparing their students for the labor market, this conclusion is not supported by the data presented on the College Scorecard website. In fact, it does nothing to reveal the quality of any institution listed.

Before delving into big conceptual issues, it is worth noting that the income data has its limitations. One must keep in mind that the reported information does not represent the earnings for all students enrolled in a particular college. It only represents the earnings for students who received some form of federal financial aid. And the earnings data only covers the first 10 years after a student’s initial enrollment. For most students, this is five or six years after graduation – some will be enrolled in graduate school, while others may be taking time off to raise children. As such, the reported income data may not reflect the true long-term earnings potential of its graduates.

But even if one assumes that the data is accurate in describing a student’s earnings potential, it still cannot support any conclusion on the effect a particular college has on future earnings. Differences in income across colleges reflect the offering of different programs, supplying workers to different labor markets and enrolling different types of students.

Not every college offers the same majors and some majors earn more others. Plus, earnings vary widely across major fields. For instance, engineering majors earn nearly twice as much as fine arts majors, $70,620 to $36,360 a year respectively. As such, the differences in the majors offered explains much of the discrepancy in earnings between colleges. Research also indicates that students seeking to earn more money may gain more by switching from a low earnings major to high earnings major rather than by switching schools.

A university’s location also matters as earnings for college graduates vary by state and region. Many students stay in the vicinity of their school after graduation. For instance, nearly 70 percent of Montana University System graduates work in Montana their first year after graduation. As such, colleges in a region with lower than average wages will likely have lower average wages for their graduates.

Earnings for schools in the Rocky Mountain region are over $5,000 less than students who attend schools in New England and almost $4,000 less than students who attend schools in the Far West. Thus, the low earnings for Montana’s colleges tell us more about Montana’s economy than the performance of our colleges.

Some schools are also highly selective. They only accept students with high test scores or ample family resources and as a result, their average earnings reflect the underlying abilities of their enrollees. There is a clear correlation between a school with higher admissions standards and higher average earnings.

Finally, student demographics matter as people with different characteristics earn different amounts. For instance, women earn less than men and a college with a higher proportion of female students, or some other lower earning group, will have lower earnings in the College Scorecard data.

Thus, data on a students’ average earnings post-graduation does not provide a reliable measure of college quality. Choosing a college with a higher average earning is not likely to change a student’s lifetime earnings, unless changing schools leads the student to a different major or labor market.

This does not mean that college choice does not matter, it merely indicates that organizing colleges into a simple hierarchy, where those on the top are clearly better than those on the bottom, can be misleading. While choosing one college over another may affect the quality of one’s experience overall, making the right college choice requires more than looking to a simple ranking.

The appropriate college is the college that is the best fit for a particular student. Figuring out which school is a good fit is another subject, but it certainly requires more information that the average earnings across schools provided by the Department of Education.