The Economist just released its first ever college rankings. Unlike most rankings, they use one criteria: value added, the earnings of graduates minus what they’re expected to earn anyway.
One of the most discussed topic in economics is whether education improves earnings. On the surface, it’s obvious: in 2010, men with a high school diploma earned a median income of $32,800. With a bachelor’s degree, their median income was $49,800. The problem is it’s impossible to determine whether or not those people would have made just as much anyway. A third variable, ability, is likely causing both but is impossible to determine. To estimate this, the Economist regresses SAT scores, race breakdown, college size, etc., to predict the expected income of students and compares it to what they actually make.
The top school? Washington and Lee University with a value added of $22,377. Surprisingly, my alma mater, Penn State, ranked a paltry 1045 with a value added of $-3,024.
Is this measure flawed? Of course. It’s impossible to quantify the value of going to a college in one number because there are a multitude of factors that contribute to school quality. A few reasons Penn State ranks so low:
- The rankings only use data from students who applied for federal aid. This skews the rankings towards schools with a high percentage of less well off students. Tuition to Penn State is $31,346 and federal aid is given sparingly, meaning lots of well off parents who fund their students tuition are left out of the data.
- Penn State is combined with all their branch campuses. There are 25 total campuses that serve 100,000 students, including World Campus, an online campus. Most branches operate as a feeder into the flagship campus University Park. Because the quality differs so much between campuses, combining them all biases the estimates downwards.
- The rankings aggregate across subjects and degrees. Penn State is a research university with lots of grad students. Looking at the income of the average student in ten years isn’t accurate because many of these students will stay in school and have income trajectories that peak much later in their lives (think doctors and professors).
There are plenty other reasons the rankings aren’t accurate. For one, peer effects, including networking, aren’t taken into account. Penn State has 645,000 alumni spread around the world, and the benefit of being in a network that large are huge and last an entire career.
I’m not saying there’s no value in these rankings. I think looking at education through a different lens is needed. As tuition skyrockets and a higher degree becomes necessary to compete, these questions need to be asked. Maybe the value-added of going to a school is the most important factor in school choice. As for my alma mater, you may not add as much monetary value as many schools, but it’s definitely far from negative.