Personal Wealth Management

Except for the cost, The Case For Elite Universities is impressive.

I think though that the arguments against attending an elite school have merit as well.

This post looks at some of the negatives.

Inconclusive Data on Cost-Benefit

There are a variety of studies indicating that a top name university is worth the cost. But there are an equal number of studies that conclude that top schools are not worth the price. Nothing appears to be definitive.

I have no hard opinion on this. I have seen some people do incredibly well with an elite school education and others not so well. Would those who succeeded have also prospered with a degree from a lesser name school? My gut instinct says yes.

Actual Cost Comparison

While it is inconclusive as to whether the long term benefits are worth the cost, it is clear that an elite education is expensive.

A simple cost comparison based on real numbers for 2009. Given that at this date the Canadian and US dollars are relatively close in value, we shall pretend they are interchangeable for this example.

Javier lives in Edmonton and is considering whether to attend either his local university or go to Harvard. At current costs, the University of Alberta would run about $7000 per year for tuition, books, and fees, assuming he lives at home. If he attends Harvard, the estimated costs are about $50,000 per year, including housing but not factoring in travel costs or interest on student loans. Over four years the difference is  $172,000.

Okay, but everyone knows that Canadian schools are inexpensive. What about those in the US?

Consider Alexis from Tucson. She could live at home and go to the University of Arizona for about $8000 in tuition, fees and books. But she has been accepted into Princeton. The annual cost, including housing but excluding travel and loan interest, runs about $50,000 annually.  She is looking at a difference of $168,000.

When you factor in travel and incidentals, choosing the Ivy League schools will cost $200,000 more over 4 years than the in-state/province alternative.

The Power of Compounding

Remember our discussions on the power of compounding? At a 9% compound return that $200,000 would be worth $1.1 million after 20 years. After 40, it would be worth $6.3 million.

You would require an excellent career path to recoup this amount had you attended Harvard or Princeton.

In fact, to reach that $6.3 million after 40 years, you would need to save an extra $19,000 per year. Factoring in only the top federal US tax rate, that equates to an extra $30,000 in salary per year. And that ignores state taxes or the interest you would need to pay on the extra $200,000 in loans. If you consider this in the calculations, you may need to earn $50,000 a year more, on average, to catch up by retirement age.

In reviewing Payscale data on the most popular jobs for Business Management majors in the US, the median salary for Human Resource Manager is $69,300, Operations Manager $71,400, Bank Branch Manager $58,100, Financial Analyst $54,300, Financial Controller $86,800.

At these salary levels, will a company pay someone $30-50,000 (50-75%) more per year simply based on the university they went to? Doubtful.

Companies today tend to have salary bands for positions. You need to fit into the band. Companies do not typically say, hey this is a Harvard guy, let’s pay him 40% more than we intended to for that job.

The Interview is not the Job Offer

Ceteris paribus (a well-used in business Latin phrase for “all other things equal”), I believe that attending a big name school will better help you land an interview than a school with no reputation. But once you are in the interview seat, it is up to you to get the job.

It will be your experiences, skills, and personality that ultimately decide whether you get the job. Not simply the school you went to.

Perhaps  the money you save in not going to an elite university might better be spent on improving these areas of your resume.

Universities are Made up of Faculties

University reputations and expertise are not consistent across all faculties. Some have relatively better and worse departments. A smart employer will know which schools have the best departments in the areas that they require staff.

For example, according to the survey by US News, the best universities for finance majors currently are: University of Pennsylvania, New York University, University of California – Berkley, University of Michigan – Ann Arbor, MIT.

But if you want a well educated Mechanical Engineer, you should consider graduates from: Rose-Hulman Institute of Technology, Kettering University, California Polytechnic State University–San Luis Obispo, Cooper Union, Harvey Mudd College.

If a company wants new finance or mechanical engineering graduates, you will be better off attending one of these schools rather than a Harvard or Cornell. And you may have more money left in your savings account upon graduation.

For an extra credit, consider that even within a specific university, different campus locations may also be seen as relatively better or worse. Note the Ann Arbor specification for Michigan. Or the San Luis campus for Cal Poly.

Speciality Schools

While some universities have relatively stronger and weaker faculties, the same may be true for boutique schools.

Some schools specialize in different areas. And there is an increasing number of these speciality schools every year.

I was asked about good international business schools recently.

One school with a strong reputation is Thunderbird – The Garvin School of International Management. Most people will have never heard of this institute. But that is not really important. What matters is if the person doing the hiring has. A resume with Thunderbird on it will be more interesting to an employer that seeks an international business graduate than someone with a degree from Brown.

University is Only One Piece of the Puzzle

The university you attend is only a small part of the consideration when hiring. And that consideration diminishes over time.

Employers are more concerned with the skills you possess, the experience that you have, and the person that you are. As you advance in your career, work experience and actual skills become the main criteria in hiring or promoting staff.

What you can do is more important that where you once went to school.

That is the case against attending an elite university.

Now you have the arguments for and against, along with links to some information to assist in your own analysis.

For what it may be worth, my next post will give my own thoughts on the matter.