More Bucks, Same Bang

At this time last year, Lily Jones and Sonika Mehta were both weighing their college options: private or public? East Coast or West? Big city or small?

Today, as first-year students at New York University, they're each happy with their decision to seek their undergraduate degrees at one of the nation's top schools. Just listen:

"I definitely do feel very bad," says Jones. "I still feel kind of guilty."

"I feel guilty all the time," Mehta chimes in.

"Not bad," clarifies Jones. "I just feel guilty."

The two are discussing a topic on the minds of hundreds of thousands of high school seniors this fall as they consider college applications: tuition costs, which are rising at about double the rate of inflation, with no sign of slowing. Neither Jones nor Mehta receives grants or scholarship money, so they—or in this case, their parents, hence the guilt—are on the hook for the entire cost of an NYU education, which after housing costs can clear $60,000 a year.

Mehta, who considered some cheaper state universities before settling on NYU, says she ultimately decided the price would be worth it for the easy access to New York City and its cultural riches. "But I do realize how much money it is. It's a ridiculous amount of money."

Students who take on staggering debt loads or drain their parents' savings to go to high-priced schools generally assume a payoff once they're out in the working world. "Anyone can go to a state school," explains Evan Lee, a sophomore economics major at NYU, of his decision to pay several thousand dollars more a year (after scholarships) instead of settling for State University of New York–Binghamton. "A lot of the job applications that I've looked at, they say 'requires a high GPA from a top school.' A school like Binghamton, they're good, but if I go to Chicago, they might say, 'What's a Binghamton?'"

It's common reasoning: A selective-college diploma may come at a high price, but it will open doors that might have been closed to you if you'd attended a cheaper public school. Except for one thing, say the authors of the most exhaustive study to track the post-graduation earnings of students by school selectivity: It's hogwash.

"Where you go to school doesn't matter near so much as who you are—how smart you are, how ambitious you are—in terms of how it affects your later income," says Stacy Dale of Mathematica Policy Research, who, with Princeton economist (and former top Obama adviser) Alan Krueger, has conducted two major studies of selective colleges and their effects on future income. "Everyone looks around and says, 'Wow, these people who went to Harvard make a lot of money.' And it's certainly true. But what people can't really see is what they would have made had they not gone to Harvard."

To account for this effect—that students at top schools are bound to be top students, and so more likely to be successful regardless of where they choose to get their diploma—Dale and Krueger concocted a clever workaround: They compared post-graduation income among cohorts who were accepted at the same schools—say, both the University of Pennsylvania and Pennsylvania State University. Their finding: There was no statistically significant correlation between choosing a more selective (and expensive) undergraduate program and future earnings.

"Our findings are very surprising to a lot of people," says Dale. "I think everyone's gut feeling is it's got to pay off—why would people ever pay for Yale or Harvard if it doesn't pay off?"

Sticker Shock

It's hardly news that the cost of a college degree is soaring. Higher-ed experts cite elite institutions conducting bidding wars for top faculty and state cuts to spending on public universities as two prime reasons, but have few suggestions for how to stem the tide; in August, President Obama proposed cutting federal financial aid dollars for schools that overcharge for tuition, but this would require Congressional action, and in any case wouldn't kick in until 2018 at the earliest.

In the meantime, college cost experts caution that prospective students weighing their college options should look not at sticker price—the

"tuition plus fees" number that is commonly highlighted—but at net cost, your expected total outlay after getting back any available grants and scholarships. It's a calculation made easier by the net cost calculators that any schools wishing to receive federal student loan money have had to include on their websites since 2011; these allow applicants to plug in their family financial data and get back an estimate of what they'll actually be on the hook for after available grants and scholarships.

In some cases, it's a huge difference. Columbia's cost calculator shows that a typical new student from a family with $100,000 in annual income could end up paying only about $15,000 of the school's $64,000 in annual tuition, fees, and housing; the average cost per student is about $20,000, according to the school's own figures. At NYU, the numbers are less dramatic but still significant: A school spokesperson says that its average student pays just 77 percent of the roughly $60,000 in annual costs, with those that receive financial aid paying an average of about $34,000.