Students who go to more selective colleges make more money later in life. The 2013-2014 PayScale College Salary Report gives starting salaries of ~$60k for graduates of Ivy League schools vs. ~$45k/year for graduates of mid-tier state schools, and mid-career salaries of ~$110k/year for graduates of Ivy League schools vs. ~$80k/year for mid-tier state schools, so the difference is about 30%. 

This partially reflects students who go to more selective colleges being more able and ambitious, as opposed to attending a more selective college boosting one's income. How much does attending boost income? The famous paper Estimating the Return to College Selectivity Over the Career Using Administrative Earning Data (2011) by Dale and Krueger raises the possibility that on average, attending a more selective college doesn't raise earnings at all. Specifically, controlling for

• Student high school GPA
• Student SAT score
• The average SAT score of the colleges that a student applied for¹
• The number of applications that the student submitted
• Various demographic factors (race, sex, parental education)

they found that as a group, there was no statistically significant difference in income later in life between students who went to more selective colleges and students who went to less selective colleges. Their finding is somewhat robust: it's based on a large (~10k) sample size, it's true both of the class of 1976 and the class of 1989, it's true of the class of 1976 from age 25 through age 50 and it's true both of men and of women.^2,3

A couple of caveats:

• Blacks, Hispanics, and children of parents who don't have college degrees and who attended more selective schools earned more than those who did not.
• The 27 universities that the students were drawn from are highly selective: if one were to look at less selective universities, one might get different results.

Dale and Krueger's central finding has been taken to be evidence that going to a more selective college does not increase one's earnings, contrary to conventional wisdom.

 There are many factors that could give rise to a difference in income between those who attended more selective colleges, some of which favor those who attended less selective colleges, and could counterbalance others that increase earnings. I list some potential contributing factors below (some of which were pointed out by Dale and Krueger). In each case, whether these effects are present is unclear, and to the extent that they are there, the overall effect of them is sometimes unclear, but they could give rise to a difference between the two groups.

Selection effects

These have no bearing on whether going to a more selective college increases expected earnings.

Cost

The cost of attending a more selective college could (after taking a student's ability and merit-based financial aid into account) be higher or lower than the cost of attending a selective college. So the choice of attending a more selective school could reflect having a family that's willing to pay more for college (and/or the willingness of the student for his or her family to pay).

Future career plans

Students who choose to attend more selective schools could be more or less likely to go into academia than students who don't. Academics make less money than other people do (after controlling for factors such as GPA, SAT scores and conscientiousness). Similarly, those who attend more selective schools may have other career preferences that feed into expected earnings

For students who go on to professional school (law, medicine or business), college attended doesn't matter as much for later life prospects. So attending a more selective college could reflect lower intent to go on to professional school. The earnings of people who go onto professional school are generally higher than those of people who don't – this points in the direction of expected earnings being higher for those who go to less selective colleges.

Concern for prestige

Students who choose to attend more selective colleges plausibly care more about prestige. This desire for prestige could correspond to more desire to make money later in life – this points in the direction of expected earnings being higher for those who go to more selective colleges. 

Signaling

The impact of prestige of college attended on hiring decisions

According to research by Lauren Rivera, high paying elite professional service firms (investment banks, law firms, and management consulting firms) give a lot of weight to whether job applicants attended top four universities when making their hiring decisions.

More broadly, employers give weight to the prestige of college attended. However, the effect size is smaller than it might seem. In a 2013 Gallup Poll, 9% of business leaders said that the college a job applicant attended is "very important" to managers making hiring decisions, and 37% said that it's "somewhat important." Notably,

(i) employers listed college attended as the least important of the 4 factors that they were asked about

(ii) the American public gives more credence to employers weighting college attended when making hiring decisions: 30% think it's "very important" and 50% think it's "somewhat important." 

(The 2013 data is much more recent than the Dale-Krueger data, but still provides relevant evidence.) 

Once one is hired, where one went to college won't play a role in professional advancement at that firm (except to the extent that it built relevant skills). 

Influence on grades

Carl Shulman suggested that going to a more selective school reduces one's expected GPA, because of higher grading standards. It's unclear to me whether this is true, and the effect could even cut the other way, but there's plausibly an effect in some direction. Reduced GPA reduces one's prospects for getting into medical or law school. Perusing forums for applicants, one finds many people saying that GPA is a dominant factor in admissions, one that's far more important than prestige of college attended.

Influence on major choice

Attending a more selective school reduces one's relative standing amongst students in a given major. This can lead to students at more selective schools choosing a less demanding major than they otherwise would have (whether because the major requires more effort than it would have, because one finds it intolerable to be one of the weaker students majoring in a given subject, or for some other reason). In the 2013 Gallup Poll cited above, business leaders surveyed listed the subject that a student majored in as significantly more important than college attended, in the context of hiring decisions.

Treatment effects

Peer group

Having a more capable peer group can lead to better learning opportunities, and higher expected earnings. Ben Kuhn wrote 

By watching how more competent people work and think, you can often pick up useful study habits and better techniques for the subject you're studying. I've found this especially true in CS classes, where I've had this experience from both sides, e.g. teaching classmates how to use Git and picking up C coding style and tricks from better programmers. 

It can also give one access to better advice: Ben Kuhn also wrote:

Knowing talented students has given me info about several excellent courses, as well as summer opportunities, I wouldn't otherwise have known about. 

These considerations generally favor more selective schools, but not as strongly as might meet the eye: less selective schools often have honors courses and honors programs, where one might be able to meet students as capable as those who one would be interacting with at less selective colleges (though the best students at more selective colleges will generally be stronger than the best students at less selective colleges).

Networking benefits

Going to a more selective college will generally expose one to people who will be in higher places later on in life, and who will correspondingly be able to connect one with influential people in one's professional field, who may get one a high paying job and so forth. Such people may also serve as professional collaborators, for example, if one wants to do a startup right out of college.

As above, the effect here is smaller than might initially meet the eye, because one might be able to get similar benefits by interacting with the most capable students at a less selective college.

Confidence

Some people have suggested that being a "small fish in a big pond" reduces students' confidence relative to being a "big fish in a small pond." Assuming this, to the extent that confidence increase later life earnings, all else being equal, attending a more selective school will reduce expected earnings.

Better learning due to attention from professors

Some people have found that being a "big fish in a small pond" is conducive to getting more attention from the professors in one's classes, on account of standing out. This can increase the amount that a student learns, because of professors' greater willingness to spend time on personalized instruction.

Self-sufficiency

Some people who I know report to having a subjective sense that being in a less elite environment was helpful to them, because it forced them to be independent (on account of being different from their peers), whereas had they been in an elite environment, they would have "gone with the flow" and uncritically made their decisions based on what their peers were doing. All else being equal, this factor would increase expected earnings of those who attend less selective colleges.

Influence on major choice

Influence on career choice

Going to a more selective college could nudge one toward or away from academia, going into the non-profit world, getting a professional degree, etc. Earnings vary across these fields, and this could give rise to a difference between the groups.

Implications

Before thinking seriously about the paper by Dale-Krueger, I had subscribed to the conventional wisdom that going to a more selective college generally boosts expected earnings. Thinking it over more carefully, it's now genuinely unclear to me whether this is the case, and it could reduce expected earnings in general.

Rather than taking the Dale-Krueger finding to be definitive, one should give some weight to conventional wisdom, on the grounds that the paper might have hidden methodological errors, or have ceased to be relevant in the present day. But in view of

1. The Dale-Krueger finding
2. The fact that there are a number of ways in which going to a more selective college could decrease earnings
3. The fact that and the fact that the salient advantages of going to a more selective college are less significant than they might initially appear
4. The fact that conventional wisdom is at least partially rooted in a conflation of correlation and causation

it seems reasonable to adopt a "best guess" that if going to a more selective college does increase expected earnings, the effect size isn't high.

What implications does this have for students who are trying to decide what college to go to, or how much to focus on getting into college? First some general considerations:

• Rather than taking the Dale-Krueger finding to be definitive, one should give some weight to conventional wisdom, on the grounds that the paper might have hidden methodological errors, or have ceased to be relevant in the present day. But in view of (i) the Dale-Krueger finding (ii) the fact that there are many ways in which going to a more selective college could decrease earnings (iii) the fact that and the fact that conventional wisdom is at least partially rooted in a conflation of correlation and causation, it seems reasonable to adopt a "best guess" that if going to a more selective college does increase expected earnings, the effect size isn't high (perhaps on the order of ~2% – this is an intuitive guess based on the data given in the Dale-Krueger paper).
• Even if the causal effects lead to there being no difference in expected earnings on average and at the moment, that doesn't mean that there's no difference for a rational actor who wants to maximize expected earnings. For example, if attending a more selective (or less selective) college were to reduce expected earnings on account of increasing the probability that students go into academia, if one doesn't want one's earnings to be reduced, one can simply buck the trend and not go into academia. However, there are certain casual effects over which one doesn't have control (such as the fact that elite firms look more favorably on students who graduated from top 4 colleges)
• The casual effects will vary from person to person. For example, going to a college that elite finance firms look on favorably will have an effect for those who aspire to go into finance to a greater degree that it won't for those who don't aspire to go into finance. A high school student can try to assess which causal effects will apply to him or her. But it can be hard to tell ahead of time: before entering college, one might be unclear on (or mistake about) whether one wants to go into finance.
• Expected earnings is not the only metric of the value of going to college. There's also the consumptive experience, as well as well as its impact on career success that's not reflected in earnings. It's plausible that going to a more selective college matters more for professional success for people who will be going on to academia than it does in general.

• The Dale-Krueger finding generally argues points in the direction of giving greater weight to cost differences between colleges than to differences in prestige. Depending on one's family's income and savings, going to Harvard can be cheaper than going to Berkeley, but for other families there will be a difference between the two on the order of $100k (which if invested for 30 years would grow to ~$800k).
• The Dale-Krueger finding points in the direction of effort spent getting into college being less cost-effective than most people think, which should shift one in the direction of spending less effort on it and more effort on building employable skills, enjoying life, and contributing social value.

Footnotes

[1] You might wonder why the authors didn't control for the average SAT score of the colleges at which the students were accepted. The authors did something like this (actually, comparing students who had been accepted at the exact same set of colleges) in a 2002 paper, and obtained similar results. From the paper: "The matched applicant model and self-revelation model yielded coefficients that were similar in size, but the self-revelation model yielded smaller standard errors. Because of the smaller sample size in the present analysis, we therefore focus on the self-revelation model."

[2] The authors say this in the text of the paper, but when I look at Table 4 of the paper on page 32 of the PDF, the data seems to indicate that for women from the 1976 cohort broken down into age groups, there is a statistically significant difference, in favor of those who attended less selective schools. But I assume that I'm misinterpreting the table: I'd welcome any help interpreting the data on this point.

[3] The authors qualify this by saying "The estimates from the selection-adjusted models are imprecise, especially for the 1989 cohort. Thus, even though the point-estimates for the return to school quality are close to zero, the upper-bound of the 95 percent confidence intervals for these estimates are sometimes sizeable."

Cross-posted from the Cognito Mentoring blog