A Cost-Benefit Analysis

I recently read an article in the Harvard Business Review about a study of the relationship between the university rank and performance of graduates. The students came from 294 universities that ranked from Top 10 to about top 20,000 in the Webometrics global university rankings that rank over 30,000 universities worldwide.

The study observed the students’ performance for two months as they were working in global virtual teams on real-life business consulting projects for a number of corporate clients. The study captured the quality of the output as well as hard and soft competencies including cooperation with team members, leadership, language proficiency, technical skills, emotional intelligence, creativity, and more.

The results are interesting especially if you’re wondering whether the cost of a prestigious college is worth it when compared to the benefit of graduating from one and job opportunities after graduation.

After controlling for age, gender, and the year of study, the study found that graduates from higher-ranked universities performed better, but only nominally and only on some dimensions of performance. Specifically, the overall performance improved by only 1.9% for every 1,000 positions in the study. When comparing the performance of candidates whose universities rank further apart – a graduate from a top university versus a “global average” university – the performance differential jumps by 19%.

The key issue in interpreting the results is whether prestigious private colleges are worth the additional cost. In other words, how valuable is it to have graduated from a prestigious college?

The traditional way of making that determination is to compare the cost of a four-year degree versus the extra salary and benefits derived by graduating from a prestigious college and getting a quality job. The latter is difficult to estimate over one’s professional life.

Here are just some of the tangible benefits of graduating from a prestigious institution:

• Networking and name recognition.
• Connection with professionals who have graduated from the same institution.
• Perception of clients about the quality of education.
• Instructor quality and graduate school.
• Getting letters of recommendation from faculty.

From my point of view having taught for almost 40 years at ten different universities ranging from a prestigious private college to a religious institution to a four-year public college, the main difference is in the achievement of those students in the middle group of graduates using a measure such as grade-point-average and hiring-ability.

It’s true that the initial salary will be higher having graduated from a prestigious university. But, I have found that the best students at any of these institutions will do well no matter where they land. It may take some time to catch up with the salary differential.

The low GPA students tend to struggle in public universities more than private colleges so there is a cost-benefit advantage here. Perhaps this is due to stronger soft skills in the latter including communications skills and ability to analytically evaluate uncertain situations.

For the middle-of-the-road students, the hiring is likely to be more advanced if they graduate from a prestigious university. After all, a recruiter might believe that the less than stellar GPA is due to the high-level competition in prestigious institutions.

Finally, these differentials can be made up by having a strong work ethic. Working hard; never giving up; and going the extra mile in one’s course work makes up for any deficiencies – in the long run anyway.  

Posted by Steven Mintz, aka Ethics Sage, on September 10, 2020. You can sign up for our newsletter and learn more about Dr. Mintz’s activities at: https://www.stevenmintzethics.com/. Follow him on Facebook and on Twitter .