Does it Pay to Go to a Big-Name School?

Isn't it true that it pays to go to a higher-ranked (and in most cases more expensive) college because you can earn more money when you graduate?

You've put your finger on a hot-button issue to which there's no easy answer. And you're making several assumptions that may not be true.

1. Financial aid. For starters, don't assume that a "higher-ranked" college is necessarily more expensive. A number of elite institutions have made their financial-aid offers more attractive by replacing loans with grants and giving aid to families with higher incomes. Depending on your aid package, an elite private school may actually be less expensive than a state institution.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

2. Future earnings. That being said, however, the vast majority of students won't get into elite schools. And not every institution can afford to be so generous with financial aid. If you have to pay full freight (or close to it), don't assume that the extra expense will necessarily lead to a big payoff.

There's no consensus on the relationship between elite schools and future earnings. One landmark study, by Stacy Berg Dale and Alan Krueger, found that students who attended more selective colleges do not earn more than other students who were accepted and rejected by comparable schools but attended less selective colleges.

In other words, if students were good enough to get into selective schools, they were good enough to succeed wherever they went.

With families taking on more debt to pay for college, this issue becomes more critical. If sending your child to the elite school he has his heart set on means borrowing tens of thousands of dollars, it may not be worth the price -- especially if your child plans to go into a profession with low earnings potential.

To help you decide how much debt is sensible based on future earning power, use the Student Loan Advisor calculator at Finaid.org, or go to Sallie Mae's new Education Investment Planner.

3. Fit. Aside from academic and economic concerns, don't assume that an elite institution will necessarily be the best fit for your student.

Barbara Tornow, formerly senior adviser to the vice-president for enrollment at Boston University, says one of her frustrations as an educational consultant is hearing students say that "they must go to school X or their life will be over."

That's not the case, as Tornow can personally attest. Accepted at Barnard College (with no financial aid), she chose instead to go to William Smith, a liberal-arts college in Geneva, N.Y., where she received a full scholarship. At William Smith, says Tornow, "I was one of the top students, which wouldn't have been the case at Barnard, and I thrived." She eventually spent 12 years on the school's board of trustees.

When choosing a college, the emphasis should be on what's best for the student, not bragging rights for the parents.