Ask an economist: How much money is the liberal arts experience really worth?

Dear Emily,

I need your help choosing between my head and my heart. I’m a junior in high school, and I’ve always wanted to have the classic liberal arts-college experience: small classes, beautiful campus, dorm parties. and close-knit classmates. With my grades, I know I can probably get into a college that may have all of those things–but most likely not a brand-name, highly ranked school.

My parents, meanwhile, want me to go to an in-state public school. They say tuition is too high at the private colleges I’m looking at, and the financial aid packages aren’t that good. I don’t want to graduate with tons of debt, but I also want to make the most of this important time in my life. (You only get to go to college once, right?) The state schools I’m looking at seem really big and impersonal. Can you help me figure out whether the liberal arts education is worth the cost?

This is a big decision, and I think in a sense both you and your parents are right. On one hand, this is the only time you will go to college. If what you want are intimate poetry seminars and a vibrant on-campus social life, there is real value in picking a school that will best provide that experience. On the other hand, a small liberal arts college is often a lot more expensive, and it is not clear you will achieve higher (economic) returns from the experience.

At the end of the day, you need to figure out if the gains from the small college outweigh the costs. On the cost side (your parents’), it will help to get some hard numbers about exact tuition costs and how much you can get in financial aid. But you also need to figure out what the returns to liberal-arts options will be in the long run.

When we invest in college, one of our main goals is to get an education that will allow us to earn more money than we would with a high-school degree. But how much more we can expect to make differs, depending on factors such as the quality of the education, a school’s specialty areas, and what career services are offered.

Some small liberal-arts colleges, like Oberlin College or Wesleyan University, are very selective and have strong name recognition as well as active alumni networks. These factors can help open professional doors down the line. A degree from this kind of school will likely provide more “value added” than a degree from a private liberal arts school that is not as selective and well-known.

Figuring out the “value added” for different colleges is tricky. To get you started, here is a simple value-added database from the respected Brookings Institute. If the state school you are considering has higher “value added” than the private schools, that is another argument in your parent’s camp.

I also suggest that you figure out how different your college experience will really be if you attend a liberal arts school as opposed to a public school. See if you can assign a dollar value to that experience in order to more accurately compare costs.

Valuing your happiness in terms of hard cash can be tough, but here’s a thought experiment to that may help. Imagine yourself at your liberal arts campus, and think about how happy you will be grabbing coffee with your sociology professor and debating New Wave films in your dorm-room hallway. Now imagine yourself in a state school, with an extra $500 a week. Is the trade-off worth it? What if the amount was $100, or $1,000? Try to find the point where you think you’d be equally happy with the extra cash or the liberal arts lifestyle. That’s what the experience is worth to you.

As a final note, I’d encourage you to give state schools a fair shake. While many state schools are large, that doesn’t mean they have to be impersonal. And big-ness can have its own advantages. If you are really into some niche activity (renaissance battle reenactment, say), a larger pool of people means you’re a lot more likely to find your crowd.

Dear Emily,

Can you explain the economics of college admissions? I’ve heard it referred to as a “two-sided matching market”–what does that mean?

Think about the economics of college this way: Students want to go to the best college they can. Colleges want to attract the best students possible. Each side wants to maximize its potential, which makes college a two-sided matching market.

Markets like this can lead to complicated strategies on both sides. Think about a student deciding whether to apply “early decision” to a university. If they skip the early decision process, they won’t risk committing themselves early and can apply to a wide range of schools. They could, for example, apply to a highly selective “reach” school–Harvard, say–where they probably have only a small chance of getting in. If they decide instead to apply early decision at an appealing but slightly less selective school, they’ll be more likely to get an admissions bump–but lose their shot at the Ivy League if they do get in early.

Colleges also employ complex strategies. Colleges care about their yield–the share of admitted students who agree to attend–because this helps them manage enrollment. Perhaps even more importantly, this statistic figures into the college rankings calculated by places like US News & World Report. So they can’t just admit the best students who apply. They have to also think about whether the violin prodigy with a 4.0 GPA really wants to come, or if she’ll likely get admitted by–and choose–a different university.

And yet colleges don’t want to risk missing out on some extraordinary student who really does have a personal reason to go to their specific school. Of course, once colleges start thinking this way, the students have an incentive to pretend they have some special reason to love each and every school in order to maximize their chances of picking from a wide selection. And so goes the game.

Emily Oster is an associate professor of economics at Brown University and the author of “Expecting Better: Why the Conventional Pregnancy Wisdom Is Wrong — and What You Really Need to Know.

Got an everyday problem that could use an economist’s point of view? Send Emily your questions at askemily@qz.com.

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