The previous posting looked a little bit at the top 16 private colleges that buttress Minnesota’s well-regarded education system. This posting focuses more on the students who attend those schools. Out of 15 variables, the variables with the strongest relationships are shown below. The correlations are a little weak, with r-squared values ranging between 56-70%, so the findings mentioned should be framed as simply the most relevant of the bunch. With that said, here are a few take-a-ways, which the collage of graphs below indicate, and that prospective students will be most interested in:
Students are more likely to graduate on time from colleges that have big endowments and that charge more for tuition. Paying more in tuition also means better student-to-faculty ratios.
But, then, what’s the value of graduating on time when it costs more? Well, it turns out that students graduate with less debt when they attend colleges that charge more, have large endowments and low acceptance rates.
A student’s financial situation after graduation has always been an issue. Debt at an early age is more difficult to overcome. Recent grads make less than their elders so it takes longer to pay off debt. Therefore, compounding interest has a greater negative effect, deepening the hole they stand in.
Today, student debt is a bigger issue than in the past because of the sheer amount many face. The point: it’s hugely beneficial to attend a college that leaves students less indebted. But, what about attending a college whose grads make more money? That could help. Notice that in the image below starting salaries of grads don’t differ too much. Indebtedness does. It’s the key variable affecting a recent grads financial situation. In Minnesota, graduating from Macalester or St Olaf is good. Graduation from Carleton is best. Carleton grads have around 50% less debt than St. Ben’s grads. It also helps that they make $7k more on average in their first year.
To illustrate the point, look at an average student’s financial situation one year after graduating.
Carleton grad: assuming an effective tax rate of 20% on a 51k salary, they would have an income of roughly $41k. If they lived reasonably, living on $30k per year for two years, their student loans would be gone in around 2 years, especially consider common grace periods on interest rates kicking in.
St. Ben’s grad: with the same assumptions, a St. Ben’s grad’s average after-tax income is around $35k. Assuming salary increases offset loan interest each year, it would take a grad 9 years to pay off their debt of $43k. That’s assuming they maintained a low standard of living, spending only $30k per year. An unrealistic assumption. It’s more likely that it would take an average St. Ben’s grad, with these very limited parameters, 10-15 years to pay off their debt.
Students graduating from colleges with BIG endowments are better off. So, what is unique about private colleges with big endowments in Minnesota? One guess might be their are older. There’s a common perception that age matters. Harvard, Yale, U Penn, Princeton, and Columbia have helped create the perception. They make up 5 of the 11 oldest colleges and 5 of the 12 colleges with the biggest endowments in the U.S. The idea doesn’t translate smoothly to Minnesota. The 4 colleges with the biggest endowments are not among the very oldest. There are, however, each over 130 years old.
It appears that a college over a century in age has had a long enough runway for its endowment to take off but colleges with the biggest endowments are not unique in that they are the oldest. Their uniqueness is something less obvious. They are unique in that they are not religiously affiliated. Take a look at the bottom of the chart below and you’ll notice the drastic difference. Carleton and Macalester’s endowments are each 8-10x the median. There’s also a marked difference between each school’s acceptance rate and average student indebtedness compared to the rest.
Students and private colleges in Minnesota can respond to these insights in actionable ways. If a prospective student values a good financial situation after graduation, they should set their aim at schools with large endowments. If a college places great value on recent grads’ financial situations, they should prioritize hiring master endowment fundraisers.