Readers of our textbook and the related blog posts know—perhaps better than anyone else—the extraordinary challenge associated with choosing where to attend college. Although a lucky few know exactly where they want to go, get accepted there, and then have plenty of resources to pay for four years there, for most students, the choice of college becomes an economic decision, as well as an academic one.

Recent reports suggest that in determining the value of their college education, consumers (i.e., students and their families) rarely act rationally. Good students with the potential of being accepted to top-tier universities pursue that route almost exclusively, without considering rationally whether they would be better off at a less expensive, smaller, or state school.

The lack of rationality becomes especially clear when students may choose between one school that offers them a merit scholarship and another that offers no financial aid or only provides loans that the students and their families must pay back. From an economic standpoint, the choice is easy: Accept the scholarship, and get a college education for (virtually) free.

But students assign value to their universities based on various parameters, involving far more than the economics involved. Because many students hope to gain new types of life experiences, such as living in a big city, “East Coast schools that aren’t in the top tier but are in cities can get away with charging outrageous amounts of money and giving mediocre financial aid packages,” according to one author who studies college choices.

For others, the choice is based on predictions of what benefits a prestigious name on a diploma will offer in the long term. In tough job markets, a well-reputed university degree seemingly might open more doors than a diploma from a lesser known school. Although research is somewhat sparse, a few studies indicate that such questions are relatively insignificant for students who have always been successful in school. That is, strong students succeed in later life, nearly regardless of where they go to college. However, for economically disadvantaged or historically underrepresented populations, graduating from a prestigious university appears to offer longer-term benefits, in terms of employment rates and earnings in later life.

Source: Paul Sullivan, “Measuring College Prestige Versus Cost of Enrollment,” The New York Times, April 19, 2013