Prestige - Some Food for Thought

Let's be honest, everybody would be proud of having "Harvard" associated with their names. No doubt about that, I am no exception. And, I can understand that students base their decision solely on prestige.

Prestige matters, especially if you have to pay for college. In some countries, attending a top school almost guarantees a well-paid job and a high social status in society. To name a few countries and institutions, e.g. Ivy League in the United States, Grande Ecoles in France, HK University in China, University of Tokyo in Japan, Russell Group in UK, Seoul University in South Korea, and so on.

Now, something very interesting happened since Globalisation and the evolving of the Internet. Students from countries like Germany, Austria and Switzerland, where university reputation traditionally played a minor role, tend to place more and more emphasis on university prestige. It even goes so far, that some students are willing to spend 20-30k € on tuition fees to study at the University of St. Gallen, WHU or EBS just for a Bachelor's degree in a country, where higher education is already heavily subsidised by the government and income taxes are high. From an economic point of view, it doesn't make any sense. Of course, that raises two questions: does prestige help and why are students willing to pay hefty fees for prestige?

Prestige and the Job Market

Students from prestigious universities all over the world have one thing in common: they either want to work in finance or consulting. However, jobs in finance or consulting are limited, which means there aren't enough places for every snob to be absorbed by the elite job market. The competition is fierce and global. What most elite students tend to forget is, your competitors aren't people from non-targets, your competitors went to the same schools like yours and their CV is like yours. Basically, you're just a copy of a copy of a copy, competing with another copy of a copy of a copy.

Even worse, prestige may actually hurt you. Suppose, you have graduated from LSE and you didn't find a job in the City, so you'd probably apply to small or middle-sized, regional companies in England. You can imagine, what they will be thinking about you. Just imagine a LSE graduate applying to a local bean producer. Yep, you got it. Attending an elite school is a lifelong obligation. You have to work for prestigious employers, otherwise you'll lose all the credibility you build from your university's "brand value". 

All in all, Prestige won't help a lot in job markets, where just about everybody has an elite education. It will get you a foot in the door, and you'll pass the initial screening, but no amount of prestige will help you to pass interviews and to perform well in ACs. This is especially true for international financial firms and banks in major financial centres, like NY, London, Singapore, Zurich or Frankfurt. And, don't even think about applying for local small and middle-sized companies.

Perceived Value and Debt Financing of Prestige

What's the difference between a 5k € and 20k € Rolex watch? Almost none, except the price. I couldn't even tell, whether a watch costs 200, 2k or 20k €, if there wouldn't be a price sticker attached to it. The same applies to universities. Every university delivers education as an almost homogeneous good, like a watch delivers the clock time function. But universities differ in reputation, like watches do in brands. 

Does "brand value" justify 20-30k € of tuition fees for a single year? I think the problem lies in the fact, how students perceive the value of university prestige. In my opinion, most students believe that you absolutely need to go to a top target university to break into finance and coming from a second tier or lower will hurt you a lot. Their perceived value of prestige against fees and costs looks like this:

However, it's simply not justified to place that high prestige premiums on top schools over lesser well known schools, particularly in Europe. HR departments have standardized procedures, application is open to everyone, your interview performance is much more important and there are lots of employees from other lesser known schools working in top jobs at top firms. The City market is no exception. It's not even clear, if HR Managers distinguish among universities at all, since we don't know how much students from which universities have applied to a certain company and as a result, it's impossible to calculate relative numbers. In reality, the curve looks more like this:

 

As you can see, a little bit of prestige loss, e.g. choosing SSE over LSE, can save you lots of money. Ironically, finance students, who should be one of the most rational people in the world with money, behave like a mindless herd chasing prestige above else and even go heavily into debt to afford top programes. Guys, with 20k or 30k you could start a business, afford a one year world trip or a small flat in some countries. Is prestige of a top tier target university really that much worth to you?