9/27/2012 5:22 PM ET|
Is acing the SAT worth $100,000?
A higher score can lead to a better school, but can potentially higher future earnings justify the cost of test prep?
What is a big SAT score improvement worth? A whole lot -- sometimes.
Picture a high school student from New York state. His grades are excellent; his transcript is a sea of A's. He has taken challenging courses and held leadership positions in a few clubs, as most admissions counselors advise. He volunteers at the local hospital on weekends. He's sure to impress with his application essays.
Further, his parents are successful, so unless he receives merit aid, his family will probably pay full tuition -- and room and board -- at whatever institution he attends. Of course, if he attends a school in New York that offers in-state tuition rates, his family will pay those instead.
Picture, in other words, a fictional student for whom SAT scores will make all the difference. Here lies the value of good SAT prep to him and his family.
PayScale has compiled median starting salary data, and, more interestingly, median "midcareer" salary data for bachelors' degree graduates of most colleges and universities in the United States. The Chronicle of Higher Education has a searchable tuition database. And many schools provide the 25th and 75th percentiles (usually called the "middle 50%") of their students' SAT scores.
From this I made some sweeping assumptions and crunched some numbers. First, I assumed that historical data for salary rates for graduates of different schools is a decent predictor of the future, at least for rough predictions of which graduates will make more and which will make less. Then I looked at net present values of 20 years of cash flows -- four years of full tuition (or full in-state tuition for New York schools), followed by 16 years of salary based on PayScale's numbers. NPV differences are biggest at low interest rates, and they grow more muted at higher ones. Rather than make a prediction for interest rates for the next 20 years, I looked at differences for a range of possible interest rates.
Under the right conditions, even pricier SAT prep options can be a heckuva deal. Say, for example, that our student's SAT scores are 1700. That puts him in a good position for admission to Adelphi University (middle 50%: 1480-1780) but makes admission to Stony Brook University (middle 50%: 1660-1970) a stretch. Assuming he'd rather attend Stony Brook if he can get in, what might be the value, in today's dollars, of a score increase that would seal the deal? Turns out, it would be more than $100,000 in future earnings, at any reasonable discount rate.
But before you drop everything to start calling tutors, consider another example. Let's say our student is instead scoring around 1900 on practice tests, and that he'd happily attend Fairfield University (middle 50%: 1710-1910). However, in his heart of hearts, he'd really rather attend New York University (middle 50%: 1940-2230) if he had the scores to get in. The pursuit of dreams is a perfectly good reason to spend some money, but his parents should do so with eyes wide open. PayScale's numbers say that the present value of attending NYU is $50,000 less over the next 20 years than that of attending Fairfield.
Of course, these are cherry-picked examples, and admissions offices are cagey about exactly how much SAT scores matter. But the numbers make a good point. It's important to think through the goals of test prep, beyond the immediate desire for higher scores. For almost everyone except test prep professionals, actual scores won't be worth a hill of beans once acceptance letters are sent out. But where those acceptance letters come from might or might not be worth a great deal.
Want to play with my numbers, or try different school matchups? Here's the spreadsheet I used. You can save a copy for yourself and edit it however you like.
More from Forbes.com:
VIDEO ON MSN MONEY
a 'perfect' or 'near perfect' score will get a student into most any college or university with a full scholarship plus living expenses.
so, yeah i'd say it's worth trying your best.
Graduate Professional degree is what really counts . NEVER again NEVER waste money on college or undergraduate . LIsten to me you will thank me later DONT waste your money on college! go some place more affordable, cheaper and good program but DO REALLY WELL in it then apply to really good graduate programs MBA or MD or JD or what ever engineering programs etc.
no matter what else happens in life college or university is a great experience. and i hope anyone who wants to attend can find an opportunity.
when i was in high school up in nyc a million years ago,' they' told us all that 'there's no way to study for the SAT's.'
a girl i knew in high school scored a perfect 1600 and got early acceptance and a full scholarship to dartmouth.
People...we dont want to know YOUR SAT score...you can say it was 24,000 and it doesn't mean crap on this forum. You also have a 10 inch prong and you are making 7 figures and your handsomer than Brad Pitt...so we won't buy it. What is importatant here is that there are rewards waiting for excellence...so go for it if you have the will.
I doubt that high SAT scores are worth much, except to the extent that they are rewarded with college scholarship money.
What is rewarded richly is the TALENT it takes to get high SAT scores.
I know a doctor who was ready to donate $100,000 to a certain private university if his son didn't get in with his ACT score. (He did get in on his own.)
It sure seems like that would be the easier route if one has $100,000 burning a hole in his pocket.
have to laugh. someone needs welders bad because there is a shortage of good welders. So they go to the welding school to hire new grads and invest in them teaching them how to be real productive welders on the job. The new welding people come in to apply, and they are asked to perform 10 basic welding things to qualify them for the real world training. The new welding grads say "I don't know any of that". So, you ask what they learned in welding school and they reply "we learned about broccoli, how to use a condom, and that all republicans are rich racist women killers". So they are told sorry and good luck out there. Then they have to go out and either try to steal experienced welders away from other buisinesses or import welders from south america or somewhere.
SAT scores do indicate basic learning levels of achievement. Although, now, most universities have programs where students can spend a year or two learing the things they should have learned in high school so its all a wash as long as there is student loan money flowing freely.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
RECENT ARTICLES ON PERSONAL FINANCE
Saving just a single month of expenses may take longer than you think. See how your savings rate affects how quickly you can build a solid emergency fund.