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:
MORE ON MSN MONEY
VIDEO ON MSN MONEY
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.
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.
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 scored a 1387 on the SAT. Yeah, I'm so old the 'perfect' score was 1600, they still weren't rounding the numbers to 5's or 10's, and the test hadn't been dumbed down yet.
As best I can tell, a 'perfect' 2400 now is about the equivelent of 1450 then. Don't really know and find the current fixation on an artificial rating to be laughable.
I went to the state public university. Served in the Marine Corp. And have started a handful of businesses since then. You DON'T need a 'brand name' on your diploma. It might help get the first job, but wont help you keep it. And it WILL cost you a LOT of money to buy that 'designer label' degree. What you DO need is an education. And that is available anywhere!
We will only hire people that have CVFF,NJGYY, BERT, META 1,2,3 , Hyperbole 24, and FRAIDNOT certifications. Total cost...the 100,000 extra given above!
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.
This estimate is way too low. It does not consider a free college education. Our two girls aced the SAT's and got full scholarships to a private school we never could have afforded. Normal cost of room and board for four years would be $250,000 each. The class barriers in the US are insignificant compared to other countries. Quit wining and work! Even if you have given up on yourselves, man up and give your kids a chance. Belief in the American Dream is the biggest determinant to success in the US. If it survives the attack by the Democrats.
Additionally, "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." equates to a real value of the same $2,500/year mentioned above.
Is $2,500/year or broken down even more, $1.20/hr really that significant! What's the point of this article again? The average person could work a part-time job at McDonald's and make more than $2,500/year!!! POINTLESS ARTICLE!
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. 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 SIX Financial Information.
RECENT ARTICLES ON PERSONAL FINANCE
Concerts, bowling, filmmaking camp, small-plane rides -- these and other activities will get your kids out of the house without breaking the bank.