Are university bribes worth it?

Karan Khemka weighs up the economic and moral returns on paying for a place at a top-ranked institution 

April 5, 2019
Secret deal
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Court appearances have started for Operation Varsity Blues, the largest college admissions scandal ever investigated by the FBI. Fifteen parents accused of paying bribes were in court, but the proceedings were dry, with the exception of a request for foreign vacation travel to Mexico by one of the defendants, to which the prosecution replied that there were adequate domestic holiday options at the family’s homes in Montana and Northern California.  

Behind all the discussion on the legality and morality of paying for places in selective universities lies the question: is it worth it in dollars and cents? While the amounts vary, most of the alleged bribes investigated by Operation Varsity Blues were in the $100,000 (£76,500) range. Many of the defendants in the case are shrewd professional investors and businesspeople. Did they correctly estimate the payback on their alleged investment in getting their children into top universities? It depends.

An analysis comparing income outcomes from leading US universities and colleges based on the Wall Street Journal/Times Higher Education US College Rankings and earnings data from the department of education’s US College Scorecard demonstrates that, on average, a student from a top 10 US university earns $16,250 more per year on graduation than a student graduating from a university ranked between 20th and 30th.  

In the context of a $100,000 or more payment to secure a place in one of these universities, this may not sound like a good investment. But if we assume that this income differential holds over a 40-year career (and it may well expand as careers mature and those with the best first step in the business world continue to succeed more than others), even if we discount future earnings at a rate of 3 per cent per annum, that $16,250 annual income differential equates to approximately $375,000 of additional earnings today, accounting for the time value of money.  

While there are a lot of assumptions in this long-term estimate, the economic calculus determines that a one-time payment today of $100,000 to attend a top 10 versus a top 20 to 30 university is indeed a good investment.  

In fact, the equation holds even further down the rankings – the same arithmetic on the present value of the differential in lifetime earnings between an institution ranked 90 to 100 versus 150 to 160 is approximately $115,000.

The economic return argument for paying your way into a university is proven by the universities most commonly cited in Operation Varsity Blues: Yale (ranked third), USC (17) and Georgetown (30). Why bribe to get into Georgetown when it is ranked so far below USC and Yale?  Because the average income of a fresh Georgetown graduate is $85,800 – above average for even a top 10 university.

While the sums support the rationale for parents paying for back-door admission for their children to leading US universities, the reality goes beyond the economic calculus to the real world legal and moral consequences.  Many of those accused by the FBI are otherwise upstanding citizens with means. They are successful entrepreneurs who provide meaningful employment for thousands of people, they volunteer in their local communities or have committed their careers to investing in social causes.  

Why did they feel that the back door was an acceptable path to advance the lives of their children? There are probably complex and nuanced answers for each individual, but they’re aided by the inescapable fact that the back door of donating millions directly to the university to secure a place is legal and well-known.  

Universities defend this approach by arguing that the resources gained through these donations result in a benefit for society through the advancement of the university. 

However, there is no evidence showing that these types of donations have driven top-ranked universities to expand their enrolments. And it’s unlikely that they actually could rely on these donations to support more students on campus because as a source of cash they are unpredictable and “lumpy” in nature (big in one year, small in others) while the fixed costs assumed by a university to serve more students are harder to unwind.  

The result is that back-door entrants take spots from poorer and more deserving students and, as the graduate income data then demonstrates, the cycle of economic disparity is perpetuated.

By accepting huge donations, are universities on a moral slippery slope that then presents to parents and students the proposition that paying for admission is possible and permissible? Funding a building or paying off a sports coach are both “cheating” the system because they bypass qualified students – who went down the traditional route of being accepted on academic or athletic merit – but result in the same outcome (minus the unexpected legal consequences in this instance).  

Prestigious, resource-rich US private universities (like many of the ones implicated in this scandal) are tax-exempt, receive significant (if not most) research funding from the government and rely on federal government Title IV funding to make ends meet for their undergraduate programmes. They would do well to use this scandal as an opportunity to carry out their mission of service with equity to maintain their special place in society.

Karan Khemka serves as a director in several global education companies; he previously founded and led one of the leading global strategic advisory firms in the education sector for 16 years.

POSTSCRIPT:

Print headline: Are university admissions bribes a good investment?

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