Key Points
- Higher-cost colleges often have higher graduation rates, but this is strongly tied to admissions selectivity.
- Selective colleges admit students more likely to graduate, which inflates perceived institutional “quality.”
- Lower net prices can increase enrollment yield, but they have little direct effect on graduation outcomes.
When families compare colleges, one assumption often drives the conversation: the more expensive the college, the better the education must be.
In many industries, higher prices signal higher quality, a phenomenon economists call the “Chivas Regal effect,” where consumers assume expensive products are better simply because they cost more.
But does that logic hold true for higher education?
Using data from the 2024 Integrated Postsecondary Education Data System (IPEDS), this analysis examines the relationship between college cost, admissions selectivity, and graduation rates. The data reveals that while more expensive colleges often report higher graduation rates, the reason may not be what many people expect.
In many cases, the outcomes are driven less by institutional quality and more by which students the college admits in the first place.
Understanding this distinction is essential for families trying to determine whether a higher price tag actually translates into better results.
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Graduation Rate vs. Net Price
The Chivas Regal effect finds that increasing a product’s price increases its perceived value and quality. But, when it comes to college costs, does increasing the college’s net price lead to a better quality outcome?
This chart shows that the 6-year Bachelor’s degree attainment rate generally increases as the net price increases. It is based on data from the 2024 Integrated Postsecondary Education Data System (IPEDS), as are the rest of the charts in this article.
The same is true for tuition and fees, but this chart shows that the graduation rate increases significantly after tuition and fees exceed $40,000.
But, the higher college costs may serve as a filter that limits the students who can afford to enroll, as opposed to a perceived or actual indicator of college quality.
Graduation Rate vs. Selectivity
A college’s graduation rate may have more to do with the students it admits than the value added by the institution.
Selectivity is the percentage of applicants who are admitted. A more selective college has a lower admissions rate.
This chart shows that 4-year colleges that admit less than 10% of applicants have a 94% 6-year Bachelor’s degree attainment rate. The graduation rate decreases as the admissions rate increases, until the admissions rate reaches about 40% of applicants. At this rate, the graduation rate is mostly flat, yielding no further decline among colleges that are more or less selective. (There is a significant drop in graduation rates, however, at open admission colleges, which admit students simply for breathing.)
There is a strong correlation between 5-year and 6-year graduation rates, with 93% of 6-year graduation rates being less than 6% greater than the 5-year graduation rates. There is a much greater divergence between 4-year and 5-year graduation rates, with an increase of as much as 20% percentage points.
This chart shows that the 5-year graduation rates increase by greater amounts as the 4-year graduation rates increase.
However, this chart of average 4-year Bachelor’s degree attainment rates at 4-year colleges shows a similar shift in graduation rates by selectivity when the selectivity is 40% or greater.
This chart shows the inverse relationship, where colleges with a lower graduation rate tend to be less selective. There is a sharp change in selectivity when the graduation rate is 70% or more.
Net Price vs. Selectivity
This chart shows that more selective colleges tend to charge a higher net price. The lower admission rate gives the college pricing power.
Net Price vs. Yield
Yield measures the percentage of admitted students who enroll.
As this chart demonstrates, higher yield colleges tend to have a lower average net price. Reducing the net price of a college tends to influence how many students enroll.
But, this chart shows that the average 6-year graduation rate does not change by much as the yield increases.
Does A Better College Cost More?
The data shows that colleges with higher net prices often report higher graduation rates. However, this relationship does not necessarily mean that higher prices produce better educational outcomes.
Much of the difference can be explained by admissions selectivity. More selective colleges admit students with stronger academic preparation and a higher likelihood of completing their degrees. As a result, the higher graduation rates at these institutions may reflect the characteristics of the students they enroll rather than the additional value provided by the college itself.
Similarly, while selective colleges often have the ability to charge higher prices, the data also shows that net price can influence enrollment decisions, affecting yield without significantly changing graduation outcomes.
For students and families, this means that price alone is not a reliable indicator of college quality or student success. A college that is a good academic and financial fit may provide outcomes comparable to more expensive institutions, particularly for motivated students who take advantage of available resources.
Understanding the roles of cost, selectivity, and student characteristics can help families make more informed decisions about where to enroll and how much to pay for a college education.
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Editor: Robert Farrington
Mark Kantrowitz is an expert on student financial aid, scholarships, 529 plans, and student loans. He has been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. Mark has written for the New York Times, Wall Street Journal, Washington Post, Reuters, USA Today, MarketWatch, Money Magazine, Forbes, Newsweek, and Time. You can find his work on Student Aid Policy here.
Mark is the author of five bestselling books about scholarships and financial aid and holds seven patents. Mark serves on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, and is a member of the board of trustees of the Center for Excellence in Education. He previously served as a member of the board of directors of the National Scholarship Providers Association. Mark has two Bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology (MIT) and a Master’s degree in computer science from Carnegie Mellon University (CMU).