How risky is college investment?

Abstract

This paper is motivated by the fact that nearly half of U.S. college students drop out without earning a bachelor's degree. Its objective is to quantify how much uncertainty college entrants face about their graduation outcomes. To do so, we develop a quantitative model of college choice. The innovation is to model in detail how students progress towards a college degree. The model is calibrated using transcript and financial data. We find that more than half of college entrants can predict whether they will graduate with at least 80% probability. As a result, stylized policies that insure students against the financial risks associated with uncertain graduation have little value for the majority of college entrants. JEL: E24, J24 (human capital), I21 (analysis of education).

Financial capability of student loan holders who are college students, graduates, or dropouts

“…Except at the upper end of the income distribution, entrepreneurship does not allow college dropouts to compensate for their disadvantages in the labor market (Buenstorf et al ., 2017). Lack of academic ability may be the major reason for dropping out of college (Hendricks and Leukhina, 2017). Research on community college students shows that math and science credits earned in the first and second year are most predictive of completion among the matched group of students who have earned a high number of credits but dropped out in the middle of an academic program (Park, 2019).…”

Raising College Access and Completion: How Much Can Free College Help?

“…36 These include remedial education, advising, mentoring, and tutoring. 37 Recent evidence (Deming and Walters 2017) indicates the effectiveness of directing funding to institutions for these supports. Indeed, in their examination of possible policies to raise graduation rates in the U.S., Avery et al (2019) conclude that need-based free college combined with higher funding to institutions might be the most costeffective policy.…”

“…For recent, well-identified studies, see Bettinger et al (2019), Denning (2017), Mayer et al (2015), and Scott-Clayton (2011).35 See Dynarski and Scott Clayton (2013) 36. In the context of our model, these policies would amount to changing parameters from the distribution of z in order to reach higher E(z) and lower V (z) 37. Clotfelter et al (2018), Evans et al (2017), Scrivener et al (2015) and Sommo et al (2018) document positive effects of these supports on graduation rates.…”

Who Values Access to College

“…Empirically, the ability to successfully complete college depends strongly on individual-level characteristics, chiefly those summarizing the preparation with which individuals enter college, such as standardized test scores and high school grades. Hendricks and Leukhina (2017), for example, show that college preparation, as measured by transcript data, is a strong predictor of graduation prospects. This preparation governs both the ability to effectively accumulate human capital (e.g., innate capabilities and being in environs conducive to learning) and the amount of human capital (e.g., math and language literacy) accumulated through the end of high school.…”