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How Risky is College Investment?

Author

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  • Lutz Hendricks
  • Oksana Leukhina

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.

Suggested Citation

  • Lutz Hendricks & Oksana Leukhina, 2015. "How Risky is College Investment?," CESifo Working Paper Series 5203, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5203
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    References listed on IDEAS

    as
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    Cited by:

    1. Gonzalo Castex, 2017. "College risk and return," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 91-112, October.

    More about this item

    Keywords

    education; college dropout risk;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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