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Who Values Access To College?

Author

Listed:
  • Kartik Athreya

    (Federal Reserve Bank Richmond)

  • Felicia Ionescu

    (Federal Reserve Board)

  • Urvi Neelakantan

    (Centre for Advanced Financial Research and Learning (CAFRAL))

  • Ivan Vidangos

    (Federal Reserve Board)

Abstract

A first glance at US data suggests that college-given its mean returns and sharply subsidized cost for all enrolees-could be of great value to most. Using an empirically-disciplined human capital model that allows for variation in college-readiness, we show otherwise. While the top-decile of valuations is indeed large (40 percent of consumption), nearly half of high school completers place zero value on access to college. Subsidies to college currently fow to those already best positioned to succeed and least sensitive to them. Even modestly targeted alternatives may therefore improve welfare. As proof of principle, we show that redirecting subsidies away from those who would nonetheless enrol- towards a stock index retirement fund for those who do not even when college is subsidized-increases ex-ante welfare by 1 percent of mean consumption, while preserving aggregate enrolment and being budget neutral.

Suggested Citation

  • Kartik Athreya & Felicia Ionescu & Urvi Neelakantan & Ivan Vidangos, 2019. "Who Values Access To College?," Working Papers 022310, Centre for Advanced Financial Research and Learning (CAFRAL).
    • Handle: RePEc:ris:cafral:022310
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    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality

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