Are College Costs Worth it? How Individual Ability, Major Choice, and Debt Affect Optimal Schooling Decisions

37 Pages Posted: 24 Jan 2015

See all articles by Douglas A. Webber

Douglas A. Webber

Temple University - Department of Economics

Abstract

This paper examines the financial value over the course of a lifetime of pursuing a college degree under a variety of different settings (e.g. major, student loan debt, individual ability). Using a lifecycle simulation approach, I account for ability/selection bias and the substantial probability that entering college freshmen will not eventually graduate, two critically important factors when evaluating the value of pursuing a college degree. I find that financial proposition of attending college is an unambiguously good investment for the vast majority of individuals with low to average college costs, although majors with a lower expected return do not pay off until middle age. However, when the financial costs of attending college are high (defined here as roughly $30,000 per year), the gains from attending college are far more tenuous, particularly among those with below median ability and those pursuing an Arts/Humanities degree. I estimate the net present discounted value of attending college to vary between $95,000 and $275,000 depending on the major (STEM, Business, Social Sciences, Arts/Humanities) pursued.

Keywords: student loans, returns to college, major choice

JEL Classification: I21, I22, I23

Suggested Citation

Webber, Douglas A., Are College Costs Worth it? How Individual Ability, Major Choice, and Debt Affect Optimal Schooling Decisions. IZA Discussion Paper No. 8767, Available at SSRN: https://ssrn.com/abstract=2554915

Douglas A. Webber (Contact Author)

Temple University - Department of Economics ( email )

Philadelphia, PA 19122
United States

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