Is College Worth It? The Economic Return to College Adjusted for Dropouts, Taxes, and Risk

Abstract

Most published estimates of the economic return to college rest on a series of best-case assumptions that often overstate returns and, most importantly, obscure differences in return across different institutions. We simulate the economic return to college under more realistic assumptions using U.S. Census data combined with administrative data from the more selective University of California system and the less selective California State University system. We find that college in 2010 is a risker investment than in earlier decades. Many students - particularly young men who cannot access top-tier universities - face an economic return on college that, while positive on average, can reasonably inspire caution among students and their parents due, in part, to high dropout rates. While our results are based on California data, we site research showing similar distinctions among higher and lower tier institutions exist nationwide. Our simulations can be seen as a natural extension of the Obama administration’s attempt to create a College Scorecard.

Keywords: Higher education, general skills

JEL Classification: I21, J24