How Risky is College Investment?

CFS Working Paper No. 502

49 Pages Posted: 5 Feb 2015

See all articles by Lutz Hendricks

Lutz Hendricks

UNC Chapel Hill; CESifo (Center for Economic Studies and Ifo Institute)

Oksana Leukhina

University of Washington

Multiple version iconThere are 2 versions of this paper

Date Written: January 30, 2015

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.

Keywords: Education, College dropout risk

JEL Classification: E24, J24, I21

Suggested Citation

Hendricks, Lutz and Leukhina, Oksana, How Risky is College Investment? (January 30, 2015). CFS Working Paper No. 502. Available at SSRN: https://ssrn.com/abstract=2560194 or http://dx.doi.org/10.2139/ssrn.2560194

Lutz Hendricks (Contact Author)

UNC Chapel Hill ( email )

Chapel Hill, NC 27599
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Oksana Leukhina

University of Washington ( email )

Seattle, WA 98195
United States

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