How Risky is College Investment?

67 Pages Posted: 5 Mar 2015

See all articles by Lutz Hendricks

Lutz Hendricks

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

Oksana Leukhina

Federal Reserve Bank of St Louis

Multiple version iconThere are 2 versions of this paper

Date Written: February 26, 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: E240, J240, I210

Suggested Citation

Hendricks, Lutz and Leukhina, Oksana, How Risky is College Investment? (February 26, 2015). CESifo Working Paper Series No. 5203. Available at SSRN: https://ssrn.com/abstract=2573601

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

Federal Reserve Bank of St Louis ( email )

P.O. Box 442
St. Louis, MO 63166-0442
United States

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