Who Values Access to College?

46 Pages Posted: 14 Mar 2019

See all articles by Kartik Athreya

Kartik Athreya

Federal Reserve Banks - Federal Reserve Bank of Richmond

Felicia Ionescu

Board of Governors of the Federal Reserve System

Urvi Neelakantan

Federal Reserve Banks - Federal Reserve Bank of Richmond

Ivan Vidangos

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-03-07

Abstract

A first glance at US data suggests that college -- given its mean returns and sharply subsidized cost for all enrollees -- 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 flow 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 enroll -- 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 enrollment and being budget neutral.

Keywords: Human capital, Higher education, Financial investment

JEL Classification: E21, G11, I24

Suggested Citation

Athreya, Kartik and Ionescu, Felicia and Neelakantan, Urvi and Vidangos, Ivan, Who Values Access to College? (2019-03-07). FEDS Working Paper No. 2019-015. Available at SSRN: https://ssrn.com/abstract=3351924 or http://dx.doi.org/10.17016/FEDS.2019.015

Kartik Athreya (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Felicia Ionescu

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Urvi Neelakantan

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Ivan Vidangos

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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