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Who Values Access to College?

Kartik B. Athreya, Felicia Ionescu, Urvi Neelakantan and Ivan Vidangos

No 2019-015, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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 (search for similar items in EconPapers)
JEL-codes: E21 G11 I24 (search for similar items in EconPapers)
Date: 2019-03-07
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2019-15

DOI: 10.17016/FEDS.2019.015

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