Are College Costs Worth It? How Individual Ability, Major Choice, and Debt Affect Optimal Schooling Decisions

Douglas Webber

No 8767, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines the financial value over the course of a lifetime of pursuing a college degree under a variety of different settings (e.g. major, student loan debt, individual ability). Using a lifecycle simulation approach, I account for ability/selection bias and the substantial probability that entering college freshmen will not eventually graduate, two critically important factors when evaluating the value of pursuing a college degree. I find that financial proposition of attending college is an unambiguously good investment for the vast majority of individuals with low to average college costs, although majors with a lower expected return do not pay off until middle age. However, when the financial costs of attending college are high (defined here as roughly $30,000 per year), the gains from attending college are far more tenuous, particularly among those with below median ability and those pursuing an Arts/Humanities degree. I estimate the net present discounted value of attending college to vary between $95,000 and $275,000 depending on the major (STEM, Business, Social Sciences, Arts/Humanities) pursued.

Keywords: major choice; returns to college; student loans (search for similar items in EconPapers)
JEL-codes: I21 I22 I23 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-01
New Economics Papers: this item is included in nep-edu and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in: Economics of Education Review, 2016, 53, 296-310.

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