How Risky is College Investment?

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: Suggested Citation

Hendricks, Lutz and 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