Becker Friedman Institute

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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.

Authors: 
Lutz Hendricks, University of North Carolina, Chapel Hill
Oksana Leukhina, University of Washington
Publication Date: 
November, 2015
HCEO Working Groups: 
Publication Status: 
Document Number: 
2015-014
File Description: 
First version, November 2015