Are College Costs Worth it? How Individual Ability, Major Choice, and Debt A ect Optimal Schooling Decisions

This paper examines the nancial value over the course of a lifetime of pursuing a college degree under a variety of di erent 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 nd that nancial 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 o until middle age. However, when the nancial costs of attending college are high (de ned 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. ∗Temple University Department of Economics and IZA. 1301 Cecil B. Moore Ave. Ritter Annex 883. Philadelphia, PA. 19102 Email: [email protected] †I have greatly bene ted from the advice of J. Catherine Maclean, Ron Ehrenberg, Matthew Freedman, and Moritz Ritter.