High Rates of Return on College Education Comes with High Risk

Attending college has been considered one of the most protable investments, annualized returns ranging from 8% to 13% (Card 1999). I utilize a simple approach, as in Mehra and Prescott (1985), to quantify how much of the excess return to college is explained by its risk. I also explore the role played by heterogeneous ability by developing a life-cycle model with endogenous enrollment and analyzing the dropout risk effect on college returns.

Under the risk premium approach, the permanent income shock on wages explains 1% of the excess return to college education. Dropout risk explains 22% of the estimated excess return. Both sources of risk combined explain 51% of the excess return to college education.


Folksonomies: economics education academia investment

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Investment (0.985236): dbpedia | freebase | opencyc
Scientific method (0.761991): dbpedia | freebase
Rate of return (0.742103): dbpedia | freebase
Explanation (0.643945): dbpedia | freebase | opencyc
Critical thinking (0.595843): dbpedia | freebase | opencyc | yago
Theory (0.585985): dbpedia | freebase

 College Risk and Return
Periodicals>Journal Article:  Castex, Gonzalo (August 2010), College Risk and Return, American Economic Association, Retrieved on 2015-03-08
Folksonomies: academia risk


08 MAR 2015

 Is College Worth It?

Are PhDs a pyramid scheme? Are college returns worth the risk of failure and massive debt?