Author(s)  
Lutz Hendricks
Oksana Leukhina

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 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.

Publication Type  
Article
Journal  
Review of Economic Dynamics
Volume  
26
Pages  
140-163
JEL Codes  
I21: Analysis of Education
I23: Higher Education and Research Institutions
D81: Criteria for Decision-Making under Risk and Uncertainty
Keywords  
education
college dropout risk