Accounting for Risk of Non-Completion in Private and Social Rates of Return to Higher Education

Conventional studies of the private and social rates of return to a Bachelor’s degree focus on the earnings difference between Bachelor degree holders and high school graduates, and find that there are large rates of return for degree recipients. The estimates in these studies, however, do not take into account the risk of not completing a degree. In this study, we begin by reviewing the methodology used in conventional studies of the private and social financial benefits from college, and show how it can be modified to take into account the risk of not completing college and the timing at which students may depart college. We test the sensitivity of our findings to whether students attend a public or private institution, the growth rate of real earnings, and the price paid by students. Our approach also takes into account the impact of differences in unemployment rates by education level on future benefits. Overall, we find that the financial return for all college attendees is still large, but is lower than for only those who earn a Bachelor’s degree.