Education Life-cycle: School Entry, Investment, and College
Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM
- Chair: Kathryn Birkeland, University of South Dakota
Parental Education Investment Decision with Imperfect Signal of Talent
AbstractThis paper builds up a theoretical parental education investment model which employs discontinuous utility function and introduces uncertainty into parental education investment decision. With some basic and reasonable assumptions, this paper proves that the correlation between talent signal and optimal education investment level is not monotone. In most situations, the correlation will be positive. However, when parents' utility function is discontinuous at some thresholds, the bonus can motivate parents to add more investment on children so that they can reach the thresholds. In this case, the optimal education investment will decrease as talent increases.
This paper also introduces uncertainty into the decision process. With uncertainty, parents will maximize the expected utility. the optimal education investment curve will be smoothed out by the expectation process. The larger the standard deviation is, the smoother the curve becomes.
Moreover, the paper can also help us to understand the drop-out issue. The model predicts that the drop-out rate will be lower for students whose current years of schooling are close to graduation. The reason is that degrees have values which can motivate students to finish their degrees.
Access to Higher Education and Borrowing: Evidence From Merit-heavy States
AbstractOne of the main levers for promoting access to college is need-based aid. However, some states have little state-level need-based aid instead relying primarily on merit-aid. To what extent can a public-university system provide the desired access to college using only merit-based aid? To what extent is student borrowing impacted by the absence of need-based aid in the state?
Using demographic data on households with school-age children, primary school performance, high school graduation rates, and college attendance rates, we find that without need-based aid, student access to college in the state is reduced. However, this reduction is somewhat offset by lower in-state tuition rates. We also find that the average level of student borrowing is higher in states without need-based aid, as one would expect. The impact is observed in both the percentage of students borrowing and the average debt for those who borrowed.
As previous works have shown, the impact of aid is felt most significantly for students from households in the second income quintile because of the current federal need-based aid programs for those in the first income quintile. Therefore, states with primarily merit-based aid may do well to include some income considerations for aid awards as a way to encourage students to stay in-state.
University of South Dakota
- I2 - Education and Research Institutions