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How Students Pay for College

How Students Pay for College. ELPA 9451 January 29, 2014. Human Capital Theory. Human Capital: A unique set of innate abilities and acquired skills. Question: Why do some people acquire more education than others?

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How Students Pay for College

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  1. How Students Pay for College ELPA 9451 January 29, 2014

  2. Human Capital Theory • Human Capital: A unique set of innate abilities and acquired skills. • Question: Why do some people acquire more education than others? • Assumption: People choose the level and type of human capital that maximizes the present value of lifetime utility (happiness). • Sometimes this is abstracted to lifetime income

  3. Human Capital Theory • Important features of the human capital model: • Education leads to increased skill • Higher wages • Lower unemployment • Education is costly to the person and is generally paid up front • People value present income and utility at a higher rate than future income and utility • Discount rate

  4. Age-Earnings Profile College $ Average median income (Bachelor) ~ $55,700 Average lifetime net-income ~ $1,150,000 $30,000 HS Average median income ~ $33,800 Average lifetime net-income ~ $800,000 $20,000 Indirect Cost Time 18 22 65 Direct Cost Public 2-year undergraduate budget = $14,637 Public 4-year undergraduate budget = $20,339 Private 4-year undergraduate budget = $40,476 $20,000

  5. Model Generalizations • The longer the length of the income stream the larger the benefits that an education investment • Why people generally go to college as youth • As tuition falls, more will go to college • Why governmental policy focuses on financial aid • As earnings differential increase, more will go to college

  6. Source: Baum, S., & Ma, J. (2012).Trends in College Pricing 2012. Retrieved from The College Board website: http://trends.collegeboard.org/college-pricing

  7. Source: Baum, S., & Ma, J. (2012).Trends in College Pricing 2012. Retrieved from The College Board website: http://trends.collegeboard.org/college-pricing

  8. Source: Baum, S., & Ma, J. (2012).Trends in College Pricing 2012. Retrieved from The College Board website: http://trends.collegeboard.org/college-pricing

  9. Baum, S., & Payea, K. (2012). Trends in Student Aid, 2012. Retrieved from The College Board website: http://trends.collegeboard.org/student-aid

  10. Lifetime Earnings Source: Baum, S., Ma, J., & Payea, K. (2010). Education pays 2010: The benefits of higher education for individuals and society. Retrieved from The College Board website: http://trends.collegeboard.org/education-pays

  11. Source: Baum, S., Ma, J., & Payea, K. (2010). Education pays 2010: The benefits of higher education for individuals and society. Retrieved from The College Board website: http://trends.collegeboard.org/education-pays

  12. Activity Construct an age-earnings profile for: • A 30 year old person that is contemplating returning to schools to pursue a law degree (3 years) full time (unable to work). • A 38 year old person that is contemplating pursuing a M.Ed. Degree in student affairs part time (3 years) while continuing to work full time. • A 22 year old college graduate who is contemplating pursuing a Ph.D. in economics (5 years) full time with a graduate assistantship (no tuition, small stipend). • An 18 year old student who is contemplating attending a 2-year college (live at home, work full time) and then completing at a 4-year college (live away and not work).

  13. Heller (1997) • What are the most important points to take away from this article? • Identify a trend in Baum and Ma (2012) which you believe that Heller would be most worried about negatively affecting college access for low-income youth. • Identify a trend in Baum and Ma (2012) which you believe that Heller would argue is helping college access for low-income youth.

  14. Kane and Rouse (1999) • Jigsaw: What are the most important aspects to take away from the following sections: • The net effect of community college on . . . (p. 68) • Labor market payoffs to community college (p. 71) • Rough Approx. (p. 78) • Student financing (p. 79) • Based on the human capital model and findings in this article explain why community colleges may increase access to higher education. • What trends identified in Baum and Ma (2010) are different than are reported in Kane and Rouse (1999)?

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