Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2018:12: The Returns to College Choice: Loans, Scholarships and Labor Outcomes

Ana Maria Montoya (), Carlos Noton () and Alex Solis ()
Additional contact information
Ana Maria Montoya: Department of Industrial Engineering, University of Chile
Carlos Noton: Department of Industrial Engineering, University of Chile
Alex Solis: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: To estimate causal eff ects of college choice, we exploit eligibility rules for student loans in a regression discontinuity design. Loan programs induce students to pursue college degrees that are more expensive and prolonged relative to technical education. Although higher education is profi table, the marginal return of college is identical to that of technical education when students are about 30 years old. The college premium seems to increase over time, possibly off setting the initial experience gap and covering cost diff erences under moderate discount rates. We study the eff ects of debt burden on college choice using a similar cutoff rule for scholarships.

Keywords: college choice; credit constraints; returns to college; debt aversion; regression discontinuity

JEL-codes: I22; I23; I26; I28; J08

74 pages, July 31, 2018

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