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Working Papers

March 2013, No. 13-02R

Risk, the College Premium, and Aggregate Human Capital Investment (Revised November 2016)

Kartik B. Athreya and Janice Eberly

While the college premium continues to rise, we show that aggregate college attainment will likely remain stagnant. While even modestly-prepared students already enroll and will do so at higher college premia, those not already enrolled in college face both substantial failure risk and earnings-risk after graduation. These risks attenuate the benefit of the college premium, so at-risk students rationally ignore it. For low-wealth students, these risks are magnified by leverage as borrowing occurs before risks are resolved. Our results imply that the continuation of long-running trends in skill-biased technical change will primarily increase economic inequality, not college attainment.

Earlier versions of this paper were published under the titles "The Supply of College-Educated Workers: The Roles of College Premia, College Costs, and Risk" and "The College Premium, College Noncompletion, and Human Capital Investment."

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