1. Is Koledje Werth It?
Having just been graduated from high school, suppose you face a time line consisting of four periods as follows:
a. the current period, which is followed by
b. the first period in the future, which is followed by
c. the second period in the future, which is followed by
d. the third period in the future.
Now suppose you are choosing between two different collegiate paths, Path A or Path B, or not going to college at all.Collegiate Path A involves college education at a humble university with a modest academic reputation, Waretown State University. If you take the Waretown path, you will spend $30,000 on higher education in the current period. Upon graduation from Waretown your earnings trajectory will be: (1) $29,000 in the first period in the future, (2) $60,000 in the second period in the future, (3) $130,000 in the third period in the future.
Collegiate Path B involves college education at a selective university with a prestigious reputation, Pennington University. If you take the Pennington path, you will spend $85,000 on higher education in the current period. Upon graduation from Pennington your earnings trajectory will be: (1) $36,000 in the first period in the future, (2) $75,000 in the second period in the future, (3) $165,000 in the third period in the future.Instead of either of the collegiate paths, you could go to work straight out of high school. Specifically, you could earn $20,000 in the current period. Then your earnings trajectory would be: (1) $24,000 in the first period in the future, (2) $40,000 in the second period in the future,(3) $70,000 in the third period beyond in the future.
Suppose the interest rate is 3.5% per period.
A. According to a newspaper article by David Leonhardt in The New York Times (May27, 2014), “The decision not to attend college for fear that it’s a bad deal is among the most economically irrational decisions anybody could make
The much-discussed cost of college doesn’t change this fact. . . . Over the long run, college is cheaper than free.” College is cheaper than free?Really?!?
Does it seem cheaper than free to you? Given the data above, is “college is cheaper than free” a preposterous argument or not? Demonstrate and explain how Leonhardt’s claim can be evaluated.
B. Do the higher earnings associated with an élite Pennington education justify the higher tuition at this world-famous institution? Or is the lower tuition at good ol’ Waretowngood value for money? Demonstrate and explain.
C. Now suppose the earnings trajectory associated with a Pennington degree is as follows: (1) $45,000 in the first period beyond college, (2) $95,000 in the second period beyond college, (3) $205,000 in the third period beyond college. Do the higher earnings associated witha Pennington education justify the higher tuition at the élite university? Or is the lower tuition atgood ol’ Waretown good value for money? Demonstrate and explain.
D. Now let’s go back to the original earnings trajectories. But now add this twist. If you enroll at Pennington suppose there is only an 85% likelihood of successfully completing the Pennington degree; if you flunk out of Pennington you end up on the high school earnings path. If you enroll at Waretown, suppose there is only a 75% likelihood of successfully completing theWaretown degree; if you flunk out of Waretown you end up on the high school earnings path. Now what should you do, enroll at Pennington, enroll at Waretown, or go to work straight out ofhigh school? Demonstrate and explain.
2. Higher Education Rewarding for Everyone? In the U.S. is higher education more rewarding for some types of people than others? Assess this question, presenting up-to-date statistical evidence from the BLS in one easy-to-readtable and interpreting what the statistical evidence means.

1. Is Koledje Werth It? Having just been graduated from high scho...