Working Paper: NBER ID: w21330
Authors: Justine S. Hastings; Christopher A. Neilson; Anely Ramirez; Seth D. Zimmerman
Abstract: We use large-scale surveys of Chilean college applicants and college students to explore the way students form beliefs about earnings and cost outcomes at different institutions and majors and how these beliefs relate to degree choice and persistence. Linking our survey records to administrative education and earnings data, we compare earnings and cost expectations to observed values for past students and follow survey participants forward to see how beliefs relate to matriculation and dropout outcomes. We find that students have correctly centered but noisy cost expectations, and appear to systematically overestimate earnings outcomes for past graduates. Students who overestimate costs are less likely to matriculate in any degree program and in their stated first-choice program, and are more likely to drop out. Students who overestimate earnings matriculate at similar rates to other students, but choose degree programs where past students have been less likely to graduate, have earned less early in their careers, and have been more likely to default on student loans. Consistent with an informal model of enrollment choice, students with a stated preference for labor market-related degree characteristics are less likely to overestimate earnings outcomes and choose degrees where past students have gone on to earn more, while the opposite is true for students with a stated preference for enjoyment of the curriculum.
Keywords: college choice; earnings expectations; cost expectations; socioeconomic status; Chile
JEL Codes: H52; I2; I24; I26; I28; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Students from low socioeconomic status (SES) backgrounds (I24) | Less informed choices (D80) |
| Students who prioritize financial outcomes (G19) | Accurate beliefs about earnings (D83) |
| Students who focus on enjoyment of the curriculum (A23) | Overestimate earnings (C51) |
| Expectation errors, particularly overestimating costs or earnings (D84) | Lower matriculation rates (D29) |
| Students who overestimate costs by 25% or more (G41) | 55 percentage points less likely to matriculate into any degree program (I24) |
| Students who overestimate costs by 25% or more (G41) | 77 percentage points less likely to enroll in their first-choice program (I24) |
| Students who overestimate costs by 25% or more (G41) | 33 percentage points more likely to drop out after the first year (I21) |
| Students who overestimate earnings outcomes (D29) | Enroll in lower-earning degree programs (I23) |
| Enrolling in lower-earning degree programs (A22) | Historically lower graduation rates and higher default rates (I24) |