Essays on Higher Education

Abstract

In this dissertation, I quantify the impact of uncertainty on schooling postsecondary choices, study the returns to higher education degrees, and analyze the effects of policies that intend to reduce college education costs. In the second and third chapters, I employ structural Roy models and data from the National Longitudinal Survey of Youth 1997 to analyze postsecondary schooling decisions, focusing on four- and two-year college paths. These models have three sources of unobserved heterogeneity affecting earnings and decisions: cognitive, socioemotional, and mechanical latent abilities. The second chapter employs a dynamic Roy model to quantify the impact of uncertainty when making postsecondary schooling. While schooling choices maximize expected value, some individuals opt for alternatives that, in hindsight, do not yield the highest ex-post net value due to idiosyncratic shocks affecting earnings and schooling costs that are unknown when decisions are made. This uncertainty generates significant losses: I estimate that aggregate net value would increase by 11% if individuals had perfect foresight. Moreover, I study how decisions would change under perfect foresight and characterize individuals more likely to be affected by uncertainty. I also explore policy simulations to study the effects of an annual two-year college $16,500 subsidy, including the characterization of compliers—those more likely to attain a two-year college degree because of the subsidy. The third chapter analyzes the interplay of observed and unobserved dimensions as determinants of marginal treatment effect (MTEs) through decomposition analysis. We posit a static Roy model with unordered schooling choices. We focus on MTEs as they shape other treatment effects and capture the impact for those responding to minimal incentives. Additionally, we estimate the model separately for women and men, focusing on describing how responses and treatment effects vary between these two groups. We find different ability distributions and returns to ability for women and men. Moreover, we document how different observed characteristics and ability dimensions play different roles in determining the heterogeneity observed in MTEs across both groups. The last chapter investigates the impact of financial aid programs on high-quality private colleges' decisions, leveraging exogenous variation from a large-scale aid program in Colombia, where beneficiaries could only enroll at high-quality colleges. Using a difference-in-differences strategy and data for all private colleges in the country, we find that tuition increased by about 6.9 percent after the government launched the aid policy. We contribute to the literature by analyzing the effect of financial aid programs on tuition for high-quality universities and studying how universities might change other outcomes beyond tuition in response to the policy. We show universities hire more faculty members, keep the student-to-faculty constant, and open new undergraduate programs. Our findings support a narrative where prestigious colleges prioritize their reputation, opting for gradual expansion without compromising quality.