Are college costs worth it? How ability, major, and debt affect the returns to schooling

•This paper estimates the expected return of various college degrees.•Present discounted values range from 85 to 300k depending on major.•Highlights the importance of risk when evaluating higher ed returns.•Various college cost and loan repayment scenarios are considered.

This paper examines the financial value over the course of a lifetime of pursuing a college degree under a variety of different settings (e.g. major, student loan debt, individual ability). I account for ability/selection bias and the probability that entering freshmen will not eventually graduate.I find the financial proposition of attending college is a sound investment for most individuals and cost scenarios, although some scenarios do not pay off until late in life, or ever. I estimate the present discounted value of attending college for the median student to vary between $85,000 and $300,000 depending on the student’s major. Most importantly, the results of this paper emphasize the role that risk (e.g. the nontrivial chance that a student will not eventually graduate) plays in the cost-benefit analysis of obtaining a college degree.