This presentation discusses research on how providing information on return on education can influence people's perceptions of the prudence of pursuing higher education. The study found that understanding information about higher lifetime earnings for degree holders positively impacted views on education's wisdom. Additionally, factors like aspiration for education and family income were strongly linked to seeing college attainment as prudent. The results provide support for ensuring information on education costs and benefits is clear and accessible to allow informed decision making.

1. Return on education and
perceived rationality in
pursuing higher education
Presenter: Sailesh Acharya

2. Objective of this presentation
 In wake of student loan crisis, what can be a possible
solution?
 Bring the findings of research study that focuses on
providing information that can be a solution.
 Does it work?
 Where can this study be applied?

3. Why research needed?
 Attending college: an aspiration
 Family/societal norm
 Undergraduates earn twice as much as High School graduates
US Dept of commerce
 Unemployment rate (2013):
 7.5% for High School graduates
 4% for Bachelor’s degree
 2.3% for Graduate degree (BLS)
 Rising cost of education: By 40% for public institution (NCES)
 Outstanding student loan debt: $1.19 trillion (Fed Reserve
Bank of NY)
 National CDR: 13.7% (FY 2011) (Federal Student Aid)

4. Why research needed?
 Looking from the lens of education as an investment
 Do students and parents weigh cost and benefit?
 Research by Brown Center on Education Policy says ‘no’
 Efforts made
 Higher Education Opportunity Act, 2008
 Students unaware of the information
 Question: Information  perceived rationality of attending
college?
 Fill the gap in the literature.

5. Theoretical foundation
 Education as an investment
 Rational choice
 Investment: if the anticipated outcome will maximize
utility (applies to any capital)
 In human capital: education is the investment
 Return on education quantifies the expected utility
 This notion is foundation of independent variable.

6. Theoretical foundation
 Human Capital Theory (Schultz, Becker, Mincer)
 Educational investment for pursuing higher education
 People invest in higher education if return on education >
cost of investment.
 Discounted long-term income benefits > all direct cost +
forgone earning for higher education.
 Makes sense: Age, Cost of college education, Earning

7. Theoretical foundation
 Limitation of HCT
 Based upon own cognition
 Societal structure
 Social Cognitive Theory (Bandura)
 Educational context
 Draw information from other sources to make value judgment
 Role of parental influence and personal experiences
 Socio-structural factors: socioeconomic status, educational structure.
 Anchoring (Tversky & Kahneman)
 Mental shortcut
 Cognitive bias where an individual adjusts final answer based upon
the initial piece of information.

8. Return on
Education
Cost of
college
attendance
Age
Human Capital Theory
Forward-
thinking
attitude
Educational Context
(Social Cognitive
Theory)
Own level of
education
Parent’s level
of education
Aspiration of
education
Family
Income
Perceived
prudence of
educational
attainment

9. Perceived
prudence of
educational
attainment
Return on
Education
Cost of
college
attendance
Age
Human Capital Theory
Educational Context
(Social Cognitive
Theory)
Family
Income
Aspiration of
education

10. Research question
 Quantifying the return on education or even
manipulating the information, whether an individual
will consider the higher education attainment as
prudent or not.

11. Hypothesis
 H1: Young adults will value the perceived prudence of education
more than the older adults.
 H2: The cost of college education will have an influence in the
perceived prudence of education
 H3: The higher return on education will result in higher
perceived prudence of education.
 H4: Parent’s level of education will have a positive influence in
the perceived prudence of education. (Omitted because of bias)
 H5: An individual’s aspiration of education will have a positive
influence in the perceived prudence of education.
 H6: Family income will have a positive influence in the perceived
prudence of education.

12. Methodology
 Dataset information
 Collected data using Survey Sampling International
 Multi-state research team- Behavioral Economic and
Financial Decision-Making and Information Management
Across the Lifespan (NC-2172)
 N = 2158
 After cleaning the data, N= 1917

13. Methodology
 Experimental design
 Random assignment in 2 groups: experimental and
control
 6 experimental and 2 control groups
 Treatment: information on return on education
 Measuring dependent variable: Perceived prudence of
educational attainment

14. Dependent Variable
 Perceived prudence of educational attainment
 Do you think it is wise for [subject] to take student loans in
order to pursue a college degree?
 Answer choices: 1. Not wise
2.
3.
4.
5.Very Wise

15. Independent Variables- Demographics
 Age
 Ordinal level
 18-24 years, 25-34 years, 35-44 years, 45-54 years, 55-64
years, 65 years and over
 Race
 Categorical
 White, Black, Hispanic, Asian and others
 Gender
 Male
 Female

16. Independent Variables
 Cost of college attendance
 What is the typical 1-year cost of attendance at your state university?
Costs include tuition, housing, and dining.
 Ordinal: $1-$9,999, … $50,000 or more.
 Important thing: anchoring
 Return on education (treatment)
 Example, “On average, an individual whose highest education level is a
high school diploma will make $1,912 less per month than someone who
has a bachelor’s degree”
 The average salary is higher for those with college degrees than with high school
diplomas
 The average salary is higher for those with high school diplomas than with
college degrees
 Understood correctly
 Didn’t understand
 Control

17. Independent Variables
 Aspiration of education
 How important is a college degree?
 Scale: 1 (not important) to 5 (very important)
 Family income
 What is your combined annual household income?
 Ordinal level (15 categories)
 From under $20,000 to $150,000+

18. Perceived
prudence of
attaining
college
(rational
choice)Return on
Education
Cost of
college
attendance
Age
Human Capital Theory
Educational Context
(Social Cognitive
Theory)
Aspiration of
education
Family
Income

19. Bivariate Analysis
 Crosstabs (contingency tables). Why?
 Looks at dependent variable decomposed by all the
explanatory factors.
 Age:
 Showed no significance. Why?
 Race
 No Significance
 Gender
 No Significance
They’ll be used as control variables for higher level analysis

20.  Return on Education
 Significant
a. Chi(df)= 27.39(8), p = 0.001
Bivariate Analysis

21. Bivariate Analysis
 Cost of college attendance
 Significant (χ2=69.23, p<.001)
 Percentage of individuals considering college attainment as
very wise increased with 1-year estimated cost of college
attendance. Effect of anchoring.
 Aspiration of education
 Significant (χ2=502.04, p<.001).
 Percentage of individuals considering college attainment as
very wise increased with those who considered degree
attendance as not important to important.
 Family Income
 Significant (χ2=142.979, p<.001).

22. Multinomial Logistic Regression
 Why?
 To calculate the odds of group membership.
 Dependent variable is categorical with 3 categories: Not
wise, indifferent and Wise. Research question.
 What does it do?
 Calculates predicted odds of being a member of one group of a
dependent variable based on the membership of the
independent variable.
 2 things to understand
 Predicted odds
 Group membership: Wise vs. indifferent and Not wise vs.
indifferent. (dependent variable)

23. Result: Multinomial Logistic
Regression
 Age, race and gender showed no significance.

24. Multinomial Logistic Regression
 Return on education
 The predicted odds of considering higher education as wise
rather than indifferent is 94.4% higher for those who
understood the information than who did not understand
the information.

25. Perceived
prudence of
attaining
college
(rational
choice)Return on
Education
Cost of
college
attendance
Age
Human Capital Theory
Educational Context
(Social Cognitive
Theory)
Aspiration of
education
Family
Income
One level significance, Level 2: p<.05
No significance both levels
One level significance, Level 2: p<.05
Both level significance, Level 1:p<.001
Level 2: p<.001
Both level significance, Level 1: p<.001
Level 2: p<.001

26. Hypothesis:
 H1: Young adults will value the perceived prudence of
education more than the older adults.
 No support for hypothesis at both levels.
 H2: The cost of college education will have an influence
in the perceived prudence of education
 Some support for hypothesis with one level significance.
 H3: The higher return on education will result in higher
perceived prudence of education.
 Some support for hypothesis with one level significance.

27.  H4: Parent’s level of education will have a positive
influence in the perceived prudence of education.
(Omitted because of bias)
 H5: An individual’s aspiration of education will have a
positive influence in the perceived prudence of
education.
 Strong support for hypothesis with both level significance.
 H6: Family income will have a positive influence in the
perceived prudence of education.
 Strong support for hypothesis with both level significance.
Hypothesis:

28. Discussion:
 Understanding the information regarding return on
education is crucial for the value judgment of
educational attainment.
 People apply mental shortcuts to rationalize the value
of college attainment – seen through cost of college
attendance.
 An individual’s aspiration of education is crucial for
perception of higher educational attainment.
 Family income also plays an important role in perceiving
higher education as prudent.

29. Implication:
 Researcher: Wide range of research possibilities. Total
amount of student loans? Kind of college major? Career
choice? Influence of heuristics?
 Policy makers: To convey the message in a way the
audience understands the information provided to make
an informed decision. Is it accessible? Is it
understandable?
 Household: To make household decision on financial
planning of themselves or their children, start saving
early, career choice, selection of college major,
whether or not to take student loans.

30. References
 Bandura, A. (2001). Social cognitive theory: an agentic perspective. Annual review of psychology. 52: 1-26.
 Becker, G.S. (1965). A Theory of the Allocation of Time. The Economic Journal, 493-493.
 Brown Center on Education Policy at Brookings (2014). Are College Students Borrowing Blindly? Washington, D.C.:
Author.
 Gutter, M., Hayhoe, C., DeVaney, S., Kim, J., Bowen, C., Cheang, M., Cho, S., Evans, D., Gorham, E., Lown, J.,
Mauldin, T., Solheim, C., Worthy, S. & Dorman, R. (2012). Exploring the relationship of economic, sociological and
psychological factors to the savings behavior of low-to-moderate income household. Family and Consumer Sciences
Research Journal, 41(1), 86-101.
 Hout, M. (2012). Social and economic returns to college education in the united states. (pp. 379-400). PALO ALTO:
ANNUAL REVIEWS.
 Jepsen, C., & Montgomery, M. (2012, February). Back to school: An application of human capital theory for mature
workers. Economics of Education Review, 31 (1), 168-178.
 Perna, L. W., & Titus, M. A. (2005). The relationship between parental involvement as social capital and college
enrollment: An examination of Racial/Ethnic group differences. The Journal of Higher Education,76(5), 485-518.
 U.S. Department of Education. Federal Student Aid. (2014). National Student Loan Default Rates. Retrieved from
http://www.ifap.ed.gov/eannouncements/attachments/2014OfficialFY20113YRCDRBriefing.pdf
 Vaus, D. (2001). Research design in social research. London: SAGE.

31. Questions and comments

32. Without Aspiration

33. With Aspiration