Problem 14 State whether each of the follow... [FREE SOLUTION]

Chapter 13: Problem 14

State whether each of the following, with no other change, would increase or decrease the economic attractiveness of going to college, and give a brief explanation for each. a. A decrease in estimated working life. b. An increase in the earnings of the average high school student. c. Permanently higher interest rates in the economy.

Short Answer

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a. A decrease in estimated working life would likely decrease the attractiveness of going to college. b. An increase in the earnings of an average high school student would likely decrease the economic attractiveness of going to college. c. Permanently higher interest rates in the economy would likely reduce the attractiveness of attending college as it would make student loans more expensive.

Step by step solution

Analysis of Decrease in Estimated Working Life

A decrease in estimated working life would reduce the time one would be earning a potentially higher income after earning a college degree. So, this is likely to decrease the attractiveness of going to college. The rationale is that longer working life implies more years to recoup the investment in college education through higher earnings.

Analysis of Increase in Average High School Student Earnings

If the earnings potential for high school students increases, it may negate some of the perceived income benefit of going to college. Thus, an increase in such potential income could decrease the attractiveness of going to college, as one could opt to start earning immediately rather than investing time and money in college education.

Analysis of Higher Interest Rates

Higher interest rates would increase the cost of any student loans taken to finance a college education. This means repayment of student loans would be more expensive in the future. This extra cost could reduce the net economic benefit of the degree, therefore, making college less attractive. The rationale is that student loans are usually repaid over a longer period, and higher interest rates signify higher costs of borrowing in the future.