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Title:The Financial Risk Faced by College Undergraduates
Author(s):Porter, Robert Donald
Department / Program:Education
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Education, Finance
Abstract:This study examines the financial risk of undergraduate education. For each of sixty subjects, college costs (i.e., tuition and fees, books and supplies, and foregone earnings) are compared with the extra earnings ascribed to the education. The primary comparison criterion employed is the internal rate of return. The dispersion of rates of return around the median provides the desired measure of risk.
Two hundred potential respondents were selected from 2765 participants in the nation-wide Study of the College Investment Decision, which was conducted in 1972 by Walter W. McMahon under the sponsorship of the American College Testing Program. The targeted subjects all met these "subsample selection" criteria: (1) being white United States citizens; (2) intending to complete bachelor's degrees, but not advanced degrees; (3) having composite ACT scores between 21 and 27; and (4) coming from families with 1971 incomes between $5,000 and $11,000. (Translated into 1982 dollars, these figures are approximately $12,000 and $26,000.)
Other notable results: (1) Subjects with college degrees were asked: "If you could start over, knowing what you know now, would you again choose to attend college?" One hundred thirty-six answered "Yes", four answered "Not Sure", and only one answered "No". (2) Graduates were provided with a list of thirteen possible benefits from college, and asked to rate the importance of each. The highest ratings were given to "Meeting and conversing with interesting people" and "Locating a suitable career." "Earning a good income" was rated sixth.
Completed questionnaires were returned by 175 subjects. Internal rates of return were calculated for 34 male and 26 female respondents who met these "calculation" criteria: (1) receiving bachelor's degrees within five years of entering college; (2) not receiving advanced degrees; and (3) working more-or-less constantly full-time year-round after graduation.
The internal rates of return can be broken down as follows: (UNFORMATTED TABLE FOLLOWS)
Internal Rate of Return Frequency Cumulative Percentage
IRR = 20% 3 100%
The median return was 8.5%. The level of risk implied by the distribution, on the continuum from trivially to prohibitively risky, is left as a matter of subjective judgement.
Issue Date:1984
Description:203 p.
Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1984.
Other Identifier(s):(UMI)AAI8502270
Date Available in IDEALS:2014-12-15
Date Deposited:1984

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