What are the costs of higher education

Problem scenario

Empirical evidence suggests that individuals who invest n higher education benefit from a substantial 'education premium', i.e. their future salaries are on average higher than those of individuals with only a high school diploma.

(a) What are the costs of higher education? What method would you use to assign a monetary value to a university degree? Examples using fictitious data are welcome.

(b) Suppose that you wanted to test the relationship between interest rates and the number of new postgraduate masters students in a particular year - what type of relationship would you expect?

(c) 'To some extent, the returns to human capital are random...getting an MBA gives you a shot at being a CEO, but it isn't a guarantee' (G. Mankiw). Based on this, what adjustment should you make in order to take into account this comment when assessing the value of a university degree?


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