Question

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

a. A decrease in estimated working life would decrease the attractiveness of going to college since students will have less time to earn a return on their investment. b. An increase in the earnings of the average high school student would decrease the attractiveness of going to college as the opportunity cost may outweigh potential benefits. c. Permanently higher interest rates would make college less economically attractive due to increased cost of borrowing.

Step-by-step solution

A. Impact of Decreased Estimated Working Life

A decrease in estimated working life would render going to college less attractive, because the time to reap the benefits from the investment in college education will shorten. In other words, students won't have as many years to earn a return on their investment through increased earnings from their higher education.

B. Impact of Increased High School Average Earnings

An increase in the earnings of the average high school student would also decrease the attractiveness of going to college. If high school students are already earning as much or more than college graduates, the opportunity cost of going to college (lost wages during college years plus tuition) may outweigh the potential benefits of a higher salary after graduation.

C. Impact of Higher Interest Rates

Permanently higher interest rates in the economy would decrease the economic attractiveness of going to college. Most students take loans to pay for their education and, if the interest rates are high, the cost of borrowing increases. Thus, the financial burden of university education increases, making it less attractive.