Consumer Valuation Of Higher Education And Adjusted Rates Of Return

Abstract

This paper regards higher education as a bundle of services. This approach yields a rate of return which is between 0.5% and 4.1% higher than previously calculated. This paper makes use of data which shows how much students actually paid to attend college, a value which is often very different than the stated tuition. When students purchase the college bundle they are buying labor market skills, intellectual stimulation, a peer-group, socializing opportunities and a network of contacts. I identify which elements of the education bundle consumers wish to purchase. If a consumer purchases a good which enhances his income that purchase can be regarded as an investment. Otherwise it is regarded as a consumption good. Using a standard wage equation, which includes the elements of the education bundle consumers are willing to purchase, I confirm there are both consumption and investment aspects to the purchase of higher education. This implies previous rate of return calculations underestimated the investment return on a college education.