Family Heterogeneity, Human Capital Investment, and College Attainment

Abstract

From 1995 to 2015, the aggregate college completion rate in the US increased from 22.9% to 33.5%. Yet, completion trends differed markedly for individuals from different family backgrounds. This paper considers the extent to which trends in college preparedness contributed to the growth in aggregate completion, as well as the variation in completion trends across family backgrounds. We first document parallel empirical patterns in pre-college investments, college preparedness, and college completion. We then evaluate the quantitative importance of pre-college investments and preparedness for completion trends in a structural model of intergenerational human capital investment with heterogeneous families. Within the model the human capital investment channel generates half of the empirical increase in college completion; shifts in the composition of family types over time are also important. Finally, we use our model to show that subsidizing pre-college investment for low resource families has a larger impact on college completion and lifetime earnings compared to alternative interventions like tuition subsidies or cash transfers.