The benefits of more information when applying to universities

Applying to college can be an exciting yet overwhelming process. Students try to figure out what schools might be a good fit for them both educationally and for their longer-term career goals. It’s easy to visit a campus. But figuring out the long-term benefits of a school can be tricky, as is narrowing down an area of study once they arrive.  So how would these decisions change if students had more information? A new working paper from the National Bureau of Economic Research tries to figure that out.

In partnership with Chilean government, Economists Justine Hasting of Brown University, and Christopher Neilson and Seth D. Zimmerman of Princeton University, did an experiment in which students were given information about the earnings  of previous students who a variety of schools and areas of studies as well as the “net value” of those programs. In Chile, students apply for student loans on a centralized website. Of some of the students who applied, the experiment tested their knowledge of how much certain schools cost and how much graduates of those schools subsequently earned.

The three economists find that many students were quite in the dark about how much different programs cost and how much they could expect to earn once they finished the program. Importantly, there was a large knowledge gap among students depending upon their family backgrounds. Students from the lower end of the earnings ladder were significantly less knowledgeable about tuition costs and the potential for future earnings. The share of those students unsure of tuitions costs was 6 percentage points higher, and the share saying they didn’t know what they’d earn after finishing their program was 8 percentage points higher among these low-income students compared to their better off peers.

The tax data on earnings, which the researchers also had access, show just how significant these differences could be. Hasting, Neilson, and Zimmerman find that a poor student will earn about 13.5 percent less than a rich student with identical test scores. According to the economists, about half of the gap is because students from low-income backgrounds are more likely to choose lower-paying areas of study.

Yet the decision to enroll in a lower-paying academic program is not necessarily because of a preference for the future career paths. After being informed of the differences in outcomes and returns on different programs, students are more likely to enroll in programs that have a higher return upon entering the workforce. And this effect is strongest for students from low-income backgrounds.

Of course, these results from the Chilean experience might not be directly applicable to the situation in the United States as the two countries have different higher educational institutions and post-graduate career trajectories. But it’s also important to note the Chilean higher education system issimilarly expensive compared to other high-income economies. And other research shows that there are large gaps in knowledge among Americans up and down the income ladder about the college application process and outcomes of different programs. Information, it seems, can be a very powerful thing.

This article is published in collaboration with The Washington Centre for Equitable Growth. Publication does not imply endorsement of views by the World Economic Forum.

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Author:  Nick Bunker is a Policy Analyst with the Washington Center for Equitable Growth.

Image: Pedestrians walk through campus. REUTERS/Beck Diefenbach.