How does an increase in the interest rate affect student decisions to invest in human capital by earning a graduate degree? Assume the cost of earning the two year degree, including opportunity costs, is $100,000. This degree will boost annual earnings by $30,000 per year.
A) Higher interest rates will decrease the present value of the future earnings boost. Fewer students will enroll.
B) Higher interest rates will increase the present value of the future earnings boost. More students will enroll.