Determinants of college completion: School quality or student ability?

We investigate whether the ''match'' between student ability and college quality is an important determinant of college graduation rates. We jointly estimate a multinomial probit model of college attendance decisions in which the alternatives are no college and attendance at college in four quality categories, and a binomial probit model of subsequent graduation decisions. By allowing the error terms to be correlated across alternatives and time periods, we identify the effects of observed factors net of their correlation with unobservables. We find that students of all ability levels have higher chances of graduating if the quality level of their college ''matches'' their observed skill level.