QUESTIONING THE CURRENT ECONOMIC BENEFITS OF COLLEGE
There is serious doubt in my mind whether college education is a wise investment given the downward slopes of economic prosperity and public support for higher education. Policies to erect more cost barriers would reduce aspirations of younger generations and impede our country’s job growth.
Reports claim that college graduates have higher earnings and employment rates than high school graduates without degrees. The reports come from respectable sources such as the College Board, a non-profit association of schools and colleges, and degreeadvantage.com, a promotional organization for online schools. The reports don’t tell the full truth, and degreeadvantage’s report is based on 1997-99 data.
Several years ago, professor Laurence Kotlikoff of Boston University began studying economic benefits using realistic costs. He included tuition, room and board, textbooks, materials, lost income for four years, interest costs and opportunity costs of debt. His cost estimates appear low because 57% of students take six years to graduate. He also included long-term impacts of taxes, spending and savings patterns after college, in middle age, and during retirement.
Surprisingly, economic benefits were only 10% higher. In later work he concluded that given a student’s innate abilities, the extra investment in a high priced, private institution does not offer an economic payback compared to a lower cost public education.
Even a 10% return could be wiped out by cost barriers public officials are erecting: (1) raising tuition faster than inflation, (2) lowering financial aid grants, (3) limiting investment incentives and (4) enabling steeper debt loads.
College tuition in Washington is scheduled to rise much faster than inflation, even as slots for residents decline in favor of out-of-state students. Recent studies reported increased enrollments in costlier private schools. And US Rep Ryan’s budget proposal, purported to be the 2012 Republican platform, cuts Pell grants for need-based students.
Budget proposals cutting student grants runs counter to economic sense. Ryan’s assumptions are (1) we have a spending problem and (2) we need to invest for job growth. While I agree we have a spending problem (we also have a revenue problem), the problem is wasted spending that doesn’t develop people and infrastructure.
We should invest for job growth, but cutting aid to education reduces job growth. Employers demand high skilled candidates, yet an estimated 200,000 people per year do not attend college or technical schools because of high costs. Skilled graduates supply employers with incentives to create jobs locally rather than overseas.
Savings plans help cut student costs, but public policies minimizing interest rates limit returns on savings. In 2009 forty percent of students borrowed on student loans. Fortunately, Washington’s legislators have abandoned plans to impair investment in our GET program, and instead moved to strengthen it.
Student debt is a pernicious roadblock to job growth. In March 2011 the Institute for Higher Education Policy issued a report about the 1.8 million students who began repaying loans in September 2005. More than two out of five borrowers became delinquent by September 2009. Those borrowers faced damage credit scores, increased debt and higher interest payments. All of those problems restrict consumption, which restricts job growth.
With forty percent of students borrowing to pay for college, the IHEP said debates about total costs for college must “include the causes and consequences of delinquency … to improve borrowers’ experiences, enhance the student loan program, save taxpayers’ money, and perhaps contribute more broadly to higher education as a whole.”
We need to invest more in higher education, not less, and must find the revenues so we can wisely invest in people and job growth.
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As the fiscal constraints grow, and tuition rises, one would think that states would structure education to entice students to begin their baccalaureate degree at a community college. California has done a decent job with community college to university mandated transfer but most states seem to be cautious to follow this cost-effective, high quality solution, possibly because most legislators are graduates of major universities.
A system to attain a BA/BS could be built that would be cheaper without compromising costs.
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Excellent!
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The Industrial Revolution is over. The Information Age is gone. The name of the global economic game in the 21st Century is the Knowledge Economy.
We can't build a knowledge economy without higher education. The technological improvements in transportation, construction, resources management, medicine,education, reduction of greenhouse gas emissions across all industries and the population as a whole,to name but a few critical areas, all depend on a higher level of knowledge than we are currently producing in our education system.
Our higher education institutions often have as many foreign students studying science, mathematics, engineering, than Americans. This is unacceptable, and will doom us to becoming a second rate 1st world country in a short time if left unaddressed.
Studies that show that college education does not pay for itself need to be broken out in to what fields of study are income productive and in what proportions to each other. Then we'll know what college education is income effective for those who can only think of value in dollar sign terms.
Beyond that, if I could have made a million dollars by not graduating from a liberal arts college, and not made that kind of money with a liberal arts degree (and I didn't), I would still choose a liberal arts college degree. The life enrichment I have received from my education more than makes up for anything money could have done for me.
College needs to be made affordable and accessible to all who want it. Nothing but good will follow.
There has been a streak of anti-intellectualism, egghead antipathy, a pride in Yankee ingenuity and can do attitude running through our history that needs to be re-examined as we face the serious challenges of the future.
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Bravo Kit! I was going to make a similar point about the personal value that the courses with no economic payoff have had for me.
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A subject near and dear to my heart. We have in my judgment made a bad mistake expecting so many of our youth to go to college and not seek a trade school education. I have felt this way for a long time.
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I enjoyed your comments on the value of "investing" in college degrees. It has been a hot button for me for many years, especially since I was a consultant to several large private colleges for their endowment fund investments.
My reactions:
College costs are a "runaway train", with not very good intellectual basis or discipline built into the pricing. There is little motivation for colleges to hold the costs down. High priced colleges enjoy the illusion of superior quality. Cutting the tuitions make them appear average priced and perceived as average quality. Call it intellectual arrogance by the private college administrators.
Colleges teach courses in good business practices, but certainly do not follow them. Imagine if you created an elaborate product that you had to price so high that most people could not afford it. Not to worry, you charge some customers an exorbitant amount, and figure a way to "give it away" or subsidize about half the other poorer customers to fill the seats. Some would say it is a very poor business model.
Similarly, many people would contend that there is more variation in an individual student's thirst for learning than in the quality difference between colleges. Hence, a motivated student can get an excellent education at an average college; a less motivated student will not benefit greatly from a superior, over priced college.
So, the advice to students and parents who are strapped: Pick a good public college with some decent name recognition and scholastic rating (probably in your state), and have the student apply himself as much as possible, taking advantages of ALL that the college has to offer. Live at home if necessary. Work for the college as you attend, if possible, or a local job. Avoid student debt as much as possible. (Students are idealistic and fall for the student loans without realizing how much it will hamper their post graduation life style.) Start at a community college if necessary. Get summer jobs that matter on the resume.
The final word: Get the degrees!! If you think education is expensive, ignorance costs much more and leads to a dismal life. JUST DON'T FALL FOR THE SUCKER'S BET OF MORTGAGING 10 to 15 YEARS OF YOUR LIFE FOR A FANCY, OVERPRICED COLLEGE DEGREE!
Contributed by an average student who attended GIANT public universities for undergrad and for an MBA. No loans and no regrets. Happily retired after a very satisfying business career.
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