Cauliflower is nothing
but cabbage with a college education. ~
Mark Twain
Forget college football, we
are now entering the peak of college applications season, when high-school
seniors decide where they want to spend the next several years of their lives. The
ever-rising cost of going to college is a prominent factor for many applicants.
In May, Sen. Bernie Sanders introduced legislation to make 4-year public
colleges and universities tuition free. He said, “We live in a highly
competitive global economy. If our economy is to be strong, we need the best
educated work force in the world. That will not happen if every year hundreds
of thousands of bright young people cannot afford to go to college and if
millions more leave school deeply in debt.”
His plan, reputed to cost $750 billion
(B), would replace what public colleges and universities now charge in tuition
and fees. It would also overhaul student loan programs to reduce their cost in
part by eliminating any accrued federal profits on the loans. After Sen. Sanders’
noteworthy announcement, Hillary Clinton produced her own plan to
reduce the cost of going to college by providing $350B in federal money to
states over 10 years, so undergraduates would pay tuition at public colleges “without
needing loans.” If Sen. Sanders’ or Hillary’s plans somehow become law (a very
unlikely prospect with Republican majorities in Congress), far lower (“free”)
college costs will dramatically increase the demand for higher education.
Both plans embrace the idea that
a college degree is the new high school diploma. Although a growing number of people
believe this, I think it’s exaggerated and not self-evident. Holders of
BAs still receive a sizeable 60% premium in wages over
high-school diploma holders. Sanders’ and Clinton’s
proposals would essentially expand the long-established norm of free K-12
public education and offer free K-16 public education. To say that’s a big
change in government educational policy is a PhD-level understatement. From a
market perspective, the concept of lowering a service’s price a lot (a college
education) in the face of notably escalating demand poses many challenges.
According to Dept. of Education statistics, 81% of high-school age students now graduate with a
diploma, 34% of young
adults now have a BA, and 44% of young adults have either an Associates or BA
degree. Interestingly, 81 years ago, in 1934, 34% of adults had a
high-school diploma, the same percentage that now holds a college degree.
Both Sen. Sanders’ and
Hillary’s ideas to remove the expense of tuition when going to a public college
is a leftish shibboleth that will cost a ton of taxpayer money[1]
and put the post-high-school education (PHISE) market in a precarious,
unbalanced position. It will significantly increase the number of students
demanding an Associate or BA degree without increasing PHISE capacity to actually
educate them.
Beyond these consequences,
tuition-free college isn’t likely help that many young adults because of subsequent greater “degree-inflated” job requirements
imposed by employers and probably most important, insufficient incentives for
colleges to produce graduates more effectively and efficiently.[2]
I doubt that highly-selective
colleges will increase their educational capacity much, but other private and public
colleges, 2-year and online colleges might expand to meet more demand. However,
such expansion will only occur if additional public funding for more facilities
and faculty is made available to public universities and community colleges –
something that neither Sen. Sanders’ nor Hillary’s plans directly address. Increased
funding also flies in the face of many states’ contracted fiscal support for
their public universities and community colleges during the past decade. This
is why low-overhead providers of online PHISE services (such as MOOCs) will see
this policy change as a significant opportunity. The need for more
bricks-and-mortar classrooms (and of course administrators) may be partially
avoided via online means. Whether online college education is effective remains
an open question.
At first blush a
“tuition-free college education” sounds quite appealing; everyone likes “free”
– especially if you’re a young adult or the parent of one contemplating college
– but has as much veracity as a driverless car. This idea has some merit from a
generationally-based subsidy perspective. More public subsidies for young
adults might begin to balance the far more sizeable subsidies offered to old
folks through Social Security and Medicare/Medicaid expenditures, but I’m not
really sure it’s truly equitable. After all, a university education’s principal
benefit goes to those who graduate with a degree that traditionally has been
rewarded by getting a much better (higher-paying) job than young people who
don’t have a BA. Such wage premiums might continue, although I have serious doubts
as ever-more students enroll in (and hopefully graduate from) college.
The valuable collective,
social benefit of having more college graduates accrues from having a better educated
more knowledgeable and productive population. This social benefit explains why
subsidies are available to college students via government-guaranteed and
-subsidized student loans and education tax credits. These fiscal mechanisms
reduce the cost of attending college and are among the few directly helping young
people.
I’m all for having more young
adults graduate from college. But the market for educated labor in the US, like
every market, has two sides to it – supply and demand. If the supply of young
adults with college degrees rises significantly, as Sen. Sanders hopes, their
salary prospects may not. Unless employers’ demand
for educated labor also increases a lot, the price of such labor (their wages)
won’t increase, it could even decrease. Such reductions in the wage premium for
college graduates won’t be greeted with enthusiasm. With a “free college
tuition” policy in place, maintaining the college-educated workers’ wage
premium will require increased macroeconomic growth to spur employers’ hiring
of more such workers. And it probably will further degrade the wages of
lower-skilled high-school graduates. Despite its virtues, designing and
implementing policies to advance macroeconomic growth remains a quixotic quest for
economists and politicians, especially when Republicans decrease publicly-funded
research, infrastructure expenditures and investment incentives.
Also, a sustained, large
increase in folks who have PHISE degrees is likely to reduce the marginal value
of such degrees, as reflected in reduced expected wages, even with economic
growth. The law of diminishing marginal returns applies to holders of 2- and
4-year college degrees with respect to salary prospects simply because having
such a degree will become less distinguishing.
No one wants to consider this
possibility – and certainly no politician will say it, especially during the
unending election season. Because it’s contrary to our long-established, personal
hopes that more education provides better economic prospects. Middle-class
citizens’ “American Dream” is founded on this hope; they hold it as a keystone of
their children’s brighter future.
This is the fallacy of
espousing unsystematic policies that can change only one part (the supply) of
the market for highly-educated people. Such policies will produce an imbalance
for college-educated workers because policy-makers don’t consider about how
employers (the demanders) of BA-holding people will react to the consequences
of their policies.
Other nations have adopted
policies which reduce the cost of higher education, usually involving
significant public expenditures and subsidies. Of the 15 countries listed, the
nation with the lowest 2010 college costs (tuition, books and fees) was Denmark
– Bernie’s favorite? – with annual costs of only $530. I can’t even count that
low. The US college costs were $24,700 (private) and $7,123 (public). As a
percent of median household income Denmark’s college costs were 2.3%, the
composite US cost was 51.3%. According to a recent OECD report, 15
of the 33 nations had higher college (tertiary-level) graduation rates than the
US, including Denmark. How does Denmark achieve such low college costs and
elevated graduation rates? In part by having its citizens pay higher income
taxes – a 71% higher
average income tax rate than the US.
Our nation has a long and
pricey way to go if we want to significantly lower the expense of getting a
college degree and increase our national college graduation rate. Lowering
college expenses for students is only one part of a possible solution, which will only
be effective and beneficial if college education policy is systematically
implemented, covering both the supply and demand sides of the market.
[1] Actually a lot more than a ton. One billion George
Washington $1 bills weigh about 1,100 tons. So
Sen. Sanders’ free college plan would weigh 825,000 tons of Georges. That’s
about the weight of 8 huge Nimitz-class aircraft carriers, the largest US Navy ship. And something that Sen. Saunders would no
doubt be very happy to trade-in for more college students.
[2] Effectiveness
is doing the right thing; efficiency
is doing a thing right (in economics, doing it with the least opportunity cost).
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