October 13, 2013
Higher College Costs and its Consequences
Higher College Costs and its Consequences- Becker
As Posner discusses, tuition and other college costs have risen greatly during the past 30 years. So too have the many benefits from college, including the greater earnings, health, and even marriage rates of college graduates compared to high school graduates. Moreover, the return on a college education has also increased, as measured by the higher benefits of college net of the increase in college costs. As a result, college is even a better deal than it was 30 years ago for most of the students who can afford the higher tuition.
Hence despite the sizable growth in college costs, more students want a college education. This increased demand for college education is obviously one factor that has pushed up college costs. The growth in college costs means, however, that college may not be a better deal now than in the past for capable high school graduates who have trouble financing higher college costs. They and other students have turned to loans to ease the financial burden of college, which, along with low interest rates, largely explains the sizable growth in student loans. Many colleges, especially private ones, have also eased the financial burden to students by increasing aid at a rapid rate.
Colleges are competing harder for better students, so that the financial burden of going to college has grown more slowly for these students than for average students. This, combined with the fact that the benefits of a college education have also grown more rapidly for abler college graduates, means that changes during past several decades in both benefits and costs of college have been much better for abler students. This increased financial cuddling of better students is another factor that has increased the cost of college for the average student.
Increased competition for better students has gone hand in hand with greater competition for better faculty. Just as returns to college have increased more for better students, it is likely (there is little quantitative evidence on this) that returns from college have also grown more from an education with better faculty and a more effective education program. In any case, the stronger competition for college faculty has been one important source of the growth in college costs since faculty is by far the dominant cost of a college education.
Although the fraction of young persons who go to college has increased in all ethnic, race, and gender groups as a result of the higher return from college, the increase has been rather modest, especially for males. Part of the explanation is that some students have been discouraged by higher tuition and other college costs, although this does not explain why young women are now far more likely to complete 4 years of college than are young men.
To ease the burden of student loans, it would be wise to introduce on a larger scale loans that tie repayments to subsequent earnings. Those who earn relatively little would effectively have lower interest rates on their loans. One obvious challenge in running such a loan program on a financially sound basis is that these loans are more attractive to students who do not expect to earn a lot, either because they have limited skills, or expect to enter occupations that do not pay well.
Students cannot go to college if they have not graduated from high school, and the fraction that drop out of high school, especially young males, has remained stubbornly high during the past 30 years (with some decline during past few years). Although the high dropout rate may be indirectly related to the costs of a college education, it is puzzling since the plight of high school dropouts has remained pretty dismal during the past several decades. They have low earnings, high unemployment rates (as made clear during the past recession), poor health, and bad marital prospects.
The best explanation for the large number of dropouts is that parents, teachers, and schools have not prepared these students for a decent high school education, let alone for college. This is being increasingly recognized as pressure grows on schools and teachers, and also on parents, to improve the education of the mainly minority students who constitute the great majority of high school dropouts.
It is imperative to find better ways to help college students cope with the large growth in tuition and other college costs. Yet, one should not at the same time conclude that a college education has been oversold, since in virtually all dimensions of life a 4-year college education generally pays off very well.
Why Does College Cost So Much? Posner
The back page of the Education section of the Wall Street Journal for October 9 features a very interesting debate among three economists; I have given the debate's title to this blog post. The economists are Rudy Fichtenbaum, Katharine Lyall, and Richard Vedder, all experts on the economics of education and two (Fichtenbaum and Lyall) with considerable practical experience in academic administration. They don't agree on the causes of the high costs of an American college or university education; and though they agree that those costs are a problem, they don't agree on the solution. That is characteristic of the academic and journalistic literature on American higher education.
When I was an undergraduate at Yale College in the late 1950s, the cost of tuition plus room and board was $2000 a year; it is now almost $60,000, which after adjustment for inflation represents almost a fourfold increase. Yale is not unique, and the costs of a college education are comparable to those of Yale and other Ivy League schools (and their counterparts elsewhere in the United States, such as Stanford, the University of Chicago, and the University of Texas) even at many much less prestigious colleges.
The causes are various. They include the enormous—I am tempted to say the stifling—increase in legal and other regulation of colleges (and universities, but for simplicity I'll use "college" to denote all higher education), the decline in financial subsidies to state colleges, the increased cost of scientific equipment, and the expense of computerization and other electronics. But another important cause,paradoxically, is the increased cost of college education, which tilts the student body toward richer kids—and rich kids and their parents expect superior amenities in the way of housing, food, athletic facilities, and police protection. Such students expected to be treated as consumers, rather than as kids with no rights or representation (the situation of students at Yale in the 1950s; there was no student government, and no appeal from expulsion).
In addition, the availability of federal loans to students enables colleges to jack up tuition. This is in part because the loans are subsidized, in part because young people tend to exaggerate their future prospects, and in part because even very intelligent young people often have difficulty comprehending interest rates. Still another cause is the very strong demand for college education. Word has gotten out that the gulf in employment opportunities between college and non-college educated young persons has widened and is likely to continue to do so. Supply lags demand because it takes a long time for a new college to establish credibility in the eyes of prospective employers, and because expansion of existing colleges, while of course both feasible and common, is costly and slow; it requires enlarging faculty, administrative staff, security, and physical plant—there are few if any economies of scale in higher education. When demand outruns supply, price rises.
Another factor in the rising cost of college, perhaps an uncontrollable one, is the shift from a professional to a business model of higher education, a trend similar to that observed in the legal and medical professions. Colleges seem far more competitive than of old, as symptomized by the big-business type salaries increasingly commanded by successful college executives, where success is measured primarily in financial terms. This competition has I think resulted in greater investment in intercollegiate athletics, greater attention in admissions to the income of an applicant's family, grade inflation, reduction in number of required courses, and other pandering to student preferences. I worry that college trustees do not have the same incentives to hold down costs as corporate directors, who are answerable, at least to some extent, to shareholders. Private colleges (the majority of colleges and the best colleges) don't have shareholders.
There is also a question about the value added of a college education. Although college seems a good investment, whether it is depends I think on the underemphasized factor of IQ. The average IQ of Americans is (by definition) 100, and about one-sixth of Americans have an IQ of 85 or less. And many kids who have a sufficiently high IQ to benefit, in principle at least, from a college education have character or psychological or other personal problems (including family responsibilities) that prevent them from deriving significant benefits from higher education. Not every career track should begin with a college graduation.
It is relevant to note that college completion rates have declined even though colleges require less effort by students to graduate. This is consistent with colleges' enrolling more students who can't benefit significantly from a college education.
I see hope, however, in the MOOCs—massive open online courses, which offer enormous potential cost savings and quality improvements for colleges. They can eliminate most of the living expenses associated with college (students can live at home, presumably cheaply) while enabling a reduction in faculty size (because there is no limit to the number of students in an online course) coupled with an increase in average faculty quality, since there is no limit on the number of students that a superb teacher can teach online. The MOOCs are not a panacea, but they are the most promising response to the problem of the high costs of a college education in America.