Karim Sindi's List: Subsidized higher education

• That argument has been heard before. In the 1970s, Harvard economist Richard Freeman, author of The Overeducated American (1976), landed in People magazine and on the front page of The New York Times with his prediction that a glut of degree-bearing workers would lead to failing wages for college graduates.

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  Instead, wages of college-educated workers rose dramatically relative to those of less educated Americans over the following decade. In the mid-1970s, graduates earned about 40 percent more than people with high school diplomas. The gap has relentlessly widened since then and stands near 100 percent today. In fact, college graduates are the only category of workers whose real pay has increased since 1979.
• "The nation that invested the most in education," they wrote, "was the nation that had the highest level of per capita income."

• Helping new generations of Americans graduate from college will be crucial to the nation's future prosperity.

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• Postsecondary education generates both individual and public benefits. College graduates with a bachelor's degree earn substantially more than those with only a high school education
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  Postsecondary education generates both individual and public benefits. College graduates with a bachelor's degree earn substantially more than those with only a high school education,(1) and attending college enriches students' lives in other ways that are long lasting and extend to the next generation.(2) Society benefits from an educated population as well. In recent years, there has been evidence that education requirements for all types of occupations are growing, and that the fastest growing occupations are those that require postsecondary training.(3) Furthermore, many believe that increased participation in postsecondary education is crucial to maintaining a competitive position in the global economy.(4)
•  Increasingly, high school students are being advised to go to college, and growing numbers are taking that advice. However, not all high school completers have the same access. Some of the characteristics associated with higher rates of enrollment are related to income, suggesting that the price of attending is a barrier. However, certain attitudes and behaviors appear to be factors as well.
•    Enrollment in postsecondary education continues to rise, with increasing proportions of high school graduates going directly to college, and almost all expecting to enroll at some time in their lives. Low income high school graduates are less likely to attend postsecondary education than their higher income peers. One reason is that they tend to be less well prepared, but even among the highest achieving high school students, low income students are less likely to enroll, suggesting that finances may be a barrier for some. However, aspirations and expectations are important factors. When college-qualified low income students take the necessary steps toward admission to a 4-year institution, they are just as likely as middle income students to be accepted and to enroll.

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• A large percentage of college graduates find themselves underemployed, often with jobs that they might have been able to find without the vaunted college degree. A few cases in point: According to data gleaned from the Bureau of Labor Statistics, 21.62 percent, or 482,784, of all customer service representatives have a college degree; alongside them are 13.4 percent of waiters and waitresses (317,759), 16.64 percent of secretaries and administrative assistants (559,571), 5.01 percent of janitors (107,457), and 5.09 percent of truck drivers (85,205). Hundreds of thousands of others with college degrees are tending bar, preparing food, manning concession booths, clerking at hotel desks, and performing a very wide range of important, useful, and perfectly dignified forms of work--work that pays too little to allow realistic repayment of gargantuan student loans, and for which a four--or five-year undergraduate degree is completely unnecessary.
• Until comparatively recently, college degrees, both graduate and undergraduate, were designed for a fairly elite slice of society that genuinely desired academic advancement beyond normal societal expectations and intended to become teachers, professors, researchers, and practitioners of a few exclusive professions like medicine, law, and engineering. A college education came with few frills other than the chance to learn at the feet of some of the world's elite minds, and was correspondingly priced so that most students could pay for their education by working summers and odd hours during the school year, or at most borrow from the bank a sum that could easily be repaid within a few years of graduation. Well do I remember a particular professor from my undergraduate years, who got his Ph.D. from the University of Pennsylvania, the Ivy League school founded by Ben Franklin, who told me that his tuition bill back in the early '50s was around 50 dollars per semester (roughly $450 in today's currency). He informed me that a part-time job during the school year and summer employment was more than adequate back then to cover all the costs of a college degree.
• My own parents both attended the expensive and fairly elite Bucknell University back in the late '50s and early '60s. They married a year before my father finished college, and finished paying back their college loans only 10 years later, an event in my young life that I remember well. And they did it despite having three children and living on a single, very average income (my father's).
• Textbooks routinely cost hundreds of dollars apiece, and additional fees can run into the hundreds of dollars per semester. Room and board, whether in warren-like dorms with no semblance of curfews or quiet hours or in blocks of off-campus "student housing," where students often crowd in four or six per apartment in order to afford high rentals, will cost tens of thousands more. And because few college students possess skills that will earn them more than entry-level work waiting tables, stocking shelves, or doing janitorial work, even students who forgo the parties, road trips, and other distractions of student life for part-time or even full-time work will not be able to avoid borrowing money to finance their education.
• Student loans, once incurred, can almost never be discharged by bankruptcy, unlike nearly all other forms of debt. This was not always the case; legislation passed in 2005 turned even private student loans into no-risk ventures for banks, whereby borrowers could be compelled by almost any means possible to repay them, and no amount of personal hardship of the sort that usually drives otherwise responsible people into bankruptcy--serious health problems, accidents, business failures, and so on--could bring any relief to the debtor.
• Despite its distinctly anti-communist tone, the NDEA represented the first concrete steps to bring American colleges and universities under federal control, by manipulation of the student loan market.
• Taxpayers must cover the interest accrued on such loans during periods of interest deferral.
• By driving interest rates below what the market would otherwise set, such government actions not only encourage excessive borrowing, they also drive costs up.
• Put otherwise: In the college education market, potential customers (students and their parents) know they will have access to credit on terms far laxer than what they would get if they borrowed from a private party without government subsidies, underwriting, or guarantees. This makes them more willing to borrow than would otherwise be the case, and allows colleges and universities to charge more for tuition, fees, and other services, because they know this artificial credit market can bear it, at least in the short run. It also allows others participating in the college education marketplace textbook publishers, for example--to charge vastly more for their products than they could possibly get for comparable markets outside of the higher education sector. Thus a hardcover non-textbook volume of 500 pages, with color pictures and a dust jacket, that might retail for $40 on Amazon, corn, would cost several hundred dollars if repackaged and sold as a course textbook. Of course, college textbooks are often written and edited by large teams of authors and printed on glossy, very high-quality paper when compared with the latest mass-market history tome by David McCullough. But that's precisely the point: While there is no reason a physics or economics textbook could not be authored by one person and printed on the same type of paper, and with the same proportion of illustrations, as any other hardcover, they are not, because those who manufacture and market textbooks are well aware that market distortions allow students (or their parents) to pony up $500 to $1,000 per semester for textbooks.

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• Government subsidies will only add to the inflation: a number of studies have shown a relationship between government aid and tuition increases. One solution for rising college cost would be human capital con

  tracts, a contract system that would allow students to finance higher education against future earnings.

  • By subsidizing higher education, colleges raise the tuition fees because they are targeting the money set aside for higher education. This turns education into a business rather than setting a learning culture. Solution would be to let the students finance their education according to their future earnings.
• According to U.S. Census data, the average college graduate earns about $1 million more over his lifetime than the average high school graduate. That's a pretty good payoff for the investment in tuition

  • Subsidizing higher education is an investment over human capital as college graduates earn higher than high school graduates.
• When someone else is paying part of the tab, consumers do not worry as much about the cost, so the cost tends to be higher.

  • Students getting education funds from the government tend to be more scrupulous and therefore, accumulate more debt.
• Aid supporters also note that the cost of attending college has been rising faster than the rate of inflation for the last two decades. Yet easy money at taxpayers' expense fuels this escalation. Basic economic theory tells us that boosting the demand for a product or service, which is what government loans and grants effectively do, tends to raise its price.
• One study found public and private four-year colleges increased net tuition (taking internal aid into account) by 68 cents and 60 cents, respectively, for each additional dollar in Pell Grants. Another study found private colleges raised net tuition by 72 cents for each additional dollar of federal loan aid.
• But the general effect is pretty clear: When someone else is paying part of the tab, consumers do not worry as much about the cost, so the cost tends to be higher. This phenomenon creates a vicious circle in which subsidies push up prices, leading to demands for increased subsidies, which push up prices again.
• To the extent that rising subsidies since the 1970s have encouraged people to enter college who otherwise would not have, that is not necessarily a good thing. Citing low completion rates, Vedder argues that "we probably have over-invested in higher education," attracting marginal students who never graduate.

  • Not all those students who attend college graduate or get a proper degree.

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