In my last post, I considered at some length the pros and cons of tuition-free public higher education, as advocated by some candidates now campaigning to be the next president of our country. After all, the reasoning goes, free tuition has been a long-standing policy in the K-12 sector; why not higher education? Different candidates vary with respect to how generous they are prepared to be, with one advocating a means test and at least a token investment by the students and their families, whereas another wants simply to do away with tuition at public colleges for everyone.

Unfortunately, the candidates are not discussing what particular problem their policy is intended to solve. Surely, in order to be effective, solutions have to derive from a collective agreement on, and understanding of, what problem the solution is intended to remedy – and our presidential candidates appear to have skipped this step.

The presidential election is almost a year away, so we still have time to think more about the problem we want to address before we fall in love with a particular solution.

“Highly Affordable, Minimal Debt or Cost Containment?”

Our country seems to have two positions on higher education, and they are maddeningly incongruent. On the one hand, we embrace the notion that all children deserve to pursue their dreams to their best of their abilities, regardless of the circumstances of their birth. If those dreams include a college education, then we should see to it that the opportunity exists for them to attend college. Over many years, state-supported (i.e., public) universities and colleges have increased in number and size to accommodate a growing population of prospective students. Regrettably, most states have found in recent years that the rapidly increasing costs of supporting these public institutions have outstripped growth in tax revenues, and state appropriations to higher education have been cut drastically. These cuts have, in turn, led to sharp increases in tuition costs, as the public institutions have endeavored to replace lost state appropriation dollars with tuition dollars.

On the other hand, we want an effective and efficient expenditure of tax dollars in every aspect of the states’ budgets, and we are frustrated by the number of poorly prepared students who are entering higher education only to find they must do non-credit remedial work before they can enroll in college-level classes. Underprepared students drop out at disproportionately high rates, such that the six-year graduation rate at public universities hovers around the 50 percent level, and the three-year graduation rate at community colleges is generally less than 30 percent. No company could stay in business if it lost half its product during the manufacturing process. How, then, can we justify spending so much public money when we have such a huge dropout and failure rate at public colleges? (See, for example, “Billions in Pell Dollars Go to Students Who Never Graduate,” Hechinger Report, August 17, 2015.)

These two perspectives have converged in recent years, as tuition prices (and therefore student debt) have increased while graduation rates have not, and as we have struggled, as a nation, to emerge from a crippling recession with associated job loss and flat, or declining, family incomes.

But what problem do we, as a nation, want solved? Dramatically lower college costs? Relief from student debt (and do we mean relief for prospective students, or for graduates – or non-graduates – with existing debt)? Greater opportunities for low- and medium-income families to send their children to college? Higher college graduation rates? How do we address the concern that many children from low-income families have received a K-12 education that is inadequate to meet college admissions standards (see, for example, “Only 1 in 9 South Carolina 11^th Graders ‘Ready” for Success in College, Scores Say,” The State, Oct. 22, 2015)? Are the colleges expected to remediate problems caused by the inadequacies of the K-12 sector? Isn’t asking colleges to make up for K-12 shortcomings just about the most expensive option available – and the one least likely to succeed?

Which of these problems does free tuition solve? Or perhaps we should be asking, what is our most important problem, and what options exist to solve it? Here are three ways of looking at the issue:

1. As a nation, we need more of our young people to have a post-secondary education. Free tuition at public universities is the best way to increase the number of college graduates. Our highest priority should be to make a college education highly affordable. 

   The percentage of adults with a four-year degree has risen only marginally in the U.S. in the past 30 years, but has risen markedly in many other countries, to the point that we have long since lost our primacy in this metric, thereby handicapping our nation’s ability to compete economically on the world stage. While not everyone needs or wants a four-year degree, the proportion of students from the top quartile of family income that graduates from college is several times that of students from the bottom quartile – and this statistic has not changed significantly in decades. Therefore, if more Americans are to obtain a college degree in the future, the increase in enrollment will be primarily students from low-income families. To the extent that high cost is the reason for low rates of college attendance among students from low-income families, then free public college tuition may be a reasonable option. But is free public tuition the best way to increase rates of attendance of low- and middle-income families? Might the estimated $70 billion annual cost of free tuition at public colleges be better spent on increasing the size and number of Pell Grants, for example? (At a total cost of just over $30 billion, the Pell Grant program currently provides up to $5,775 annually to more than 9 million qualifying students – but the average grant meets only about 30 percent of the average costs at public institutions. Meeting full costs for Pell-eligible students would cost less than providing tuition-free public higher education for everyone, and it would direct the funds to students with demonstrated need.)

2. Higher education is much more expensive today, in both absolute and relative terms, than at any time in the past. The consequence has been a dramatic increase in both the number of students graduating with debt, and in the amount of debt per student. High student debt slows down the national economy. Our highest priority should be to reduce student debt.
   
   We tend to see debt as inherently a bad thing. But Americans have long relied on borrowed money to acquire homes, and collectively we have several trillions of dollars in mortgage debt – but while we pay close attention to mortgage interest rates, we don’t worry much about the debt itself, because we see the investment value in buying a home. Student debt is a much more recent phenomenon, and the fact that it now totals $1.2 trillion has caused no end of hand wringing by politicians and the media. But in strictly economic terms, borrowing to receive a college degree is actually a better investment than borrowing to buy a house – the differential in earnings between college graduates and high school graduates is such that the average student loan can easily be repaid from the differential in monthly earnings, and still leave the college graduate ahead financially. And of course the ultimate irony is that Americans readily take out car loans to acquire commodities that, from day one, decline in value, whereas homes and college degrees are almost always investments that increase in value. Yet we are more concerned about the $1.2 trillion in student debt than we are the $1+ trillion in car loans – because the first is relatively new, whereas the second is a long-standing tradition. But to the extent that fear of debt deters some high school graduates from attending college, then free tuition at public universities may be sound policy. Of course, a Pell Grant program that met a higher proportion of actual need – or even full need – would be more efficient and less expensive, because the benefits would be limited to those students with actual need – but the most popular proposals from politicians are those where everyone receives a benefit. Will a politician who promotes a value for some receive support from those who do not benefit? Most politicians would like to avoid asking that question, and that is why they advocate for a chicken in every pot, not just in some pots.

3. Free tuition at public universities would eliminate the problem of rapidly escalating higher education costs, because the public institutions would be forced to operate within whatever appropriation they receive, and private colleges would have to constrain their cost increases or risk becoming so much more expensive than the publics that they would lose enrollment. Our highest priority should be to constrain the growth of college operating budgets.
   
   Not many people are talking about it, but one consequence of free tuition at public universities would be that, over time, universities would have fewer dollars per student. It is inconceivable that state or federal appropriations to public universities would keep pace with the pressures that increase the operating costs of higher education institutions. To date, colleges and universities have been passing these cost drivers on to the students in the form of annual tuition increases. To be sure, many people would see the failure to increase state appropriations as a good thing, because there is widespread anger that colleges – public and private – have, in the mind of the public, done such a poor job of managing their costs. We continue to hear references to “frills,” and to a “country club atmosphere,” with climbing walls being the primary object of ridicule. (In actuality, the costs of climbing walls pale in comparison to the millions of dollars public universities transfer from tuition dollars to their athletics departments to support obscenely expensive Division I sports programs – but almost no one wants to see their football program go away, regardless of the cost. See, for example, “Small Crowds, Big Subsidy for UB Sports,” The Buffalo News, Nov. 28, 2015, that reports a $24 million annual transfer from student fees and general operating funds to the athletics budget of the University of Buffalo.) But in the spirit of “no good deed goes unpunished,” capping costs at public colleges would result in economies that few would wish to see – larger classes; fewer permanent faculty; more reliance on online instruction; more credit for work experience or credits earned in high school – all mechanisms that reduce the cost of a college degree by reducing its current value. Just as some states have increased high school graduation rates by weakening academic standards (thereby reducing the actual value and significance of the diploma), public colleges would be forced to follow suit. This isn’t the outcome intended by a policy of free tuition at public universities, of course, but it will almost certainly happen. Sadly, this is an outcome where everyone would suffer, and no one would benefit. The law of unintended consequences raises its ugly head once again.

So the bottom line is that the creation of tuition-free public universities would be an expensive and inefficient way of increasing college attendance of low- and middle-income students, and it would risk cheapening the value of a university degree. Increasing Pell Grants to a level where they cover most of the costs of a public university education is less expensive, more efficient (because this solution doesn’t subsidize high-income students that have no financial need), and it doesn’t risk dumbing down a college education.

Next week, Part 3: Is the primary purpose of college to prepare young people to get a good job, or is it for them to have a great life?

We’ve spent five weeks looking at the question that continues to be the focus of reports and articles in the media – “Is college worth it?” – from the standpoint of four distinct concerns: its perceived lack of affordability; the burden of debt that faces so many graduates; the relative scarcity of well-paying jobs for recent college graduates; and the risk that a student will borrow money, not complete his or her course of study, and be economically worse off than if he or she had never started. (As an aside, I should note that the question of the worth of a college education has been so frequently asked that it is now being satirized. The Onion recently posted the following headline on its website: “Study Finds College Still More Worthwhile Than Spending 4 Years Chained to Radiator.”)

Before I attempt my own answer to the question, “Is college worth it?” I must express a caveat: The way the question has been posed by the media implies that the only value a college degree has is economic. I hope we will all quickly agree that the benefits of a college education extend far beyond mere monetary return. College graduates, as a rule, are more engaged citizens; they are healthier and far less likely to be incarcerated; they live fuller and more complete lives; they have a deeper understanding of the world in which they are living; they are more tolerant and compassionate. These are generalizations, of course, not universally true for every college graduate – but they are most assuredly accurate at the group level.

Moreover, many people who attend college do so in order to have a career in a field they find meaningful and enjoyable, as opposed to accepting a job only because it will pay well. “Show me the money” is not a fair summation of the value of a college education.

All that said, it is still reasonable to ask whether, from a strictly economic perspective, attending college is a sound investment.

As I pointed out in last week’s blog, a recent study by the Federal Reserve Bank of New York (“Do the Benefits of College Still Outweigh the Costs?”) found that “workers with a bachelor’s degree on average earn well over $1 million more than high school graduates during their working lives.” The report also points out that the differential between the lifetime earnings of college graduates relative to high school graduates has never been greater.

Those statistics would seem to provide an unequivocal answer. Clearly, college is “worth it.” Why, then, does this question keep being asked?

I think there are four answers, three of which we have considered (at least in part) in previous blog posts in this series:

1. The investment for a college degree seems daunting.

   As I showed in my post of July 28 (and as David Leonhardt noted in his column in The New York Times the next day – July 29), using a college’s list price for tuition greatly overstates the actual cost to the student – particularly in the case of private colleges. Leonhardt notes that, over the past 20 years, inflation-adjusted net tuition and fees have increased by 60 percent at public universities (primarily because of the enormous decline in state financial support), but by only 22 percent at private institutions. (In fact, over the past seven years, net cost at most private institutions has actually fallen.) But the public perception, based as it is on list prices, is that colleges have become prohibitively expensive.

   Even though the actual price paid by the average student has not risen appreciably faster than the price of many other staples (gasoline, for example, is up more than 80 percent in inflation-adjusted dollars over the past two decades), the costs of attending college obviously represent a very large investment for most families – and with more students and families now relying on loans to pay for their college costs, their concern about the amount of their debt at graduation is certainly understandable.

   Finally, there is the worry that some graduates may not be able to find a well-paying job, and therefore not be able to afford to discharge their student loan debt. As we saw in Part 4 of this blog series, fears of underemployment are overstated, but nevertheless remain real, especially for graduates in many of the liberal arts, who may struggle to establish a career path.

   Taken together, these concerns understandably give pause to many families whose children are making a decision whether or not to attend college—and if so, how much they can afford to pay.

2. My son or daughter may drop out and be in debt.

   As we saw in Part 5 of this series, the most valid concern regarding the value of investing in a college degree is the fear that the student might not graduate. Many factors contribute, positively or negatively, to the likelihood of completion: the student’s intelligence, ambition, maturity and level of academic preparation; the relative quality of the college or university; stresses within the family, especially financial; whether or not the student is the first in his or her family to attend college; the socioeconomic status of the family. Students and families must be realistic in evaluating these factors as they make a decision regarding college.

3. The payoff is uncertain because it is uneven.

   There is no question that the average college graduate earns substantially more than the average high school graduate. However, talking about average income obscures the significance of the range of income earned by college graduates as a group.

   To illustrate, a recent study (Urban Institute, “Higher Education Earnings Premium: Value, Variation, and Trends,” February 2014) found that, in 2012, the median income of college graduates aged 35 to 44 was $61,255, as compared to a median income of high school graduates of $35,703 – but one in six college graduates in that age group actually earned less than $35,703. In other words, there is overlap of the income ranges of all college graduates and all high school graduates, such that almost 20 percent of college graduates actually earn less than the median salary of a high school graduate. So one way of looking at this issue is to say that more than four out of five college graduates will earn a premium – often, a very substantial premium – for being a college graduate – but a college degree does not guarantee that all college graduates will earn more than those without the degree.

   As we saw in Part 4 of this series, one important factor in contributing to this salary overlap between college graduates and high school graduates is the fact that the economic value of different majors varies enormously, especially in terms of the salaries earned by the most recent graduates.

   There are also significant regional differences in income. In 2011, college graduates 25 and older had a median income of $71,000 in New Jersey and Connecticut, whereas those in Michigan had a median income of just $44,000 (and the median across the nation as a whole was $58,000). Comparing the salary of a college graduate in one state with the earnings of a high school graduate in another could certainly give rise to a misinterpretation about the economic value of a college degree.

4. The economic payoff for having a college degree may not be large enough.

   The size of the payoff is a factor that underlies much of the concern that people feel about the economic benefit of attending college, and it’s a factor that we have not yet considered in this blog series. The Federal Reserve Bank of New York report I referenced earlier that showed college graduates earning, on average, over $1 million more in lifetime earnings than the average worker with just a high school diploma – an income differential that has never been greater. How, then, can anyone question the economic value of the payoff?

   The primary reason there is such a large differential between the earnings of college graduates and those with just a high school diploma is not only because the salaries of college graduates have risen, but also because the salaries of high school graduates have fallen. Over the last decade, the average hourly wage for college graduates is up just one percent, whereas the average wage for high school graduates has dropped by five percent (The New York Times, “Is College Worth It? Clearly, New Data Say,” May 27, 2014).

   These trends are not limited just to the past 10 years. Indeed, between 1980 and 2012, high school graduates saw an income drop of 11 percent, whereas college graduates experienced an income increase of 20 percent – or 56 percent for those who went to graduate school (Bloomberg View, “Is a College Education Worth a Skinned Eel?” May 29, 2014).

   At the same time, the percentage of jobs that are part-time, rather than full-time, has risen from 16.5 percent before the 2008 recession to 18.8 percent today – and almost 37 percent of home mortgage holders are “effectively underwater” – either the mortgage exceeds the actual value of the house, or the sale of the house would not cover closing costs and a down payment on a new home (Associated Press, “Not All Feeling Gains of Better Job Market,” Aug. 3, 2014). These factors inevitably contribute to the general concern that the economy is still not doing well, and the fear by some parents that now might not be the best time to invest large sums of money sending their child to college.

   Finally, the nature of the job market continues to change rapidly, due to technology and globalization. Occupations such as word processors, telephone operators and travel agents have declined by 75 percent since 2000, whereas the number of computer software engineers, physical therapists, nurses and financial advisors have increased by as much as 160 percent over that same time period (The New York Times, “Fear Not the Coming of the Robots,” June 22, 2014). Of course, the good news is that all those growth occupations require a college degree, whereas most of the occupations in decline do not – but these sudden changes in the growth and decline of specific job categories may be unsettling to families contemplating a major investment in their child’s college education.

To summarize, while it is easy to understand a family’s trepidation as they contemplate spending for their child’s academic future, a college education is demonstrably a sound financial investment – but with three caveats:

1. Be aware of the differences in economic value of different majors. The choice of college major is closely linked to the starting salary of the graduate, and to the extent that students and families are seeking an immediate payoff for spending a good deal of money on a college education, a major in a professional program generally provides a higher economic return in the short run than a major in the liberal arts. (As I have noted in a previous blog post, this difference is typically eliminated by age 40.)
2. Do not over-borrow. Students should not borrow more than they expect to earn in their first year of employment: roughly $30,000 for many of the liberal arts graduates, and up to $60,000 for certain of the professions. Use subsidized government loans, and avoid private loans, whenever possible.
3. Commit to actually graduating. Most important, the student must graduate. There is no economic payoff for leaving a college without a diploma – and there are serious negative consequences to leaving without a diploma and in debt.

A college degree does not automatically ensure a prosperous and satisfying life – but it is most assuredly the single best step a young person can take in planning for his or her future.