Posner gives an excellent discussion of the economics of legal education. Although many reforms seem eminently desirable, such as reducing law school programs from three to two years, I am optimistic that the demand for lawyers will pick up again once the American economy returns to long-term growth levels. The US remains a litigious society, and the number of laws and regulations to be litigated are increasing, not decreasing.
Some reputable individuals are claiming that the advantages of a college education more generally are greatly overblown, and that many of the students who now go through 4 years of college are wasting their time, and their own and their parent’s money. Yet an examination of the evidence shows conclusively that for average college graduates, their education is a much better deal even after 4 years of slow growth of the American economy than it was a few decades ago.
Tuition and fees for college education in general, as for law schools, have grown sharply since 1980: more than doubling in real terms for 4-year private colleges and universities, and also for 2-year private colleges, and public colleges and universities. Private schools have greatly increased their scholarships and other financial support over this time period, so the net increase in tuition is somewhat less. But no question the growth in tuition has still been substantial.
However, even at elite private universities and colleges, tuition is only about half the total cost of a college education. The remainder of the costs is the earnings foregone resulting from being in school rather than working after finishing high school. These costs have hardly grown at all since the earnings of high school graduates have been rather flat in real terms. Therefore, the total cost of a college education has grown by about 50% since 1980, still a lot, but much less than the growth in tuition.
Offsetting this increase in costs has been the sizable growth in financial gains from getting at least 4 years of higher education (as well as gains in health, marriage, and other dimensions that I will not discuss). The earnings of the average person with at least this much education have grown during past 30 years from being about 40% higher than those of the average high school graduate to being over 80% higher. This sizable growth in this earnings advantage implies that a 4-year college education has remained a good deal for the average student. Indeed, it has even become a better deal. By that I mean that the average lifetime financial gain from going to a 4-year college program has grown significantly, even after subtracting the increase in net tuition, and that the rate of return on such an education has not decreased over time.
Some critics of higher education have mentioned the growth in the unemployment of men and women with a higher education during the financial crisis and recession. The unemployment rate of persons with a bachelor’s degree or higher has grown, from about 2% in 2008 to just under 4% at the end of 2012. However, its growth has been less than that of persons with lesser education. For example, the unemployment rate of high school graduates grew from 5% in 2008 to over 10% in 2010, and fell back to 8.3% by end of 2012. In fact, the unemployment rate of persons with at least a bachelor’s degree is even now less than were the unemployment rates of persons with lesser education before the crisis struck.
Persons with less than four years of college do not earn much more than high school graduates, and their unemployment rates are only a little lower than that of high school graduates. Therefore, starting but dropping out of college is not a good deal financially. Yet about half of all men and women who start college fail to get a 4-year bachelor degree, and that is a real problem.
Four years of college education remains on the average a very good investment for students who can manage to pay the higher tuition costs that schools now charge, even net of higher scholarships and other grants. The aim of the federally subsidized student loan program is to help students who cannot afford the costs of higher education, but many college graduates do not earn a lot, and have large interest and principal repayments on their student loans. As a result, many of them default on their loans, although the biggest defaulters are those who went to two-year college programs, especially proprietary schools.
This is not the place to go into details about ways to make student loans less onerous for persons who are not earning a lot. One possibility is to make interest rates contingent on earnings, so that higher earners are charged more per dollar of loan than lower earners. This has the risk of mainly attracting individuals who do not expect to be earning a lot, but a well-designed loan program may be able to fix this “adverse selection” problem.
Finding a more efficient student loan program may help increase the number of students who take advantage of the large financial, health,marriage, and other gains from 4 years of college education. Increasing the number of these students should be a major goal of American higher education policy.