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.  

 

 

 

Comments

[Gertrud Fremling]

I have a question of measurement. The benefits to college are calculated relative to high school graduates. But as a higher and higher percentage go on to college, the types of people in the two groups are altered. The average IQ for each group goes down as the more and more medium-smart people go on to college. This by itself could possibly affect the earning difference between the two groups. Take the extreme case where everybody except total idiots go to college. Then it would falsely appear that college had become absolutely essential for getting a job.

So are there any better measurements of how the return to college has changed over time?

[Eric Rasmusen]

How has the after-grants-and-discounts price of a low-status college education changed? Has it increased too, in real terms? That would help us figure out what's happening. I always think about the high end instead, where the difficulty of entrance into status competition means that a Yale or even a Vanderbilt can make lots of hay from our top-1% earners.

[Cd_reyes87]

i think both becker and posner overlook (or at least don't spend enough time discussing) a much larger, and I think, more critical point regarding the cause of higher tuition costs. In basic economic theory, when something is subsidized people demand more of it because they are not paying for the costs of consuming that subsidized good. Higher education is highly subsidized, which increases the demand for college education, particularly from those who would not be able to afford college in the first place. This increase in student population on campus in turn increases the costs to facilitate a larger student population. Thus, there needs to be an increase in faculty, administration, classrooms and buildings to accommodate more students. Of course, all this costs money, and these costs are subsequently passed on to students in the form of a tuition increase, which then increases the amount of financial aid given, and then the cycle continues. Once the government stops subsidizing education and people either have to go through private lenders, or just find an alternative to college (such as a trade school), prices presumably will drop dramatically.

[jim kirby]

Regarding "benefits from college, including the greater earnings, health, and even marriage rates of college graduates," it seems that Becker has just crawled out from under some religious rock.

The smartest and best-educated people I know here in Texas are those who have never married. Even Jesus and St Paul wouldn't have agreed with him that marriage is some sign of wisdom, education or success. Maybe he's referring to gays who recently have voluntarily submitted to the miseries of marriage?