21 January 2015

Government Paying for Higher Education

Stephen Kershnar
Free Community College? Too much college?
Dunkirk-Fredonia Observer
January 19, 2015

President Obama has proposed making community college free. This is a bad idea and it is worth considering whether the state should be in the business of subsidizing higher education at all, let alone at the current high level.    

Obama’s proposal is intended to benefit 9 million students. His administration claims that when implemented, the typical full-time community college student would save $3,800 per year, although the student would have to maintain a C+ average to get the freebie. It further claims that it would cost $60 billion over 10 years. The vast cost overruns of the major federal programs suggest that the number is much higher. Obama’s proposal is to have the federal government pick up 75% of the tab, the states pay the rest.  

Why is this a bad idea? First, community colleges are failure mills. Neal McCluskey of the Cato Institute points out that only 20% of first-time, full-time students at community college students get their degree in three years and it is a two-year degree. It is unlikely that making students invest even less in their education will make them invest more time and energy into their studies.   

Second, McCluskey argues that after accounting for grants and scholarships, tuition at these colleges is already free for many members of families earning less than $65,000. Thus, we are largely focused here on making community college free for the middle class and rich. This is hardly a priority.

Third, writing in The New York Times, Catherine Rambell points out that tuitions and fees at colleges and universities have skyrocketed in the last few decades. Since 1985, the price of these institutions have increased roughly two and a half times faster than that of consumer goods and far outpaced the exploding price of medical care. Opening the money spigot will further increase the cost of education, even if it is shifted from students to taxpayers.  

Fourth, writing in The National Interest, Kevin James points out that federal funding will undoubtedly lead to increasing federal control of community colleges. Giving more power to the architects of Obamacare and their Congressional brethren is just a bad idea.   

The interesting issue is why we subsidize college education at all, let alone community colleges with large drop-out rates. College is a good deal. Economists Janice Eberly and Kartik Athreya point out that college graduates earn more than 50-70% more than high school graduates and that money spent on education has a rate of return roughly twice that of the stock market. Also, as economist Bryan Caplan points out, a college graduate is 7 times more likely than someone with only a high school degree to marry a college graduate. Thus, college graduates often get a sizable marriage bonus. It is unfair to force taxpayers, especially those who didn’t go to college, to pay for such a good deal. We are talking real money here. Writing in The New York Times, Jason Deslisle estimates that the federal government is spending at a rate of more than a trillion dollars a decade on higher education.

One defense of subsidizing college is that doing so is necessary to give poor people equal opportunity. If this were correct, then the state should subsidize the poor directly through grants and subsidized loans rather than paying for middle class and rich students. Not only are the latter a large percentage of college students, they’re an even larger percentage of those who graduate.    

There is also the issue of how much money and opportunity the poor should be given. They already pay little, if anything, in taxes and often receive free or subsidized food, housing, medical care, welfare, and K-12 education. Enough already.  

A second defense of subsidizing college is that education provides benefits to society, independent of the benefits college graduates themselves receive, and we want to give students additional incentive to go to school as a way to provide society with more of these benefits. That is, education has positive externalities.  

If the extra money put into higher education leads to an explosion in spending by colleges and universities, then it is unclear whether the extra money will serve as an incentive for more education. The concern here is that government subsidies will be diverted to hire new armies of administrators and staff rather than to lower the price of a college education.    

Also, weaker students traditionally have not graduated at very high rates and subsidizing them is likely a bad investment both for them and for the community. If the justification for spending taxpayer money on higher education is to produce positive externalities, then it should probably be spent on better students, rather than wasted on those who did poorly in high school and are unlikely to graduate from college.  

There is also a theoretical issue as to whether education has positive nor negative effects on the communities (externalities). Economist Bryan Caplan points out that much of what colleges and universities teach has little relation to the real world and students often don’t retain much of what they learned. Far too many students fail to pick up even the critical thinking skills that are thought to be useful across an array of jobs. On Caplan’s signaling theory, employers pay more for college students not because they’ve picked up valuable workplace skills, but rather because a college degree is evidence that such workers are more productive. The idea is that it signals that, on average, they have higher IQs, better work ethic, or conform to workplace norms. We should be hesitant to spend taxpayer money into higher education without being confident the signaling theory is wrong. Even if it is wrong, we might want to limit taxpayer subsidies to fields that clearly teach workplace-skills, such as engineering, medicine, and accounting.   

For those of us who work for public universities, this argument is disturbing, which is different from saying it’s mistaken. 

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