pageok
pageok
pageok
The Case Against Government Subsidies for College Tuition:

The supposedly unbearable cost of college tuition is a hot issue in this year's presidential election. Both Barack Obama and Hillary Clinton include it in their stump speeches, as did some of the Republican candidates. Politicians are outbidding each other in proposing to increase various government subsidies for tuition payment. If government doesn't act, they claim, the middle class and the poor won't be able to afford to send their kids to college.

In reality, college is getting more affordable, not less, once you take into account the rapidly increasing income gains from getting a college degree. Far from being an essential way of helping the poor, government subsidies for college tuition are likely to harm them for the benefit of the relatively affluent.

I. The increasing benefits of college education are more than enough to pay the increasing costs.

Nobel Prize-winning economist Gary Becker has some important correctives to the conventional wisdom on the cost of college. It is indeed true that tuition rates have risen greatly over the last 30 years. But, as Becker notes, "the benefits from a college education in the form of higher earnings, better health, better educated children, and many other aspects of life have grown much faster than tuition has" (see also this excellent article by Becker and his colleague Kevin Murphy). This 2002 Census Bureau study shows that a worker with a bachelor's degree can expect to realize almost $1 million more in lifetime earnings than one with just a high school diploma. The same study shows that getting a master's or professional degree will increase your income still further (adding an additional $2.3 million in the case of a professional degree). And these figures don't include the additional income you can generate by investing some of that extra $1 to 3 million over the course of your life. If you invest even 5% of it at a reasonable rate of return, the power of compound interest will net you an additional several hundred thousand dollars of added wealth by the time you retire. The Census Bureau and Becker and Murphy both emphasize that the relative benefits of going to college have increased greatly over time, much faster than the increase in tuition costs.

Even at the most expensive private universities, four years of tuition, room, and board is unlikely to cost more than $180,000 or so (the approximate cost of four years at Harvard at maximum tuition rates). And, as Becker notes, many students (especially the poor) don't pay the full sticker price because of widely available financial aid and merit scholarships. The income gains of getting a higher education far outstrip the tuition. The vast majority of students can therefore afford to pay for college by borrowing against their future incomes, and still have an enormous income gain left over. Thus, there is no reason for government to subsidize college tuition on the grounds that it is "unaffordable" - even for those students who are unfortunate enough to have to bear the full cost themselves, without parental assistance.

II. What about college graduates who go into relatively low-paying professions?

Obviously, the $1 million figure is an average that won't hold true for every college graduate. What about those who enter relatively low-paying professions? In most cases, there is good reason for income disparities between professions: the lower-paying ones are less in demand. We want the market to channel more people to higher-paying professions for which there is more of a demand and fewer people to fields where the demand is relatively low. Subsidizing the low-paying fields by having the government subsidize college tuition undermines this efficient allocation of labor and makes us all worse off by channeling too many workers into the wrong fields.

But what if you think there is some market failure that leads to undesirably low salaries in a particular profession? Perhaps the market generates too many accountants and not enough artists. Even if you think this "problem" really exists, general subsidies for all college tuition are not the right solution. Rather, you should advocate targeted subsidies specifically for the artists (or whatever other profession you think the market undersupplies). There is no reason to subsidize those students who don't go into the undersupplied field where you think a market failure exists. Subsidizing all students indiscriminately won't do nearly as much to raise the number of artists because it won't create as much of an incentive to choose art over higher-paying fields.

It's important to remember that even income gains far below the average return to going to college are still more than sufficient to pay for tuition. For example, a college graduate who increases her lifetime earnings by "only" $400,000 (less than half the average gain) has still earned enough extra income to pay for tuition several times over.

III. How government tuition subsidies harm the truly poor.

Not only are government subsidies for government tuition unnecessary, they also victimize the truly disadvantaged people in our society: those who lack the educational qualifications to go to college in the first place (usually due to a combination of poor public schooling and a flawed family environment). These people pay some of the taxes that support subsidized tuition for college students who are likely to end up far wealthier than they are. They are also indirectly harmed by the diversion of public funds to tuition subsidies and away from other priorities that might do more to advance the interests of the truly poor. Government tuition subsidies are a classic example of a policy that redistributes wealth to the relatively affluent under the guise of helping the poor.

I don't mean to suggest that the high cost of college tuition is completely justified by increasing returns to education. In some cases, tuition has been artificially increased by government-imposed restraints on competition. In my own field of legal education, for example, tuition rates have been increased by restrictions on competition created by the American Bar Association accreditation requirement for law schools. This government-sponsored cartel has an obvious interest in raising the cost of legal education so as to reduce the influx of new lawyers who might compete with ABA members. Even in these cases, however, the right solution is not to subsidize law school tuition but to end the requirement of ABA accreditation and allow new law schools to compete with the incumbents, thereby driving tuition down to competitive market levels.

UPDATE: It's important to remember that proposals to aid students that merely subsidize their loans as opposed to give them straight grants also count as subsidies. If the loan program doesn't reduce the student's interest rate below what it would be in the private sector, there is no point to it. If it does, it's a subsidy that defrays at least part of the cost that the student would otherwise have to pay himself.

UPDATE #2: The Census Bureau figures likely overstate the true income gain from going to college in so far as some of the earnings difference between college graduates and high school graduates is likely due to differences between the two groups unrelated to education levels (e.g. - the average college graduate is likely smarter and more motivated than the average high school grad and so might earn a higher income even if he didn't go to college). However, even if the "real" income gain from going to college accounts for as little as one third or one half the pay differential between college grads and high school grads, it's still more than enough to pay for the tuition. Moreover, it's likely that the real gains are a much larger fraction of the difference than that. As Becker and Murphy point out, bachelors' degree holders today earn 70% more than high school graduates, compared to only 30% more in 1980. It's highly unlikely that today's college graduates are, on average, significantly smarter and more motivated than their predecessors of thirty years (or that today's high school grads are vastly dumber and lazier and their predecessors). Most of the relative gain is likely due to a higher real return on education. Finally, check out this study by Princeton economists Orley Ashenfelter and Cecilia Rouse, which shows that most of the income differences associated with additional years of education are in fact caused by the education itself rather than by other variables such as differences in ability and family background. The authors' estimate that each additional year of education increases the student's income by about 10%, even controlling for various background variables.

Cornellian (mail):
I actually do think that this country has too many accountants and lawyers and not enough scientists and engineers but I don't have any obvious answer as to what, if anything, should be done about that.
2.27.2008 12:17am
Justin (mail):
Part of me wants to agree that college may be somewhat over subsidized today for the middle to upper middle class. But for the very poor, college is UNDER subsidized. In most Western nations, students receive not only a full, free, education, but a stipend for life expenses. In the United States, the poorest sector of society must work at least part time in order to pay for their own selves (others pay for their family, which is a failure of the safety net in its own accord). The private loans may be available to a Harvard student, but certainly the kinds of loans that will help someone graduate from Eastern Kentucky University are not going to pay for a poor kid's learning expenses.

I find argument I irrelevant. I completely agree with argument II (maybe undergraduate schools should try some form of LRAP). As for Part III, I agree and disagree - the fact that you're simultaneously advocating taking away those public funds leaves them truly out in the cold, of course.

In the end, though, substantially means-tested public aid DOES help those that qualify for it. But of course it needs to be substantial enough to truly make the difference between going to college and not going to college, rather than just making the person take on more vs less debt, for there to be significant achievement. This is where a half-ass policy may not do as well as no policy at all (at least for some), but that doesn't make it superior to an all in policy.
2.27.2008 12:17am
Freddy Hill:
There's a correlation between a college degree and higher education, but it is not clear that there is causation.
2.27.2008 12:20am
Freddy Hill:
Duh! It should have read, "There's a correlation between a college degree and higher incomes, but it is not clear that there is causation."
2.27.2008 12:21am
Sameer (mail):
Your first post was accurate, Freddy.
2.27.2008 12:30am
guest 0009:
Argument III seems to be a bit of a stretch. The "truly poor" aren't actually paying much, if any taxes, so the idea that they are being harmed by increased spending on education is hard to square with reality.
2.27.2008 12:38am
unhyphenatedconservative (mail):
"others pay for their family, which is a failure of the safety net in its own accord"

It's a sad commentary on your viewpoint when family looking out for each other is a societal failure.
2.27.2008 12:54am
John Tillinghast (mail):
I did a quick present-value calculation on the difference between a bachelor's degree and high school, assuming a 10% discount rate. The average present value of the difference was about $160,000.

Obviously, that's an estimate for US colleges in general; the expected present value of the Harvard bachelor's Ilya mentioned could be a lot higher. But the figure of "almost a million dollars", which comes from adding dollar amounts year after year without discounting, is not the right comparison for $180,000 that you have to borrow now.

Does anyone know of a good study of lifetime incomes of graduates of different colleges, controlled for both family advantages and natural talent?
2.27.2008 1:22am
Ilya Somin:
I did a quick present-value calculation on the difference between a bachelor's degree and high school, assuming a 10% discount rate. The average present value of the difference was about $160,000.


A 10% discount rate per year is VERY high. If you're that present-oriented, you probably shouldn't go to college, but should instead spend most of your time partying. Moreover, you have to similarly discount the tuition payments, which (if you take out student loans) will only be paid over many years.
2.27.2008 1:28am
Ilya Somin:
Part of me wants to agree that college may be somewhat over subsidized today for the middle to upper middle class. But for the very poor, college is UNDER subsidized.

Even the "very poor" can borrow against their future incomes and thereby pay for tuition while still having a lot left over. Moreover, the very poor aren't paying anything close to full tuition to begin with, thanks to the price discrimination most universities practice.


In most Western nations, students receive not only a full, free, education, but a stipend for life expenses.

Most Western nations also have a much lower percentage of high school grads going to college than the US (15-30% as opposed to 60% in the US). THus, in these countries, tuition subsidies are even more a subsidy to the relatively affluent than in the US.
2.27.2008 1:31am
Ilya Somin:
Argument III seems to be a bit of a stretch. The "truly poor" aren't actually paying much, if any taxes, so the idea that they are being harmed by increased spending on education is hard to square with reality.

The truly poor don't pay much income tax. But they do pay a good deal in payroll tax and state sales taxes (many higher education subsidies (e.g. - for in-state tuition) are funded by states rather than the feds).
2.27.2008 1:32am
Tony Tutins (mail):
I haven't analyzed this to the extent that Ilya has, but the ratio of engineer's starting salary to senior year tuition at any private engineering school has decreased substantially over the past 35 years, indicating that college provides much less of a payoff than it used to. When I went, I received scholarships covering half my tuition, and one that covered my books. I did receive a government loan for most of the rest, at a very low interest rate.

In terms of selecting a profession: not everyone has the same aptitudes and interests. Several of my student peers lacked either aptitude or interest in engineering. They majored in engineering because it offered the highest pay to holders of four-year degrees. These tended to bomb one of the many weed-out courses. If they were lucky, they could switch to a business major. My sister had no technical aptitude. Though she took calculus and chemistry freshman year, she did not do well. She then focused on her strengths and majored in English. This is not a route to a high paying job, unfortunately.

People in the helping professions are not as motivated by money as others -- they can't be because the money isn't there. My niece recently graduated with a Masters in Social Work from a top school. Her lowest grade in undergrad was an A-, and she has a 4.0 in her master's work. She has worked continuously part-time since she was a junior in high school. She did a couple of premiere internships while in grad school. Her starting salary is $30K a year. One could argue we don't need people who want to help other people, but I don't see that as a serious argument.
2.27.2008 1:33am
Patrick McKenzie (mail):
>>
People in the helping professions are not as motivated by money as others -- they can't be because the money isn't there.
>>

I beg to differ. Nursing is worth extraordinarily good money at the moment, particularly in areas with market undersupply. Teaching is also fairly well-paid, contrary to the stereotype.
2.27.2008 1:42am
Tony Tutins (mail):

As Becker and Murphy point out, bachelors' degree holders today earn 70% more than high school graduates, compared to only 30% more in 1980.

Are bachelors' holders making more, or are high school grads making a lot less? I suspect that there are now so many bachelors degree holders that they are taking some of the jobs that used to be held by high school graduates, leaving only bottom-of-the-barrel jobs for high school graduates.
2.27.2008 1:45am
fullerene:
I obviously have a great deal of respect for Professors Becker and Volokh, but I could not disagree more with the simpleminded conclusion that the supposed ROI of a college education justifies its price.

As another commenter has already pointed out, the ROI calculations assume that wage disparities between high school educated persons and college-educated persons can be entirely explained by differences in education. Will anyone defend this, or is it so clearly wrong that we can put it to bed? Do connections, money, native ability, or physical appearance have any role to play?

Another problem with the ROI argument is that its proponents tend to imply that the increasing relative return means that college-educated people now are doing better than those in the past. On a theoretical level, this need not be true. The increasing relative return is relative. A drop in high school graduates' income without any corresponding increase in college graduates' income would make the ROI for a college education higher without actually improving the economic situation of college graduates at all. Indeed, much of the increase in the relative return reflect a loss in middle income jobs for people without college degrees. Many of these jobs have either disappeared or simply adopted a college education as a requirement. And even if college graduates income were to rise on average, the greater disparities in wealth could very well mean that the average college student of today is worse off than the average high school of yesteryear.

For a lot of people, a college education is a costly credential that only helps them get a job. Many of the jobs grads are doing do not in any real sense require a college education, and in years past people without college educations performed these jobs just as well as our new college graduates do. The only difference today is that people are forced to spend four years of their lives and many countless thousands in order to obtain low-paying jobs. While it might be true that new grads' job prospects would be even worse without college, the mere avoidance of awful consequences that a college education promises today is a small virtue.
2.27.2008 1:46am
Christopher Cooke (mail):
Why do I care what is good for society? If I am a college student, I should be in favor of subsidies because it benefits me. If I am a parent of a child going to college in the near future, I should also be in favor of them. Once my child graduates, NO SUBSIDIES for anyone.

However, to mask that I am always acting purely to further my own selfish interests, I must (a) talk about helping the poor and middle class afford college, when it benefits me or my family to get subsidies and (b) later, concoct clever sounding libertarian arguments against subsidies, to fool the people who would likely benefit from the subsidies into thinking that the subsidies are bad for society, when I really don't care about society, but just want a lower tax bill.

This is kind of like Dick Cheney railing against big government spending, but profiting enormously from government contracts with Halliburton.

Why isn't my position isn't the pure capitalist way?
2.27.2008 1:55am
Ilya Somin:
Are bachelors' holders making more, or are high school grads making a lot less? I suspect that there are now so many bachelors degree holders that they are taking some of the jobs that used to be held by high school graduates, leaving only bottom-of-the-barrel jobs for high school graduates.

MOstly the former. HS grads aren't making less in absolute terms than in the 1970s, though they are making a lot less in relative terms.
2.27.2008 2:01am
Ilya Somin:
the ROI calculations assume that wage disparities between high school educated persons and college-educated persons can be entirely explained by differences in education.

I discuss this in Update #2. Even if only 1/3 or 1/2 the difference is due to education, it's still more than enough to pay for the tuition several times over.

Another problem with the ROI argument is that its proponents tend to imply that the increasing relative return means that college-educated people now are doing better than those in the past. On a theoretical level, this need not be true. The increasing relative return is relative.

College graduates today are making vastly more in absolute terms than 30 years ago. Pretty much every study shows this.

For a lot of people, a college education is a costly credential that only helps them get a job. Many of the jobs grads are doing do not in any real sense require a college education, and in years past people without college educations performed these jobs just as well as our new college graduates do.

This is almost certainly false. If college education is just a "credential," employers could make huge profits by hiring HS grads instead (who by this view would do just as good a job for less money). But if it's true, that further undermines the case for subsidizing college tuition. If higher ed is just a credential arms race with no social value, the government definitely shouldn't subsidize it.
2.27.2008 2:05am
fullerene:

Are bachelors' holders making more, or are high school grads making a lot less? I suspect that there are now so many bachelors degree holders that they are taking some of the jobs that used to be held by high school graduates, leaving only bottom-of-the-barrel jobs for high school graduates.


The average hourly wage for high school-educated men dropped 10% between 1979 and 2005. The average hourly wage for college-educated men rose 20% between those two time years.
2.27.2008 2:07am
debbyo (mail):
When my country, Australia, introduced a tertiary allowance and free university in the 70s, tertiary education opened up to the working class for the first time. I was the first in my family to go to university. Now fees are back - and allowances have been severely restricted. Many students whose parents can't support their living expenses away from home don't qualify for an allowance. These students take a gap-year or work while they study. Recent research in this country has shown that more of the poorer or rural students end up dropping out because of the pressure. Pressure, wealthier kids don't have to deal with.

Also poorer people are in a less favorable position to pay back the loans than those who have a more financially secure background, no matter how much they earn in the future .
2.27.2008 2:11am
fullerene:

College graduates today are making vastly more in absolute terms than 30 years ago. Pretty much every study shows this.


The BLS data suggests that male college graduates make 20% more on an hourly basis than they did in 1979. This is not "vastly more" by my definition. I also wonder what this would look like when you consider the fact that we have seen vastly higher income inequality among college graduates.

Ilya, you also cite numbers showing that we send upwards of 60% of our high school graduates to college whereas other countries send maybe 30%. You should along with this mention graduation rates. Ours is about 50% and trending ever lower.
2.27.2008 2:14am
Cornellian (mail):
Saying that lawyers are a "cartel" restricting access to the legal market makes about as much sense as saying people with driver's licenses are a cartel restricting access to the roads.
2.27.2008 2:30am
Ilya Somin:
Saying that lawyers are a "cartel" restricting access to the legal market makes about as much sense as saying people with driver's licenses are a cartel restricting access to the roads.

Incumbent drivers have no financial stake in denying licenses to others. Nor do they control the licensing systems. By contrast, incumbent lawyers both have a financial stake in denying licenses and (through the ABA and state bars) control the licensing system.
2.27.2008 2:46am
tvk:
Ilya, you are leaving out an important difference, which is the relative tolerance for risk. Even if, on average going to college adds $1 million over your lifetime, the variance across individuals is going to be enormous. You might earn a great deal or very little. Partly that is a function of the profession you choose and how well you do, but partly it is pure luck.

Given this high degree of risk, a 10% discount rate for individuals may not be too high.

On the other hand, if the government pools the risk through taxing and subsidizing, the discount rate goes dramatically down. This would justify tax subsidies for college, assuming that the government collects the subsidy back later through increased tax revenue.

Of course, it would work better if we increased the taxes successful college graduates and not peopole who didn't go. But there is probably a semblence of correlation with the progressive income tax--i.e. if you went to college and now make a high income, you pay back your "loan" from the government in higher taxes.
2.27.2008 2:51am
Ilya Somin:
Ilya, you also cite numbers showing that we send upwards of 60% of our high school graduates to college whereas other countries send maybe 30%. You should along with this mention graduation rates. Ours is about 50% and trending ever lower.

50% within how many years? Lots of people study part time and take more than four years to graduate. Also, the data show that even a year or two in college greatly increase income relative to a HS diploma.

Also, many European countries also have college dropout rates in the range of 40-50 percent.
2.27.2008 2:52am
fullerene:

Saying that lawyers are a "cartel" restricting access to the legal market makes about as much sense as saying people with driver's licenses are a cartel restricting access to the roads.



Whatever lessens traffic.

I think the best evidence of the falsity of the claim that the ABA accreditation process keeps the number of law school slots at an artificially low level is in the fact that many new graduates cannot find jobs as lawyers. Schools keep minting new graduates by the thousands while the legal profession continues to experience slow job growth. If law school were a purely economic decision for most students, the ABA could have stopped accrediting schools 30 years ago. Given that students are already making irrational economic decisions, it is difficult to understand why opening up the terrain to anyone who wanted to open a school would make an appreciable difference in the cost of tuition.
2.27.2008 3:01am
Brian K (mail):
Even at the most expensive private universities, four years of tuition, room, and board is unlikely to cost more than $180,000 or so (the approximate cost of four years at Harvard at maximum tuition rates).

1) At my school, 4 years of tuition, room and board will run $240,000, not including ~$10,000 in deferred interest the loans will accrue. While your numbers may or may not be the average expense (I don't know), they are certainly not an upper limit.

2) While I haven't worked out the numbers myself (yet), the rule of thumb my financial aid office uses is that for every $1 I borrow, I'll pay $3 back over the lifetime of the loan. This means that my 4 years of school will cost $750,000. (In reality they number will be lower because I'll be financially able to pay the loans back much quicker). I think you need to take interest accrued into account in your analysis. It is not possible to spend future earnings in the present without paying something for that privilege. For example, it would mean that your hypothetical student in part II will end up with a $40,000 loss in the absence of any interest free loans or grants.

The vast majority of students can therefore afford to pay for college by borrowing against their future incomes, and still have an enormous income gain left over. Thus, there is no reason for government to subsidize college tuition on the grounds that it is "unaffordable" - even for those students who are unfortunate enough to have to bear the full cost themselves, without parental assistance.

I disagree here to some extent. I'll give an anecdote as to why. A friend of mine is on his 7th year of a 4 year undergrad major. He continually has to withdraw from classes because he cannot pay for tuition. His parents are too wealthy for him to qualify for most government loans and they refuse to pay any money towards his education. He is continually denied private loans. He goes to school a quarter or two per year while working part time and works full time for the rest of the year. His situation is far from unique although not very common.


I'll also add that the "widely available financial aid and merit scholarships" are not nearly as available as is commonly claimed. Merit scholarships tend to go the highest couple of percent of the students while need based financial aid typically goes to only the lowest end of the income spectrum. There are a lot of people in between and not much money to go around. This is doubly true for people that go to smaller schools that don't have large endowments to give aid from.
2.27.2008 3:38am
Arvin (mail) (www):
Are there other reasons to subsidize, though? Even if we assume that college is now more affordable because of the higher income that results from a college education, we can probably also safely assume that some will refuse to borrow against their future income, some will deem the risk too great, etc. Perhaps that's their problem. But here's where it becomes our problem: these people get to vote. One could argue that there is value to society to have the most educated voters possible, when the uneducated vote counts as much as the educated vote. Additionally these people will make decisions that affect society, such as get into debt, take loans, etc.

I have absolutely no idea if the educated actually make better decisions in terms of credit or other things that affect society as a whole. I also don't know if educated voters make the "right" decision anymore than uneducated voters. But it seems like another dimension that should be considered in this debate.
2.27.2008 3:53am
TonyRyan (mail):
I agree that college is a good "investment" and that the census figures and other statistics probably support such a position. I also generally have a preference for market mechanisms to determine outcomes in our society although I hesitate to say that the university system in this country operates in even a semi-efficient marketplace. There is just too much imperfect information and too many confounding variables. Do you give a 17 year old with no money, no job, no credit and little life experience a 30-year mortgage on a house with no money down, no limit on the loan amount, and in any neighborhood he wants? If we did, what would happen to housing prices? We did exactly that with education loans and look what happened to the cost of education. You can't have an efficient market with unlimited credit and woefully uninformed participants.
Also, just because there is a market justification for the current tuition doesn't justify the increases that have occurred over the past generation. Example: 30 years ago the same professional degree or bachelor's degree likely gave you a similar percentage increase in lifetime earnings over a high school graduate (although a previous post did say there was some shifting in the relative proportional earnings). 30 years ago you did not have to mortgage your future to get a bachelor's or professional degree. Why do students have to now? Was there such a market imbalance a generation ago where professional/bachelor's degree students were being unjustly enriched by the state or private universities? I am willing to accept that state support of colleges/universities (and especially attached professional schools) may have fallen over the years but not to an extent that justifies the increases in tuition.
2.27.2008 5:10am
A.C.:
Even if a degree pays for itself over a lifetime, there's a serious problem involved in starting adult life with a mountain of debt. Most people's earnings peak in their fifties, and that's where the college grad will see much of the payback. Salaries in most fields are fairly low for people in their twenties, and debt payments on top of that may keep people living like students for far too long.

Next question: when do people typically have children? Not when the college degree is finally showing its major payoff, that's for sure. Loan-based funding for higher education may make sense over a person's entire career life, but it can be a major blight on family formation. Especially for women.

In my experience, though, you can kind of tell when a country has made college free. The quality drops, and rationing takes place through overcrowding and inability to get needed classes rather than through price. But we seem to have the opposite problem. At some schools, education has become cluttered with frills that I wouldn't want my tuition money to finance. People who want the frills should be able to buy them... I'm not proposing sumptuary laws. But it's a shame when people who just want to buy the education have to buy everybody's else's vanity projects too.
2.27.2008 5:28am
eyesay:
... government subsidies ... victimize the truly disadvantaged people in our society: those who lack the educational qualifications to go to college in the first place.... These people pay some of the taxes that support subsidized tuition for college students who are likely to end up far wealthier than they are. They are also indirectly harmed by the diversion of public funds to tuition subsidies and away from other priorities that might do more to advance the interests of the truly poor. Government tuition subsidies are a classic example of a policy that redistributes wealth to the relatively affluent under the guise of helping the poor.
The reader wonders if on this libertarian blog, the writer, Ilya Somin, genuinely favors public funds subsidizing the interests of the truly poor.

But also, any government expenditure that helps the middle class can always be criticized by the argument that it's not fair to the people that are too poor to benefit.

I, and most Americans, want to live in a society where we are required to pay taxes to fund programs that benefit the public, including programs that mainly benefit the poor, and including programs that mainly benefit the middle class. We need to address poverty, for example, through programs such as WIC, Head Start, and food stamps, but we should not allow the existence of poverty to deny supporting worthy programs that mainly benefit the middle class. That is especially true in the case of helping people get educated, which raises their income, which means they pay more income taxes later, which reimburses the government for the subsidy in the first place.
2.27.2008 6:28am
Ak:
What's annoying about this is that there are still plenty of cheap schools. In the city I went to there was a well regarded state school where tuition was 7k a year and a private school that was 24k a year for the same education. So I went to the state school and graduated without loans. Similarly, there were other state schools that cost even less. People seem to be presuming that not only do today's children deserve to go to college, they deserve to go to whatever college they want and it's the taxpayer's obligation to make sure they can. Tough noogies if you can't blow 30k a year on tuition.
2.27.2008 6:41am
Jones De Reviera (mail):
This is the best thing I have ever seen! http://www.spymac.com/details/?2347210
2.27.2008 7:14am
PersonFromPorlock:
Ilya Somin:

If college education is just a "credential," employers could make huge profits by hiring HS grads instead (who by this view would do just as good a job for less money).

But then they wouldn't have the cachet of an 'educated' workforce; employers frequently spend a good deal on nonproductive office decor and in many businesses college grads may serve no greater purpose than to tart the place up.

Let me fall back on a suggestion I've made before; establish a federal tax on employing college graduates, say $1000 per year for BAs, $2000 for MAs and so on. We can even earmark the money for tuition assistance, if you want. I am pretty sure that many employers would suddenly discover that college wasn't that important after all, thus putting downward pressure on college enrollment and costs while letting many young people start life without a crushing debt burden.

The basic problem with subsidizing higher education is that if you make $20,000 per year available to every college student, all you've done is guarantee that the cost of going to the least expensive state school for one year will be at least $20,000.
2.27.2008 7:16am
merevaudevillian:
Three cheers for Hillsdale College and for Grove City College!
2.27.2008 7:45am
ERH:
I think Justin has it right, a college education is under subsidized for the poor and all the benefits of a degree don't amount to much if you can't afford it.

The sad fact is that a college degree has become a defacto requirement for even entry level white-collar jobs, and because we under subsidize the poor we lock them out of just the kind of jobs that could lift them up the economic ladder.
2.27.2008 7:54am
Arkady:

These people pay some of the taxes that support subsidized tuition salaries for college students professors who are likely to end up far wealthier than they are.


I know this may be churlish, but Ilya does teach at GMU.
2.27.2008 8:13am
Justin (mail):
unhyphenatedconseservative - when one has to forgo college in order to do so, yes, it is a failure. But nice try in making institutional poverty sound like a social benefit.

Ilya - I call shenanigans on whether most of the very poor (even broadly, those that have no savings and can expect no personal contribution to college) can get student loans that will pay for not only college but living expenses, in the absence of public subsidization or mandates. Obviously, those that go to Ivy League schools can, but most of the very poor go to regional public schools.
2.27.2008 8:44am
Justin (mail):
Ak, if you paid $7,000 a year and graduated without loans, then you aren't the subject of this discussion.
2.27.2008 8:46am
Anonymous Jim (mail):
Even the "very poor" can borrow against their future incomes and thereby pay for tuition while still having a lot left over.

As a statement about the current sytem this is correct. (And I suspect it was meant as a statement about the current system.) However, if government loan guarantees were eliminated I suspect that banks would not be as willing to lend hundrds of thousands of dollars to a poor student. Middle and upper class students with parents who could co-sign or who simply live in more favorable zip codes would have much better chances at obtaining loans and more favorable interest rates.
2.27.2008 8:54am
RKV (mail):
Correct Arkady. Buying votes (of the faculty, staff, students and parents of college students) is what this whole mess is about. Some people believe you can get something for nothing - that externalities, opportunity costs and free-riders don't have to be accounted for. Not in the real world, and as someone who went back to the academy after a 25 year career in the private sector, I am here to tell you that academia is out of touch.

We ought to privatize the whole enchilada. Top to bottom. Lease the land (and facilities) the state owns to not-for-profit corporations and otherwise get the hell out of the way. Students and parents then buy what they like and educators deliver or go under. Win-win.
2.27.2008 8:57am
Temp Guest (mail):
I regularly teach in a nearby public university. (It's supposedly one of the "better" ones in the country.) About two-thirds of the students I teach are not prepared for college education, e.g., the majority cannot read a daily newspaper with any comprehension, very few have even the most basic comprehension of US or world geography or history, and the math skills of most of my students--when they have any--do not go beyond an ability to perform the most basic computations and do not include the ability to apply math reasoning to even the most basic problems. Most hate college and are only there to obtain a credential that they have been told is necessary for earning a living. The few students in my classes who might benefit from a college education cannot get it in my classes because I am forced to dumb down the material to cater to the majority's lack of preparation and disinterest. The problems are not quite -- but almost -- evenly distributed across race, ethnic, and class categories.

The senior administration and faculty are fully aware that we do not serve any useful function for the vast majority of our students. But they make large salaries off the backs of these students; particularly the politically-connected administrators. (As an aside, I do not know how it is in other states, but in my northeastern state, "administration" of "higher" education is a major source of political patronage.) Most would not do nearly as well in the private sector. They are certainly not going to do anything that would stop -- or even slow -- the gravy train.

Ultimately, after acquiring house-mortgage-sized debt, many of our students never do "graduate" and the majority of those that do wind up in jobs that they could have gotten with a high school diploma thirty or forty years ago. The deep, dark secret of higher education in this country is that it is a giant conspiracy/scam among the government, banks and financial institutions, and third-, fourth-,... and nth-rate schools, administrators, and faculty to take enormous amounts of money from parents and students who can ill afford it in return for an essentially non-existent service.

There is an easy way to reform this system: Make all government-financed financial aid for higher education dependent on just two things: (1) tested academic achievement that proves a student is ready for and will benefit from a higher education; and (2) willingness of a student to major in fields that will best serve thenm and their country, e.g., medical fields, engineering, math and science, foreign languages, etc. This will never happen because vested interests will fight bitterly to retain the ill-earned profits they obtain from the current system.

Ultimately, of course, the whole mess relates back to the uninformed and non-law based decision of the judge in Griggs v. Duke Power. But that's a whole other story.
2.27.2008 9:00am
ERH:
More points for Justin. The maximum amount of sub. loans a dependant Freshman can get is 3,500. Let's see my local regional school costs $1,900 per semester just for tuition and fees which puts the student $300 short of being able to attend full-time.
2.27.2008 9:05am
Gramarye:
I'm surprised no one has brought the other perspective into play here: the government's interest in a portion of the future income of a college graduate.

Suppose we use the figure that only half of that $1 million extra in lifetime earnings is actually due to real value added by higher education. That $500,000 is nonetheless going to be added to a person's income in the higher tax brackets, by definition (because the $1 million or $500,000 are marginal increases in lifetime earnings). In other words, at least in the 25% bracket (even under the Bush tax cuts, which may expire), and likely some at the 28% and higher brackets.

If an average of $500,000 of a college graduate's increased lifetime earnings are due to the college education and the government will get at least 25% of that, then the "subsidy" actually pays for itself up to at least $125,000 per individual. Moreover, since that $500,000 average figure is likely the product (as are most average income figures in this country) of a small number of extraordinarily high earners who will almost all have college degrees, a good deal of that income will be in the 33% and 35% brackets. Those percentages will also increase if the Bush tax cuts expire as scheduled, though of course there is an economic argument to be made that that would also reduce lifetime earnings.

Those are all conservative estimates, I believe. It's essentially certain that the real percentage return is higher than 25% because many college graduates will have taxable incomes greater than $77,100 in 2007 dollars. Likewise, the decreased lifetime earnings (due to decreased career opportunities) of the tax rate increase from 35% to 39.4% are not likely to entirely cancel out the increased revenue, and the increases in the marginal rates below the top one even less so. With moderate but still not excessively generous assumptions, one could easily estimate the aggregate return on the government's "subsidy" at $180,000, roughly the sticker price of four years at Harvard.

That makes it look a lot more like an investment than a subsidy to me.
2.27.2008 9:06am
AnonLawStudent:

I call shenanigans on whether most of the very poor . . . can get student loans that will pay for not only college but living expenses, in the absence of public subsidization or mandates. Obviously, those that go to Ivy League schools can, but most of the very poor go to regional public schools.

[I]f you paid $7,000 a year and graduated without loans, then you aren't the subject of this discussion.


Why should students have public subsidization of tuition or living expenses? Most state schools (those schools that the very poor tend to go to) are affordable precisely because they are heavily subsidized on the other end. There seems to be an underlying assumption that anyone should be able to go to any school, full time, with an undertone of awfulness that some families can't afford for Jimmy to go to a private university. Numerous solutions to the problem of educating the poor already exist: part time at a local community college or state university, not to mention the GI Bill. The misguided assumption is that Jimmy from the projects should be able to afford to go to Harvard. Why not let Jimmy go to State U, break in to the middle class, and then send his kids to Harvard?
2.27.2008 9:08am
Gilbert (mail):
With all respect to the author, I find the article completely unresponsive to the real reason the Democrats support college subsidies.


The income gains of getting a higher education far outstrip the tuition. The vast majority of students can therefore afford to pay for college by borrowing against their future incomes, and still have an enormous income gain left over.


I don't think the second sentence necessarily follows from the first. What the Democrats want is to help put the poor and the unprivileged in a position where they can actually afford to put their lives on hold for 4 years. Unfortunately, I don't have the data in front of me, but when you start talking about the poor in this country, a strikingly large proportion are earning income essential to support them and their family by the time they start high school.

On a sidenote, it is, paradoxically, substantially harder for many of these people to "borrow against their future income" than it is for people for whom the choice is already fairly easy.
2.27.2008 9:09am
Justin (mail):
Wow, ALS, you completely missed the point in multiple directions.
2.27.2008 9:21am
Smallholder (mail) (www):
Several thoughts:

European countries with lower rates of college attendance also begin tracking students at an early age. Class barriers on the Continent are much more real than in America. One societal benefit of opening more opportunities for poor students in the U.S. is that it gives the very bright the chance to rise. Poorer students may have a greater aggregate drop-out rate because of clustered factors (being less prepared by weaker public schools, lacking a pro-education family support structure, etc.), but the best can and do overcome their limited birthright. This is good as a matter of justice and as a matter of societal wellbeing -- our system lets us harness a greater proportion of bright individuals for the commonweal. Our system also encourages many (but not all due to clustered factors) disadvantaged bright kids because they can succeed if they work hard.

An additional benefit of subsidizing (financially) poor students, smacks of Frederick Jackson Turner's Frontier Thesis. Education has replaced cheap land on the frontier in the role of a safety valve helping to promote social harmony. America has never suffered the class conflicts common in Europe because our society co-opts potential radicals and revolutionaries. Bright people in Europe who cannot rise in society in accordance with their ability become frustrated and challenge the system. In America, the freer economy and fluid social structure allow the best and brightest to rise. The potential leaders of class conflict aren't trapped and don't become as angry. The people who fail to rise, due to either unwise choices or lack of ability, are less likely to blame the system for their ills.

This discussion has overlooked intangible benefits of subsidizing education. College can be a true melting pot. College experiences can bring people of varied backgrounds together and serve as a social lubricant in later life. Where people went to college and what they did as undergraduates is a pretty frequent topic of small talk at middle class social events. Being able to relate to the experiences of others is hard to measure, but certainly has an economic impact. I imagine that you are more likely to get trusted with a tough assignment, get promoted, or get a raise if you inspire confidence in your boss through the sharing of common experiences.

Subsidies can be dangerous. A blanket government check would lead even community/third tier colleges to raise tuition without actually offering a better product (this did historically happen with the G.I. Bill). Although my first three paragraphs made the case for some support of government subsidy of the poor, the devil is in the details. That said, when the G.I. Bill opened the doors of higher education to the masses, the productivity of the American worker skyrocketed -- one example would be the productivity of milk cows. Holstein cows produce three to four times as much milk as they did prior to WW II. This can be traced to the G.I. Bill's agricultural short-courses that taught returning vets about artificial insemination, which in turn led to rapid genetic improvement of the national dairy herd. Life and public policy are about trade-offs -- we want to choose carefully. Are the potential productivity and social harmony gains to society greater than the costs in misallocation of resources and tuition inflation?
2.27.2008 9:23am
BladeDoc (mail):
What nobody has addressed seriously is the fact that if everybody or even almost everybody can get student aid then colleges can just raise their prices by the average amount of aid, generating more money for the frills but making a basic education no more affordable. It's economics -- if you give every person $10K that can only be spent on education, a school that previously was fully enrolled at a tuition of $5K would be INSANE not to immediately raise tuition to $15K. The same people would enroll (being able to afford the same $5K) and the school would triple it's income. If the bars to entry to the industry were lower I think you'd get some competition both in new schools opening and more spots at the current ones.

Can anyone else explain why the rise in the cost of education closely parallels the rise in student aid as opposed to inflation? Or is it felt that the causation is the reverse? Frankly I think it's a feed-forward system (which is, as we all know, highly unstable).

So, despite Christopher Cooke's heartfelt cri du coeur you in fact CAN be against certain types of benefits without being self serving and without "hating" the people to whom you would stop giving money. Frankly it's a typical liberal trope that to disagree with an ineffective measure that "feels good" means you're a bad person (c.f. Title IX, ADA, affirmative action, welfare reform, etc. etc. etc.).
2.27.2008 9:29am
Smallholder (mail) (www):
Temp guest wrote:


Make all government-financed financial aid for higher education dependent on just two things: (1) tested academic achievement that proves a student is ready for and will benefit from a higher education; and (2) willingness of a student to major in fields that will best serve thenm and their country,



I like temp guest's ideas - they would minimize some of the problems of subsidies and target the potential benefits. If subsidies were granted based on measured academic performance, it would weed out students who are not as likely to offer a good ROI to society. Channeling people into fields where shortages exist would also lead to a more efficient economy. The fact that subsidies would not be universal would minimize the inflationary impact.
2.27.2008 9:29am
AnonLawStudent:
Justin,

The first two topics of this post are (I) the problem of increasing college costs, and (II) that cost being too high for those entering lowpaying professions. More broadly, Prof. Somin is attempting to refute these arguments through economic analysis. I'm saying that, to the degree such problems do exist, the solutions are already in place. That these issues are even being discussed strikes me as another example of media drive alarm over a non-existent problem. I fail to see how I "completely missed the point point in multiple directions." Or would you care to enlighten me?
2.27.2008 9:34am
ruralcounsel (mail) (www):
Well, since this is a dialogue based mostly on opinion and subjective belief, I guess it's safe for me to jump in too.

I seriously doubt (1) the ROI calculation used here, (2)the true basis for earned income differentials between those that go on to college and those that don't (and I don't think it's the education), (3) that low-income or even some middle-income citizens can get enough financial aid or student loans to truly attend college on an even-footing, ... and I don't think student loans are actually much help, more just like deferred ruination (4)and that graduate degrees/education can be justified on the same basis as a B.A. or B.S. unless they get you past an accreditation/licensing barrier, ... like law or medical school.

It would interesting to see not just the averages, but what the standard deviations are in terms of ROI calculations. Used to be a technical degree was hands-down better than a liberal arts degree, but as technically based industry has moved off-shore, that story has changed as well. The bottom line is that a nation of 300 million with a high standard of income is not going to be able to compete job-wise with an India or China ... so what good is a college degree going to do you when the jobs you aspire to are all gone?

Some jobs are inherently safe ... the trades (carpenter, plumber, electrician, blacksmith) because the work has to be physically done on site; lawyers, because of licensing requirements (but this too could change ... hire out your brief writing or research to someone in Indonesia or Delhi?); medicine, again because the work has to be done where the patient is.

I've got 4 children under the age of 14, and frankly I wouldn't be disappointed if none of them went to college, if they made otherwise smart choices about what they learned to do for a living. (And that from someone with 3 engineering degrees and a JD!) I think an awful lot of what a college teaches you can be self-taught, if you can be self-disciplined and love to read. College is really just a crutch, an environment tailored to help keep you on track ... kind of like those expensive weight-loss programs; you can always just chose not to eat as much on your own and exercise more, but some people need the structure of the prepared pre-planned meals to actually do it. A pretty expensive luxury for those without willpower.

Almost any other job/career ... if its making something that can be imported/transported, or creating something that is just on paper or electronic, then it's going to some smart guy or gal in the third-world. Because they are cheap. And this will stay this way until cheap energy, which enables all this global trade, is gone.

And we'll always be told by those who managed to claw their way up into the 95th percentile that the status quo is working, and we just need to try harder. Actually, corporate management is a natural for outsourcing ... there are lots of very bright folks overseas. That it has stayed so homegrown for so long is a sign of the inherent hypocrisy of the elite decisionmakers ... reduce costs, but not at my expense. But eventually, this social barrier too shall crumble. We'll eventually manage to mortgage our futures enough to revert back to colony status.
2.27.2008 9:45am
A.C.:
BladeDoc -

Exactly! The main difference in the subsidized case is that the student now has $10,000 to pay back. Oh, and you get a lot of strange pet projects, potted plants in the lobby, and diversity directors as part of the "frills" category, although I do suppose the school MIGHT do something useful with part of the money.

For those who think we should support foreign language students because doing so is vital to national security, have you ever majored in foreign languages and then tried to get a job? Create the jobs first -- people will emerge to fill them when the price is right.
2.27.2008 9:53am
AK (mail):
I couldn't possible care less about whether the ROI on college tuition is high or low. The problem with education subsidies is that they allow colleges to raise their tuition, which causes politicians to call for more education subsidies, which allow colleges to jack up tuition, which causes politicians... etc.

The price of college is set by the market, taking subsidies into account. Anyone who thinks he can make education cheaper by subsidizing it should go back to college and take an introductory economics course.
2.27.2008 9:58am
Don Miller (mail) (www):
Family history, none of my Grandparents graduated from college. Both of my parents graduated from College. They worked their way through school and paid for it out of their own pocket.

They had 7 kids (I am the oldest). All seven of us went to college. We worked and we struggled, but we paid for it out of our own pockets.

We didn't go to private schools because we couldn't AFFORD a private school.

People make bad choices about where to go to college. In very few occupations does the difference in starting salary between a Public and Private Institution make enough of a difference to make the extra expense worthwhile.

The Legal profession is one of the few that it does matter. So that is probably why the debate is slanted that way on this board.

I figured out in my first semester of MicroEconomics though that government subsidies were part of the reason college is so expensive. Increasing Government subsidies provide no incentive for colleges to control costs.
2.27.2008 9:59am
Avocat (mail):
The comparison of earnings between high school and college is not a simple one. Several posters have already mentioned the present value problem. The 1 million in additional earnings is spread out over the college graduate's lifetime. However, a student paying 180K for college must pay that cost up front. (The high school graduate also begins earning income right away, while the college graduate's earnings are delayed by additional years of schooling)

One alternative way to think about this question is to ask how much money a person could save by foregoing college and investing the 180K cost of college and watching that amount compound over 30 years.

The comparison also suffers from a selection bias in that the earnings of the most talented high school graduates who could have gone to college and done well, will tend to be higher than the mean. In other words, we are not comparing outcomes for people who can choose whether they way to go to college and graduate when we use data that includes many who lack that choice.

Another problem with the comparison is that the 1 million in additional earnings for college graduates is a before tax calculation while the cost of college is paid in after-tax dollars. This analysis is further complicated by a progressive tax code that will tax those additional earnings at a higher rate than the average earnings of a non-college graduate that is spread out over more years.

While I am not suggesting by my analysis that going to college is a bad decision, I do think calculating the cost and benefits of that decision deserves further scrutiny.
2.27.2008 10:07am
Gramarye:
BladeDoc:
What nobody has addressed seriously is the fact that if everybody or even almost everybody can get student aid then colleges can just raise their prices by the average amount of aid, generating more money for the frills but making a basic education no more affordable. It's economics -- if you give every person $10K that can only be spent on education, a school that previously was fully enrolled at a tuition of $5K would be INSANE not to immediately raise tuition to $15K. The same people would enroll (being able to afford the same $5K) and the school would triple it's income. If the bars to entry to the industry were lower I think you'd get some competition both in new schools opening and more spots at the current ones.
It's not quite so simple because of the price-depressing effects of competition (assuming, arguendo, that colleges really do compete with one another for students, which I think is not entirely accurate but enough so to spark the dynamic).

If I'm currently charging $5k when the $10k subsidy comes into play, per your example, I could raise tuition to $15k, but all it takes is one other similarly situated college to cut the price to steal clients--students--from me. It's unlikely any competitor would cut the price below $10k, but if I could increase market share by charging $12k--and profitability isn't necessarily any issue, assuming I can maintain the cost and capital structure I had when I was charging $5k--there would be downward pressure on prices to the limit of the subsidy.

I think the price of higher education has gone up beyond the rate of inflation because the relative value of higher education has gone up. If not a guarantee of getting ahead, it's at least become a necessity to avoid falling behind. Rapidly increasing demand. Slowly increasing supply. Price goes up.
2.27.2008 10:12am
Justin (mail):
ALS: My point (summed very quickly) was that poor people who go to regional schools can't get the money to pay for tuition and living expenses without substantial public aid. Your response was "why do they need to go to Harvard, they can go to regional schools!" Yes, I think you missed the point.
2.27.2008 10:23am
Aultimer:

IS: Moreover, you have to similarly discount the tuition payments, which (if you take out student loans) will only be paid over many years.


Not really - it's a fair estimate of discounting to use the principal (maybe adding deferred interest) as PV, since interest serves the same function with the lender's profit close to insignificant.

Comparing tuition to FV income is a mistake, comparing tuition to PV income is a decent estimate of comparing PV tuition loan payment to PV income.
2.27.2008 10:28am
Tony Tutins (mail):
you get a lot of strange pet projects, potted plants in the lobby, and diversity directors as part of the "frills" category

I don't know how crushing the burden of dieffenbachia is. Driving up costs at my local school are the fitness center, new dorms (kids today have never shared a room, and the dorms their parents lived in make them claustrophobic), coffee boutiques in the library (hey, just like Barnes and Noble!), the skyrocketing cost of journals and database subscriptions, and information technology in general, including a dizzying ramp-up in the amount of bandwidth needed. Academic success centers are needed to help the many freshmen who arrive having never written a term paper, lacking study skills, with the attention span of a mayfly.
2.27.2008 10:42am
AnonLawStudent:

My point (summed very quickly) was that poor people who go to regional schools can't get the money to pay for tuition and living expenses without substantial public aid. Your response was "why do they need to go to Harvard, they can go to regional schools!" Yes, I think you missed the point.


And you certainly missed mine. The solutions are (i) part time or co-ops, so that living expenses aren't an issue, and (ii) work-related programs such as the GI Bill. Neither involves "substantial public aid" as that term is being used in this thread. To head off the inevitable criticism, no, I don't consider $1-2K per semester to be unaffordable to a student willing to sacrifice a bit. If it is, the price can be dropped even lower by stretching out the education. Community college can cost less than $100 per credit hour, plus books. See here in south Mississippi.
2.27.2008 10:56am
Bartemis (mail):
BladeDoc is exactly right. It's simple supply and demand. If you increase the demand without increasing the supply, prices will go up, and the only people who ultimately benefit are the faculty and administrators of the colleges and universities. We've been seeing this for the last 30 odd years. As subsidies have increased, tuitions have skyrocketed. Yet, we keep doing exactly the same thing, over and over again. It is the very definition of insanity.
2.27.2008 11:01am
Cato (mail):
My college girlfriend did precisely the same study (in 1979) about the value of a law school education over the life of an individual. She concluded that it ALWAYS paid to get a legal education, independent of the institution from which it was obtained.

When I asked her which law schools she applied to, she answered, "Only top ten silly. It may pay for other people to go to other schools, but not me."

I started dating cocktail waitresses after that.
2.27.2008 11:11am
Tom Cross (www):

The misguided assumption is that Jimmy from the projects should be able to afford to go to Harvard. Why not let Jimmy go to State U, break in to the middle class, and then send his kids to Harvard?

I guess it depends on whether you want to live in a society that selects the most capable people for the jobs it needs done, a meritocracy, or a society with a caste system wherein the poor are denied social mobility beyond a certain level, and members of the privileged classes are given roles that others are more qualified for, mostly because of the station of their birth. Obviously, American society has both characteristics. The question is in which direction things ought to be pushed.

This is an area where I think that Libertarian thinking can step on its own justifications. The vaunted efficiency of lassie faire policies is undermined when it leads to social stratification that spans generations.
2.27.2008 11:15am
David M (www):
The Thunder Run has linked to this post in the - Web Reconnaissance for 02/27/2008 A short recon of what's out there that might draw your attention, updated throughout the day...so check back often.
2.27.2008 11:28am
AnonLawStudent:

I guess it depends on whether you want to live in a society that selects the most capable people for the jobs it needs done, a meritocracy, or a society with a caste system wherein the poor are denied social mobility beyond a certain level, and members of the privileged classes are given roles that others are more qualified for, mostly because of the station of their birth.


You assume that things can or should happen overnight. The long view is more realistic. The dirt poor kid who is an absolute genius has opportunities in our society: he will likely be recognized, and opportunities will be provided. What is far more common, by orders of magnitude, is that the kid is likely is not qualified for the best schools (Harvard, MIT, etc) due to the relatively poor education he received at a young age. If he and his parents work hard, he can go to State U, and break in to the middle class. If he and his kids work hard, they may be qualified for the best schools. My family certainly took that route: my grandparents started as subsistence farmers and laborers, my parents worked hard to go to State U and make something of themselves, and, as a result, I was at least minimally qualified for (and able to attend) top-level schools. Hopefully, my children will be even more qualified, and will be able to better take advantage of these institutions. This isn't an indictment of our society; it's evidence of fantastic social mobility.
2.27.2008 11:32am
Dan Simon (mail) (www):
This whole discussion is unbelievably bizarre for a supposedly economically literate libertarian blog. Why on earth should it matter to taxpayers that college graduates eventually make back much more than the cost of their educations? Perhaps they value income during their late teen years much more highly than later in life, so that without the subsidy, they'd all go out and get jobs.

What taxpayers should care about is whether their own marginal benefit--say, through increased economic productivity, which ultimately benefits them--from another student going to college outweighs the marginal cost to themselves. Now, I suspect that by that measure, today's college subsidies are indeed excessive. But I also suspect that massive reallocation of those subsidies would do much more to improve their return than mere cuts. And that reallocation would almost certainly greatly increase the subsidies to exactly those students who stand to profit most from their college educations. After all, if the skills they obtain from their education contribute significantly to overall economic productivity, then we can also expect the students to be able to extract a pretty penny from employers for them.
2.27.2008 11:44am
Spartee:
blockquote>"I guess it depends on whether you want to live in a society that selects the most capable people for the jobs it needs done, a meritocracy, or a society with a caste system wherein the poor are denied social mobility beyond a certain level, and members of the privileged classes are given roles that others are more qualified for, mostly because of the station of their birth."<




C'mon. Seriously, c'mon.

Me paying for someone else's Harvard diploma (or any college) via government programs does not equal a meritocracy. Me *not* paying for someone else's Harvard diploma similarly does not equal a caste system.

I attended a state school for undergrad, because I could not afford more. (I liked it quite a bit and value the experience.) I then attended a blueblood law school using private loans. (Hated it, but met some of my very best friends there.)

Based on my experience, Jimmy can get the same education at an elite school that he can at State U. In fact, I found myself better educated compared to many of my law school peers who attended Ivy League undergraduate schools.

True, Jimmy, may not regularly meet the same caliber of people at State U., since there is a lesser concentration of brainiacs at such places relative to, say, Yale. And it is also true that who you meet in college can be important in your professional life.

But if Jimmy really wants a Harvard degree, I note that many Harvard graduate schools are available to him, and there are many private loan companies eager to provide Harvard Law School, Medical School, Business School, etc. students with a full plate of loans to pursue that H-Bomb trinket he apparently lusts for. I took on a full load of student loans for an elite graduate school with full knowledge that places lower in the rankings would have given me a full scholarship. Jimmy can do the same @#$% thing if he wants that crimson degree so bad, and he can pay for it via his future wages.

But as for me, I have zero interest in funding Jimmy's name brand fetishes. Vague invocations of a "meritocracy" or grim "caste systems" don't really convince me otherwise.
2.27.2008 11:45am
ERF (mail):
The post's analysis is flawed by failing to recognize that, in large, parents (and taxpayers, who are superfluous to the discussion because they have no choice in the matter) pay the tuitions and the parents' children reap the financial gains of college diplomas.
2.27.2008 11:51am
frankcross (mail):
One little issue with the evidence. From what I see the evidence of the economic benefits of college is an average. Subsidization would seem to have its impact on the margin. You can't compare average benefits with marginal benefits, that's a clear fallacy.
2.27.2008 11:57am
MDC (mail):
Actually, we're still proving that college doesn't pay. Take a conservative figure, say $100,000 for a college education. Invest in mutual funds at age 22 (just to be fair). Now, how much is that at age 65? Nobody ever seems to think to perform that little bit of thought.

By the way, here's your conservative number at 10% annual return (which is low): $2,711,263.89. If you're going to make an extra million by finishing college, you're getting screwed.

By the way, the stock market has averaged 12% over the last 70 years. You're really going to hate this: $5,245,732.59.
2.27.2008 12:04pm
MDC (mail):
What a rube I am. Sorry about the last set of math - I did it based on retiring at 55 instead of 65.

So, at age *65*, had you invested $100,000 at age 22 in 10%/year stocks, you would have $7,369,979.37.

At 12%/year, $17,416,445.56.

That's if you never invested another dime.

Now, what was that staggering amount that a college education adds to one's income over his lifetime? Oh, yes, I remember, a million dollars.
2.27.2008 12:08pm
CM:
Subsidizing tuition increases the cost of education. If students could not afford a college education without subsidized loans, then the cost of the service colleges provide would decrease.

On top of that, it is morally wrong to subsidize colleges and universities that have multi-billion dollar endowments.
2.27.2008 12:55pm
hattio1:
Okay,
I usually try to read all the comments before posting. I haven't this time, so I apologize if I am repeating.
While it is true that future earnings will pay for college tuition, that doesn't help those who need money (especially if they have to support children) now. The problem with this is the same problem with the thought that buying is better than renting. The poor don't have the money to come up with the downpayment. It's true that in the case of college tuition, loans will pay for tuition, books, etc. But that still leaves paying your living expenses for yourself, and your children if you have any.
None of this means college/student loan aid is necessarily a smart idea. I remember a study showing that every time government student aid is increased there is a corresponding increase in tuition at elite schools, and shortly thereafter, in professor salaries. Now, I wouldn't mind paying my share to help out the poor, and wouldnt' care if the children of the middle class also benefitted. But I don't want to pay to help out Professor Somin (no offense).
However, the cost benefit analysis that Professor Somin is doing is not really available to the poor, or at least, it's not the complete cost benefit they have to do.

Oh, and has anyone mentioned the danger of flunking/dropping out? That can happen for any number of reasons not related to laziness/stupidity. For example, a serious health crisis, family crisis, etc. These are exactly the sorts of challenges that the middle and upper class have the resources to work around, and the poor do not. If for some reason the person doesn't graduate, most of the benefits evaporate, and the debt is still there.
2.27.2008 12:58pm
Gramarye:
ALS wrote:
You assume that things can or should happen overnight. The long view is more realistic. The dirt poor kid who is an absolute genius has opportunities in our society: he will likely be recognized, and opportunities will be provided. What is far more common, by orders of magnitude, is that the kid is likely is not qualified for the best schools (Harvard, MIT, etc) due to the relatively poor education he received at a young age. If he and his parents work hard, he can go to State U, and break in to the middle class.


I think you're simultaneously off base in two different directions here.

The child could go to State U., definitely. Of course, the reason state universities tend to have substantially lower tuitions is precisely because of subsidies, just institutional subsidies on the state level (support for operating budgets and capital construction) rather than individual subsidies at the federal level (through grants or low-interest loans). Therefore, at the very least, your argument presumes continuing substantial public support of higher ed, just structured somewhat differently.

On the flip side, there's also no reason why the kid who goes to the state school will be confined to "only" the middle class, whereas he'd have done better to have gone to Harvard. I can think of one moderately successful American investor off the top of my head who graduated from the proletarian University of Nebraska.
2.27.2008 1:02pm
Gramarye:
CM wrote:
On top of that, it is morally wrong to subsidize colleges and universities that have multi-billion dollar endowments.
One could just as easily make the moral case against subsidizing anything that actually works, since we all know the only moral use of subsidies is to prop up failures ...

Hrm.

Also, I think the number of colleges with "multi-billion-dollar endowments" is actually smaller than you think. It's dominated by elite private colleges (where tuition subsidies are minimal) and massive public universities (where the endowment may be large, but is also spread over massive student and faculty bodies).
2.27.2008 1:06pm
Tom Cross (www):

But if Jimmy really wants a Harvard degree, I note that many Harvard graduate schools are available to him, and there are many private loan companies eager to provide Harvard Law School, Medical School, Business School, etc. students with a full plate of loans to pursue that H-Bomb trinket he apparently lusts for.

This whole thread was predicated on the assertion that in reality it is policy mechanisms and subsidization that make those kinds of loans available to people in that position. If you advocate the removal of all public subsidization and government mandates from college funding and student loans, you must hold one of two positions with respect to Jimmy.

The first position is that Jimmy will be able to access a loan that will pay for his education at whatever level Jimmy is best qualified to be educated at... That people do not need things like Stafford loans and public funding for state schools isn't necessary, and that the elimination of these things will not have a negative impact on the ability of qualified poor people to access education.

The other position is that its perfectly OK if Jimmy doesn't have access to the sort of education that wealthy people can get.

Others in this thread have challenged the first position. I'm challenging the second. Those who advocate the elimination of public funding for college cannot simultaneously argue that it doesn't matter that Jimmy can't afford school when pressed with challenges to the assertion that he can, and then argue later that he can afford school when pressed with challenges to the assertion that its OK that he cannot.

The bottom line is that Jimmy cannot afford school without subsidy, and that status quo is not acceptable in the long term if you think social mobility is a desirable feature in your society.
2.27.2008 1:30pm
AnonLawStudent:
Gramarye,

(1) You're absolutely correct that graduation from State U doesn't necessarily limit a person to the middle class. I was looking through the biographies of Southern Company (one of the largest utility holding companies in the country) executives , and noticed that most of them graduated from State U. State U isn't a barrier to the upper class; it is a barrier (on the average) to the elite, however. You'll find relatively few BigLaw attorneys or Wall Street bankers with undergraduate degrees from State U, and even fewer with professional degrees from those schools. The same is true of upper-echelon government officials (both political appointees and senior military officers). While the education is almost certainly better than State U, I think employers are more interested in using the admissions process for elite institutions as a sorting function.
(2) I argued in my 9:08AM post that institutional subsidies eliminate the need for tuition and living expense subsidies.
2.27.2008 1:38pm
Bruce Hayden (mail) (www):
Seriously looking at undergraduate schools right now, I would vote for some sort of tuition credit for the next, maybe eight years, for undergraduates and then, maybe some funding for graduate students, for, maybe five years. And, by then, I should be nearing retirement, and won't need the tax credit as much. Sounds like a good plan to me. Of course, over the last while, it would have been nice to have a tuition credit for K-12.

As to the argument about whether the first generation to go to college should go to State U or Harvard, I think those pushing Harvard or the like are seriously underestimating the level of preparation between many private school and the best public school students and most others. For example, at the private schools I am most familiar with, many of the students start AP classes their sophomore year (and some even their freshman year), and some kids are taking almost all AP classes by their senior year. 5280 Magazine last summer printed an article on what they considered the best high schools in the Denver area. The top private schools with classes of 75-100 offered more AP classes than the best public schools with classes of 1,000.

While AP classes are not the ultimate determinant here as to college preparation, esp. since there is invariably some teaching to the test, I have been impressed with their overall rigor, esp. compared to normal HS classes, and, even in comparison with "Honors" classes.

My point here is that much of the classes of the elite undergraduate schools are filled with kids whose K-12 schooling made the most of whatever skills and aptitudes the students had. These kids aren't taking College Algebra, but rather are often skipping the first semester or two of Calculus, etc. And their writing skills are typically much better honed, as well as, often, their overall study skills.

I am not suggesting that less prepared students cannot catch up, because many do. But dropping out of an elite college, unless you are Bill Gates or the like, can be a lot worse psychologically than staying in to graduate from a lesser ranked school.
2.27.2008 1:45pm
BladeDoc (mail):
Gramarye,

If I'm currently charging $5k when the $10k subsidy comes into play, per your example, I could raise tuition to $15k, but all it takes is one other similarly situated college to cut the price to steal clients--students--from me.


Only if you have excess capacity or care if you get "better" students. If a college doesn't care if it has future Nobel prizewinners than it'll take the cash. However a college CAN choose to do so -- but they're not for the most part.

Tom Cross,
You are still not addressing the problem that subsidies do not make college more affordable if colleges can (and do) just raise prices to price in the free money. Just because it feels right doesn't mean it works.
2.27.2008 1:52pm
Adam J:
Ilya- "College graduates today are making vastly more in absolute terms than 30 years ago." - If you are making a comparison between then and now, wouldn't we want to consider relative terms?
2.27.2008 1:55pm
GatoRat:
There are serious problems with the methodology of determining the difference in incomes between having only a high school diploma and a four year college degree.

1) Only a small percentage of types of four year degrees earn large salaries. The salaries of starting Engineers (hardware and software) overwhelms those of ALL other fields--it's two to three times that of ANY other field.

The salary for most jobs is less that than the starting salary for engineers. Even someone with twenty years experience will likely not make as much as a EE will make their first year.

2) College degrees often act as a proxy to reduce the number of resumes, even for positions requiring only basic skills. This also allows for defacto discrimination to occur without worrying about lawsuits.

3) The effect of a college degree decreases rapidly with experience. After five years or so, the degree becomes largely irrelevant (except for use by lazy HR people from point 2.)
2.27.2008 2:00pm
Crunchy Frog:

I think the price of higher education has gone up beyond the rate of inflation because the relative value of higher education has gone up. If not a guarantee of getting ahead, it's at least become a necessity to avoid falling behind.

Only because the value of a high school diploma has plummeted. Businesses with job openings use college degrees as mere credentials for two reasons: getting through high school now does not guarantee that the applicant can do something as basic as making change, and there are enough people with degrees out looking for any kind of job that HR departments can use a degree (any degree will do) as a winnowing fork to separate out the truly useless and still leave a decent cross-section of applicants to choose from.
2.27.2008 2:04pm
JBL:
College isn't really necessary for most jobs that say they require a college degree, it's just a convenient proxy for other qualities. In a society where most people go to college, the applicant pool is still large enough that the arbitrary criterion of a college degree doesn't have a huge adverse impact on the ability to find applicants. It does set up a circular argument: employers look for college degrees because it's easy, and people get degrees because employers require them. Throw in subsidies and you get where we are today.

Temp Guest hit on the real problem. Part of the reason employers look for a college degree is that our education system is so pitiful that without a BA, you can't even assume basic skills.

There are plenty of good reasons why even libertarians can support subsidies for education for the poor - if it's done efficiently, the positive externalities are significant. But subsidies for college don't work for the same reason that affirmative action in college doesn't work - because that's not where the problem is.
2.27.2008 2:32pm
zippypinhead:
It is with great fear and trepidation that I wade into this morass, but...

Does it strike anyone other than me as a odd that some professional academics (i.e., beneficiaries of the present pricing and salary structure for higher education -- especially comparatively well-paid law professors) are so vociferously opining on this thread? With a rather righteous "let them eat cake" tone and level of sensitivity for their paying customers -- the students and their families?

How many of you guys have ever filled out a Free Application for Federal Student Aid (FAFSA)? And then ran the numbers to determine your expected family contribution using the formulas your own University employs for undergraduates? Give it a try -- at the salary level of your typical tenured faculty member, senior public sector professional employee, or mid-level private-sector technical manager, it's actually pretty depressing. My "favorite" presumed family contribution I've been lectured on by a financial aid officer recently is that, at his vaunted college at least, parents are expected to zero out their 401(k) retirement plan contributions to help pay for their kids' tuition and fees. Heaven help anybody whose college-bound children are spread out over several years! When I first saw the EFC numbers several months ago for my oldest kid, I wondered if I should immediately stake out a good spot for my retirement cardboard box 'home' under the nearest bridge, before all the other penurious parents get the best locations...

I am not sure what the best solution to the cost of higher education is, but I am sure the current system is broken...
2.27.2008 2:59pm
The Ghost of Xmas Past (mail):
This comment thread is hilarious and the post is one of the most ridiculous on the conspiracy in some time.

Ilya, tell me how much income you've ever made off of sweat labor? What did you do during the summers in undergrad? Did you work during High school? Who financed your ability to eat and sleep comfortably?

The reason parents of the working poor/working class want to see their children go to college-- is not necessarily due to economic benefit.

The motivating factor is not how much additional income their child might earn-- it's the how it is earned! You can still make pretty good money butchering hogs but it's a bit different lifestyle than that of a gym teacher.

I know that was not the primary thesis of the post-- but I'm not sure the primary thesis is even worth discussing. I don't care how many awards Becker has won, if he truly believes that raising tuition rates has little impact on poor, working poor, working class and middle class families he's an idiot.

While I don't really think Class should matter in most discussions as everyone works hard to get where they are...
But when you are trying to use stats to prove a future 'benefit' when you have little to no idea of the non-benefits involved... it's all a bit ivory tower-ish.
2.27.2008 3:04pm
ReaderY:
One thing that hasn't been taken into account is the fact that income has a highly skewed, "long-tail" distribution, with a small percentage of people making a disproportionate share of income. The average income does not reflect the median person, far from it.

Let me ask this question. Suppose all income consisted of a single, 300-trillion-dollar winning lottery ticket that was guaranteed to go to a college graduate.

a. If you were an individual, would you spend all your savings and borrow heavily to go to college, knowing that graduating raised your average expected income without a terribly significant effecto on your likelihood of actually ever receiving any of it?

b. If you were a bank, would you lend money under such circumstances?

Under Ilya's model, one would, because Ilya's model assumes that people act based on estimated average or "expected" results alone with no consideration whatsoever for variation or risk (that is, the chance that an idndividual will actually experience the expected results.)

This can make reasonable sense in the normal situation where the average result much more closely reflects what most individuals experience and the risks of individual outcomes being way off the average are comparatively small. In highly skewed situations like when dealing with incomes, where a small proportion of high-end outliers heavily influence the average and hence where the risks of actual individual outcomes not reflecting the "average" are much greater, it may make no sense at all.
2.27.2008 3:20pm
arbitraryaardvark (mail) (www):
If college is a such a great investment, there should be no shortage of private lenders eager to make signature loans to
broke 18 year olds with college admission letters.
Are there any such? I didn't know of any.

The earning potential of the population who could go to college if somebody loaned them the money, is probably very different from the earning potential of the population that can afford to go to college without borrowing.

What a lender wants to know is what are the odds that this kid, going to this school, with this major, is going to be able to repay a loan over a period of not more than 30 years (and probably less.) We don't have good data on that. A home loan can be secured by the value of property after foreclosure. What secures this loan? A pound of flesh?

Maybe the high school grads are just better at hiding their income from statisticians, by being employed in the underground economy.

If, at the macro level, these is some social benefit to making a college-level education widely available, there is a cheap and efficient way to do it: Automated online free universal education, first grade to PhD/JD/ECt.
Brick-and-Mortar schools probably have some value added compared to online schools, but there's no case for subsidizing that extra value, or if so the case hasn't been made yet.
2.27.2008 3:31pm
BladeDoc (mail):

If college is a such a great investment, there should be no shortage of private lenders eager to make signature loans to
broke 18 year olds with college admission letters.


YES! YES! YES!
2.27.2008 4:07pm
New World Dan (www):
If college is a such a great investment, there should be no shortage of private lenders eager to make signature loans to
broke 18 year olds with college admission letters.


Please note that all investments carry a certain amount of risk. Including education and student loans. :)

But seriously, in light of the entire situation, this is one of the reasons that I've gotten on the flat tax + guaranteed minimum income bandwagon.
2.27.2008 5:00pm
markm (mail):
ALS: That's a strange definition of the "elite" if it excludes major corporation executives. Apparently the most demanding jobs with the highest potential incomes are open to state college graduates - but there are certain subgroups that think they are more elite than that, and require an Ivy League education to certify that you're one of them.

So to answer Spartee's question about meritocracy and the accessibility of the Ivy Leagues to the poor: the problem, if there is one, lies not in financial aid, but where hiring processes exclude qualified people because of the college they attended.
2.27.2008 5:09pm
AnonLawStudent:
MarkM,

As I said previously, a large part of the value in an Ivy League education is the sorting function of the admissions committee, and, to a lesser degree, grades. If you actually read the link with the SO exec biographies, you would have noticed that most are relatively old men who rose through the ranks, i.e., they were subjected to an internal sorting function. Which leads to two points:
(1) No such internal function exists to find 28 year old associates to handle multi-billion dollar litigation or transactional work. That's why law firms rely on a combination of school and grades.
(2) Given that SO is a traditional company whose capitalization largely reflects physical assets, a screwup by one of these guys isn't going to vaporize hundreds of millions (if not billions) of dollars. That's why Citibank is willing to pay a premium for a Cravath or Covington &Burling, but SO can stick with the regional firms: the stakes just aren't as high. The same is true of senior political appointees and military officers, with the exception being that the stakes are measured in 18 year old kids rather than dollars.

Your argument buys into the mistaken belief that a minimal level of qualification suffices. I don't want a minimally qualified plumber; I certainly don't want a minimally qualified lawyer, corporate decision maker, or military leader. I want the absolute best available, and I don't want to partake in a thirty year sorting process to find that person. For truly critical jobs, I'll do both - for a POTUS, a four star general, or a President of Citibank, I want the gatekeeper degree(s), PLUS thirty years of sorting against similar people. You're kidding yourself if you think that the odds of finding the best available don't increase substantially when the candidates all have Harvard educations. It's still a meritocracy, but the merit sort begins at a VERY early age. And yes, in all honesty, the wealth of the person's parents likely plays a part, but I don't care - I just want the best available.
2.27.2008 5:42pm
Cold Warrior:
Debt is not always a cruel mistress. A guy I used to know (before he moved into a very different income bracket) explains:

http://blog.filife.com/my-so-called-filife-dave-kansas/
2.27.2008 7:18pm
Kanchou (www):
@zippypinhead

Well, I don't think most of the law professors have to worry about their children's tuitions. The magical phrase is "faculty dependent tuition wavier." And their children don't necessary have to attend the same institution, either. There are various reciprocal arrangements around. i.e.

https://www.tuitionexchange.org/index.cfm?

I personally knew a law firm librarian who took almost 6 digit pay cut to work in academic law library. With the presumption that her family would came out ahead financial with the faculty dependent tuition waivers for her children.

A while a go, I think Orin Kerr started a discussion on how so many academic are "faculty brat" or "proffspring." I wonder it's easier for them to choose such career path because they are less burdened with student loans.
2.27.2008 8:00pm
Gramarye:
CrunchyFrog wrote:
[The relative value of higher education has increased] Only because the value of a high school diploma has plummeted.
I'm not sure that's the only explanation, but it's a moot point. To the legislator looking to change the system, the cause matters, but not to the more normal actor simply taking institutional realities as givens and living with them. Hence I said "relative value" is increasing; it doesn't matter whether this is because decreasing real value of HS or increasing real value of higher ed.
2.27.2008 9:38pm
JBL:
"If college is a such a great investment, there should be no shortage of private lenders eager to make signature loans to broke 18 year olds with college admission letters."

Wrong. Few if any bankers would make that loan. A banker looking for a good loan and an individual looking to improve themselves have very different criteria. To cite another example, very few stocks would make good loans. Many are good equity investments.


It's a matter of matching the vehicle to the destination. The question here isn't (necessarily) whether we should help people of whatever situation receive a quality education. It's a question of what constitutes a quality education and what is the best way to provide it. We should never assume that the current solution is the best one possible, or even that it's effective.

Government could (maybe) guarantee student loans without (directly) subsidizing tuition (I disagree with Ilya on this point - the problem with an unguaranteed student loan to a broke 18-year-old is credit fundamentals, not pricing). It could (maybe) tie the subsidies to various criteria so there would be less arbitrary inflation. It could (maybe) improve education at lower levels so that the college differential was less important. It could (maybe) provide general subsidies to low-income families to create opportunities without directly distorting the market. It could (maybe) implement certification testing so people with work experience or a penchant for independent study could effectively receive a degree without the expense of a four-year college. There are oodles of possibilities.

Ilya's claim here (as I read it) isn't that we shouldn't help the poor, it's that the current system doesn't achieve that goal and in fact actually harms them. He doesn't prove his claim, but nobody has disproved it, and the alternatives are certainly worth investigating.
2.27.2008 10:09pm
Jen:

III. How government tuition subsidies harm the truly poor.


I'm sorry, but as a young, truly poor single mother, the Pell Grants that paid my college tuition didn't feel like they were harming me. In fact, I feel that the program was a big part of the reason that my children were able to enjoy a middle class lifestyle for all but their earliest years.
2.27.2008 10:45pm
Tony Tutins (mail):

The magical phrase is "faculty dependent tuition wavier." And their children don't necessary have to attend the same institution, either.

In some cases, they can't attend the same institution. So few Stanford faculty brats were getting admitted, that Stanford changed the policy to paying half-tuition at any school the kids matriculated at, with a grandfather clause for faculty employed before 1970 or so.
2.28.2008 10:41am
ReaderY:
Two additional issues that haven't been taken into account:

1. The college dropout rate. Most students who enter college don't graduate. Using only graduate's incomes to estimate banks' returns is a bit like using the returns only of the winners as the return on investing in the stock market as a whole, or, more to the point, assuming one has bought a winning ticket to estimate the return on entering the lottery. Most people who enter college will not graduate and many of the dropouts will default on their loans. How do we know who will be the winners in advance?

2. As mentioned in my previous post, even a substantial proportion of the graduates will default on their loans because substantially fewer than half will ever earn the "average" income, which is skewed and influnced by a comparatively small proportion of folks at the very high end. Many will earn much less.

Because of these two considerations, a private loan program would have a very high risk of default, most of it from people who never graduate, and some of it from people who graduate but never make the average income.

These considerations need to be taken into account in order to have a realistic model.

Doubtless private lenders would be happy to lend to students going to Harvard. But such students, even without government subsidies, likely don't need private loans. As mentioned above, it is the Eastern Kentucky University students and their analogues, a much larger group, whose risks are being heavily underestimated by Ilya's model.
2.28.2008 11:08am
markm (mail):
ALS: A sorting function that passes George W. Bush and excludes Warren Buffet could be greatly improved upon.
2.28.2008 11:08am
Kanchou (www):
@Tony Tutins

In some cases, they can't attend the same institution. So few Stanford faculty brats were getting admitted, that Stanford changed the policy to paying half-tuition at any school the kids matriculated at, with a grandfather clause for faculty employed before 1970 or so.


Yeh! There are many variations between those programs. I remember reading a story that Vanderbilt would pay for faculty brats' tuition somewhere else only after they applied for and being rejected by Vanderbilt. So lots of games were played, like kids who never play an instrument in their life suddenly decided to audition for music dept., etc.
2.28.2008 11:26am
zippypinhead:

The magical phrase is "faculty dependent tuition wavier." And their children don't necessary have to attend the same institution, either.

So, Professor Somin -- since you argue that tuition subsidies are neither necessary nor particularly beneficial, I assume you're willing to publicly renounce and forgo any benefit from George Mason University's faculty dependent tuition waiver program? Particularly since, as a Virginia state institution, all such tuition waivers at GMU (and all the other other schools in the U.Va. system that your kids get to attend for free via reciprocity) amount to a harmful GOVERNMENT subsidy, right?

Or is there some theoretical justification by which you could allege that it's OK for family members of a well-paid law professor to take government educational subsidies, but not poorer people? And if so, I assume the same theoretical construct means that, for example, Federal employees should immediately be exempted from paying Social Security and IRS taxes while still taking advantage of all government benefits? Or maybe just get lifetime free admission for one's entire family to the new butterfly exhibit at the Smithsonian? Like your tuition waiver, they're all just targeted employment benefits, not government handouts to the poor, right?

The Ivory Tower is leaning a bit too far to the right on this one and is in danger of toppling over, IMHO...
2.28.2008 11:43am
A.C.:
If there were a flat tax (which I don't advocate) or a radical simplification of the tax code (which I do), there wouldn't be much point in having federal employees pay taxes as such. Just lower the salaries appropriately. The rigamarole of paying people out of a pot of money and then having them pay back into the same pot is rather wasteful, but we have to do it that way because people's taxes vary so widely at the same income level. I've spoken out against that phenomenon on other threads -- I don't think it's the government's business to distinguish between people who own vs. rent, for example.

Similarly, if jobs routinely paid all compensation in cash and let employees buy the benefits they wanted, the tuition subsidy for faculty kids would be part of the wage packet. Which it is, except that faculty without kids (or whose kids want to be plumbers) can't get it. I'm not really sure why that situation is fair.
2.28.2008 12:15pm
Toby:
Most institutions have shed most of the faculty/staff tuition support. I'm surprised VA still has them.

THe link below shows where most of the "subsidy money" goes. Your tax dollars at work.
THe Games Students Play
2.28.2008 12:44pm
hattio1:
I'm curious what Professor Somin (and by extension those conservatives/libertarians on this comment thread who agreed with him) think about school voucher programs? It seems like most conservatives and libertarians are for them as they provide more "choice." But the same supply/demand laws will apply to them as applies to college tuition programs. You increase the pot of money available only for one particular thing, and the price of that thing will go up. Whether it's college tuition or private school tuition.
2.28.2008 3:06pm
Elliot123 (mail):
Any healthy 18-year-old can join the military, serve his time, and have a very comfortable college fund available upon discharge.

They can also work-full time or part-time while going to school.

And they can work for an employer who pays the tution.
Lots of people have taken these routes. It's not a big problem.

They may not have time for frisbee on the main quad, football weekends, smokers, dorm hijinks, or demonstrations, but so what? Nor can they get pregnant, married, take vacations, change majors three times, or buy a new car. And summers are a time to pick up an extra 12 credits rather than weekend at the lake. The tone of some of these comments seems to presume a nation of 18-year-old wimps.
2.28.2008 4:01pm
zippypinhead:

THe link below shows where most of the "subsidy money" goes. Your tax dollars at work. THe Games Students Play

MOST of the subsidy money? Nice hyperbole, but not really. The article deals with the trend towards colleges building obscenely high-end student rec centers, at least partly as a recruiting tool. But they're not necessarily funded by public tax dollars. As the article goes on to explain:

Of course, there is a price to having all these state-of-the-art amenities and services, and it's the students themselves that usually end up footing the bill. Because student recreation centers don't qualify for public funding, cash-strapped universities and colleges often struggle with securing sufficient funds to build, expand, renovate, and operate these facilities.

"The vast majority of these projects are funded by the students, through increased student activity fees," says Kimberly A. Martin, associate with the planning firm Brailsford &Dunlavey, Washington, D.C., which has worked on more than 300 university projects across the nation.

Well, OK then... so apparently these private club-quality student rec centers aren't all directly being paid for by the taxpayer. This DOES, however, raise the interesting question of exactly WHY such palaces are deemed cost effective by university administration. And what this trend is doing to higher education affordability in general. Perhaps Professor Somin can ask his own administration (maybe in the same conversation where he explains that he's advocating cutting off their public funding spigot?): George Mason has been on an incredible building spree on its Fairfax main campus for several years, ranging from a lot of new student facilities to a huge, garish, high-tech Las Vegas-style neon sign near the main entrance on Braddock Road - just in case somebody driving by might miss the fact that he's passing a 30,000 student institution, apparently.
2.28.2008 4:13pm
A.C.:
If students get government-subsidized financial aid to pay their tuition and fees, and if those fees are then used to pay for the lavish buildings, then it is the same as a government subsidy for the building. Or rather, far worse if the financial aid is in the form of loans, because then the students have to pay the money back even if they wouldn't have chosen to support the building project in the first place. (Whatever happened to frisbee in an open field, anyway?)

Frills again, on a somewhat grander scale than the potted plants.
2.28.2008 4:49pm
Another Law Student:
Ilya relies on studies that assume that the historic gains of a college degree will hold true. Not so--for the Baby Boomers, a college degree meant riding the escalator of career promotions and wealth gains throughout their lifetime. For a graduate in 200X, those gains come much, much slower. Starting salaries are low, job security is non-existent, and the competition all have college degrees too. It is sad, but true. Just as college has become more expensive, the worth of the degree itself has been spiraling downward.

Most people will come out ahead by getting an associate's degree in a specialized, in-demand field. The 4-year degree just doesn't pay off like it used to.
2.28.2008 7:58pm
A.C.:
Not sure how true the previous post is -- I knew a lot of unemployed engineers in the 70s. But then there was a boom that lasted nearly two decades, with only minor setbacks, so the early Baby Boomers ended up doing okay.

Current grads will probably see a lot of booms and busts over their careers too. Nevertheless, there is something particularly bad about not being able to get started in earnest until age 30 or so. People who don't get a career established by their mid-30s often don't get one established at all, so people had better start showing professional work experience by their late 20s. If there are no jobs around during the critical years, building a resume is much harder. Then, when the good jobs become available later on, younger people will get them.
2.28.2008 10:24pm
Smokey:
As a taxpayer who put himself through school without any kind of assistance, grant or subsidy, and not being part of a special interest group, please don't expect me to have an iota of sympathy for those whining about repayment of their student loans, or a lack of grant money, etc.

The #1 job of the education lobby is clear: to force working folks to open their wallets wider and wider, in order to prop up the current thoroughly corrupt system.

Every other priority - including educating students - is far down the page.
2.29.2008 1:23pm