For Many Students, College Is Not a Good Investment

To the Editor:

Philip Trostel argued recently that universities are extraordinarily good investments, both for students and for society (“Beyond the College Earnings Premium. Way Beyond,The Chronicle, January 29.) He asserts that over a lifetime college graduates average $1,383,000 more in earnings than high-school diploma holders.

There are several problems with this observation. First, comparing high-school graduates to college graduates is like comparing apples to oranges. The typical college graduate is smarter (higher cognitive skills), more disciplined, more motivated — for reasons independent of anything learned in college. Indeed, economists have long argued that a college degree is a signaling device helping prospective employers identify the brighter, better workers — so they pay them a premium.

Moreover, the high-school/college earnings differential, which grew dramatically from 1975 to about 2000, has actually fallen since then. Looking at Census Bureau data for all workers over 25, the average differential fell from $32,504 annually (in 2015 dollars) in 2000 to $29,867 in 2015 – a decline of 8.1 percent. Yet the college tuition and fees component of the Consumer Price Index rose by 72 percent (almost 3.7 percent annually) adjusting for overall inflation. The financial benefits of a college degree are declining modestly, while the cost of getting one has risen sharply. Additionally, accounting for risks associated with attending college, including that of failing to graduate, the private-investment return is clearly far less than Professor Trostel suggests.

Prospective students accurately sense this. Total higher-education enrollments in the fall of 2016 were lower than five years earlier. Stories of Americans struggling to pay off over $1.3 trillion in student-loan debt, and of large numbers of underemployed recent college graduates working as baristas, retail sales clerks, and other unskilled occupations typically filled by high-school graduates have contributed to the decline in the demand for college.

Professor Trostel asserts that college education promotes economic growth. Yet when we estimate regression equations, the observed association between state government support for higher education and income growth is typically zero or negative – more spending does not mean more growth. While college graduates are typically more productive than high-school ones, the inference that promoting higher education will enhance economic growth is almost certainly misplaced.

It is true that college graduates typically have some other virtues that promote social welfare, such as an above average willingness to volunteer more, and they fund social services through higher taxes. But, again, that probably reflects pre-college developed character traits reflecting parental, church and other non-collegiate influences.

Moreover, empirical evidence suggests huge proportions of incremental funds provided universities promote rent-seeking and inefficiency, not learning and greater economic opportunity. The number of college administrators has soared, for example. Teaching loads have fallen while intercollegiate athletic subsidies are soaring. Public-university presidents are getting million-dollar salaries. No wonder state legislators, governors, and college students are increasingly rejecting financing both student-tuition fees and legislative appropriations feeding increasingly wasteful and economically questionable university spending habits.

Richard Vedder
Justin Strehle
Center for College Affordability and Productivity and Ohio University

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