Much more needs to be done to help consumers of higher-education services make well-informed decisions. College applicants often lack key information about a variety of measures of academic performance, such as four-year graduation rates, or evidence regarding the critical-thinking skills of graduating seniors. And of course, students and their parents are keen on recovering their vast outlays of funds for college, so they are particularly interested in postgraduation earnings prospects.
One solution lies in providing consumers with information that already exists: Social Security earnings data. The data are available from many state-government employment-service agencies and reveal the earnings of graduates by institution attended—figures that could open the door for an enormous improvement in the information we provide on the earnings of college graduates. Do the graduates of University A earn more or less than the graduates of University B? How much more or less?
However, Social Security earnings data are far from flawless. Millions of American workers are not covered by Social Security, including many government employees. One also wonders if the earnings data on very high-paid employees who earn far more than the maximum taxable amount under Social Security are very accurate.
There is an even better source, a veritable gold standard of earnings data: the Internal Revenue Service. Americans are guilty of crimes if they fail to accurately report their earnings to the IRS. That includes all workers, without exclusions. So the figures are likely to be fairly accurate and thus useful for determining graduation earnings.
Historically, though, the IRS has resisted providing earnings data to anyone, even other government agencies, for fear of a consequent reduction in tax-reporting compliance, breaking confidentially laws, and potential misuse of the data for inappropriate political or commercial purposes. But recently there have been rumors among knowledgeable higher-education researchers that the Obama administration might ask or has already asked the IRS to provide earnings data to facilitate enforcement of gainful-employment regulations for for-profit universities.
Clearly, institution-specific earnings from the IRS could help us determine the relative successes of nonprofit colleges, too. Suppose we were interested in the earnings of college graduates one, five, 10, and 20 years after graduation. Colleges could simply submit a full list of Social Security numbers of graduates of the classes of 1991, 2001, 2006, and 2010 to the IRS, which could then calculate the mean and/or median earnings by college, and perhaps provide data for those at the 25th and 75th percentiles in the earnings distribution. (Care would have to be taken on joint returns to record the earnings for only the relevant individual, presumably a minor administrative problem.)
What would be the benefits of such a system? Students could readily compare colleges not only in terms of costs (based on tuition charges, less expected financial assistance), but also potential future revenues. Companies, including those that rank colleges, could calculate estimated average rates of return on families’ investments in college, taking into account such factors as average time to degree and dropout rates. A refinement that would add to costs but provide greater information would involve the IRS reporting the data by the academic unit within the institution the student graduated from—the college of business, the school of engineering, and so on. That information would not only aid consumers, but could also be used to help policy makers reallocate university resources to increase their usefulness to society.
Who would oppose this expansion of consumer information? The IRS would surely grumble about the costs of digging up and reporting the data, and would demand some budgetary adjustment. Colleges and universities would probably complain, ostensibly on the grounds that providing Social Security numbers to the IRS would be a costly mandate. In reality, the concern of most colleges would be that the data might reveal that their graduates did not fare as well as rival institutions’. Colleges do not like clearly delineated bottom lines, because they increase accountability and potential institutional criticism.
While I am admittedly not an IT expert, it is hard to believe that the costs of this proposal would exceed $100-million a year, mostly falling on the IRS but partly on colleges. That amounts to less than $6 per enrolled student and only about 0.025 percent of the over $400-billion spent annually on higher education. It is a trivial amount compared with, for example, institutional subsidies for intercollegiate athletics.
The data could be published directly on the IRS or U.S. Department of Education’s Web site, and it would become part of commercial college guides. I know I would want to use it in calculating the Forbes rankings of universities, as would others in the business of assessing collegiate performance.
Many Americans complain about taxes. Let us try to make some good out of our complex and costly tax system by using already-generated earnings information to help Americans make intelligent decisions about the best colleges and majors to fit their needs. Detractors might say that doing so puts too much emphasis on the material dimensions of attending college. But college is costly, and “investors” in college should be able to measure rates of return just as they do on private equities, using the information as they like. More information is always better than less.
