Wednesday, February 27, 2008

College Tuition Costs

At the Volokh Conspiracy, Prof. Ilya Somin attacks the idea of public subsidies for college tuition. His first argument, "the increasing benefits of college education are more than enough to pay the increasing costs.", is premised upon lifetime earnings of college graduates, not discounted to present value. This gives a grossly exaggerated picture of the financial returns of a college education. It's hard to imagine that this is not an intentional distortion, as the figures come from economists. I note that it also omits opportunity costs - the person who could be earning $40,000.00 per year but instead goes to college for four years (assuming they're atypical and graduate on time) adds another $160,000.00 or so to the "cost" of college.

This argument also skips over inequality of earnings (something Somin does subsequently address) to argue, "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". This, of course, largely misses the point. In addition to the points already raised,
  • For somebody from a family where nobody has gone to college, the idea of borrowing $100,000 - $200,000 to finance a four year college program is likely quite frightening. Heck - for those of us from educated families, that's pretty scary.
  • The college graduate is not the only person who benefits from his college education. Employers benefit. Society benefits.
  • Even assuming significant economic benefit, to cast this as a retrospective choice puts college education into the category of "shouda's" - "I shoulda gone to college." A recent high school graduate should not be presumed to be a rational economic actor - we "grown-ups" don't make these choices very well.
  • Repayment of student loans begins shortly after graduation, not ten or twenty years down the road when income differentials are likely to be the most significant.
Somin continues, "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.
A professor is writing this? (A Volokh Conspiracy redux.) Granted, law professors tend to earn more than professors in most other colleges, but really. The government has no interest in subsidizing the education of social workers? Of public school teachers? Of college professors? Of research scientists? We want to financially squeeze students out of those career paths and into higher-paying jobs?

Here, Somin compounds his previous errors, and adds some new ones:
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.
A few responses:
  • Teacher salaries are not the result of market failure. Social worker salaries are not the result of market failure. They're all we're willing to pay.
  • What sort of planned economy does Somin anticipate, where the government attempts to predict what educational fields require subsidy?
  • What sort of distortion does he accept, as students intending to go to graduate school pick majors that are heavily subsidized, then merrily enroll in law school or business school?
  • What new brand of high school graduates does he envision, who will know exactly what they wish their career to be the day they enroll in college. If they switch majors, do they have to repay the subsidy - and what type of market distortion does that create, as you financially coerce students to continue a course of studies that no longer interests them?
  • What of the benefits to employers and society in having a larger pool of college graduates? Why write those benefits completely out of the analysis?
To the extent that some of these distortions could be eliminated by making the subsidy retroactive - loan repayment assistance for students who enter lower-paid or public service careers - you introduce a new level of distortion. Those least able to repay their loans, and its safe to assume that they will disproportionately be those from poor families, will enter careers that do not necessarily suit them or maximize their long-term earning capacity, because they will want the assistance with their loans. The kid from my Contracts Law class, receiving a 100% subsidy from his wealth family, who bragged that he had never seen a student loan contract? No such constraint.
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.
But when reduced to present value, that "$400,000" could easily drop below the cost of a college education.

It gets even better - Somin argues that subsidies for education are harmful to the 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.
This is nonsense at every level. First, given that college tuition subsidies come from income tax, this poor person Somin envisions as lacking any capacity for college likely contributes little or nothing to the subsidy. By any reasonable measure, any poor person who attends college will receive an extraordinarily progressive subsidy - one that vastly outstrips their past or present tax contribution. Second, there are many state colleges that offer significant remedial programs to help students from poor school districts get up to speed and get on track to college graduation. Without a subsidy, few colleges would offer that type of support. Somin again is happy to ignore benefits to society, but there are obvious social benefits in taking somebody from a community with poor schools and a family that does not support education, and immersing them in a college environment. I am hard pressed to think of anybody whose way of thinking was unaffected by the completion of even a year or two of college, whether or not they completed a degree. Third, although Somin does not appear to be aware that such a thing exists, there are also community colleges, which are a sensible alternative for a lot of people who want to try to recover from a mediocre public school education or who want to "try out" college while engaging in a much shorter course of studies.
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.
For instance? Really. If you're going to argue that the government should be putting the tuition subsidy elsewhere, tell us of these places where the money is better spent. Don't say the word "school vouchers", because pretty much every word you use to attack college tuition subsidies applies to K-12 tuition subsidies.

This is pretty funny, although I can't say it's particularly self-serving:
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.
I suggest that Somin take a look at the infrastructure, salaries and working conditions in the largest colleges on his campus, such as the English Department. Would he still be a professor if he had to work in that setting, at a similar wage? I doubt it. But it's a quintessential "ivory tower" argument - "things would be better if we didn't have the subsidies that benefit me."

Sure, there are costs and market distortions in making sure that college is universally affordable. Sure, there are ways to help the poor attend college without subsidizing the wealthy. But c'mon.

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