What is the Real Cost of Education?

In my last blog (see below), I began a commentary on Daniel Hamermesh’s report to the US Department of Education Commission on the Future of Higher Education. My comment in that blog was on the economic benefit of a general education rather than vocational training. In this blog I would like to address issues of cost on student attendance.

Let’s start with an a priori assumption: It is the desire of the Commission to recommend solutions that provide access and affordability to all American citizens to attend an institution of higher education and achieve the educational goals they desire.

When discussing cost, I need to clarify what cost I mean. There is, of course, the financial cost to society to create the infrastructure of institutions to provide access. This has been addressed over the past century and a half through national policy. The United States built an infrastructure of higher education institutions that provides the basics of higher education in almost every section of the country. The Morrell Act and system of land-grant institutions along with the state normal schools were designed to provide access and affordability. In the middle of the twentieth century, the community college movement continued that policy with a huge network of colleges. Add to that the network of private institutions, and we have a large network of higher education institutions. Only the most remote citizens do not have physical access to a college. And, if they have the internet, they have access through electronics to a college curriculum.

The issue of cost I want to reflect on is the cost to the student. Here, again, we can look to the support developed by our society in the concept of financial aid. Starting with the GI Bill that became Pell grants that became loans, we have provided a network of financial aid structures to provide financial support for college students. The question is whether or not this will help us achieve the assumption mentioned above. Does our financial aid policy, or the suggested revisions to it, really help provide financial support that will extend higher educational opportunity to all our citizens?

After reading Hamermesh’s report, I am inclined to question whether it will.

The first thing we need to consider is the cost, to the student, of a college education. There are two costs, the tuition, fees, and associated costs for attending an institution, and what Hamermesh calls the “opportunity cost” of attending college. This is the income the student foregoes while attending college. In his calculations, the opportunity cost of a year of education in 2004 for a student population in the 18-24 age bracket was $10,000 per year. If students receive no financial aid and no subsidies, the cost of a year of higher education is quite high. So, subsidizing tuition will not make a big difference in the demand for higher education. The rationale is that reducing tuition and fees still leaves the overall cost (opportunity cost plus associated educational costs) quite high.

The next thing to consider is that the cost of tuition has not dampened college enrollments. In other words, using a simple “what the market will bear” theory of pricing education, the market does not respond negatively to higher costs—overall. Offering financial aid slightly increases the enrollment and completion rates, but, in economic terms, not enough to warrant increasing the overall subsidies. Even a generous grant program “cannot reduce the price of attending college by enough to generate large increases in enrollment. In short, offering further subsidies to college attendance, or cutting back on existing subsidies, is unlikely to alter greatly the average number of students attending and completing higher education” (6) [emphasis mine]. Hamermesh is using good economics logic. Our current subsidy program, even if amplified, is not the silver bullet.

I emphasized part of that last quote. Because averages aggregate individuals and groups. And that is the point. Who are the people that make up the average, and what happens when we disaggregate? Part of the aggregate is the “traditional” American college student population—students from upper and middle income groups for whom a college education is a foregone conclusion, and this group is willing to take out the necessary loans to achieve that end. This group is still the large majority of college students. The other part of the aggregate comprises the students from low-and middle-income backgrounds for whom college is not a foregone conclusion, but requires a serious decision to leap some hurdles. Financial debt for college is not a high priority for this cohort. According to Hamermesh, “cutting public subsidies . . . would especially deter potential students from lower-income families”(7). This is particularly noticeable in the area of student loans. We do know that low- to middle-income students are much less likely to incur large debt to attend college.

What this means is that the most common answers we have heard for addressing the cost to the student of higher education will not provide better access for all potential college students. One suggestion has been vouchers, allowing students to attend whatever college they want to attend. If the vouchers applied to private institutions as well as public, as our current financial aid does, a large block of that aid would go to students at private institutions, therefore not providing as much money for low- and middle-income students, who primarily attend the lower cost public institution near where they live.

Another suggestion is privatization. The extreme of this is the private, for-profit and proprietary institutions, but it also includes the non-profits. This limits access in terms of location. Our policy established through land-grant, normal, and community colleges has created a pretty universal network of available colleges. These were public investments to provide higher education to a broader and broader audience. Again, Hamermesh: “Any policy that especially reduces access to college for children from families in the bottom two-thirds of the income distribution will exacerbate the already strong trends toward greater income inequality, both within and across generations”(7).

It is important to remember that any public action establishes policy. For instance, our shift from grants to loans for higher education, while saying on one hand that the person who benefits from the education should ultimately pay for it, also disenfranchises those people for whom a loan is not an option, either because of lack of credit or because their cultural values can not comprehend incurring that kind of debt. In other words, actions result in policy that privileges or disenfranchises different parts of our society.

What we have now is a policy that privileges the already privileged and limits the low- and middle-income students. If what we have is not working to make higher education accessible and affordable for all our citizens, what will work? I don’t have the answer, but we can begin by speaking up about what we value and what we want in higher education. We can also look at models of providing money for both the direct and opportunity costs based on need. One model Hamermesh points to is the Australian program. There they developed an income-contingent loan repayment plan that provides substantial tuition/fees “waivers subject to their being paid back through additional future tax payments that depended on the student’s subsequent earnings” (9). This may not be our answer, but we need to creatively think about solutions that provide the money where it is needed. We need to ensure that the Commission and policy makers do not take an easy out that provides a seemingly helpful response when evidence shows that, in the long run, we will not serve our citizens with the higher education they as individuals and we as society need.