December 22, 2004

Educational Costs: School Can Be Good Because It Is Expensive

By Ian

Should everyone get a college education? Apparently David Adesnik, Matt Yglesias and others think it's a good idea. Radly Balko eloquently dissents.

Count me in as dissenting, as well.

First, I don't think the question is well framed. Is it that the people who think this is a good idea want everyone to go to college, or is it that they believe the access to college should be universal? The first strikes me as a sort of elitist way of saying "People don't know enough about things I'd prefer they know, so here's a way to get them up to my level." I'm guessing this isn't -- entirely -- the point of their support for the idea of a universal college education.

The second option, if I read them correctly, implies creating an essentially costless entry and support mechanism (ignoring for the moment transaction costs of getting to the school), whether through massive grants to people looking to go to school, subsdizing schools so they don't charge tuition, etc. To which I would say that the cost of the education is a useful indicator in and of itself, and removing it would harm both the educational system and the people who could have afforded to get in before the cost reduction.

Fundamentally, the costs of an education over several years include not only the money to pay for tuition, but the opportunity costs of spending your time pursuing the education itself. The reason to do so is that you believe (understanding better than anyone else your potential and ability) future returns make this expenditure worthwhile. That is, the increase in income stream from spending four years and however many dollars on college is enough to make the investment make sense. A good portion of this is determined by natural ability, though we do have to consider educational attainment of the parents, economic status, health, and more. These, broadly, are the returns to education that people receive. For very smart and hardworking people, scholarships make it worthwhile even when they plan for low-income careers. Immediate costs are defrayed, so the long term income stream is still high enough, in relative terms, to make schooling "worth it" because personal returns are so high.

The returns are not, however, homogeneous. No matter what caliber of school you talk about, people at the instiution all get varying amounts out of it. The best you can say, I think, is that the people who are there are getting enough, at least, to pay them back for the cost to get in. This includes lazy kids of wealthy parents as much as it does brilliant children of impoverished parents. The lazy kid may get little out of education, but spent little to get there and foregoes little by being there, since the wealth of the parents will help ensure future worth. The brilliant child may also spend little in direct costs though for very different reasons (due to scholarships, grants, loans, etc.), and will most likely do well enough later in life to cover loans or make up for the hard work in high school and the time away from the labor force.

On the margin, then, lowering these costs lets in a student for whom the returns may not be as high and for whom other activities might be of greater value. If you don't have to cover tuition, and don't mind eating the cafeteria food, school is a relatively cheap and fun way to live. This doesn't mean it's the most productive thing for that person, however. It's not that I know what would be more productive, either, but making it easier for them to attend college by spending more federal money isn't exactly doing them some great service and the little it might or might not do is done at the cost of everyone else. Additionally, it negatively impacts the people who would have attended even when the costs are high. Increasing the cohort that graduates at a certain time with similar degrees increases the labor force for a certain category of work. A couple things happen, such as people taking jobs for which they are overqualified (as mentioned in some of the posts linked to above), or wages may drop for that pool since labor is then potentially in larger supply relative to the demand (ok, so some of both of this happens, plus some people go back to school, some people leave the labor force altogether...but I'm limiting the scope here).

Not all colleges are made equal. And so there are variations in the costs of entry and the costs to remain, including differing levels of effort, money, social connections, and more. Our system, then, already provides -- in my opinion -- a pretty good method to allow people of varying abilities (returns) to sort themselves into levels of education that they can gain the most from: tuition. There is, then, some inherent value in having varying levels of costs for entry and continuance. People are pretty good at figuring out for themselves how best to spend their time. How many of the US' most wealthy people are Ivy Leaguers with post-grad degrees? Not as many as you'd think. But to make these personal decision, the presence of some sort of measure is very useful -- a measure such as tuition costs for education. Plenty of people leave school, having decided that they're not getting as much out of the process as they could by working. But again, this is based on a comparison against some sort cost for remaining.

Plus, lets not forget the much higher costs of administration that the public would have to absorb, including the process of keeping track of all the people entering and exiting that weren't before. And, obviously, the impacts of class size on the ability of professors must be considered, along with the division of professorial attention among many more students. Certainly, the numbers of teachers would increase to meet the new demand, but to get the teachers either schools would have to be able to increase pay to attract top profs (a tough thing if suddenly the funding of higher education were driven by the government -- an institution rarely known for its ability to respond quickly and effectively to changes in demand), or they would have to lower standards to get more professors willing to accept the lower pay. Lowering teaching ability will thus affect the returns students get on education (since a good student with a bad professor is little better than a bad student with a good professor) and negatively affect whole classes of people.

It seems to me that dropping the costs to getting an education to zero may do little to help the new entrants, and would end up harming those who would go at the higher cost.

Update: Edited for readability.

Posted at December 22, 2004 02:51 PM

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