Society Shouldn’t Pay for Your Higher Education

Education may have positive externalities. That is, your increased knowledge may prove beneficial to others in society. So, who should pay for it?

That question was the focus of dueling columns recently. First, University of Chicago professor Luigi Zingales published a piece in the New York Times in which he argued that the U.S. should get out of the business of subsidizing college with government grants and loans, and instead move toward a system whereby students pay the costs of higher education out of their future incomes.

Zingales maintains that federal subsidies drive up the cost of higher education and are leading to a higher education bubble.  His proposed solution is for private sector investors to advance students the funds they need for college, recouping the money with a profit from the increase in the student’s income that comes from college learning.

This is not, Zingales acknowledges, a new idea. Variations have been tried and have failed before, but he points to Australia as a country where it appears to work.

All of that is interesting in itself and ought to spark some creative thinking. But what I want to examine is the rather testy response Zingales’ column immediately drew from Richard Kahlenberg, a fellow at the Century Foundation. Writing on the Chronicle of Higher Education’s Innovations blog, Kahlenberg lamented that Zingales’ approach would turn students into “indentured servants.”

What especially raised Kahlenberg’s hackles was that Zingales “conceptualizes higher education as an almost purely private good.” Bad idea, Kahlenberg says, because “we are all ‘beneficiaries’ to some extent when other members of society are better educated.”

Kahlenberg’s idea is one of those progressive shibboleths that sound so nice that they usually go unchallenged. We need to challenge it. Is it true that we all benefit when people become “better educated” and if so, does it follow that government ought to fund higher education in whole or in part?

Let’s start by drawing a distinction between training and education.  People spend time and money to develop competencies in producing goods and services, in return for which they expect to be paid. People learn how to do surgery, how to install drywall, how to fix computers, how to sell insurance, how to write novels, how to teach English, and countless other kinds of work. Some of their training may be done in formal education settings, but much of it occurs on the job.

Because they intend to use their skills to make a living, individuals have a very strong incentive to find the optimal degree of training. The government does not need to intervene to tell a lawyer, for example, that she ought to become better trained. She will figure out the point at which the cost of additional study and training exceeds the benefit from it.

The same is true for all other professions and occupations. People will invest in the “human capital” needed to succeed in a field, weighing costs and benefits to find the optimal point. There is no need to subsidize their investments.

But look what happens when we do. As is now widely known, America has a huge glut of law school graduates, far in excess of the jobs available. The fact that the government subsidizes law school has a lot to do with that. The years and money that students devoted to legal education when they can’t find jobs isn’t beneficial to society. It isn’t beneficial to the individuals. It was a waste of resources—not a public good.

Of course, many law school grads will find remunerative work in the legal profession, but their investment in legal knowledge isn’t a free-floating benefit to society. It’s a benefit to those specific people who employ their services. If my neighbor Bill lands in trouble with the IRS and needs a tax attorney, he’ll hire one, whom we’ll call Steve.  Steve’s vast knowledge of the tax law is a benefit to Bill and his other clients, but it doesn’t make the rest of the people in town (or the state, or nation) any better off.

In short, there is no need for government subsidies for training. Think back to the time before any such subsidies. In colonial America, the people had access to highly skilled workers, craftsmen, and professionals. The government’s role: none at all.

So, what about education?  Let’s say that education comprises all the non-training aspects of college: learning to write a good essay, learning about history, about our culture, about science and scientific method, about mathematics, about literature, and so on. Isn’t society better off if more people absorb more of all that?

Again, the individuals who absorb that learning may be better off. A student, Pete, who takes a good college course on, say, British literature, may very well benefit. Perhaps he uses his knowledge to impress a girlfriend; perhaps to get a question right on Jeopardy; perhaps to enlighten others and recommend fine books.  Pete benefits from his education and some others probably do, too. It’s a prodigious stretch, however, to say that society benefits. Good for Pete that he chose to spend his time and money learning about literature, but there is no reason why the citizens at large should be taxed to help him pay for it.

How about basic literacy, though? Basic literacy should hardly be the province of higher education; besides, it’s doubtful that “developmental” courses in college do very much to help students who fell far behind in reading and writing skills in their K-12 years. And it’s also doubtful that government subsidized (or even government-run) schools are necessary for basic literacy. As the late professor Edwin G. West has shown, in England and the United States, there was a high rate of literacy in the years before there was any public education at all.

Moreover, subsidized education is often little valued by the student. Much of it goes in one ear and right out the other. Human nature being what it is, we are far more interested in getting the most we can from goods that we have chosen to pay for than goods given to us. In a 2004 paper, economist Aysegul Sahin argued that students put more effort in their coursework when they pay for it. Naturally.

Bearing that in mind, we ought to be leery of claims that we get more “education” just because government subsidizes it. We get more students taking more courses, but that isn’t the same as learning. Plenty of evidence points in that direction.

The decade of the 90s was one with a large increase in the percentage of Americans going to college, yet the National Assessment of Adult Literacy showed a significant drop in literacy among college graduates between 1992 and 2003. And last year’s enlightening book Academically Adrift demonstrated that large percentages of college students coast through their years without learning much at all.

Those and other data showing that many Americans derive scant benefit from college are well known. How can writers like Kahlenberg continue to say with a straight face that subsidizing college is a great social benefit? Why should we keep shoveling limited resources into college education (“experience” is often a better word) for young people who have little aptitude or interest? It is no benefit “for society” to spend money on subsidies for education that many don’t really want.

My conclusion, with which I believe Professor Zingales would agree, is that we will get the optimal amount of both training and education if we stop government subsidies and leave the financing to students, their families, and other interested parties who are willing to give or lend them the money.