If There’s a College Affordability Crisis, What Should We Do About It?

In last year’s campaign for the presidency, Hillary Clinton and Bernie Sanders tried to attract votes with promises of free college. In the British elections earlier this year, one reason for the Labour Party’s surge was its pledge to do more to help students afford college. Higher education has become a very big political issue, with many voters receptive to candidates who want to help them get their degrees.

That explains a recent report entitled “The College Affordability Crisis in America.” This thin report was prepared by the Democratic Staff of the Joint Economic Committee and has been publicized by New Mexico Senator Martin Heinrich, who declared in this press release, “No American should be excluded from college because of cost…Congress must take action to tackle the growing cost of higher education.”

All right, but is there really a “crisis,” and if so, what is its cause and exactly what action should Congress take?

The report begins by informing readers, “College is not the only road to the American Dream, but it is a proven one. With each successive degree, graduates are more likely to be in the workforce, to be employed, and to earn more.” Actually, that’s not the case. Many American graduates have found that their degrees did not lead to those benefits.

Writing on RealClearEducation, Aimee Picchi pointed out that having a degree often does not lead to higher pay. “The share of low-paid workers has remained at about 40 percent of all American employees since 1995, but the group has gone through one surprising change: those baristas and cashiers are more educated today than they were two decades ago.”

She refers to this September 2017 study done by the Government Accountability Office (GAO), which showed that many college graduates are underemployed, meaning that the jobs they find don’t match the individual’s putative skill levels based on their formal education.

The GAO study found a steady rise in underemployment. In 1995, 16 percent of the workers in low-wage jobs ($12-$16 per hour) had college degrees; this figure has increased to 22 percent today. That supports the argument I have made for many years—when it comes to educational credentials, supply does not create its own demand. Putting more and more people through college does not cause the economy to generate enough high-paying jobs for all of them. Lots of college grads wind up taking “high school” jobs.

Shedding more light on the low economic value of many college degrees is a study done by the Federal Reserve Bank of New York that looks at underemployment by student majors. Among those with the highest rates of underemployment are:

  • Criminal Justice (75 percent)
  • Performing Arts (65 percent)
  • Leisure and Hospitality (62 percent)
  • Communications (57 percent)
  • Anthropology (56 percent)
  • Sociology (52 percent)

But the study found surprisingly high percentages of underemployment even in fields where the academic demands are pretty rigorous:

  • Economics (39 percent)
  • Mathematics (29 percent)
  • Aerospace Engineering (23 percent)
  • Chemical Engineering (16 percent)

It’s surprising that significant numbers of grads even in those fields have to settle (at least initially) for employment that’s below their level of education. That point further underscores how much the U.S. has oversold college.

Therefore, while it’s true on average that college grads earn substantially more than workers who have lower levels of formal education, it doesn’t follow that college is a good investment for everyone.

Returning to the Affordability Crisis report, we read about the dramatic increase in the cost of going to college. The data presented show that whereas the cost of a year in college in 1971-1972 was $8,300 (in today’s dollars), it is now more than $20,000. Moreover, community college tuition has tripled over that time span. It used to be possible for students to earn enough working a summer job to pay for the next year of college with earnings of only $2.70 per hour, but now, we’re informed, “a student would need to earn $38.63 an hour.”

There is no question that college has gone up dramatically in cost—but why?

The report never mentions the role of federal financial aid to students in enabling schools to increase their tuition and fees, the so-called Bennett Hypothesis. In 1987, President Reagan’s secretary of education, William Bennett, argued that the main reason why colleges kept raising tuition was that they knew that government aid had put more money in students’ pockets—money that could only be used to attend approved (i.e., accredited) colleges and universities.

Is that claim true? Many higher education scholars have carefully analyzed Bennett’s argument and concluded that, generally, it is. In a paper written for the Center for College Affordability and Productivity, Andrew Gillen concluded, “There is an overwhelming danger, especially over time, that higher financial aid will lead to higher tuition.” The more the government tries to make college affordable, the more expensive it becomes.

Similarly, professor Robert Martin in his Martin Center paper “The Revenue-to-Cost Spiral in Higher Education,” observed that college leaders spend every dollar they possibly can primarily on things that they think will raise the school’s prestige. More government aid to students, therefore, helps fuel the arms race in spending, not to keep tuition as low as possible.

In most states, total higher education spending has not decreased, but only appears to have done so.

But rather than admitting that government aid is largely to blame for the rising cost of college, the Affordability Crisis report puts the blame on the decline of state funding for higher education. “Between 2008 and 2017,” it says, “all but a handful of states cut higher education funding, and overall state funding for higher education fell 16 percent, after adjusting for inflation. Forty-four states are still spending less than before the recession.”

Complaining that colleges have been forced to raise tuition because the states have “disinvested” in higher education is a popular notion, but not a convincing one. It doesn’t explain the fact that college costs were rising well before the states began to reduce spending on their college systems, and it doesn’t explain why private college costs have been increasing.

Furthermore, as Cato Institute scholar Neal McCluskey notes in a February 2017 policy analysis, the spending “cuts” are more apparent than real. In most states, total higher education spending has not decreased, but only appears to have done so. He writes, “In the aggregate, state and local support for higher education have risen over the last 25 years, and ‘cuts’ mainly appear on a per-pupil basis because enrollment has increased significantly.”

In short, “The College Affordability Crisis” has a very poor analysis of the problems that we confront regarding higher education, but what remedies does it suggest?

One suggestion it makes is to improve guidance for students, who are “expected to figure out which degree will lead to a good job, which school they are most likely to succeed at, and what is an acceptable amount of money to borrow for that degree.” It’s true that high school guidance counselors often do a poor job in helping students.

However, students and their families have an abundance of information sources today besides high school guidance counselors. It doesn’t take much web savvy to search for information on degrees that are or are not likely to lead to employment after graduation. Nor does it take much to find out that there are very good jobs that don’t call for college credentials at all, as this study published by the Center for the American Experiment makes clear.

Yes, students are prone to making unwise decisions, but the solution to that problem doesn’t lie in federal policy.

How about the high cost of college? All the report says is that “Congress must look to alleviate the cost burden on students and incentivize states to invest in higher education.” That’s the kind of talk you’d expect to hear in a political ad, not in a policy study. Evidently, the Democrats’ stance is simply to throw more money at this “crisis,” blissfully ignoring the fact that we have it precisely because of Washington’s habit of throwing money at higher education for the last 50 years.

It’s too bad that Senator Heinrich didn’t toss this report back to the staffers and say, “Now try to say something serious about higher education.”

There is no “crisis” in college affordability. Postsecondary education is available in all price ranges to Americans and job-training programs are a good option for those few who can’t afford college. Instead of intervening more in higher education as the report advocates, the right move would be to extricate the federal government from it.

  • Glen_S_McGhee_FHEAP

    American higher education presents a excellent example of a folk myth not aligning with reality — one which, for better or for worse, has now spread world-wide. Regarding its origins, and the origins of today’s college affordability crisis, I was very impressed with a few pages in Mitchell Stevens, “Creating A Class: College Admissions and the Education of Elites,” pages 252f.

    Numerous actions since WW II, mostly government, have created a “college for all” mentality, manifest through the “funding for thousands of additional seats at existing institutions; in the dramatic expansion of of the community college sector; in the generous government underwriting of instructional costs at research universities; and in a range of government grant and loan programs that made college tuition a manageable expense of millions of families with modest incomes. It took little time [since WW II] for Americans to begin to take it for granted that college was a viable and appropriate path to social mobility.” (Mitchell Stevens, 2007/2009 252).

    The $2 trillion sticker price projected for 2020 is only the tip of the ice berg, if you consider research grants funneled through DoD, NIH, NSF, USDA, NIFA, SBIR/STTR, that filter down to the institutions. Over the decades, the government investment in higher education has been huge. “In the second half of the twentieth century, educational attainment rapidly became the gradient divide that separated white collar from blue, as a college degree increasingly became an entry criterion into the higher-status and better-compensated positions of the upper middle class.”

    “This was the historical and economic context in which the United States embarked on the LARGEST EXPANSION OF HIGHER EDUCATION THE WORLD HAD EVER KNOWN. BECAUSE higher education was broadly understood as a path of access to the upper middle class, the idea of ‘college for all’ was supported by taxpayers and at the polls. And because the boom economy of the mid-twentieth century made many businesses profitable enough to pay high wages and sustain many managerial workers, the promised relationship between college completion and comfortable employment often proved true. By the mid-1970s, however,
    the … compact was already unraveling.” (emphasis added)

    Think about it: the LARGEST EXPANSION OF HIGHER EDUCATION THE WORLD HAD EVER KNOWN. Such clarity is a rarity, but the next revelation takes my breath away.

    Stevens accurately nails it: “[T]he United States chose to build a social welfare system that was, by European standards, quite modest; at the SAME TIME it built the largest higher education system in world history. The expansion of the nation’s postsecondary capacity gave substance to an official government commitment to making higher education a wide pathway to the good life. … The United States maintained a relatively modest welfare state for its poor, even while it developed a huge, government-funded higher education infra-structure to ensure the welfare of its middle class.”

    Imagine! Public policy in higher education has been the MOST IMPORTANT welfare for the middle class during the second half of the 20th century.

    Two points: considering the cost and infrastructure already in place, the ‘college for all’ idea is nothing more than a natural outgrowth, the natural conclusion in the minds of most. But such expansion of education is clearly becoming unsustainable (see today’s Moody’s negative rating, etc.) at the same time there is now a push to expand it even further. The clash is between expectations that were nurtured by government largess over the decades, and the edububble maxing out. This is why there is a college affordability crisis — the collision of inflated expectations, and the limits of postsecondary expansion.

    In 2010, I briefly worked in the student loan “Vault” of Sallie Mae applications containing 6 miles of files (stated by a plaque on the wall), and the growth spurt in government support in the 1990s was concrete and tangible — it required a second filing system to be imposed upon the one first set up in the 1970s. More recently, a wall was covered with student loan applications that could not be filed in either of the two preceding filing systems, constituting a third filing system in 2010.

    Clearly none of this is sustainable. That’s why we now have a crisis.

    But neither do we have an exit strategy. Only South Korea, and maybe Japan, now outstrip the US in degrees produced per capita, so they need to be observed. What happens there may be our future.

  • 48574

    Just a few observations:

    1) While I was in college in my Business Law class we studied a court case involving Duke Power (I am pretty sure the company name is correct). In this case it was ruled that the company’s use of tests to determine who was qualified to do a number of jobs that didn’t require a college education was illegal becasue it had a disparate impact on minority applicants. While the goal was noble to work on eliminate racial discrimination it had unintended consequences. It turned out one of the ways you could still try and find someone who was qualified and not get sued was to be able to justify the job required a college degree. (Oddly, I went back to college from 1982 to 1986 so college was still a mostly white institution.) So there was an explosion of jobs that suddenly needed a degree that wasn’t justified by economic value but legal value. Not sure how this has effected things but it is clear that there are now too many jobs that require a degree.

    2) Related to #1 and maybe it is a mix of that and the fact the oversupply has cheapen the value of a degree but it is amazing the jobs that do require a 4 year degree. I saw an add for a part-time bookkeeper job wanting a 4 year accounting degree recently. Back in the ’80s I knew people with 2 year degrees or a few years of experience getting those jobs. I even knew college students who were getting various business degrees who helped pay for school by working part-time as a bookkeeper. I think it is becoming clear we have too many people who have too much education for too many jobs.

  • bob cratchette

    25 to 75 grand a year for college is ridiculous and that is b4 you get to the cost of books and room and board. At the very least they should be firing a lot of these professors that are nothing but radical leftist spouti their ideology rather than teaching.

  • Rich Purtell

    Government subsidies raise prices. It doesn’t matter if it’s health care, education, housing (zoning laws have an even greater effect), food, or anything else. When government throws money at things, the market responds with artificially inflated prices.
    It’s even worse in fields such as construction where problems of procurement single sourcing occur. I really think vendors will inflate prices on public work at every opportunity to “get back their taxes”, not thinking how they only hurt themselves when “sticking it” to the government.
    Intense, honest competition is needed to keep prices low. Government creates weak, dishonest competition whenever it intervenes.

  • DrOfnothing

    Yawn. Is the JMC ever going to stop repeating the same busted arguments? College isn’t worth it . . . even though studies show otherwise. The government shouldn’t intervene . . . even though cuts in funding are wrecking the system. Americans are better off ignorant . . . despite where ignorance has gotten us so far.

    College is more than an economic investment, it’s an introduction to a wider world. And economically, it _does_ make sense.

    It all begs the question, if college is “not worth it,” how come the JMC exclusively hires staff with degrees from prestigious colleges and universities (Schalin being the one exception). Clearly, it was worth it to _them_.