There is a wide range of options for students who have successfully completed high school.
There are also a wide range of motives for seeking post-secondary education.
Students matriculate because they want:
- a good-paying job
- to master a field of knowledge and gain skills to explore it
- a certain social standing
- to find a future spouse
- to make friends and enjoy a vibrant social life
- to get away from their parents
- to please their parents
- to live in a place far from their hometown
- to gain the skills to be a good voting citizen
Given that students are attending different types of educational institutions for different reasons, how can one evaluate this system — if indeed it can be called a ‘system’ at all?
Some researchers have hoped to use the concept of ‘return on investment’ (ROI) to assess institutions of higher education. Simply put, how much does it cost to get a diploma, and how much money can a graduate earn with that diploma?
The method of investigation has a strength: it involves unambiguous numbers. It also has two weaknesses: it applies only to those students who attend college in order to get a good-paying job, and leaves open the question of cost: If a certain diploma costs N dollars, to whom does it cost? To the student? To the parents? To society at large? To the government?
If a student, or the student’s parents, or the student and parents together, pay N dollars to get a diploma, then is the actual cost of that diploma greater than, or less than, N?
Government-owned and government-operated colleges and universities in the United States carry the label “public” and receive large amounts of taxpayer dollars from state and federal governments, as well as funding from private-sector foundations and corporations. Given this financing model, whatever amount students and parents pay for tuition, the total cost of the diploma is a much greater number.
On a case-by-case basis, numbers vary, but in general, it can be said that many diplomas issued by public colleges and universities do not deliver a good ROI. If a degree costs tens of thousands, or even hundreds of thousands, of dollars to the students and parents, and additionally costs many thousands to the government and to private-sector charitable foundations, then it will be found that over a forty-year working career, such a diploma offers a poor ROI: the student could have taken that amount of money, invested it, spent forty years working at a slightly less remunerative job, and finished with a larger net worth, ceteris paribus.
Again, this type of ROI analysis applies only if (1) the student attends college for purely financial reasons, and (2) a distinction is made between costs to students and parents in contrast to costs to government and society.
A less precise, but still perhaps meaningful, type of ROI analysis can be built around the question: “Was it worth it?”
While it is difficult — more probably, impossible — to place a dollar value on “finding a future spouse” or “becoming a good voting citizen,” one can still ask the graduate, perhaps decades after graduation, if there is an intuitive sense that the financial sacrifice was justified. The answer will be necessarily subjective, but subjective satisfaction is an important factor both in society and in the economy.
In this second type of ROI analysis, it is also important to ask society as a whole if “it was worth it.” Given the burden on taxpayers and private-sector foundations, is it worthwhile to fund students and universities, if the goal of that college experience is finding a spouse or being an informed voter?
Either, or both, of the two versions of ROI analysis presented above highlight the role of cost. In the first version, the question arises: Can a student find competing degree-granting institutions which have different prices on a degree which allow them to earn the same income? If so, then the lower priced degree gives a better ROI. In the second version, the question is: Are there competing institutions which offer the same amount of personal fulfillment at different prices?
ROI analysis of higher education should produce a downward pressure on tuition prices, but it seems to produce little or no such pressure. Why?
One reason is the inflationary effect of student loans. When loans are available to students, tuition prices go up. This is a recursive cycle: students take out loans to pay the higher tuition; once the university sees that the students can pay the tuition price, it raise the tuition still further, causing the students to take out more loans, and then the university again sees that the costs have been covered, so it feels free to raise the prices again, and so on.
The very existence of student loans makes college more expensive.
There is double damage here: Tuition is driven up instead of down, and the bills are paid with money taken by force from taxpayers.
Because student loans are offered by governments, or guaranteed by governments, or coerced out of private lenders by governments, there is no ROI analysis conducted.
Normally, a lender examines a loan application to determine if there is a probability of a reasonable, i.e. market-level, ROI. If a person wants to borrow $500,000 to start a shoe store, there's a reasonable chance that it will yield an acceptable ROI. But if a person wants to borrow $10,000,000 to open a shoe store, a lender might well decide that an ROI at equilibrium rates is unlikely, and therefore refuse the loan.
Yet student loans are issued regularly to students whose chance of making a tolerable ROI is very small.
If a student wishes to pursue any particular course of study, then there is no problem with allowing that student to matriculate and graduate if the student and the parents are paying for the degree. The sense of personal fulfillment may perhaps constitute a good ROI in their view.
But if a student is receiving taxpayer dollars, then the question is put, not to the student and the parents, but to the taxpayers, whether it is “worth it” to fund such an education.
As seen, student loans are a cost to the taxpayer because they are either (a) issued by the government, (b) private loans guaranteed by the government, or (c) private sector loans issued under government coercion.
Now, to be clear, it is often an excellent ROI for a student to get a four-year degree, and additional graduate degrees, in disciplines like philosophy and literature. Students with above-average academic abilities should be encouraged to explore those fields. But it is quite a different question about whether the taxpayers should be compelled to pay for those degrees.
The damage caused by student loans can shackle graduates for decades, and economist Carol Roth notes that twenty-first century graduates burdened with student loans are suffering under a thinly-disguised version of “indentured” servitude as it was practiced in the early 1700s. She writes:
The opposite of creating wealth through the ownership of appreciating assets is the accumulation of liabilities and debts.
It is permissible, and sometimes even good, to take on personal liabilities and debts. But to impose those debts on society at large, i.e. on the taxpayers, amounts to abuse.
Rather than wonder how society can “free up more money for education,” it would be wise to ask whether the cost of tuition can be lowered. Ending student loans would give universities reasons to try to cut costs.
