College costs are out of control, correct? Wrong Student debt is unsustainable, right? Wrong again

The myths about tuition costs and student debt

Acasual reading of major news stories in recent weeks is enough to convince most American families that crushing loan debt has put college for their children out of reach. The blame is usually assigned to skyrocketing tuition caused by wasteful spending by universities. Even the benefit of higher education is increasingly being challenged by stories of unemployed graduates living in the family basement.

The facts don’t support the Chicken Little narrative. Not even close. For starters, the average net price at private universities od actually lower today than it was five years ago. Net price is the tuition the average student pays after deducting all aid and discounts.

Nor does the average student emerge from college buried in debt. At private nonprofit universities, the average level of borrowing for students completing a B.A. is under $19,000. The corresponding figure at public nonprofit universities: under $13,000. This is less than the cost of an economy car. At public two-year schools, the average debt is under $6,000 and the median level of debt is actually zero.

Less than one half of one percent of students borrows as much as $100,000, and 90% borrow less than $45,000.

Yet public attitudes, and public policy, are increasingly shaped by shrill anecdotal accounts of exceptional cases, some of which reflect personal choices about paying for school that could charitably be called financially misguided.

Okay, but the price tag is still very high; is it worth it? Absolutely. A college degree is an asset whose average value is $300,000 to $600,000 of extra lifetime earnings, measured in today’s dollars. And this value has risen steadily for the past 30 years. Your mileage may vary, depending on what you choose to study, but earning a college degree remains one of the best financial investments a person can make.

Nobody is saying that earning this degree is a guarantee of financial success. Even today, 18% of the college-educated workforce in prime working ages earns less than the median wage of a high school educated laborer. But in 1972, the figure was 30%. Think about that the next time someone claims that a college degree simply doesn’t pay off like it used to.

It’s true: The list price tuition at American schools has indeed trended upward more rapidly than inflation over the past 30 years. But again, we need to separate myth from reality. The reasons for this have little to do with stories of bloated administration, lazy professors and gilded amenities so common in the press.

Higher education is a personal service provided by highly educated faculty and support staff. Almost all personal services industries have seen rapid cost growth for most of the last century — because laborsaving productivity growth is very difficult in any business where the face time of the provider is the service.

In addition, any industry that uses a lot of highly educated labor has experienced extra cost pressure since the early 1980s, when the gap in earnings between employees with a college degree and those without began to yawn wide.

States haven’t helped keep their public universities’ prices down either. The contribution of the states, measured as dollars allocated to higher education per thousand dollars of personal income in that state, has fallen by 40% over the last 30 years, even as enrollment in public institutions has risen by half. As a result, families must shoulder an increasing fraction of the bill.

There are many proposed quick fixes for making college cheaper. These include everything from abolishing faculty tenure to offering students academic credit for prior work experience. But tenure never has been a force for rising college cost, and in any case the institution is increasingly irrelevant. Over the past 40 years, the percentage of professors on tenure track has fallen from near 70% to below 50%.

Productivity growth that preserves educational quality is the Holy Grail of higher education, and like the Grail, it’s really hard to find. The current savior is distance learning. Some think The Revolution is here, but the gains may be smaller than its advocates think. And in any event, don’t expect schools that are devoted to small-group, engaged learning to follow suit, especially while applicants are still beating down the doors to get in.

Colleges and college kids are going to have to adapt to the changing economy. But the American higher education system is not on the brink of extinction. Students and their families can pay a reasonable amount to get a productive education that opens up a lifetime of expanded opportunity. That’s a fact.