Rethinking college - and how to pay for it

No advanced society can thrive without a wellfunctioning system of higher education. College can be an equalizer, providing opportunity to all regardless of race or class. It can enhance human capital, boosting the economy’s productive capacity. It can make people better citizens.

On all these counts, the US’s system of postsecondary education is falling short. Fixing it will require rethinking what it should be aiming to achieve - and how to pay for it.

It used to be that only a privileged elite had access to college. That began to change in the late 19th and early 20th centuries, as the US expanded its state universities to produce skilled workers for the Second Industrial Revolution. After World War II, government subsidies such as the G.I. Bill and Pell Grants made a four-year education at state institutions free or at least affordable. This helped push the share of young adults with a bachelor’s degree to 29 percent at the end of the century, from just 6 percent in 1940. This investment played a crucial role in America’s post-war economic success.

Lately, though, that virtuous system has fallen into disrepair. For one, it has become too expensive. The price of a college education has outpaced both incomes and federal grants, as administrative bloat and cuts in state funding have led private and public institutions to increase their tuition fees. This has hit the poor hardest. For the lowest-income quarter of students, the average annual cost of attendance (including living expenses, net of grants) reached about $11,600 in 2016, roughly 30 percent higher in real terms than in 1996. That’s about 80 percent of average family income for this group:

Cost matters a lot. When people can’t afford the full cost of attendance - including tuition, books, food and rent - they struggle in college or don’t even apply. Studies suggest that a $1,000 increase in price reduces enrollment by about 4 percent, as well as harming performance and graduation rates, especially for lower-income students.

The federal government has sought to fill the breach with a crazy quilt of loan options, both subsidized and not: Stafford, Perkins, Plus loans for parents, and a system intended to consolidate them all. No matter the choice, those who enroll emerge with increasing debts, which weigh on the economy by impairing their ability to start families, buy houses and save for retirement. As of June, total student debt stood at an estimated $1.48 trillion, or about 36% of disposable income. That’s up from $250 billion, or 12%, in 2003.

The ballooning costs and debts wouldn’t be so bad if schools provided value for money. At an individual level, they typically do: The median annual income of people with a bachelor’s degree is about twice that of their high-school-educated counterparts. College graduates are also happier and less likely to die of heart attacks.

Unfortunately, the benefits appear to have little to do with what people actually learn. A 2009 survey across 25 institutions found that four years of college had only a limited effect on critical thinking, complex reasoning and writing. About a third of students saw almost no improvement at all. A separate 2006 study, based on the 2003 National Assessment of Adult Literacy, found that just 31 percent of college graduates could correctly explain and compare opposing newspaper editorials.

So why is a degree so lucrative? In part because employers see it as a sign of inherent qualities: Here is a person with the intelligence, persistence and demeanor to get through four years of college. Research shows little earnings premium for otherwise good students who, for whatever reason, fall just short of receiving a diploma. And the premium attached to the diploma persists even in jobs such as bartending. The market values the piece of paper much more than the education. To a troubling extent, college has become an expensive and timeconsuming credentialing exercise.

In some cases, higher education doesn’t even serve that lesser function. Black Americans, for example, disproportionately end up with diplomas of dubious value from nonselective or for-profit schools - thanks in part to aggressive marketing and a dearth of information about better alternatives. As a result, they often go deep into debt for nothing. This helps explain why, despite decades of progress in closing the education gap with whites, the average black family has made no progress in narrowing the wealth gap.

The combination of big debts and low-quality education has caused a lot of financial distress. People who earn degrees from well-respected institutions can usually handle the burden. But those who drop out or attend for-profit schools, or who were simply unlucky enough to graduate into a weak economy, often find themselves with obligations they can’t hope to pay - and can’t discharge in bankruptcy, thanks to the special legal status of student debt. At the end of 2018, the 90-day delinquency rate on federal student loans stood at 11.4 percent, up from 7.8 percent in 2008.

How, then, to improve a system that isn’t reaching everyone who could benefit from it, and isn’t doing enough to enhance the skills of those it does reach?

There’s no quick fix. Proposals to make higher education free for all or forgive student debt would primarily benefit the wealthy, who already account for the majority of college-goers and loans outstanding. Also, debt can be a legitimate way to finance an education that provides a high return. Its growth can even be seen as a positive sign, reflecting Americans’ desire to invest in themselves.

Removing public support and letting the market sort things out is not a great option, either. For one, it would cut off access to additional millions. Also, at its best, higher education creates broad social benefits - such as faster economic growth, lower crime rates, better health, greater civic involvement - that private actors lack the incentive to pay for. That’s why the government got involved in the first place.

That said, policymakers can take steps to improve the system. Consider three areas: access, cost control and quality.

— WP-Bloomberg