Time for College Reform?

Our elected leaders are currently working up a head of steam to reform healthcare. Good luck with that. The mere fact that they vaguely call the effort "reform" tells you it’s going to be a very steep hill to climb. What nobody wants to say out loud is that the big problem with healthcare is that we spend so much on it, and we can’t spend meaningfully less on it without getting less of it. Like I said, good luck.

In the US, we spend about 12.5% of GDP on healthcare, a higher percentage than any other developed country. However, I think we can all agree we get Grads Kit rather a lot for our money. In contrast, we spend 2.6% of GDP on higher education, also the highest developed world percentage. And of course, we get something for our money here too. I for one am glad our doctors went to medical school. But dollar for dollar I think we’re getting a lot more value from healthcare.

Why do we spend so much on higher education? And why isn’t it considered a crisis worthy of reform? Part of the problem is a cultural attitude that higher education is a kind of higher calling. Attending college is a good thing in an abstract and noble way that doesn’t lend itself to cost benefit analysis. Asking if it is a wise investment in dollar terms just seems tawdry.

There are those who try and make the case for a cost benefit analysis. For example, Liz Weston and Free Money Finance have made the rather simple argument that going deeply into debt without an economic payoff in terms of a higher paying career is foolish. But the fact that they have to patiently make these arguments at all tells you how unaccustomed people are to thinking of college in this way.

So what are the benefits of going to college that might be worth so much? I can come up with three major motivations for college: to learn stuff, to have fun, and to get a credential.

Learning is the noble reason, what most people, if pressed, would offer as an explanation of why college is a good idea. And it is not merely a question of vocational training for a future career. American colleges provide a liberal education, enlightening students with a broad selection of knowledge from many fields. In college young people learn to think and become well-rounded intellects.

The flaw in this justification for spending four years and six figures is that you don’t need to go to college to learn stuff. What is not available on the web can be had cheaply at your local library, nearby bookstore, or Amazon.com. And some of the most elite institutions, such as Yale and MIT, have made some of their courses available on-line. For free. Being able to go to class and argue with the professors (or more realistically, the teaching assistants) is worth something, but nowhere near what college costs.

Then there is having fun. And college really is fun. Four years of extended adolescence without close parental supervision. What could be bad about that? But it is hard to imagine anybody seriously putting forward having fun as a justification for the expense.

No, whether they are willing to admit it or not, the reason that Americans happily pay tremendous sums for college is the third motivation, to get a credential, a degree that identifies them as a college graduate.

If you don’t think that is the primary motivation, ask yourself this. Suppose your son came up with a scheme in which he would move to a college town after high school and room with his college student buddies.  He would read the same textbooks, do the same assignments, and even sneak into the same lectures as his roommates for four years. In other words, he would get the same education as his friends without getting a degree or spending $100,000 on tuition. Even if you were 100% sure he would really learn as much as his friends, is there any chance you would agree to this?

It is the credential that counts. And although it is a social distinction that has non-monetary aspects, it is ultimately a question of money. College graduates are assumed to be more intelligent and/or hard working than non-college graduates, so they make more money. (The reality may not be as simple as this, but it is the widespread perception.)

The problem is that, of course, everybody wants to be in the college graduate category. And with no structural limit on how many college degrees are issued in a year it becomes a sort of self-perpetuating bidding war.  As the percentage of young people who attend college increases, the value of the degree goes down, but the stigma attached to being in the shrinking non-college pool gets bigger. As of 2000, the US had 4,100 colleges and universities and 5.3% of its population in college. (I estimate that Americans between 18 and 21 made up 5.7% of the population in 2000.) In 1940 it was 1700 institutions and 1.1% of the population.

So we have the situation where instead of only a small list of professions that legitimately require a college degree, today the vast majority of occupations de facto require one, because so many people have them.  Why hire a high school graduate when there are college graduates available? Ours is a nation where receptionists and police officers commonly have degrees.

Is college a good investment? From the point of view of a prospective student, you are almost undoubtedly better off going than not going.  Wise advice on the topic would be that you should try to do so cost-effectively, but that you should certainly go.

But in the big picture, all this spending to acquire a piece of paper is a tremendous waste, and a drain on the economy. I don’t think the folks in Washington will have any success in reducing the 12.5% of GDP spent on healthcare. In fact, I expect they will claim victory if they keep it from growing above 12.5%. If it were up to me, and it most certainly is not, I would spend time reforming college instead.

[Photo: Kit]

No Comments

  • By ObliviousInvestor, June 17, 2009 @ 2:09 pm

    “Ours is a nation where receptionists and police officers commonly have degrees.”

    Indeed.

    I think part of the reason for such high spending is something akin to the Lake Wobegone Effect. People go to college thinking that when they get out, there will be a fancy job (or at least, a job that leads to a fancy job) waiting for them.

    I wonder how many of the officers and receptionists with degrees planned on having those careers post-college.

  • By Alexandra, June 17, 2009 @ 2:16 pm

    The degree is merely a way to separate the wheat from the chaff. Kids with degrees have to learn to multi-task, to take notes and direction, to submit assignments on time, show up at classes, etc. And while someone can do that without actually paying tuition, who would take their word for it. Unfortunately, we just don’t have a better system.

  • By Dave C., June 17, 2009 @ 2:19 pm

    I will happily be receiving my “free” graduate degree (M.S.) this summer as a result of taking part-time classes while working full-time at my university. Two free classes per semester for full-time employees is a wonderful benefit, and made it possible for me to pursue this masters degree.

    About police officers- many agencies in Florida require two years of college to be eligible for police service.

  • By SJ, June 17, 2009 @ 3:46 pm

    A flaw with learning as a reason is most ugrads aren’t in it to learn. They suck. And aren’t that bright.
    Fun is more the reason.
    That and “degree” and getting a job is in the back of their minds.

    Tho to be honest I prolly didn’t come to grad school for entirely the right reason… but we shall find out.

  • By GPR, June 17, 2009 @ 3:48 pm

    Not that long ago I moved from a big progressive west coast city to a small middle-of-country city.

    In the big city the police were required to have college degrees.

    In this small town, police are still recruited from the good kids on the football team.

    You can tell the difference.

  • By Rob Bennett, June 17, 2009 @ 4:52 pm

    It might make more sense for an 18-year-old to use all that money to get started building a small business. That way he or she might be close to owning a job for life four years later rather than looking hat-in-hand for one.

    Still, I have a hard time not giving my boys the chance to read all the great books that there’s a good chance they will never read later even though they could.

    Rob

  • By zach, June 17, 2009 @ 6:50 pm

    Ok, I have to ask. If our country has a higher percentage of GDP spent on health care and education than other developed countries….

    How in the world is a country like Sweden (currently living) able to provide free health care to every single citizen and free education, including undergraduate, graduate, and PhD. They even let foreigners (a’hem) study for free. So I ask, if anyone knows here?

    And I am not interested in the “They don’t have Harvard answer” because there are plenty of state schools across our great country happy to charge people as well.

  • By bex, June 17, 2009 @ 6:59 pm

    Regarding healthcare, we CAN get more with less. Fully 1/3 of those healthcare costs — $700 billion — are insurance company fees. This is only the case because the incentives are all wrong.

    Doctors make money based on quantity of treatment; not quality of treatment.

    Insurance companies make money by reducing the quantity of treatment; but frequently quality suffers.

  • By bex, June 17, 2009 @ 7:04 pm

    also… you forgot one big reason — perhaps the only reason in some fields — for going to college:

    NETWORK WITH POTENTIAL BUSINESS CONTACTS

    Mot of the folks I know who got an MBA said that this was the single most important reason for getting it. MBA classes are only marginally better than undergrad business management classes.

  • By Jim, June 17, 2009 @ 7:16 pm

    Zach,

    Sweden has high taxes.

    Sweden’s taxes are about 49% of their GDP. Personal tax rates are 28-59%. In the US taxes are about 28% of our GDP. Personal taxes are 10-35%.

  • By GPR, June 18, 2009 @ 12:50 am

    I think it’s interesting that you’re smashing health care and education together in this post.

    The only real way to have health care in this country is to have the sort of job that provides insurance. Which means, of course, getting a college education.

    Use that money on starting a business, and you might get rich. More likely you’ll be an uninsured shop keeper. Either way your insurance will cost you a fortune, if you can afford it.

    So the receptionist with the college degree might be over-educated (is there such a a thing?) but she’ll get the job at the good firm. And be insured.

    Government workers? All insured, most required to have degrees.

    That said, I think we have some significant issues facing our country. The cost-benefit ratio of higher education is way down on the list.

  • By Amy, June 18, 2009 @ 3:17 am

    @Alexandra: It may be a way to separate the wheat from the chaff. But it’s not a very good method if you’re incurring 5 or 6 figures of debt along the way. The only thing worse than graduating with huge student debt is dropping out with huge student debt.

    Frank, it might be interesting to compare the college situation in America with that in Europe and other countries. In Germany, for example, there have been recent massive protests for raising fees from 0 to a few hundred euro. Mentioning the tuition paid in the States gets some very incredulous looks in Germany, and I get the feeling the rest of the world thinks we’re a bit crazy for what we pay. US Universities may be some of the best, but it (arguably) doesn’t do as much good if your graduates are stuck paying interest to Sallie Mae for the next decade.

  • By Phil, June 18, 2009 @ 5:29 am

    A very rare bonehead column from BMA. Lumping all of “college” into one bucket and denigrating it is specious. There are certainly some who waste their college opportunity, but many others for whom college is the only path to pursue their aspirations. There are so many idiotic generalizations that you could probably write one your standard columns about today’s column.

  • By ObliviousInvestor, June 18, 2009 @ 7:38 am

    GPR: I think many people overestimate the cost of health insurance for the self-employed.

    I’m self-employed now, and our health insurance (same provider, same coverage, and a lower deductible) costs only $120 more per month than it did when I worked full-time as a tax accountant for a large real estate firm.

  • By Jon @capitalistmaven.com, June 18, 2009 @ 9:53 am

    College is definitely a pretty good racket. First you’ve got the top tier Ivy league schools whose function it is to bring the rich and well connected together with the really, really smart of the working class (who either get scholarships or indentured servitude (massive loans)), who then proceed to work and generate wealth for those same rich and well connected’s post graduation. You’ve got the state schools (one of which I attended) which function as a very expensive (like all government projects) filter to separate the bright, self motivated from those that really need somebody else telling them what to do. Then you’ve got the small private liberal arts colleges which give lots of scholarships to men paid for by parents sending their daughters to get MRS degrees. All these different kinds of colleges serve a purpose but nonetheless it’s clear that the purpose is not education.

  • By Skeptical, June 18, 2009 @ 10:44 am

    Given the high percentage of poor and working class folk without health insurance I am not so sure “we can all agree we get rather a lot for our money.” Certainly the wealthy do, but a society’s wealth and health can not be judged by how the richest members take care of their own self interest.

    By that measure Communist Russia was one of the best societies in history given how well the Ceauşescu regime took care of itself.

    Comparing apples to oranges now, perhaps it is my circle of friends but the college dropouts typically earn twice those with degrees and nearly four times those with post-graduate degrees. Fields like programming for example require a skillset not a degree.

  • By My Journey, June 18, 2009 @ 12:29 pm

    I can’t prove it, mainly cause I am lazy and don’t really feel like doing the empirical work, but Colleges are the next big bubble to burst:

    http://www.myjourneytomillions.com/articles/colleges-are-the-next-big-bubble-to-burst/

  • By Frank Curmudgeon, June 18, 2009 @ 1:12 pm

    OI: I’m sure that quite a few receptionists and cops didn’t plan to do that when they were 18, but my point is that even if they did, they’d be wise to go to college.

    Alexandra: If there was a lot of chaff, I might agree. But we seem to have nearly an all wheat harvest.

    GPR: Are you suggesting that if the ex-football players went to college first there would be a difference? And how come you are so familiar with the makeup of the police force?

    zach: Who pays for college (gov’t vs. student) isn’t really at issue here. It’s how much gets spent overall. Does everybody in Sweden go to college?

    Who the heck injected healthcare into this discussion? Oh wait, that was me. Seemed clever at the time….

    Amy: My German sources tell me about 1/3 of Germans go to college. The recent protests were mostly about an increase in the academic workload for undergrads, which would start some riots here too.

    Phil: Well, at least they’re rare. I’m not saying colleges should be abolished, only that sending just about everybody there is a waste.

    Jon: I think the function of the Ivies (as they see it) is to train the next generation of professors for all the other schools. They certainly have some children of the uber-rich, but way fewer than is often supposed by outsiders. There are more football players.

    Skeptical: Ceauşescu was Romanian.

    My Journey: I like your post. See also http://chronicle.com/free/v55/i37/37a05601.htm, which stole your title. Not that I’m buying it. Like everybody else, colleges are suffering in the Great Recession, but I am sure they will muddle through.

  • By Andy lapointe, June 18, 2009 @ 1:40 pm

    At some point (perhaps already past) it may make more sense to set up a trust fund for little Johhny and fund it with the $200,00 that you would have spent on college. The time value of the money will probably exceed the extra earnings of most carreers. Unless your kids are getting a big-name degree in the right field, they will be better off.

  • By Andy lapointe, June 18, 2009 @ 1:47 pm

    There are certainly bubble characteristics. Schools enhance their reputations as “exclusive” by raising tuition. Other schools follow suit. One school builds bigger and more impressive facilities to attract students. Other schools follow suit.

    I am unclear how any of these activities provide graduates jobs, increase students lifetime earnings or provide better knowledge base.

  • By Robert Hogan, June 19, 2009 @ 11:19 am

    I was one of those kids who started a small business right out of high school instead of going to college. Then I found myself in my late twenties getting a divorce that forced me to liquidate my business. Trying to enter the workforce without a college degree, regardless of what job I was applying for, put me at a serious disadvantage. Now that I am in my early thirties and once again being forced to enter the job market (due to a layoff) I am taking the opportunity to go back to college and get my degree. I am convinced that I would be much further along in my career right now if I had pursued a college degree 13 years ago.

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