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The high price of a college education: It's time to stop complaining and solve the real problem

By Keith Murray [kmurray@bryant.edu]
Originally submitted to the WALL STREET JOURNAL, September 1, 2009


Each year, as surely as the arrival of the dog days of summer, there also come complaints in the media about the excessive costs of getting a college education in today’s America.  The time to challenge the premise of those claims is long overdue and, instead, to set about solving the real problem. 

The objections heard most frequently are about how greedy colleges dare to annually hike tuition & fees faster than the cost of inflation or how terrible it is that graduates have to assume so much in the way of onerous, burdensome loans.  What is never asked is what would higher education in the U.S. be like if it didn’t stay ahead of the innovations associated with an ever expanding knowledge base, keep current in terms of instructional technology, or developing facilities to meet even higher enrollments associated with population growth?  A number of points are worth considering. 

1.  A college education today does cost a lot.  All the talk about what seems to be the high cost of going to college is perfectly reasonable—it is; whether a public or private institution, college represents a major expenditure for most Americans.  Today, the average annual expenditure for a public education is $15,000—that’s over $60,000 to get the full degree; for a private institution, that same cost to students is even steeper:  $37,000 a year, for a total of more than $148,000 for four years.  In terms of median annual family incomes in the U.S. today, these annual costs represent an enormous before-tax proportion of income, in the range of 25% to over 60%--annually!

2.  It also costs a great deal to be in the education business This is simply a reality of the times we live in.  To erect a dorm in a non-urban setting can easily cost a half a million dollars per suite to house just six students.  That professors get paid well is bothersome to some, but nothing more complicated than free-market forces is at play in establishing those scarce specialists’ salaries.  College administrators aren’t sanguine about high capital costs or operating expenses, but that’s the world their institutions must be a part of—and pay for, one way or another.   

3.  Most individuals are simply unfamiliar with the costs associated with education at any level It is not a surprise that for most people, the tax funded public K-12 education system likely obscures a good appreciation for how costly learning at even higher levels can be.   But the reality is that costs are far from trivial.  The top five states in the U.S. pay over an average of $16,000 per year for each student in their primary and secondary systems; in the Washington, D.C. public system, per pupil spending in 2007-08 was estimated to be $24,600.  These learning costs approach—and, in some cases, rival—tuition costs in higher education, and the price some college students are asked to cover.  However, for some, apparently, anything—or very much—over “free” is too much. 

4.  Getting a college degree, however, represents--in strictly economic terms--a very good dealOver a working lifetime of 40 years, high school grads will earn approximately $1.2M; over the same period the average college graduate will make an average of $2.1M, roughly a $1M more!  When one considers the payout from a college degree in a specialized field of study—business, engineering, technology—those differences are even substantially more dramatic.  Put another way, adjusting for these financial increases in day’s terms, the earning power of the average bachelors degree is about $400,000, while the net present costs is $150,000—a whopping quarter of a million dollars gain for having acquired a college diploma. 

Put another way, a bachelors degree substantially hikes the odds for post-college gains of graduates, irrespective of whether the individual studies at an elite school or not:  A student’s chances of earning income in the top 20% of the population increase five-fold for low income family students, over three fold for students from middle-income backgrounds, and over two-fold for students from families making over $82,000. 

5.  It is time to focus on how society makes access to the benefits of college available to all who are motivated and worthy What’s needed is a better societal mechanism to pay for the reasonable costs of making a prudent investment in oneself by attending college.  If college costs simply represent what it takes to become more valuable as an individual—and reap the economic benefits of that--then a college degree is nothing more than an sound investment.  What is missing in the U.S. college marketplace today is the societal—really financial—mechanisms which make that investment transaction occur

Too many families today are forced to refinance their homes, pay with credit cards, dip into precious retirement savings—all to make it possible for sons and daughters to take advantage of what is prima facie a very attractive value proposition.  Typically, these same families can, over a reasonably long period of time, finance cars, homes, vacation properties, boats--but not a college degree; yet, a college degree likely represents the single best investment to be made by long-term financing!  In effect, what’s lacking—in addition to more scholarships, grants, and other familiar cost reducers—is a simple, fair, open-to-all payment and financing system that makes feasible the purchase of a college degree financed over a reasonably long period of time. 

Interestingly, perfectly viable solutions have been around for a long time!  Going back to the 1970s, Boston University’s then president, John Silber proposed a Tuition Advance Fund; under his plan Congress would simply “front the money,” all to be paid back by the very recipients of the college degrees--and the economic benefits that accompany that accomplishment.  After a successful, and largely self-funded, freshman year, college students could “borrow” all or a substantial proportion of the costs of any college they choose for the balance of their programs.  Upon graduating, each grad would be required to pay a small percent of their annual incomes [say, one or two-percent] for the remainder of their productive working lives via their IRS 1040 income tax returns every year on tax day.  In the long run the plan would pay-back the federal government for fronting the money and replenish the advance fund for students who follow.  Recently, former Secretary of Commerce, Robert Reich has also proposed a plan of similar design and concept:  government funded college students as grads pay 10% of income from first ten years, post-graduation. 

In short, the acclaimed high cost of college today is not the central issue—those costs are, in large part, simply what they must inevitably be to render a scarce, valuable, professional service.  The real issue is the failure to create the appropriate mechanisms that have been erected and sustained for other types of high-cost, high-value purchases—a way that would make the necessary means available to all who desire and merit the considerable benefits and value of a college degree.  

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