Who ought to pay for college, and how?

Chatting with a friend today about this post from Megan McArdle, I mentioned that figuring out how to pay for college — in general terms, not “You should get a part-time job”-like specifics — is kind of a tough problem.  My friend disagreed rather cryptically.  So you get a blog post.

The default assumption among the crowd I hang out with is “college should be free”, which translates to “college should be paid for by governments”, which again translates to “college should be paid for by taxpayers”.  This is odious on its face.  While I’m sure many of these folks have mental images of Whitey McRichfucker sobbing to his Congresscritter about how he couldn’t afford the Rolls he wanted — he had to settle for a Bentley, like a plebeian — because of the 50% Higher Education Surtax he paid this year, a quick examination of how rich people pay taxes in reality (the parable of Warren Buffett and his secretary will suffice) indicates that this isn’t how governments pay for anything, much less for college.  No, any tax revenue you’re going to direct towards college probably comes in large part from the working and middle classes — a large proportion of which didn’t go to college  — or their employers, and any debt you issue simply belongs to future versions of the same.  Then there’s the opportunity cost complaint you’ll have to deal with in parallel: Money being fungible, any gov-bucks you direct towards paying for college tuitions are gov-bucks that could have bought homeless shelters or immunization programmes.

Coupled with the fact that colleges are still by and large the province of the “pretty well-off” to the “filthy rich”, advocates for publicly-funded college education are (much like sports fans) advocates of hideously regressive transfers.  I’m a heartless libertarian and that makes me cringe.

The one argument I halfway respect in favour of universal public tuition funding is the notion that getting a college education makes for “better” citizens (making the general public freeloaders on educations they didn’t somehow pay for) or, in aggregate, that a population of college-educated people is somehow “better” (making it more of a collective-action problem).  Both forms of the argument assert that my degree makes you better off — and, crucially, that this benefit is not already captured by my salary (or wage, or whatever).  I remain unpersuaded.  It’s possible that a college degree makes people better citizens, or better voters (though from what I’ve seen of campus politics I suspect it makes them worse) but I’ve only heard this asserted, never dignified with actual data.

(I should mention that I rather approve of means-tested tuition-support bursaries.)

So probably tuitions should be paid by the students themselves, or perhaps by their loving parents (or for particularly extreme scholars, by Red Bull).  Problem is, by and large, younger adults are severely lacking in both cash and credit, so no bank’s likely to lend them money straight up.  The pecuniary benefit of a college degree is only likely to manifest after — probably well after — graduation, and as Bryan Caplan recently showed it’s not something that pays off in half measures: If you drop out three years into your degree, you don’t get three-quarters of the wage premium.  There’s a whole bunch of uncertainty involved in picking a school and a programme, in financial terms and otherwise.

Furthermore, tuition rates do an utterly abysmal job of communicating these factors, which is pretty much what prices in any halfway-functioning market are supposed to do.  So even if our intrepid students can scrape up the dosh to go to college, they don’t get much help making any kind of informed tradeoff based on what they want versus what they’re willing to pay versus what they’ll get from any given option.  (That is, unless “what they want” involves the NCAA almost exclusively.)  Instead, back in the real world, they get showered with cheap debt and encouraged to buy whatever strikes their fancy, under the blithe assumption that of course they’ll be able to pay it all back some day.  Sound like anything you recognize from… 2006, maybe?

I don’t have any solutions to offer, but I surely admire the problem.  The usual libertarian-SF answer-trope is, as Ms. McArdle mentions, for private investors to buy shares in students’ future incomes.  Given that the state won’t even let you buy a kidney to save your nephropathic child’s life, the odds of this ever happening on a broad basis are pretty dismal.  If we think of this particular trope as the higher-ed equivalent of venture capitalism, it suggests that we look at other ways in which people start businesses, it suggests that an alternative is the usual “start small, exploit local knowledge of a specific market, and grow sustainably” — the autodidact’s path.  Unfortunately, the education premium seems largely to be built on certification effects (think of colleges much like licensing cartels), so this is unlikely to become a particularly viable alternative any time soon.

4 Responses to “Who ought to pay for college, and how?”

  1. 1 perlhaqr
    February 28, 2013 at 07:20

    I still like the differential pricing idea. Charge less tuition (and offer more scholarships / grant money) for statistically higher paying / more “useful” (yes, I know, according to whom?) degrees, and more for statistically … less useful degrees. You should have to be really really committed to getting that degree in 15th Century Lesbians of India Studies. And preferably already independently wealthy.

    I mean, ultimately, it makes sense, right? It’s like a credit rating combined with an insurance score. You only want to lend money to people you think will pay you back at all, and you give a better deal to people you think are more likely to pay you back. The “insurance score” part comes in from this being based on statistics about the future, rather than a credit score which is based on past performance.

    • February 28, 2013 at 09:09

      I think you’d end up chasing the needle on that one. Subsidize petroleum-engineering and nursing degrees heavily because they’re “most useful”, and you end up with a glut of mediocre graduates flooding the job market, and probably even more students dropping out of programmes they didn’t like, couldn’t hack, or both.

      Maybe part of the answer is to get businesses to sponsor high school grads. With online-ed resources like Khan Academy, it wouldn’t be outrageously difficult for motivated kids to get some semblance of useful job skills. So Alice learns a bit about C++ before she graduates from high school, gets an internship at Boeing, and Boeing says “You’ve done good work here; we’ll send you to Cornell if you’ll work for us for five years after graduation”. That particular model is only likely to work for a small number of bright, motivated people, but it does at least inject some information about what degrees are in demand into college pricing.

  2. 3 Ken in NH
    February 28, 2013 at 07:49

    Here in the US we’ve solved the higher education problem by having the government take over almost all student loans (Sallie Mae) and making debtors serfs to the federal government by exempting said loans from bankruptcy. And now that we have a long term recessionary to, at best, stagnant period, we’ve given our federal Department of Education their very own SWAT team to kick down the doors and shoot the dogs of the serfs who refuse (or more likely cannot) pay tribute. In the mean time, our university administrators have gone through the library reference section and erased every reference to “bubble” from every dictionary, thesaurus, and encyclopedia.

    I would suggest that we run and fund secondary education like we do primary education here as a poison pill, but, while the professors and researchers will rightly see it as a Trojan horse, I’m afraid the chancellors, presidents, provosts, and deans would salivate at the prospect of extracting even greater percentage of their bloated budgets at the point of a gun from tax payers.

  3. 4 TMI
    February 28, 2013 at 10:40

    The recent hire–a twenty-eight year old–broached the issue of possible garnishment coming for old student loans. He has lived off the grid for a couple of years. Now, payments are being made to his Social Security account. Did he gain some crazy job skills that I have to have, or, had to have, for me to hire him? Nope. That his mom and I are friends, and spent time together with another friend’s end-of-life, had a great deal more to do with it. That he had some college, some years of college, spoke to some degree of his being trainable, if not educatable. If you’re going to do what I do, you need to learn, to listen, and to write. What should be logical expectations from a college student. Now, alas, not expected. It will be interesting to see what and how his debt issues are dealt with. And whether he decides to remain on the grid.

    College was affordable when I was there. My part-time jobs were enough to pay tuition, and room & board. Mostly. Summers were spent working as many over-time hours as was possible.

    When Number One headed off to school, I wrote checks for everything. After two terms, and a decision on his part to break faith with his dad, the checkbook was snapped shut. Amazingly, he started to get better grades. While working evenings delivering pizzas.

    Yes, the National Merit scholarship, as well as a couple of other, less well-known scholarships, helped. Today he’s designing memory for Micron. I guess you can tell that he didn’t major in Womyn’s Studies.

    Which fish has more value, the one you catch, or the one given you?

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