The trillion-dollar student debt burden has spawned many debates about the value of college. Some argue that we educate too many young people. Average tuition costs have gone up faster than the rate of inflation. The cost of college today is, in inflation-adjusted terms, roughly double what it was in 1980. This creates legitimate concerns about the continued affordability of a college education.
But the debaters often have their facts wrong. Very few Americans graduate with $100,000 in debt; college makes more sense today than ever; and no, our universities aren’t plundering their endowments to fund college dorms and football stadiums.
1. The financial return for going to college is less now than it used to be, because of the high cost of tuition and challenging employment prospects for recent graduates.
If anything, the value of an investment in college is higher now than it’s ever been. The college premium (the difference between the earnings of college graduates and high school graduates) is at its highest level ever.
It is true that in the years since the Great Recession, wages for recent college graduates have declined about 5 percent, but wages for those without a college degree have declined more than twice that. Furthermore, the proportion of recent graduates who have gotten jobs coming out of college has been virtually unchanged from before the recession. In contrast, the employment rate for high school graduates and associate-degree holders has dropped by 8 to 10 percent.
2. Colleges are not preparing students with the skills needed in the current workplace.
All of the economic data suggest the exact opposite – that the productivity of U.S. college graduates in the workplace is increasing.
The broadest measure of the productivity differential between high school graduates and college graduates is how much employers are willing to pay for the latter over the former. This is known as the college premium, and it has increased steadily since the 1970s.
A recent Milken Institute study found that for each additional year of college attained by the residents of a region, the per capita gross domestic product of the region increases a remarkable 17.4 percent. The authors argue that the increased regional productivity is largely the result of the increased productivity of a college-educated workforce.
3. On average, students are now borrowing $–––––– to pay for their college education.
This is a myth, or at the very least misleading, for almost any figure reported in the national press. (Though the reported figures vary, the amount is generally more than $25,000.) There are several reasons for this, principally that the data being reported are generally based on one or another report of outstanding student loan balances or average debt levels for those with loans.
What most people are interested in, and what most people interpret these figures to represent, is how much a typical student must borrow to finance an undergraduate degree.
Unfortunately, most figures reported lump together all student loan debt – for both undergraduate degrees and professional degrees. Furthermore, they report data on the average (mean) debt level among those who borrowed, not the median debt among all students, both those who borrowed and those who did not.
Data on debt levels at time of graduation is far harder to obtain. The Department of Education periodically gathers this information, but its most recent report covers those who received bachelor’s degrees in 2008. This study showed 34 percent graduated with no debt and an additional 30 percent graduated with less than $20,000 in debt.
4. College indebtedness – now at more than a trillion dollars and second only to mortgage debt – is at a crisis level.
College debt now exceeds total credit-card debt and total auto loans, both of which have dropped since the beginning of the recession. It is in fact the only kind of household debt that continued to increase throughout the recession.
More students are going to college, a higher percentage of them are borrowing to finance their education and the amount they are borrowing has increased.
Obviously, the first reason is to be applauded. It is in the interest of the students and the nation that more high school graduates go on to college.
The fact that more students are borrowing more to attend college is the result of several different factors, only partly the increased cost of tuition. Another major factor is a marked decline in college savings.
What this means is that more families are substituting debt for college savings. But these are just alternative ways of spreading the cost of college over multiple years. This is certainly no more worrisome than the switch from buying refrigerators with debt rather than layaway plans.
5. College costs are increasing faster than inflation largely because of wasteful spending on, for example, lavish dorms, recreation centers and sports facilities.
In a university’s overall budget, capital costs for “amenities” (such as recreation centers) constitute a very small fraction of the budget. Amortized over the life of the asset, they may account for a few dollars of the annual tuition bill, but not much more.
Etchemendy is Stanford University’s provost. Wadhwa is Vice President of Innovation and Research at Singularity University and Arthur & Toni Rembe Rock Center for Corporate Governance at Stanford University.
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