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College is worth it. Who should pay for it?

Presidential candidates from both parties have advanced proposals about how higher education should be funded. Democratic presidential candidates have called for debt-free or tuition-free college. Hillary Clinton and Bernie Sanders both have plans for reducing tuition through increased public spending.

Point Taken on PBS debated whether college is worth the price tag. WGBH

The way higher education is funded has become a topic of public interest. Data compiled by the annual report of College Board, “Trends in College Pricing,” show why.

Between 2005 and 2015, middle-income families saw their wages decline by two percent, while average in-state net tuition and fees (the amount students actually pay) rose by 73 percent at public four-year colleges.

Research also shows that declines in state support have been the most important factor driving up tuition at public colleges.

According to “Trends in College Pricing,” states spent US$9.74 on higher education per $1,000 in personal income in 1990. But by 2015, this figure dropped to just $5.55. As a result, the burden of covering the cost of college has shifted from taxpayers to individual students.

So, who should pay for college?

My experience as a higher education researcher tells me that the way this question is answered depends on who you think benefits. If you think individuals capture most of the benefits of higher education, then it is reasonable to ask individuals to pay the costs. On the other hand, if you think society shares in the benefits of college, then you might favor public support for higher education.

Why college is worth it

Today most people believe that going to college is important because it is the pathway to securing a good job and higher personal income. Results from a study conducted by the Higher Education Research Institute at UCLA show that 70 percent of college freshman believe earning a college degree is “very important” in order “to be able to make more money.”

College graduates get better jobs and earn more money. Md saad andalib, CC BY

This view is supported by analysis by the Georgetown University on Education and the Workforce. Indeed, individuals with a college degree can expect an additional $2.5 million in earnings over a lifetime.

Understanding college as a pathway to personal gain is consistent with the idea of higher education as a “private good” and helps to explain why state legislatures no longer fund higher education as generously as in the past.

However, a recent study published in the Journal of Educational Finance by the economist Walter W. McMahon suggests there may be larger than expected public benefits from higher education.

McMahon finds:

The effects of higher education are not just on better paying jobs but are also on many outcomes beyond earnings from better healthcare and child development to political stability and lower criminal justice costs.

Results of McMahon’s analysis show public investment in higher education can improve states’ bottom line by boosting tax receipts and reducing welfare and law enforcement expenditures. Given these findings, he argues that state legislators should understand higher education as a “public good” worthy of taxpayer support.

Return on investment

McMahon’s argument is based on his analysis of data from Illinois. He finds that Illinois sees a return of 15.3 percent and 13.4 percent, respectively, on its investments in community colleges and public universities.

Individuals with a college education earn higher salaries. They are also healthier and less likely to claim welfare benefits and to commit crimes. Because these benefits increase tax revenue and lower public expenditures, public higher education spending can be a long-term boon to states budgets.

So, should states should invest more in higher education?

Who benefits from an educated workforce? UBC Library Communications Follow, CC BY-NC-ND

One way to evaluate the sufficiency of public investment in higher education is to consider how the United States stacks up internationally.

Data compiled by the Organisation for Cooperation and Development (OECD), a policy think thank representing highly industrialized countries, show that families in the U.S. support a hefty share of higher education costs while the public enjoys a substantial return on their investment.

Sixty-two percent of the costs for higher education in the U.S. are paid by private sources. This figure is well above the OECD average of 28 percent. For men in the U.S., the public return on investment in a college degree is 14.5 percent, and for women it is 9.2 percent. Both figures are above the OECD average of 10.6 percent and 8.6 percent, respectively.

As a researcher in the field of higher education, I believe American states are investing public higher education at levels below what is justified by the benefits. Increased investment in public higher education would likely slow the rate of growth in tuition prices and may over time also buoy lagging state budgets.

Editor’s note: This article was part of our collaboration with Point Taken, a new program from WGBH that debated the issue. The show features fact-based discussion on major issues of the day, without the shouting.

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