Friday, October 19, 2012

College Education Is the Key to Economic Growth

This year's presidential campaign has created a lot of discussion about higher education. There seems to be bipartisan consensus around the idea that high school no longer provides the skills that young people need to keep America competitive and to find jobs in the 21st century economy. The real issue for voters is whether the policies of the candidates will boost college attendance.

Perhaps the low point in this discussion occurred when candidate Rick Santorum reacted to President Obama's call for all young people to get some kind of postsecondary education or training. The former senator from Pennsylvania misrepresented this as advocacy of college for everyone, and he accused the President of snobbery.

But, in fact, the importance of college keeps growing. To be sure, noncollege forms of postsecondary education and training--most notably apprenticeship--can teach very marketable skills. College, however, has consistently been the engine of employment growth in America's economy for two decades. Consider the following graph created by the Center on Education and the Workforce at Georgetown University. (It's part of their vital report, The College Advantage: Weathering the Economic Storm.)

Another way to look at the advantage of college (at the personal level, rather than at the national) is to compare the earnings of college grads with high school grads. Over the past several decades, the advantage has grown.
Source: U.S. Bureau of the Census, Current Population Surveys, March Supplement, 1968–2011.

But what about the rising cost of a college education? Isn't that eroding the value of college?

It's true that college is now 12 times more expensive than it was in 1978, whereas overall consumer products are only 3.6 times more expensive. However, increases in the availability of financial aid for college have offset much of this increase in sticker prices, especially at public colleges. The College Board calculates that public four-year colleges raised their tuition and fees between the 2006-07 and 2011-12 school years by about $1,800 in 2011 dollars. This is an annual rate of growth of 5.1% beyond inflation. However, if you account for what "in-state students pay after taking grant aid from all sources and federal education tax credits and deductions into consideration," the increase was only about $170, which is an annual growth rate beyond inflation of only 1.4%.

One of the sources of grant aid that is frequently referred to during the presidential campaign is Pell grants. It's important to understand that these grants have not been keeping up with the increases in college costs. During the 1979-1980 school year, the maximum Pell grant paid 77% of the average cost of a four-year public college. By the 2010-2011 year, that share had shrunk to 36%.

So pay attention to what the candidates are saying--and, more important, what their policy proposals indicate--about the future of Pell grants and other sources of college tuition aid. This country's economic growth depends on college attendance, and that in turn depends on financial aid. Governor Romney has remarked that his test of a government program is whether the benefits are worth borrowing for. If our government does not borrow to provide tuition aid, college students individually will have to take out larger loans than they already do (and those loans already exceed the amount of credit card debt). The government can get a much better interest rate than individual students can. To keep America competitive, this is an expenditure worth continuing--and increasing.

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