As an investment, college can't be beat. The lifetime rate of return on a college education tops 11 percent for individuals and is higher for governments. There is nothing over a lifetime that pays more than a college education. For governments the only investment that yields a higher return than college is K-12 education. Viewed as an investment choice, college costs are too low. That is why they will continue to rise.
I think the problem that vexes so many is not the cost of a college education. The problem is in the variability of the rate of return individual students receive from their investment. If I am right, then the policy options for making college more affordable are radically different than those focused solely on keeping tuition and fees down.
Whether or not they really intend to, most students choose a school, major and degree that increases their lifetime earning potential. But far too many do not. Badly performing high schools, easy and inexpensive student loans and poor information about career opportunities make matters worse by extending the college experience and increasing debt burdens on students.
To put it simply, far too many students leave college without the skills necessary to get a job that makes their investment worthwhile from a financial standpoint. So, a single-minded focus on college cost misses the point. The problem is not that college costs too much, but rather that too many college students make bad choices. This is unsurprising given their age. As a result, policies should be targeted at helping young people make better decisions.
Colleges do some of this well. It is not a well-kept secret that needy and high-performing students get tuition breaks, and that high-demand majors get lots of scholarships. However, colleges could do better. We probably ought to make all students sign a form that informs them of the starting salaries in the major of their choice. This will result in far more accounting majors and far fewer in archaeology (which will in turn raise the wage for archaeologists, but not the glamour of accounting).
College preparation has to be much better in Indiana. Families pay a heavy price in extra college tuition for the under-performance of our high schools. Financial institutions that make student loans ought to look more closely at majors and grade-point-averages of students.
Indiana's universities operate in a global marketplace for students and professors. Ill-considered efforts to cut costs could well leave a school less attractive to students. This would reduce its considerable economic value to a state as well as its graduates. Caution is in order.
Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at firstname.lastname@example.org.