College affordability has gained a lot of attention over the past few years. The recession and credit crisis have focused
concern for policymakers and parents alike. I am not sure that the simple focus on costs is the right way to think about the
problem. Here’s why:
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
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 [email protected]