Michael Hicks, Ph.D., director Center for Business and Economic Research at Ball State University
College affordability has gained a lot of attention over the past few years. The recession and credit crisis has 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 is over 11 percent for individuals and higher for governments. There is nothing over its 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 increase 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 then 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 a not too well kept secret that needy and high performing students get tuition breaks, and that high demand majors get lots of scholarships. But, colleges could do better. We probably ought to make every student 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 underperformance of our high schools. Financial institutions that make student loans ought to look more closely at major and GPA of students. It is only their money that they risk.
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.