By Richard Vedder
The Establishment is upset. Charles Miller, Spellings Commission Chair, wrote a letter to Gaston Caperton, President of the College Board (and former liberal Democratic politician), blasting the erroneous propaganda that the College Board puts out that says college graduates earn a million dollars more, in present value terms, than high school ones.
Sandy Baum of the College Board acknowledges that the million dollar figure is an overstatement, and that she (author of the relevant report) does not really claim that figure is true. Then why is that figure in the report? Why put out a figure that is knowingly an overstatement? Let me be perfectly clear, as Richard Nixon would say: I am 100 percent on Charles Miller's side in this debate.
In a previous blog, Thomas Ruchti and I argued that the income premium associated with a college degree is overstated by the College Board --perhaps by a factor of four. Huge numbers of entering students do not graduate from college. A large proportion of those who do graduate take five or more years. The cost of college is more than the College Board uses in its calculations.
Sandy argues, with considerable validity, that academic studies consistently show that higher education has a high rate of investment return to individuals going to college. Those studies, however, sometimes assume entering students complete a degree, and tend to downplay or ignore the attrition problem. But even if the rate of return on higher education is high to individual students, it is not necessarily high to society as a whole. Most of the Higher Ed Establishment argues that their sector exudes positive economic externalities --spillover effects. The evidence that I have seen and trust suggests that negative spill-over effects are larger than positive ones, which suggests the social rate or return on higher education may be low even if the private rate of return is acceptable or high. More specifically, enhanced state appropriations for higher education do not bring higher economic growth --and indeed may well lead to lower expansion in incomes.
As a practical matter, one can predict whether an 18 year old kid will succeed in college with a fairly high level of reliability. Kids in the top one-fourth of their high school graduation class and a composite SAT (forgetting the near worthless writing component) score of 1300 and an ACT composite of 28 are very likely to make it through college, and for them, college is usually a good private investment. Kids who were below average students in high school with a 900 SAT composite and a 17 ACT score likely are not going to succeed in college. That suggests the average rate of return on college for them on average is very low, maybe even negative. At the margin, these are a large proportion of the kids that politicians are talking about when they call for more access, higher enrollments, and greater equity. Investing heavily in these students is not a paying proposition on average, Sandy Baum, Gaston Caperton and all the other establishment types notwithstanding.
Lost in all the discussion is the economist's critically important concept of opportunity costs. When a person goes to college --she not only uses resources provided by society, but she fails to produce goods and services that she would have if she were not enrolled. Those opportunity costs rise relative to the long run earnings benefits when a student simply does not graduate. The College Establishment, isolated from the Real World, simply does not see the opportunity costs of attending college, or they choose to trivialize them.