Thursday, December 23, 2010

Unintended Consequences Apply to Federal Government's Student Aid Programs

by Daniel L. Bennett

CCAP has been talking a lot about the growth in college degrees issued lately (check out our latest report on the topic here). One of the main questions that we've been raising is whether the supply of college degrees exceeds labor market demand for college educated persons. Earlier this week, my colleague Matt Denhart questioned whether America is overinvested in graduate education as well. While the chart does not specifically address these issues, it does show the rapid growth in college degrees conferred in the U.S. over the past 140 years.

In the 1869-70 academic year, less than 10,000 bachelor's degrees and only 1 doctorate degree were issued. A decade later, nearly 13,000 bachelor's and a whopping 54 doctoral degrees were conferred. By the turn of the century, nearly 27,500 bachelor's and 382 doctorate degrees were granted, along with 1,600 Master's degrees. By mid century, these numbers jumped up to 432,000, 6, 400 and 58,100, respectively, average decadal increases of 295, 316 and 715 percent.

Fast forward to 2007-08 and there were nearly 1.6 million bachelor's, 63,700 doctorates and 625,000 master's degrees conferred. Since the 1949-50 year, these were average decadal increases of 46, 155 and 169 percent. Interestingly, this later period also happens to roughly coincide with the federal government's involvement in the financing of students. Recall that the feds first got involved in financing students with the 1944 GI Bill that provided financial assistance for veterans who wished to pursue a college education upon return from WWII. The federal government would later expand its role in providing need-based financial assistance to non-veteran students beginning with the 1965 Higher Education Act. As time has passed, the federal government has extended financial assistance to virtually all students, regardless of need or merit.

So the history lesson for the day is unintended consequences: The growth rate of college degree conferment grew faster before the federal government became involved in financing students than since it has been involved. This suggests that the goal of increasing college attainment rates through financial aid may have actually had opposite the intended effect, it may have actually slowed the rate. Would the U.S. have produced a similar amount of college graduates today had the government never actually got involved in the financial assistance game? That is a question that is unanswerable, as the experiment has already occurred. However, as previous CCAP work suggests, the government's subsidization of higher education has likely increased the costs of higher education more than would have occurred in the absence of subsidization.

Note: There are obviously some concerns regarding the accuracy of data and the base year used for comparison. I rely on the accuracy of government data reporting in the above. The time periods used were roughly equivalent and coincided with the start of the federal government's involvement in providing financial assistance.


Michael said...

Who would have guessed that when government gets involved in producing goods the price of said good increases? Way to go Uncle Sam! (clap) (clap) (clap)

Of course, the problem here is because costs have skyrocketed, it makes it difficult (not impossible) to go to school without federal assistance, thus forcing more students into debt and more colleges into assuming that students will pay for their degree with government money; meaning universities could care less about rising tuition and fees.

RWW said...

Good comment Michael. I read yesterday that the waiting list for enlistment into the Army and Marines is at record numbers. One of the drivers was GI Benefits for schooling. Also, the people on the list are higher caliber people. So our government, and to a greater extent, Higher Ed is sending our young adults to war just to get into college (if they survive).

When I visited troops in Iraq and Afghanistan, many of the soldiers and Marines told me they were going to go to college when their hitch was up. I asked them if this was an idea they had before or after enlistment and the answer was almost uniformally that this was a primary reason for enlisting.