Should Governments Support Higher Education?

by Richard Vedder


As a professor who has spent over 90 percent of my half-century career in higher education at public universities, it was for decades a matter of faith with me that governments need to subsidize higher education. The two major reasons: higher education allegedly has positive “externalities” or “spillover effects” so that even non-college graduates benefit from college educations. Second, like most Americans I support the American Dream, the idea that anyone living in the U.S. can move from the humblest of circumstances to wealth and fame –in part by using education as a means to that end.

Yet there is no doubt in my mind today that governmental subsidies to higher education are excessive –our nation would be better off if we spent less. Indeed, I suspect no governmental spending commitment at all would be preferable to the situation today (although the optimum may be greater than zero). What led to the change in my position on this issue?

Consider the following:

  • Income inequality has increased in the past four decades of rapidly rising higher education, and the proportion of college students from low income groups is smaller today than four decades ago despite massive expansion of federal loan/aid programs;
  • The statistical correlation between state government higher education spending and economic growth is negative, not positive, suggesting the positive economic spillover effects of governmental university aid are non-existent and maybe even negative;
  • Despite rising higher education attainment, crime rates have not fallen dramatically, voter participation has not risen, volunteerism has not dramatically increased, and other alleged social positive spillover effects of more higher education are not apparent;
  • Even if there were some positive external benefits, the sharp rise in higher education costs would call into question whether those benefits exceed the costs.
  • Some two million articles are written for academic journals annually, most of which are little read trivial refinements on topics previously well researched and understood.

Moreover, other performance indicators are not good. Over 40 percent of new entrants into four year degree programs do not graduate within six years. Survey data indicate the average full-time college student works only 30 hours a week on academics –or under 1,000 hours a year, far less than typical adult employees work. The Labor Department tells us that there are now 17.4 million Americans with bachelor degrees or more doing work historically done by those without college training –the number of college graduates who are waiters has tripled since 1992, for example.

There are two economic “laws” that explain a lot of this: the Law of Diminishing Returns, and the Law of Unintended Consequences. Regarding diminishing returns, it is true that for some students higher education improves work skills, critical thinking capabilities, and their integrity and work discipline. A college education makes them more productive citizens. But not all human beings are created equal, and while the best and brightest may benefit from college, that does not necessarily apply to students with lower levels of cognitive skills, or less discipline and maturity. We are admitting more and more students with lower levels of motivation, prior academic achievement and, yes, human intelligence. To accommodate them, colleges must either dumb down their curriculum (hurting the more able students), or fail to graduate many of the incremental students (they have done both, in my judgment). Also, as Jackson Toby so ably argues, the watering down of college academic expectations has lowered standards in high schools, aggravating an already serious problem at that level. Grade inflation in large part is a consequence, but perhaps also a cause, of the escalation in the proportion of students attending college.

The Law of Unintended Consequences operates when outcomes are quite different than expectations. Massive student loan and Pell Grant programs were supposed to increase college participation and graduation rates disproportionately among the poor –but it has not happened. Massive aid programs, combined with selective admissions policies of many schools, have led to skyrocketing college sticker prices that turn many poor persons away, and to an inability to get into the allegedly better schools when applications are made. It has led to a complex financial aid form, the FAFSA, that has kept many lower income persons from making college applications (fortunately, that situation has improved somewhat).

All of this is happening at a time when public policy excesses are leading to severe financial strains on the economy. Our federal government’s debt is high and growing at an unsustainably fast rate. Most states face severe financial problems and some smaller governments even have contemplated bankruptcy. The ability and desire of taxpayers to heavily subsidize higher education with all of its inefficiencies diminishes daily. We are moving towards de facto privatization of some state universities, for example. As we increasingly recognize that higher education is largely a private good primarily conferring benefits on its users, we will back off our huge governmental financial commitment to colleges and universities, most of which are organized on a costly medieval model primarily using instructional methods dating back to when Socrates taught the youth of Athens. I think this public disinvestment is a good move, and higher education will be forced to adjust to it.

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