To understand the feeling of crisis that many see in higher education right now, it’s useful to start with some figures from 40 years ago. In 1974, the median American family earned just under $13,000 a year. A new home could be had for $36,000, an average new car for $4,400. Attending a four-year private college cost around $2,000 a year: affordable, with some scrimping, to even median earners. As for public university, it was a bargain at $510 a year. To put these figures in 2015 dollars, we’re talking about median household income of $62,000, a house for $174,000 and a sticker price of $21,300 for the car, $10,300 for the private university and $2,500 for the public one.
The Education Issue: What Is the Point of College?
A lot has changed since then. Median family income has fallen to about $52,000, while median home prices have increased by about two-thirds. (Car prices have remained steady.) But the real outlier is higher education. Tuition at a private university is now roughly three times as expensive as it was in 1974, costing an average of $31,000 a year; public tuition, at $9,000, has risen by nearly four times. This is a painful bill for all but the very richest. For the average American household that doesn’t receive a lot of financial aid, higher education is simply out of reach.
Lots of people enter community colleges, but most won’t graduate. Some four-year schools have truly abysmal records when it comes to graduating their students in six years or less.Tackling this crisis is now a political issue. President Obama has proposed making community college available to nearly every American. Hillary Clinton, Bernie Sanders and Martin O’Malley have all announced plans to increase federal funding for college, if elected. Those on the right are also offering solutions, though they tend to consider government spending part of the problem. Donald Trump says he will cut the Department of Education ‘‘way, way, way down.’’ Scott Walker successfully cut $250 million from Wisconsin’s budget for higher education. Jeb Bush has focused far more attention on primary and secondary education — opposing tenure for teachers, advocating ‘‘school choice’’ — but he promotes his cutting back of affirmative action in Florida’s public universities as an example of reducing government’s role in education.
Higher education is a fascinating, complex business. Its pricing dynamics ripple throughout the rest of our economy, in effect determining who will thrive and who will fail. What’s more, the product of this particular industry is not just an end in itself. Education can have enormous personal benefits for those who acquire it, but it also has external benefits to the rest of society. Education exerts something of a multiplier effect; it transforms not only the lives of the educated but of those around them as well. Workers with more education are more productive, which makes companies more profitable and the overall economy grow faster. There are also significant noneconomic benefits. Educated populations tend to be healthier, more stable and more engaged in their civic institutions and democratic debate.
For young adults from educated, middle-class families — the people who will find a way to get through college despite the costs — rising college tuition is a personal challenge. But the great national crisis is the fact that too many other young adults are not going to college or, if they do, don’t graduate, in large part because they can’t afford it. Every American benefits when every other American has access to as much schooling as he or she wants. When accessibility to higher education declines, we all end up paying for it.
An estimated 21 million students attend at least some classes in a postsecondary institution. Like many categories of consumer products, though, colleges and universities do not constitute a single, cohesive market. The larger industry can be broke down into at least three distinct higher-education markets whose offerings, customers and business priorities share little overlap. One of them comprises the 200 or so highly selective schools with national, and even international, reputations. These include the most elite schools, like the Ivies, but also any private institution with especially strong brand recognition. Such schools enroll between 2 percent and 10 percent of all postsecondary students, depending on how ‘‘elite’’ is defined, and taken together they show all the hallmarks of a well-functioning competitive market. They vie with one another for the best students in the country and the world. Huge amounts of information about them are readily available to consumers, so it is very unlikely that any of them could deceive potential students about the benefits of the degrees they offer. The enormous financial value (and cultural currency) of the product they are selling, an elite credential, is well understood. Nearly everybody admitted to these schools graduates within four years.
The next educational marketplace consists of the large regional powerhouses, home to another 20 percent or so of the higher-ed student population. Usually public, with names that often begin with ‘‘University of,’’ these schools have strong reputations in their home states and often among the residents in neighboring states. The best ones are more likely to be found in the South or West. Lawrence Katz, a professor at Harvard and a leading scholar of education economics, co-wrote a famous paper a few years ago with Claudia Goldin in which they pointed out that states that had elite private schools in the 1890s are less likely to have developed these strong, upper-tier public schools. The reason is as obvious as it is depressing: The powerful private schools lobbied politicians to keep public institutions underfunded. That helps explain why the university systems in North Carolina, Texas, Indiana, California and elsewhere outside the Northeast are held in such high regard. (The University of Massachusetts and SUNY systems, by contrast, do not have the same reputations.) Public universities have always been cheaper than their elite private counterparts, but the gap has been closing slowly as states stop funding the schools as generously as they once did.