US taxpayer-paid post-secondary education: why is it needed now?

 

     I ran across a message the other day which basically said "I worked very hard to pay for my school costs and my parents worked hard and we all worked hard to pay off student loans and I don't see any reason why current and future students shouldn't have to do the same thing."

     I can empathize -- that's a lot of work that had to be done -- a lot of sacrifice. It should not have been required or necessary but it was.

     But things are different now. For one thing -- as my children love to remind me -- the times are not the same as when I was going to college. In 1975-76 (my first year of college), it cost $540/yr, on average, for tuition and fees at a public university ($2290/yr for private college.) For 2018-2019, that cost for public university was $10,280/yr and private university was $35,830/yr. Now, of course, because of inflation, that $540/yr would be $2521/yr (4.47x inflation factor between 1975 and 2018). But $2,521 is still 1/4 of what it costs per year in 2018. University costs have gone up four times as much as inflation. Or, take minimum wage -- which was $2.10/hr in 1975 and $7.25/hr in 2018 (these are unadjusted dollars -- if you use inflation-adjusted dollars, minimum wage went DOWN). That is, minimum wage went up by a factor of 3.45 in the same period that the cost of college went up by a factor of 19.

      So, tuition and fees within the US have risen extremely over the past 50ish years and growth in wages and the ability to pay has not come even close to catching up.

     This does not include room and board. I haven't found a good analysis of that cost but, for my son, room and board at a public university is about 130% of the tuition and fees. So, a grand total of about $24,000/yr. Because of general increases in costs for private schools, a 220% cost total for private giving about $78,800/yr.

     But, college is still worth it, right? The investment will pay one back in income over the post-graduation years? Well, the answer to that is -- it depends. In spite of words of appreciation, beginning teachers are not paid well -- an average of $39,000/yr just starting out as a secondary school teacher in the US. On the other hand, a computer science bachelor's degree in the US (not true in other countries) may bring in $94,000/yr as a cybersecurity analyst. And students that land a job on Wall Street might get $300,000+/yr.

     Assume that you went to a public school and borrowed to get your degree. It cost you $100,000 ($330,000 for private). At 5% interest (may not stay that low for long), you will pay about $6,441/yr ($21,155/yr for private) to pay it off in 30 years. For a starting secondary school teacher, that would be about 1/6 (or 55% for private) of their GROSS salary -- not even allowing for taxes, medicare tax, social security, local taxes, etc. Maybe possible but very hard to do. Not nearly as hard for the cybersecurity analyst and pocket money for the Wall Street person. But, what about the many who are not able to use their degrees in a directly applicable career area? What about those who are getting minimum wage and working full-time (unusual -- most minimum wage jobs are part-time)? That $15,080/yr means that payback of the student loan is about 43% of their GROSS wages. Not doable -- period.

     And -- say that your family has been saving like mad for your entire life and you were able to pay for college without taking out any loans. The cost is STILL about the same as having taken out a loan because the money you saved and spent on college could not be used in other ways to increase the capital. You save the interest from the college loan but are down the cost of not having been able to use the money in other ways.

     We have now covered both the extreme rise in cost for post-high-school education in the US as well as the lack of adequate increase of income to pay for it. Is it worth it? Well, for the individual, once again, it depends on where their career path takes them. For a lot  -- probably most -- of the students -- no. They will probably pay more for their education that the increase in their wages justifies. That did not used to be the case -- it is now.

     How about being worth it to society? Probably. Our world of work continues to change. Unskilled labor has a much harder time finding jobs (and even harder finding jobs paying a living wage). Opening positions require a higher base level of education. Without that education they are likely to be unemployable and that means a dependency on families or taxpayers. Once again, we are talking about investment -- but this time it is investment by society FOR society.

     So, paying for our own post-secondary education in the US is farther and farther out-of-reach for more and more families and is no longer cost-effective as an investment. BUT, it is cost-effective for the country as a whole to have better educated, skilled, people within the economy.

The Value Equation: A formula with no fixed parameters

    People are always searching for a "good value". But what does value mean? Value is certainly a subjective matter -- the value for one person will differ from the value for another person. Still, even though it is variable, there are certain things that make up value. I call this "the Value Equation". Real economists may very well have a better formula for this concept -- but I like mine for general simplicity and use.
    My Value Equation is Quality * Quantity * (1 / Cost) = Value. I would love to have Cost not be used as a reciprocal (divided into 1) but that is really how it relates to value. The lower the Cost the greater the Value -- a reciprocal situation. There is one other factor that indirectly affects the Value Equation. That is Affordability. It interacts with Cost in some manner but I don't know how to directly put it into the equation. Let's just say that if you have more money available then cost becomes less important.
    Quality is the most subjective part of the equation. If one person really loves something then their perception of quality increases. In a similar way, if another person really hates something then the quality becomes less. It is even possible for it to become negative. A negative quality would indicate that the thing being evaluated goes against moral values. If you hate internal combustion engines then a more powerful engine has less quality for you because it uses more gasoline and probably emits more pollution. If you don't mind internal combustion engines then a more powerful engine has things about it that you love and will increase the quality for you.
    Quantity is the only part of the equation that is mostly fixed. I say "mostly" because it is not always true that "more is better' for some people. A huge drink ("big gulp") sounds great until one evaluates the health consequences of drinking too much sugar or artificial sweeteners. A huge sandwich that is more than one should eat either becomes "wasted" (thrown out) or "waisted" (accumulated as fat into your body).
    Even cost is a variable factor. First, the price that is charged is not fixed. Often, wealthy people (or celebrities) are charged less for things because they can "take it or leave it" and because their possession and use of it provide a return advertising value for the supplier. Second, in most instances cost does not reflect "total cost". Total cost is the price of all events that exist from harvesting the raw materials to manufacture to distribution to reclamation of the object and the environment from which the raw materials were harvested. Total cost is rarely used -- a good portion of the cost is absorbed by the general population and subsidized by the taxpayers.
    Even with the subjective variability of the parts of the equation, it is still easy to see how it is used. Something that is of high quality, in the desired quantity, at a low cost will give the greatest value. If the quality goes down, the value goes down. If the cost goes up the value decreases (but may not be so important if it is very affordable).
    How would you define quality? Do you see a limit on quantity that provides value or is "the more the merrier"? Do you consciously take into account "total cost" when you buy something. Do you "waste" or "waist" or do you try to always get just the correct quantity?
    Although the Value Equation can be used as a framework -- the final answer is still up to you.