While the price of college has been rising almost as fast as health insurance, graduation rates have stagnated. The Obama administration has responded with a new higher education plan, based on developing a new ratings system for colleges, to be ready before the 2015 school year. The hope is to unleash market forces on the cosseted ivory tower: students (and families) will shop around for better quality and lower cost, driving the colleges to greater efficiency and quality.
Good luck getting agreement on a ratings system. Different students want different things from higher education. And government should only be supporting some of those things.
Some information will likely help some students. Figuring out the actual net cost, present and future, of a particular college is not easy, particularly since colleges often obscure it. And knowing a college’s graduation rate may help too: A recent study found that students enticed, by a small scholarship, to attend a lower graduation rate college were 34 percentage points less likely to graduate. Of course, it’s hard to post information without colleges responding perversely, by say, lowering graduation requirements.
What about the over-arching new ratings system to be developed with input from “students and parents, state leaders, college presidents, and others”? These groups are unlikely to agree—with each other or amongst themselves—about what a ratings system should measure.
A recent parody illustrates the problems. A father describes his realization that his son should not go to inefficient, low value-added Columbia but rather high value Cal State Fullerton. The son is devastated but told, “The Data-Driven have to be strong.” (Full disclosure: Baruch College of the City University of New York, where I teach, is ranked third nationally in the Bang for Your Buck college rankings.)
Why do the son (and the real Dad) prefer Columbia? First, education is partly consumption, not just financial investment. Which college will be more fun? Where will you get to interact with famous researchers and enjoy intellectual discussions? Second, education is partly about networking: Who will you meet? Will your fellow students provide good connections for jobs well after graduation?
But even if you focus on just the financial return—earning more money—from attending a particular college, some part of that is not from what you learn. It’s from signaling to employers that you are the kind of person who can get into—and stay the course at—Columbia. If you can get into Columbia, then it doesn’t need to add value to you in order for you to be attractive to employers. (Full disclosure: I used to teach at Columbia.) In fact, some studies suggest that someone who got in to Columbia could earn as much by going to Fullerton State. But whatever the truth, most people think you’d earn more at Columbia.
What ironic Dad and his son want is a prestigious school, just because it’s prestigious. For signaling, it does not matter why it’s more prestigious: faculty research, winning sports teams. School colors would work if colleges had to struggle to get a prestigious school color.
But should the government help provide information—and eventually more subsidies to places with more prestige, better networking and greater consumption value? Why should government (meaning, all of us) spend so much money ($220 per year) on higher ed?
The main reason is that we can all be more productive as a country: constantly adapting precise, complex manufacturing; writing clear, compelling prose; understanding foreign cultures we are trying to sell to; writing innovative computer code. And some part of higher education does do that. As a country, we want to encourage—and subsidize—adding to our stock of human capital, as we economists call it. While I would probably pick Columbia for my imaginary child, if I had the money, my personal observations suggest that it is Baruch’s teaching that adds much to our human capital stock—and at impressively low cost.
Government funds higher education for a second reason: reducing our sky-rocketed and sky-rocketing inequality. We want to help those from less well-off backgrounds. Helping less-well-off prospective students identify affordable signaling and networking opportunities serves that purpose. But only for the few who displace other better-off students. Prestige is a zero-sum game, not a way to help the vast majority of the left behind.
The Obama administration is not going to be able to develop a ratings system that satisfies these many stakeholders, who want different things from higher education. It should focus on a ratings system that serves our country’s interests as a whole, increasing our total stock of human capital.