The pyrrhic victory of American higher education: bubbles, lemons, and revolution.

• Author: Edel, Jonathan Noble

INTRODUCTION

While mingling with an old high-school friend--let's call him Troy--at a wedding recently, the conversation took an unexpected turn. I asked him how his work at the local grain elevator had been going; he retorted that it was great, aside from the $600 monthly remuneration he was paying in college loans. After inquiring about how much longer he would be making these loan repayments, he despondently answered, "the rest of my life." Troy spent more than three years at a large state university in Ohio, but, feeling as if he never truly belonged, dropped out with nothing to show for it except tens of thousands of dollars of debt and nearly four years of his life seemingly wasted.

The prospect of insurmountable education debt, unfortunately, is one that plagues thousands of individuals across the country--degree in hand or not. (1) Many of these dejected souls echo similar tales of peer, parental, and societal pressures, encouraging them to pursue the illusion of the "American Dream," where everyone goes to college and no one has to do "manual labor." Unfortunately, with the economy still reeling from the credit crisis and college enrollment at an all-time high, a large portion of those entering--or at least attempting to enter--the workforce will face the same fate as Troy.

While this predicament may be easy to dismiss as merely a negative effect of the current economic crisis that will eventually equilibrate, it is more likely that the crisis has exposed a larger problem with our educational system--the proliferation and devaluation of higher education, colloquially known as the "massification of higher education." (2) While a more educated populace is a noble goal, overeducating comes at an expense, and politicians and policymakers must weigh the benefits against the costs in ascertaining the ideal amount of education. (3)

This Note will attempt to expose a few of the myriad problems created by the over-education phenomenon and offer some suggestions on how to deal with them without major social conflict. (4) First, Part I will begin with a brief introduction and rundown of the statistical trends in educational attainment in the United States. Part II will then detail the history of higher education policies--political, societal, and economic--which affect Americans' educational choices. Next, Part III will explain the serious side effects these policies have created--including, increasing education costs, lower wages for workers, and higher unemployment. Part IV will then explore a potential solution, as well as suggestions proffered by others, to diffuse this delicate situation with some not-so-delicate ideas, including changing the high school curriculum and restricting the federal student loan program. Finally, the Note closes with some concluding remarks.

1. TRENDS IN HIGHER EDUCATION

   It is instructive to begin with a short summary of educational achievement trends in the United States. Americans today are more educated than they ever have been in the past. (5) A study by the United States Census Bureau in 2010 revealed that of adults between the ages of twenty-five to thirty-four, 31.1% had attained a bachelor's degree. (6) In the early 1950s, this number was in single digits. (7) The study also found that for adults twenty-five years and older, the percentage with high school degrees and the percentage with bachelor's degrees were both at all-time highs. (8) Similar trends are present across all genders, (9) races, (10) and socio-economic backgrounds. (11)

   Over the past few decades, there has also been a major increase in the cost of higher education. From 2002 to 2007 alone, the average cost of attending a public four-year university shot up thirty-five percent, outpacing inflation over the same period by a significant margin. (12) In fact, between the 1976-77 and 1986-87 academic years, the "average annual inflation-adjusted increase in public four-year college ... was about [two] percent" (13) and, since then, has been about four percent. (14) This trend has been most pronounced in the realm of public four-year colleges, as compared to private four-year colleges or public two-year colleges, and it is expected to continue into the future. (15)

2. PUBLIC POLICY IN HIGHER EDUCATION

   Many factors combine to determine the access, availability, and perceived benefits of higher education. The government intentionally creates or manipulates some of these incentives to help individuals better themselves; others are societal norms, disseminated through peer pressure; and still others are market forces that induce people to take certain actions or prepare themselves in specific ways to be more attractive in the labor market. Subsection A will identify some of the governmental and legal policies aimed at improving access to higher education; subsection B will explain societal pressures and, more specifically, how the "American Dream" has fueled this over-valuation of higher education; and finally, subsection C will give examples of how market forces have created a preference for individuals with college degrees.

   1. Governmental and Legal Policies

      The government subsidizes higher education in numerous ways. First, the government established land-grant institutions, which evolved into today's "state schools" in the Morrill Act of 1862 (16) as a more cost-effective alternative to private universities. Furthermore, the government subsidizes higher education by offering tax deductions and/or credits for education expenditures. (17) Most importantly, for the purpose of this Note, the government supplanted private industry in the realm of student loans in the middle of the twentieth century to control interest rates and access to funding for higher education.

      The history of governmental and legal policies in higher education is the paragon of good intentions gone awry. Higher education has always been expensive, so, beginning in the Cold War era, the government began enacting statutes to make college more affordable to all prospective students. (18) Originally, Congress designed Title IV of the Higher Education Act of 1965 to "assist in making available the benefits of higher education to qualified high school graduates of exceptional financial need, who for lack of financial means of their own or of their families would be unable to obtain such benefits without such aid." (19) Congress amended this Act multiple times to increase both the number of students eligible for federal loans and the borrowing limits, as well as to reduce the applicable interest rates. (20) Moreover, between the original Higher Education Act and the early twenty-first century, the government also began creating tax incentives through student loan interest deductions, in a further effort to incentivize individuals to pursue higher education. (21)

      Then, in 1972, the government created a Government-Sponsored Enterprise ("GSE") (22) called the Student Loan Marketing Association, known as "Sallie Mae," (23) in an effort to make college loans available to still more people. (24) Although later privatized, (25) Congress used Sallie Mae to guarantee loans to private lenders at a specified interest rate, which allowed private institutions to increase the number of loans available to the public, while effectively disregarding the creditworthiness of the borrowers. (26) More recently, as part of the Health Care and Education Reconciliation Act of 2010, (27) President Obama sought to "make college affordable in the midst of the rising tide of college tuition" by removing the "middlemen" role of private banks in the loan process. (28)

      These policies made the cost of borrowing money for college--and post-graduate education (29)--cheaper and easier for students to attain, and in turn, induced more and more students to attend college. (30) Thus, a number of policies since the 1960s have accomplished the admirable goal of making college more affordable for the less fortunate. These policies, however, like so many others subject to the haggling, compromising, and pandering of the political process, quickly expanded in scope, magnitude, and variety, to include not only low-income households, but also moderate- and upper-income households as well. (31)

   2. Societal Pressures

      Similarly, social norms have also contributed to this trend, with "common knowledge" being that college comes after high school. (32) In fact, one commentator and critic of current higher-education policy suggests this idea is one of the top "Commandments" of the "American Religion." (33)

      Attaining statistics concerning people's tastes for a good is difficult. Circumstantial evidence, however, demonstrates that the demand for college is increasing as a matter of individual preference. Normally, we could observe the price of the good fixed for inflation--if the constant-dollars price was increasing while the overall quantity consumed was also increasing, it would imply that the demand curve had shifted to the right, and thus the increase in price was driven by an increase in demand. (34) This scenario is opposed to a shift in the supply curve, in which case, if these quantity increases, the price would decrease and vice versa. Since the current trend in education is an increase in quantity and price, the demand curve must have shifted to the right, as opposed to a shift in supply. (35)

      In the current situation, however, this evidence is not a reliable indicator of demand, because the subsidization of higher education by federal loans may be distorting the market. (36) A general directional trend, however, may be ascertained. First, in constant 2006 dollars, the average cost of a four-year, private institution was $12,375 for the 1986-87 academic year. (37) This number, in constant 2006 dollars, rose to $16,843 and $22,218 in the academic years 1996-97 and 2006-07 respectively. (38) Over the same time, however, the maximum federal Stafford loan available was $22,708.65 in...