Forget About Making College Affordable; Make it a Good Investment

The August 2016 cover of Consumer Reports featured a striking quote by a 32-year-old nurse with $152,000 in student loans: “I kind of ruined my life by going to college.” While obviously an extreme case, her plight offered merely the latest example of media coverage putting a human face on America’s more than $1 trillion in student loan debt.

Indeed, some college graduates with student loans have not secured employment sufficiently remunerative to meet their financial obligations. Others are struggling to escape a heavy debt burden incurred in a failed effort to obtain a college degree.

Donald Trump has not issued an official platform on student debt, although he has referenced reducing college costs and lowering interest rates on student loans. Hillary Clinton has offered a variety of proposals. Echoing Bernie Sanders, she has proposed making in-state undergraduate tuition free at state colleges and universities for families with incomes below $125,000.

"A BACHELOR’S DEGREE MAY ONCE HAVE BEEN A TICKET TO THE MIDDLE CLASS, BUT THAT IS NO LONGER A SURE THING"
Such a plan has obvious appeal. It would reduce a key barrier to college matriculation as well as increase the supply of skilled workers. Since unemployment rates for college graduates are much lower than for non-graduates and average incomes materially higher, more young people would presumably move down the path to economic independence.

However, it is not clear that increasing bachelor’s degree matriculation rates is the highest priority in higher education. A bachelor’s degree may once have been a ticket to the middle class, but that is no longer a sure thing. Analyses by labor economists, as well as a survey commissioned by the Pew Research Center, suggest that roughly a third of Americans with a bachelor’s degree work in jobs that don’t require one.

Many assume that this “malemployment” is a temporary condition primarily affecting only some recent college graduates. While it is more common in recent graduates, analyses suggest that even individuals in their 30s, 40s, and 50s who are employed full time experience malemployment rates in excess of 27 percent and typically make little more than workers with no postsecondary education credentials.

So why is it that people with a bachelor’s degree have enjoyed unemployment rates roughly half that of those with only a high school diploma? One reason is that college graduates who can’t secure college-level employment often settle for non-college jobs. According to U.S. Census American Community Survey data, millions of college graduates with at least a bachelor’s degree work full-time in occupations that typically don’t require a college degree, such as retail salesperson or cashier.

One possible explanation for the highly uneven employment outcomes of college graduates is that the supply of graduates exceeds demand, at least for certain fields. The data support that. Some majors with a strong element of quantitative reasoning—such as engineering, computer science, accounting, or finance—are much more likely to lead to a college-level job with a healthy earnings premium.

However, graduates with only a bachelor’s degree in majors such as arts and humanities, communications, psychology, or non-quantitative business disciplines are much more likely to suffer from malemployment. Those who complete master’s degrees generally experience lower malemployment rates no matter what they study.

Are we teaching the right things?
An equally troubling possibility is that many college graduates have not gained the skills that higher education leaders espouse when making the case for undergraduate education. A 2013 survey of executives commissioned by the Association of American Colleges & Universities, for instance, suggested that four out of five employers want colleges to place greater emphasis on cultivating critical thinking and analytical reasoning skills, complex problem solving, and oral and written communications. Investments that provide students with better insights into the career implications of various courses of study, plus initiatives to assist schools to improve essential learning outcomes would likely do more to make the economics of a college education attractive for most students than reducing their student loan burden.

Beyond that, the student loan problem is often misunderstood. About 30 percent of those who earn a bachelor’s degree graduate without loans. Those with loans borrow an average of about $29,000, or about two years’ worth of the average young college graduate’s wage premium over a high school grad. A course of study and internships that lead to a college-level job usually will yield returns sufficient to prevent student debt from becoming an unreasonable burden.

The real problem of unaffordable student loan burdens lies primarily with individuals who don’t complete college (only three of five full-time freshmen students at public institutions graduate within six years), graduates who complete programs with poor employment outcomes, and those who select costly institutions (and/or an expensive college lifestyle) when more affordable quality options with comparable employment outcomes are available.

Putting popular fixes like free tuition aside, the facts make clear that improving the economics of getting a college education is less about reducing the investment students make and more about improving the returns they achieve.