Academics have historically balked when confronted with suggestions that the education system is a business and should be treated as such. They speculate that placing a monetary value on an entity with a deep, intellectual purpose diminishes the overall significance of learning. They claim that you cannot quantify the positive benefits of a degree.
But this is not the case. Education, particularly higher education, is a business, and one of the few left in this country that guarantees a positive return. To call education a business isn’t to undermine its importance to our country and citizens — it provides the proof that our higher education systems should be a top priority, if not the top priority, for government spending.
Quite simply, the future of our economy depends on well-educated workers. More than 59 percent of jobs today require some postsecondary education, yet these degrees are becoming increasingly difficult to attain. We must evaluate higher education based on the return institutions generate for the country both in terms of absolute dollars and competitiveness.
Public higher education depends on state and federal budget allocations. We have a choice as to how we distribute these public funds. By continually prioritizing Social Security, health care, and defense spending over education, the government is indirectly hindering an increase of college graduates that our economy so desperately needs. By 2018, 63 percent of jobs will require a college degree, but we are likely to fall 3 million graduates short of what the market demands, according to a recent study.
Today, the federal government spends approximately $30 billion annually subsidizing enrollment in higher education institutions, with most of the money spent on financial aid, and roughly 8 percent going to grants to institutions. According to a Cato Institute Study, the federal government also provides approximately $30 billion to U.S. universities to fund research projects. While these are certainly hefty investments, combined it means the government only contributes 14 percent of the total dollars — $420 billion — that flow into higher education institutions.
Higher education is the best investment we can make for our country’s future. But are we doing enough to support educational institutions and students? Higher education provides annuity-like returns for 40 years — the working years of most graduates. Over the course of an average lifetime, a holder of a four-year-equivalent degree (the weighted average of associate’s, bachelor’s, master’s, professional, and doctorate degrees) gives the government $471,000 in income, payroll, property, and sales tax revenue. You certainly can quantify the value of a degree: that’s more than twice what it would collect in lifetime taxes from a high school graduate lacking a college degree, according to a University of Maine study.
In California, for instance, every dollar the state invests in higher education leads to a $3 net return on investment. The University of California System (UC) contributes more than $14 billion in California economic activity and more than $4 billion in tax revenues each year, not to mention the impact from UC-related spinoffs. Further, the California State System (CSU) ensures businesses get the trained workforce they require — CSUs graduate 45 percent of the state’s computer and electrical engineers. Despite this, the UC and CSU schools have seen a 28 percent decline in state support between fiscal years 2007-2008 and 2011-2012, according to a study done by the Stanford Institute for Economic Policy Research.
Higher education graduates help fuel innovation that creates new jobs. Research universities contribute new technologies — from Internet search algorithms to genetic coding — and file thousands of patents annually. The American Recovery and Reinvestment Act (ARRA) of February 2009 provided some funds for higher education (mainly to prevent states from reallocating education dollars for other purposes). However, these funds are miniscule — less than a percent — in comparison to the total funding for research universities, according to the Washington Higher Education Coordinating Board.
If the government should plateau on its investment in higher education, we’ve raised the risk level of our current investment. When endowments are down and state governments cut funding to state universities, tuition rates rise and the likelihood of students not graduating increases. According to the American Institutes for Research, students who started bachelor degree programs in the fall of 2002 but failed to graduate in six years cost the students approximately $3.8 billion in lost income in 2010 alone.
A recent Inside Higher Edblog post discusses an interesting approach to lowering tuition costs while increasing the numbers of students able to enroll in universities and earn degrees, using a simple supply and demand model. Approaching the problem from an economic standpoint does not undermine the importance of receiving an education; it highlights its very necessity, and makes it more accessible.
As taxpayers, we need to be asking about our tax dollars’ return on investment. From 1987 to 2006, we doubled federal support for Medicaid in state budgets — increasing these funds from 10.2 percent to 21.5 percent — but decreased federal expenditures for higher education from 12.3 percent of state budgets to 10.4 percent, according to a University of California study.
We need to have a conversation about education similar to the national debate we had about the automotive and financial industries. We should not view education expenditures as discretionary dollars that we can increase and decrease at will, but rather as the most dependable, profitable, and ultimately, important investment our government can make.
Mehdi Maghsoodnia (@mmaghsoodnia) is CEO of Rafter, which provides software tools for cloud-based distribution of course materials. Rafter is also the parent company of textbook rental service Bookrenter.com.
A distance learning group is raising an alarm about a change to Pell Grants in a Senate appropriations bill for fiscal year 2013 that, if signed into law, could cut the need-based grants for students taking online classes. A provision in the bill, which would increase the overall Pell Grant next year, would stop allowing students taking online classes to claim room and board expenses, as well as "miscellaneous personal expenses," as part of their cost of living when applying for Pell Grants.
Currently, Pell Grants take all forms of expenses into account for all students, whether they're commuters, residential students or enrolled in online or distance learning programs. Students would still be able to use those expenses when applying for student loans or other forms of financial aid. "It is hard to understand why the cost for a student’s living expenses are not allowable if the student takes online courses, but would be allowable if that same student were to commute to campus to take the same courses in a classroom," wrote Russ Poulin, deputy director for research and analysis with the Western Interstate Commission for Higher Education.
Every article I’ve read on the student loan debate seems to be missing one very crucial, simple way to completely eliminate student loan debt. It’s so painfully obvious that it flabbergasts me that no one, I mean no one, has pointed this out.
Many ideas are put forward. Lower tuition. Let students discharge their student loans in bankruptcy. Offer more Pell Grants, don't cut them. Limit the amount of aid that goes to for-profit colleges. Push for more disclosure of student loans and the cost of college.
None of those are the best solution to this problem. The real answer is simple and unpopular. It lies not with Congress, or the president, or the colleges and universities, but with the students. Students have to stop borrowing money to pay for college.
I know what you are thinking: “What, they can’t do that!” “How do you expect them to pay for school!” “That’s impossible!” “Colleges are too expensive!” I know there is a lot of emotional reaction to this statement, mainly because it flies in the face of popular wisdom, which is, “Borrow money now, focus on school, pay the money back after you finish school, when you may, or may not, be earning a higher salary.” We are borrowing on anticipated future earnings, or “leveraging,” as it might be called.
But I think we’ve forgotten a basic rule of economics: If you can’t pay for it, don’t buy it. Go to a school that you can afford.
Students have options. They can go to community college at a relatively low cost for two years, then go to a four-year school after that. They can work full-time and take online courses at cheap universities that are making education affordable and that will not accept federal financial aid, not because they are not accredited, but because they want you to graduate debt-free, at schools like New Charter University, or even tuition-free universities like University of the People. It’s not Plan A, per se, but it is doable. It’s not the freshman college experience, but it is a path to graduating debt-free.
Isn’t this how education is supposed to be? Work gives you the practical, real-world experience, and adding the educational understanding helps create a holistic learning approach. Three-quarters of college students juggle families, jobs and school.
The debate is not, should lower or increase interest rates? The “debate” should be about students taking a tough stand, for themselves, for their future, for the next generation’s future -- saying no to student loan debt.
Don’t get me wrong. Colleges and universities across America need to do everything possible to lower the cost of tuition. Absolutely. But do college students need to choose schools that are more affordable for them? Absolutely.
I know this is unpopular, but so have been many things in history that go against the grain. Thomas Paine, one of our nation’s founding fathers, stated, “Perhaps the sentiments contained … are not yet sufficiently fashionable to procure them general favor; a long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first, a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason.”
Aaron Broadus is a financial literacy counselor at the University of Missouri-Kansas City School of Medicine.
On the last business day before the interest rate was scheduled to double on new federally subsidized student loans, Congress approved a bill to keep the interest rate at 3.4 percent for another year. The extension, which cost about $6 billion, was included as part of a highway bill that passed both houses with large majorities.
However, some changes to the student loan program took effect Sunday. Subsidized loans for graduate students, cut last August in the deal to increase the federal debt ceiling, are no longer available. And the "grace period" on subsidized undergraduate loans -- under which the government paid the interest for six months after students left college -- has been eliminated as well.
Also, students receiving Pell Grants lose eligibility after 12 semesters, not 18 -- including those already in the program who have passed the limit.
House Republican leaders have tentatively agreed to a Senate deal to keep the interest rate on federally subsidized student loans at 3.4 percent for another year, the Associated Press reported Wednesday evening. The deal would extend the interest rate rather than let it double on July 1, but pay for the extension in part by cutting eligibility for students who have been enrolled for more than six years for a bachelor's degree or three years for an associate degree.
The Obama administration stepped up calls Thursday for Congress to stop student loan interest rates from doubling on July 1, even as Senate leaders said that a deal was close to prevent the increase. In remarks to college students at the White House, President Obama called on Congress to act quickly: "There’s still 10 days for Congress to do the right thing," he said. "I understand that members of both parties say they want to get this done, and there are conversations taking place, but they haven’t done it yet. And we’ve got to keep the pressure on."
Senate Republicans accused Obama of using the issue to score political points. After months of dueling proposals to prevent the increase, which would apply to federally subsidized student loans issued after July 1, leaders were said to be close to an agreement and that details could be released within days.
Obama said preventing the interest rate increase -- which would apply to about 7 million students -- was an economic issue. At the same time, the Education and Treasury Departments released a report calling higher education critical for increased earnings and social mobility and blaming state cuts for driving up tuition at colleges and universities. "Where we make our investments demonstrates our priorities," the report's authors wrote. "In order to ensure access to higher education, we must all do our part toward our shared responsibility to make these critical investments in today’s students and tomorrow’s workers."