The Diminishing Returns of Higher Education - English

Less is more

By Richard Vedder16.03.2015Culture and Society

The fact that more people are going to college is a big problem. What we need is more education alternatives and less college.


Flickr/David Goehring

The facts are indisputable: the cost of attending American universities has risen far faster than people’s incomes, forcing an increasing portion of students to incur large debts, often reaching into the tens of thousands of dollars. Worsening matters, the historically reasonable assumption that college graduates will obtain high paying managerial or technical positions no longer always holds: A large proportion of recent university graduates are “underemployed,” having positions requiring few skills, paying little, and that historically have been filled by graduates of America’s secondary schools.

Tuition up, student competence down

Two questions arise. How has this happened? More importantly, what can be done about it? Regarding the first question, the American economist William Baumol long ago argued that a “cost disease” exists in producing services like higher education; teaching is like acting –it takes as many actors today to perform Shakespeare’s King Lear as it did 400 years ago. Like actors, professors cannot be replaced by machines. Yet modern technology has made it possible for a single professor to lecture to tens of thousands of students simultaneously and continuously.

In America, the easy availability of loans from the federal government, along with the ability of universities to charge whatever fees they want, has led to fee escalation. As fees have risen, the new revenues generated have enabled universities to add more staff, especially many non-teaching personnel. Also, student demand for nice facilities has led to an Edifice Complex: a desire to build ever more beautiful, spectacular, and expensive buildings.

The results of all this spending are disappointing. Work of Richard Arum and Josipa Roksa suggest graduating university students have gained little in the way of critical reasoning or writing skills. “Grade inflation” – giving students high evaluations for mediocre quality work –has become rampant. While American research universities built on the German model are highly successful at expanding the frontiers of knowledge, in their instructional role they have increasingly produced graduates of questionable competence at per student costs far exceeding those in European countries, with the possible exception of Switzerland.

The higher education gap and an academic-based aristocracy

Moreover, in its attempt to encourage nearly all Americans to attempt a university education, several problems have arisen. First, about 40 percent of those pursuing traditional bachelor’s degrees fail to complete them in even six years. Second, since some students are intellectually and cognitively challenged and unable to truly comprehend higher forms of abstract reasoning, there has been a tendency to reduce instructional rigor: Less is demanded of students. For many, university training is not truly “higher” education in any meaningful sense.

The exceptions are the elite private schools –schools like Harvard and Yale universities. Ironically, an inequality gap has been created within higher education in America –the rich, famous, prestigious schools are qualitatively perceived more superior to the traditional high quality state (government) universities than they used to be.

Thus, rather than promoting equality of opportunity and increased intergenerational income mobility, American higher education today may well be promoting great income inequality. The wealthy send their children to very good quality secondary schools and pressure them to do well academically, getting them admitted to the very best private universities. Some of the weaker students go to the best private universities anyway because their wealthy alumni parents are sometimes able to get them admitted under special non-merit based “legacy” provisions. Thus universities have created and perpetuated an academic-based aristocracy that makes Americans less economically mobile and more class-structured than in the past, contradicting America’s image of being a nation free of aristocratic pretensions.

Reform will come from outside

But how can things be changed? Mine is probably a minority opinion within the American academic community, but I think that reform will come from outside the universities themselves. They have few incentives to reduce costs, embrace new technologies, alter expensive practices (such as academic lifetime appointments for many faculty.) One thing that can be done is to force change by reducing outside (non-student provided) funding of universities. Special tax advantages given for gifts to the elite private institutions should probably be curtailed, for example. But the biggest changes must be in the federal government’s current Byzantine system of providing financial assistance to students.

While not likely to happen overnight, ideally the U.S. government would gradually exit the business of providing student financial assistance, replaced in part by private student loans and, additionally, new private financial arrangements sanctioned by law, such as Income Share Agreements, where investors receive some percentage of the future earnings of college students in return for paying university fees. In such a world, resistance to fee increases probably would grow, and universities would find it very difficult to raise them. Even now, fee increases have led to stagnating enrollments.

We need alternatives to college degrees

With these changes, the number of university students might actually decline somewhat, which I think would be good – America has moderately “overinvested” in universities, and should increasingly emphasize less expensive, non-degree vocational education training more on the German model. For example, students can attend “career colleges” for perhaps one year where they learn how to weld, drive complex commercial trucks, become health care technicians, or style hair, all useful positions with modest educational financing commitments. Despite much talk about the high skill needs of the modern age, the U.S. government’s Bureau of Labor Statistics forecasts that a large proportion of new jobs expected to be created over the next decade do not require a college degree.

The Law of Diminishing Returns applies to American universities. It is valuable for the nation to support university training for a significant proportion of the labor force. But at some point, additional students attending college are less equipped to handle rigorous academic training, fewer actually graduate, and at the margin the jobs that are available are mostly low paid and unskilled: Not everyone can have high paying positions. In pursuing a “college for all” strategy, American policymakers have ignored a basic law of human behavior, and wasted human resources and caused financial anguish for many recent college students.



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