August 5, 2004
ECONOMIC SCENE
Why Higher Learning Gets the Ax
By JEFF MADRICK

TO economists, higher education is like motherhood or apple pie. It will cure just about anything, from globalization and outsourcing to technological change and income inequality. Nothing could be quite as good as all that, of course. No matter how well Americans are educated, global competition and rapidly changing technology will take some toll on American labor markets.

Nevertheless, the data on the benefits of higher education in the United States are overwhelmingly convincing. The spread of education is the best way to address the nation's economic problems.

According to the 2000 census, for example, the median income of an American man with a college degree was about $52,200, 60 percent higher than the $31,600 for those with a high school degree. The proportions are about the same for women. In fact, the incomes of those with a high school degree have not grown on average since the 1970's.

So why, when international competition is such a threat, are states, which finance the bulk of higher education, cutting back significantly on their budgets? Part of the reason is that state budgets have been under pressure since the recession, and they are receiving little extra help from the Bush administration.

But the cuts go beyond that. States are cutting more from higher education budgets than from other large programs. The National Conference of State Legislatures reports that California is cutting its general fund appropriations for higher education by 8.9 percent, Texas by 5.4 percent and New York by 2.3 percent. In all, nearly half of states are making outright cuts, and, over all, state spending on higher education will fall by an average of 2.6 percent in fiscal 2004 after also falling in 2003.

States have other pressing needs, of course, from Medicaid to welfare. But the United States, says Pat Callan, president of the National Center for Public Policy and Higher Education, in San Jose, Calif., has for some time been making it more difficult for students, especially those from lower-income families, to afford college. It is quite a commentary on the nation's sense of priorities. The American people, always supportive of higher education spending, have apparently not quite caught up to the facts.

First, the case for investing in higher education is stronger than ever. We of course all know some people with a great education who earn a lot less than their peers with a lesser one. But the gaps in average income between those with degrees and those without are enormous. And the more education the better. The median annual income for men with graduate degrees was more than $66,300, more than twice the high school graduate's earnings.

Second, higher levels of education are critical to economic growth. A new study by two economists, Edward L. Glaeser of Harvard University and Albert Saiz of the University of Pennsylvania, provides another example of this. The researchers analyzed the statistical relationship between education levels and the economic growth of cities. "Aside from climate, skill composition may be the most powerful predictor of growth," they write.

Boston, where there is a high proportion of college graduates, is the perfect example. Well-educated people can react more quickly to technological changes and learn new skills more readily. Even without the climate advantages of a city like San Jose, Calif., Boston evolved into what we now think of as an "information city." By comparison, Detroit, with lower levels of education, languished.

So, how are we faring with our higher education? It is simply getting much harder for students to afford college and graduate school. And the nation, Mr. Callan said, is making far less progress enrolling high school graduates than is widely presumed.

First, state and federal aid have not risen nearly as rapidly as public and private tuitions for 25 years. Last year, for example, the College Board reports, tuition for an average four-year state school rose 14 percent, but average state aid rose only 3 percent.

As a consequence, students take longer to finish college so they can work to defray costs, and they borrow more to pay their way. In the 1960's, according to the Higher Education Research Institute at the University of California, Los Angeles, about 48 percent of students finished their bachelor's degrees in four years. Now, about 36 percent do. And according to the latest analysis from the National Center for Education Statistics, students today owe about twice as much as they did 10 years ago, adjusted for inflation.

Most disturbing, lower-income students are not getting a chance to catch up with their better-off peers. Families in the bottom 20 percent of the income distribution, who earn on average about $12,500 a year, are simply overwhelmed by college costs. Tuition, room and board at public four-year colleges averages $10,500, and typical aid is about $2,200 a year. The net expenditure, before borrowing, comes to nearly 70 percent of the average income. Small wonder many of the poor give up on college even before they graduate from high school.

More generally, even America's much ballyhooed lead over its rival nations in higher-education enrollment is being eroded, a fact that seems widely unknown. The Organization for Economic Cooperation and Development reports that countries like France, Ireland and Spain now have almost as high a proportion of 18-to-24-year-olds enrolled in college as this country does. Perhaps more surprising, it takes Americans so long to get their degrees that the United States now ranks only sixth among O.E.C.D. nations in the proportion of the population who have a bachelor's degree by their mid-20's.

Mr. Callan believes colleges and universities are part of the problem. They should tie their tuition increases, he argues, to annual increases in median family income by state. And states, he adds, should channel more of their aid to lower-income families. Finally, more aid is needed.

There is a myth in the land that America's lead in higher education is unassailable. But spending on higher education is the first to go when times get tough, and the consequences are at last starting to show.


Jeff Madrick is the editor of Challenge Magazine, and he teaches at Cooper Union and New School University. His most recent book is Why Economies Grow (Basic Books/Century Foundation). E-mail: challenge@mesharpe.com.