11 Flipping the Coin Carlo Salerno, PhD Director

2 The Problem, In One Sentence In 2011, 13 million people bought cars at an average out-the-door price of $29,000

3 Economics 401 Why do people shy away from education investments when they know how good it is for them? Because college is too expensive?

4 Tuition growth Source: College Board TiSA 2011

5 Relationship between enrollment and cost Source: College Board TiSA 2011

6 OECD

7 Economics 401 Will college costs continue to climb? Sure, but let me offer a less sinister explanation for why. It’s all about public versus private returns and the notion that, “he who benefits, pays.” If college costs are too burdensome, then why do we have record numbers of applicants to higher education institutions?

8 Economics 401 OK, why then do people shy away from education investments when they know how good it is for them? Because education, as an economic good, has the unique problem that consumers can’t value it at the time they consume it.

9 Economics 401 (cont’d) So, is education the best investment someone can make? Of course it is…

10 Wage gains from additional education

11 Current recession impact

12 Tomorrow’s Students Older More gender imbalanced More ethnically diverse More sedentary More likely to avoid STEM fields Consequence: Different preferred modes of participation and financing

13 ED demographic forecasts: Category%∆ – 24 year old students – 34 year old students and older students Men Women Full-time Part-time Undergraduate Graduate White Black Hispanic A/PI AI/AN Public Private Source: NCES

14 ED demographic forecasts: % Increase 3% Decrease Source: NCES

15 Proximity to college

16 Changes in bachelor’s degree types received 1998–992008–091998–99 to 2008–09 Field of studyNumber Change in number of degrees Percent change Bachelor's degrees Total 1 1,200,3031,601,368401, Parks, recreation, leisure, and fitness studies16,53231,66715, Security and protective services24,60141,80017, Visual and performing arts54,40489,14034, Communication and communications technologies52,46083,10930, Business240,947347,985107, Health professions and related clinical sciences85,214120,48835, Family and consumer sciences16,05921,9055, Multi/interdisciplinary studies27,54537,4449, Liberal arts and sciences, general studies, and humanities34,77247,09612, Social sciences and history124,658168,50043, Foreign languages, literatures, and linguistics15,82121,1585, Psychology73,63694,27120, Biological and biomedical sciences64,60880,75616, Computer and information sciences and support services30,57437,9947, Physical sciences and science technologies18,28522,4664, Public administration and social service professions20,28723,8513, Engineering and engineering technologies72,44584,63612, English language and literature/letters49,80055,4625, Agriculture and natural resources23,91624,9881, Education107,086101,708-5,

17 Changes in associates degree types received 1998–992008–091998–99 to 2008–09 Field of studyNumber Change in number of degrees Percent change Associate's degrees Total 1 559,954787,325227, Psychology1,6253,9492, Social sciences and history4,5509,1424, Security and protective services17,43033,03315, Multi/interdisciplinary studies8,66115,4596, Health professions and related clinical sciences93,218165,16371, Physical sciences and science technologies2,3993,6171, Communications and communications technologies5,1677,5252, Liberal arts and sciences, general studies, and humanities181,977263,85381, Education10,16514,1233, Computer and information sciences22,44530,0067, Business95,897127,84831, Family and consumer sciences8,0639, Public administration and social service professions3,8814, Biological and biomedical sciences2,2132, Visual and performing arts17,64018, Legal professions and studies9,1339, Precision production2,2012, Foreign languages, literatures, and linguistics1,7051, Engineering and engineering technologies57,29252,933-4, Agriculture and natural resources6,6325,

18 The Student Financing Problem Permanent Income Hypothesis People don’t spend based on their “current” income but instead on their permanent income The problem is, students have distorted perceptions about borrowing and future income They underestimate debt and overestimate income potential

19 Average loan and grant loads Source: College Board TiSA 2011

20 Average loan and grant loads Source: College Board TiSA 2011

21 Strange Institutional Economics Colleges are NOT factories. They don’t produce “graduates” the way General Motors produces cars. Instead, colleges behave (at least on the educational side) like health clubs.

22 Strange Institutional Economics (cont’d) The important aspect of the health club model is that responsibility for education production lies with the patron, not the firm providing the service. For students, the objective is not to get an education, it’s to get a credential. In the parlance of economics, students are “effort minimizers.”

23 Leading Horses Institutions lack a great deal of control over many facets of education production and post-graduate employment Borrowing – no mechanism to limit at school level? Caliber of Students – 2/5 unprepared? Major/Career Choice – Hooray more students in leisure studies Academic Performance – No more in loco parentis Completion Timeframe – Avg student changes majors 3x and 80% do it at least once? Future Earnings – College credential is not the only factor shaping who gets what job.

24 Student effort

25 Student effort (cont’d)

26 Student effort (cont’d)

27 Student effort (cont’d) Average student skips about 104 classes over their college career – the cost is about $2,400 ($6,600) at a public (private) institution. That’s about $2,400 in grant aid blown on skipping. Students who waste time are about 3x more likely to find themselves unemployed after leaving college and about 2x more likely to live back at home with their parents again.

28 Final thoughts Shortening degree programs is NOT the solution. Lumina’s goal is simply absurd. Even DC and Boston don’t have attainment rates at these levels. “Some college” is NOT better than “no college.” The Pell program is a trainwreck and should be revamped as a performance-based grant program. Students need more info on career earnings and less on college costs. Novelty solutions like Straighter Line and edX platform suffer from credential comparison problem. We are trying to fix a problem that we don’t know really exists.

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