Five Reasons The Government Shouldn’t Subsidize Higher Education

When the government is in the business of handing out money, interest groups lobby to get it — or advocate to receive more than they are already getting.

So it is with spending on higher education.

As the Michigan Legislature debates the state budget for the upcoming fiscal year, more money for preschool, college and everything in between is being proposed. Over the long-term, the funding for those areas has increased dramatically. Taxpayers should be skeptical of the current reasons for subsidizing universities further.

Requests for more higher education funding is reported willingly in the media: It’s the "most important investment" people can make. It sees "$17 in economic benefits" per dollar invested by the state. It results in "lifetime earning power."

But the central arguments are dubious for five main reasons:

1.     There is no link between higher education subsidies and economic growth, and none between college degrees and job creation.

Since 1980, Michigan has spent a much higher proportion of personal income on state government support for higher education than nearby states like Illinois and Ohio. According to Ohio University economist Richard Vedder, by the year 2000, the Mitten State was spending the sixth most in the country (2.34 percent of its personal income), double what Illinois was spending and much more than Ohio. This did not lead to higher growth as Michigan’s economy performed among the worst in the country during that time period.

And states with a higher proportion of college graduates do not necessarily grow by adding more college degrees. A comparison of the number of state residents with a college degree with per capital income growth from 2000-2008 yields no correlation.

2.     More subsidies equals more waste.

The number of administrators and service staff at Michigan's 15 public universities increased at a faster rate than full-time equivalent students. Administrators and service staff numbers went from 19,576 in 2005 to 22,472 in 2009, while full-time equivalent students increased from 250,030 to 257,230 over the same time period. At the same time, the compensation for the average employee increased 13 percent. 

Michigan is not alone: A 2009 report from the Center for College Affordability and Productivity showed a 20-year increase in administration and support staff. And revenue for Michigan’s public universities went from $4.2 billion to $5.0 billion, largely from higher tuition and fees. The average compensation for University of Michigan full-time faculty increased from $122,943 in 2005-06 to $141,753 in 2009-10. The University of Michigan-Flint now has more administrators than faculty.

Colleges set tuition rates relative to supply-and-demand, but government subsidies distort this process and inflate the cost. That's why schools like Grove City College (my alma mater) and Hillsdale College, which receive no government funding, do a much better job at keeping down the cost of tuition. Annual tuition at Grove City is $13,598, the cheapest of all institutions of higher education in Pennsylvania. Tuition at Hillsdale is $20,760 a year. Both are much cheaper than the average cost of private colleges and universities in the country at $31,975 a year.

3.     When comparing earning power between college graduates and non-graduates, correlation is not causation, and the actual cost of college matters.

Proponents of more funding for higher education almost always cite the same statistic as their main point: Overall, college graduates tend to make more money in their lifetime than those without a degree.

But this assumes that the degree caused the higher earnings, rather than the fact that those who complete college are already more likely to be financially successful whether they attend university or not.

The common figure cited is that a college degree is worth $1 million over the lifetime of a worker. Besides ignoring the point above, this is a poor exercise in statistics. The number is arrived at by taking the difference between the average pay of a college graduate and the average pay of a non-college graduate and multiplying it over a 40-year career. 

First, that only tells us what the average is today, not what the actual future earnings are.

Second, this assumes that all college degrees have the same value. For example, it assumes that a Bachelor of Arts in art history is the same as a Bachelor of Science in quantum physics. Most significantly, it ignores many important factors: taxes, the real salary data of today’s graduates, the opportunity cost of going to college (how much someone would earn during those years in school), the fact that a large proportion of students start school and do not finish, and, most importantly, student loan debt.

4.     Ensuring that everyone has college schooling would not enhance the labor market — it would dilute a university degree.

The assumption among many is that every career should require a college education. This belief leads to subsidies for subjects with little practicality in the workforce and areas where a student may be better off doing an apprenticeship or working for four years than attending more school. Pushing for everyone to go to college does not automatically make those students university-ready, it lowers the overall standards of higher education. This has lead to a high dropout rate, more repeated classes for those in school and an explosion of marginal subjects in which many degree-holders are forced to work outside that field because of a lack of demand. In short, incentivizing degrees students do not ever use.

5.     Higher education may be the next bubble to burst.

Much like the housing bubble, higher education is fueled by government subsidies, publicly-backed loans and incentives that say everyone should be doing something. As noted and expanded on by law professor Glenn Reynolds, economist Richard Vedder and writer Nathan Harden, tuition costs have skyrocketed well above inflation while colleges compete to expand into areas outside of their main purpose and taking on more debt to do so. At the same time, competition from other sectors, like online education, offer cheaper alternatives to the bread-and-butter of university academia.

It is important for citizens to be educated, both to learn a job and to better be able to respond to a changing marketplace. But there is a difference between education and schooling.

Spending more money to send people to get a specific number of degrees at a specific institution is different from education. Education comes in the form of apprenticeships, trade schools and time on the job learning.

And education is something you can’t force on someone else. Just putting someone in college does make force them to learn anything. Education is a personal matter, and more subsidies will only influence a person's decision to learn or not to learn at the barest of margins.

Higher education can build new skills, enhance old ones and show prospective employers that students are able to put in the time to earn a degree. But the value of a degree varies — by the institution, the cost, the time and the subject. 

From an individual’s perspective, college may be worth the cost. But for a growing number, it’s not. And state subsidies, where political incentives trump market realities, only exacerbate that problem. 

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Editor's Note: The article originally suggested that several Michigan public university presidents  claimed $17 in economic benefits for every $1 invested. In fact, the Anderson Economic Group report this claim is based on measures the net economic impact from the University of Michigan, Michigan State University and Wayne State University compared to the total amount of state appropriations. The report is more nuanced, and worthwhile, than was suggested. We regret the error.