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Open Access Library Journal

2017, Volume 4, e3812

ISSN Online: 2333-9721

ISSN Print: 2333-9705

DOI:

10.4236/oalib.1103812 Nov. 14, 2017 1 Open Access Library Journal

The Economics of a College Education

Allan Ornstein

St. John’s University, New York, USA

Abstract

Given the cost of obtaining a college education in the US, resulting in the a

erage debt for undergraduate students ($26,000) and for masters’ students

($50,000), the question arises whether college (tuition and room and board) is

worth the cost. Not all c

ollege students find jobs. There’s a growing number

who are under employed or unemployed. Those that do find jobs often do so

at reduced salaries in the mist of stiff competition. The author raises the que

tion whether the benefits of a college education outweighs

the costs. The Ivy

League colleges are institutions that have traditionally promoted privilege and

power by educating the children of the upper class, not only in the US

but also

around the world. The history of admission into these elite colleges

is reflected

in the conflict between applicants who exhibit academic merit or ability versus

privilege, social connections or alumni legacy. Hence the admission process

has now become a balancing act between the academic student versus the

well-rounded student, a euphemism for those students who lack academic q

alifications. What criteria should be used for admission into Ivy League co

leges? What form of excellence should govern the process? Who decides on

the form of excellence? Should special consideration be given to poor or m

nority students in order to enhance diversity?

Subject Areas

Economics, Education

Keywords

College Tuition Costs, College Student Debt, State Universities,

Underemployed College Graduates, Benefits of a College Education,

The Value of a College Education

1. Introduction

Democratic societies tend to ignore differences in intelligence where possible;

How to cite this paper:

Ornstein, A.

(201

7) The Economics of a College Edu-

cation

Open Access Library Journal

e3812

https:

//doi.org/10.4236/oalib.1103812

Received:

July 7, 2017

Accepted:

November 11, 2017

Published:

November 14, 2017

7 by author and Open

Access Library Inc

This work is licensed under the Creative

Commons Attribution International

License (CC BY

4.0).

http://creativecommons.org/licenses/by/4.0/

Open Access

A. Ornstein

DOI:

10.4236/oalib.1103812 2 Open Access Library Journal

when it cannot be avoided, the blame is shifted to the institutions or agents of

society. No group is supposed to be regarded as better or smarter than another

group. Whenever differences in capacity are discussed in a democratic society,

the politically correct view is that differences vary among individuals and not

groups. In a heterogeneous society like ours, when we focus on differences in

achievement or economic outcomes, the result can lead to a host of hotly con-

tested issues. And when we compare group differences or outcomes, the debate

can become highly emotional—focusing on differences in ability among differ-

ent ethnic groups, accusations of racism, or using the race card as a means to

stifle public discussion.

Given how American society has evolved, the ideal is to search for the golden

mean which goes back to the ancient Greeks, and to achieve a balancing act

which rewards merit and hard work and provides a floor or safety net for

low-performing, slow running and weaker individuals. But despite this ideal

standard for society, we are confronted with the harsh truth that this nation re-

mains much more stratified than what its principles suggest. Moreover, there is

very little movement form one class to another in American society. We would

like to believe that through merit and hard work anyone can achieve the Ameri-

can dream. Our Founding Fathers rejected aristocracy and inherited privilege.

Yet we are heading toward the creation of a new aristocracy—much worse

than the autocratic world that our Founding Fathers feared and tried to avoid.

The new aristocracy is rooted in the rise of a new money class: Wall Street and

the banking industry, the entertainment industry (including Hollywood stars,

pop singers, and professional athletes) and the captains of industry. At the same

time, we are witnessing the dismantling of the middle class which is the back-

bone of democracy. We are also beginning to question whether college is still the

main avenue for achieving middle-class status, given the rising costs of tuition

and debt incurred for attending college. For example, college tuition annually

increased between 5 to 6 percent between 2000 and 2012, according to the Col-

lege Board, running about 2 - 3 times the inflation rate for the same period.

2. Topic 1: The Value of a College Education

Since the turn of the twenty-first century, college graduates have seen their wag-

es stagnate while two-thirds of all undergraduates graduate with an average debt

of $26,000 and masters’ students compiled an average debt of over $50,000. The

total student debt in 2014 amounted to more than $1.2 trillion, a sum greater

than the combined US credit card debt and all auto loan debt.

The fact is 25 percent of millenials, young adults ages 18 to 34, carry college

debt and a third of these borrowers are considered delinquent in loan payment.

Moreover, some two million Americans age 60 and older are still in debt due to

unpaid student loans. The student debt among older people has increased from

$8 billion in 2005 to $43 billion in 2014, indicating the effect of constant com-

pounding debt and a fixed income as an adult. The interest on many loans can

A. Ornstein

DOI:

10.4236/oalib.1103812 3 Open Access Library Journal

cause the debtor to spend more on interest than principal over time.

Students borrow heavily without thinking of the consequences or the financial

pressure they might face after graduation. Not only does growing student debt

have a detrimental effect on the ability of college graduates to afford a home

mortgage, the

Journal

also reported that people under 40 with student loans

have more other debt—credit cards, auto loans, etc.—and less net worth than

their counterparts without student debt. As student debt gets heavier, it is safe to

assume that other issues surface such as depression, low work morale, low job

performance levels, less purchasing power and in turn a ceiling on economic

growth. The worse scenario is to incur a lot of student debt and not graduate

from college—more often the case among poor and working-class students than

middle-class students.

What all this means is that people do not have an equal chance to succeed.

Passing laws to eliminate discrimination is not enough. Policies must be imple-

mented that remedy monetary disadvantages with which many people start with.

In the US, that represents about one half of the student population who cannot

afford college and most go into debt to attend college. Trying to compare colleg-

es on how much debt their students accumulate or how much their students

earn after graduating is misleading. The rating system is bound to be oversimpli-

fied and the information collected by colleges is varied and fuzzy. The need is to

provide adequate opportunity for low-income and working-class students to

reach their maximum potential and to fulfill their full range of excellence.

A rich society like ours should be able to ensure that all students who have

earned a particular grade point average (say 90 percent or higher), can attend a

state college for a nominal fee or free. Otherwise, society winds up squandering a

great percentage of human potential and talent. Another option, less controver-

sial, is to link student loan payments to future earnings. If someone goes into the

Peace Corps or teaches, that is works in the human/social service area, part or

most of the loan should be shouldered by the federal government. The exact

amount could vary by years of service or other factors based on future income.

Another method is to require all students at the beginning of their college expe-

rience to pay 3 to 5 percent of their future earnings for 20 years in a state or fed-

eral fund. This would serve as an insurance program for all college graduates

despite their tuition costs.

Increasingly, a number of pundits are questioning the economic value of a

college education. Given $50,000 per year for four years (cost for college tuition

and room and board for many private colleges), that is $200,000 placed in a

money market or insurance account at age 18, compounded at 4% per year for

50 years (22 + 45 = 67 years, the age when Social Security starts), yields a better

lifetime return ($1.4 million) than the difference earned between a college grad-

uate and high school graduate (slightly more than $900,000). At 6% the yield is

$3.7 million and at 8% the yield is a whopping $9.4 million or $8.5 million more

than the lifetime income between a college and high school graduate. Properly

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