10:41 am
Tue January 20, 2004

College and the Economy

Trends in the cost and availability of higher education.

Wilmington NC – [Click the LISTEN button to hear Dennis' commentary.]

Over the past two decades there has been a pronounced upward trend in the enrollment of recent high school graduates in college. Even so, the share of the population that is college-educated is surprisingly low. This creates some economic difficulties that could be mitigated as a matter of public policy.

Today I review trends in college enrollment, address some of their more pronounced economic implications, and examine some of the things that influence college attendance.

For a quarter century prior to about 1980, the share of the population between the ages of 16 and 24 who entered college within a year of graduating from high school fluctuated around 50 percent. Since then, it has risen sharply, now averaging around 65 percent. For women, it briefly eclipsed 70 percent in the late 1990s.

But this paints an overly-optimistic picture. The college enrollment rate among all persons 18 to 24 years old ? not just those who graduated high school within the past year ? is just 36 percent. While this does represent an up-trend ? in 1979 the comparable figure was 25 percent ? college enrollment still remains more an exception than the rule.

Some might respond, so what? Not everyone is cut out to be a college graduate. Granted, that may be true. But it defies logic to presume that nearly two-thirds of our population can be so categorized. There are real economic and social costs associated with under-education.

Most obviously, a more highly educated work force enhances the productive capacity of our economy and promotes economic growth. This spills over into more income and a higher standard of living. Census data have long confirmed this. As long ago as 1975, for example, men who had completed four or more years of college were earning 51 percent more than those who had completed four years of high school.

By last year this income divide had risen to 122 percent. That is, on average, college graduates now earn more than double what high school graduates earn. This reflects what is now a substantial premium for knowledge and skill-based human resources. The reality is, as we have moved from an industrial to a high-tech economy, college education has become increasingly essential.

College education is important for other reasons as well. It generates social externalities, such as greater involvement in the duties and responsibilities of citizenship ? higher voting rates, for example.

Further, greater access to college enhances the ability of low-income families to break the poverty cycle. Studies have shown, for example, that a significant factor in determining a family?s income is the income level of the family?s previous generation. That is, both wealth and poverty tend to persist from one generation to the next. Bridging the divide in educational attainment can help reduce the persistence of income inequity over time.

Accepting higher college enrollment as an economic and social good, it is relevant to ask, what constrains college attendance? Clearly, family income and college costs are major factors. Not surprisingly, enrollment data show that adolescents from families in the lowest income strata are far less likely to attend college than their better-off peers. Other studies have shown that, for every one thousand dollar increase in annual cost, college enrollment declines by about 4 percentage points.

A recent study focused on wealth ? wealthier families more easily finance college education. The less-wealthy ? even those with above-average incomes ? face both borrowing constraints and higher out-of-pocket costs due to lower financial aid.

Political implications are obvious: public support for higher education, financial aid for college students from low-income families, and subsidized college loan programs for those with modest means. Simply put, a strong commitment to programs such as these is good public policy.