When I first heard about Cory Booker a number of years ago, I thought of him as an emerging Democratic leader with new educational ideas, not a prisoner to the teacher union straightjacket that led most Democrats to consistently support expensive, dysfunctional K-12 educational policies. As Newark’s mayor, Booker has supported charter schools, and earned the enmity of teachers unions. So I was intrigued when I heard he was now speaking up on higher education: perhaps, at last, a bright — he’s a Rhodes Scholar — liberal Democrat with new ideas, rather than old jeremiads about needing to drop money out of airplanes onto college campuses in order to “invest” in our youth.
So I was crushed when I read his “Bringing Opportunity Within Reach: Renewing Our Commitment to Quality Affordable Higher Education for All Americans.” It is a mostly a litany of old tired, unsuccessful ideas, and displays a misunderstanding of American higher education today.
Booker claims that the rate of return on higher education, 15 percent a year, is double that of stock market investments, and for students there is a million dollar payoff to going to college. First, a majority of studies on the higher education rate of return suggest numbers well below 15 percent. Second, what is important is the margin – what would be the payoff from, saying spending $1 billion more on higher education than at present? At the margin, it appears that a majority of new college graduates are getting jobs that the Bureau of Labor Statistics says require less than a college degree. We now have more college graduates working as janitors than as architects or chemists, and the army of college educated retail sales clerks vastly outnumbers soldiers in the U.S. Army. Third and even more importantly, over 40 percent of those entering four year degree programs fail to graduate within six years. What is the risk-adjusted “rate of return” on higher education investment when the probability of failure is so high? Actually, pretty low.
Booker champions student loan and Pell Grant programs, wanting lower, assured interest rates on student loans and bigger Pells, all to help the poor. Here are three facts suggesting he is barking up the wrong tree:
- These programs were conceived as ways of improving equal educational opportunity and access for the poor.
- Federal student financial programs have grown at a compounded annual rate of about 10 percent a year since 1970, and the Pell Grant program has grown from nothing to costing well over $30 billion a year –enough to give $5000 grants to at least six million people (one-third of full time equivalent enrollments).
- In spite of this massive effort, the percent of recent college graduates coming from the bottom quartile of the income distribution is lower today – by far — than in 1970.
One reason for this perverse result is that the federal student financial assistance program has had a number of unintended negative consequences. For starters, although the empirical evidence is mixed, it seems improbable that a program spending nearly $200 billion a year in a $450 billion industry has not impacted prices — tuition fees. As sticker prices have risen partly induced by subsidized student loans, lower income potential applicants are scared away by high prices –- more so than middle and upper class applicants.