Monday, February 17, 2003

Student Loans and Econ 101

Ted Rall is saying student loans are for suckers. And Victor over at Cardinal Collective has a good counterpoint dealing with the value of Teach for America and other Americorps programs. Of course, as someone who toiled for a few years in the human service field and was changed dramatically because of it, I concur with Victor.

But my concern with Ted Rall's piece is his customary lack of respect for basic economics. Rall bemoans the fact that recent college grads face a grim economic reality that will not allow for them to follow their dreams. Yet, there is ample opportunity for the young and idealistic to take advantage of TFA, the Peace Corps or various other community service opportunities while deferring student loans, some of which would be interest free. Rall seems to ignore that part of the reason for low entry wages for college graduates has to do with the glut of such individuals. Over the past two decades more and more people are attending college. As more people flood into higher education, the value of a degree is actually diminished in symbolic and real terms. Gone are the days when a bachelor's degree was a signifier of higher order aptitudes and abilities. (I might argue that the status of the master's degree is approaching that same problem.) Employers act as rational agents and allow the market to set wages. And when there are more college graduates than jobs, wages will decrease, or at best stagnate.

Rall even cites the College Board's own data which estimates that those with college degrees will earn roughly $1 million more dollars than their non-college counterparts over a lifetime. He neglects to mention the secondary benefits of higher education, such as health outcomes. Rall would like to see the US move towards a higher education system that was fully subsidized by the government. Leave out that the US higher education system is the envy of the world and there are still problems with his wish. Much like in health care, when the consumer faces no cost, or low cost, there is no incentive to consume efficiently.

Now, obviously, there are opportunity costs that students' face when attending college, mainly the wages forgone. But if you remove tuition- or student debt- from the equation, there is little to prevent overconsumption of higher education. And while this may be heresy to the feel good folks in the education establishment, there are a good many people who do not belong in higher education.

The consequences of our push towards universal post secondary education have been stagnant entry level wages and a diminishment in the quality of American higher education.


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