11 Flipping the Coin Carlo Salerno, PhD Director.
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Transcript of 11 Flipping the Coin Carlo Salerno, PhD Director.
11
Flipping the Coin
Carlo Salerno, PhDDirector
2
The Problem, In One Sentence
In 2011, 13 million people bought cars at an average out-the-door price of $29,000
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Economics 401
Why do people shy away from education investments when they know how good it is for them?
Because college is too expensive?
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Tuition growth
Source: College Board TiSA 2011
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Relationship between enrollment and cost
Source: College Board TiSA 2011
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OECD
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Economics 401
Will college costs continue to climb? Sure, but let me offer a less sinister explanation for why. It’s all about public versus private returns and the notion that , “he who benefits, pays.”
If college costs are too burdensome, then why do we have record numbers of applicants to higher education institutions?
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Economics 401
OK, why then do people shy away from education investments when they know how good it is for them?
Because education, as an economic good, has the unique problem that consumers can’t value it at the time they consume it.
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Economics 401 (cont’d)
So, is education the best investment someone can make?
Of course it is…
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Wage gains from additional education
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Current recession impact
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Tomorrow’s Students
OlderMore gender imbalancedMore ethnically diverseMore sedentaryMore likely to avoid STEM fields
Consequence: Different preferred modes of participation and financing
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ED demographic forecasts: 2009 - 2020
Category %∆ 2009 2020
18 – 24 year old students 9 12.1 13.13
25 – 34 year old students 21 4.59 5.54
35 and older students 16 3.53 4.11Men 8 8.77 9.45
Women 16 11.66 13.57Full-time 11 12.72 14.09Part-time 16 7.71 8.93Undergraduate 12 17.57 19.65Graduate 18 2.86 3.37White 1 12.73 12.92
Black 25 2.92 3.65
Hispanic 46 2.55 3.71A/PI 25 1.34 1.67AI/AN 1 0.21 0.21Public 13 14.81 16.68Private 13 5.62 6.34
Source: NCES
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ED demographic forecasts: 2009 - 2020
32% Increase
3% Decrease
Source: NCES
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Proximity to college
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Changes in bachelor’s degree types received
1998–99 2008–09 1998–99 to 2008–09
Field of study Number Number
Change in number of
degreesPercent change
Bachelor's degrees Total11,200,30
31,601,36
8 401,065 33.4
Parks, recreation, leisure, and fitness studies 16,532 31,667 15,135 91.5Security and protective services 24,601 41,800 17,199 69.9Visual and performing arts 54,404 89,140 34,736 63.8Communication and communications technologies 52,460 83,109 30,649 58.4Business 240,947 347,985 107,038 44.4Health professions and related clinical sciences 85,214 120,488 35,274 41.4Family and consumer sciences 16,059 21,905 5,846 36.4Multi/interdisciplinary studies 27,545 37,444 9,899 35.9
Liberal arts and sciences, general studies, and humanities 34,772 47,096 12,324 35.4Social sciences and history 124,658 168,500 43,842 35.2Foreign languages, literatures, and linguistics 15,821 21,158 5,337 33.7Psychology 73,636 94,271 20,635 28.0Biological and biomedical sciences 64,608 80,756 16,148 25.0
Computer and information sciences and support services 30,574 37,994 7,420 24.3Physical sciences and science technologies 18,285 22,466 4,181 22.9Public administration and social service professions 20,287 23,851 3,564 17.6Engineering and engineering technologies 72,445 84,636 12,191 16.8English language and literature/letters 49,800 55,462 5,662 11.4Agriculture and natural resources 23,916 24,988 1,072 4.5Education 107,086 101,708 -5,378 -5.0
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Changes in associates degree types received
1998–99
2008–09
1998–99 to 2008–09
Field of studyNumbe
rNumbe
r
Change in
number of
degreesPercent change
Associate's degrees Total1
559,954
787,325 227,371 40.6
Psychology 1,625 3,949 2,324 143.0Social sciences and history 4,550 9,142 4,592 100.9Security and protective services 17,430 33,033 15,603 89.5Multi/interdisciplinary studies 8,661 15,459 6,798 78.5Health professions and related clinical sciences 93,218
165,163 71,945 77.2
Physical sciences and science technologies 2,399 3,617 1,218 50.8Communications and communications technologies 5,167 7,525 2,358 45.6Liberal arts and sciences, general studies, and humanities
181,977
263,853 81,876 45.0
Education 10,165 14,123 3,958 38.9Computer and information sciences 22,445 30,006 7,561 33.7
Business 95,897127,84
8 31,951 33.3Family and consumer sciences 8,063 9,020 957 11.9Public administration and social service professions 3,881 4,178 297 7.7Biological and biomedical sciences 2,213 2,364 151 6.8Visual and performing arts 17,640 18,629 989 5.6Legal professions and studies 9,133 9,062 -71 -0.8Precision production 2,201 2,126 -75 -3.4Foreign languages, literatures, and linguistics 1,705 1,627 -78 -4.6Engineering and engineering technologies 57,292 52,933 -4,359 -7.6Agriculture and natural resources 6,632 5,724 -908 -13.7
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The Student Financing Problem
Permanent Income Hypothesis
People don’t spend based on their “current” income but instead on their permanent income
The problem is, students have distorted perceptions about borrowing and future income
They underestimate debt and overestimate income potential
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Average loan and grant loads
Source: College Board TiSA 2011
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Average loan and grant loads
Source: College Board TiSA 2011
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Strange Institutional Economics
Colleges are NOT factories. They don’t produce “graduates” the way General Motors produces cars.
Instead, colleges behave (at least on the educational side) like health clubs.
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Strange Institutional Economics (cont’d)
The important aspect of the health club model is that responsibility for education production lies with the patron, not the firm providing the service.
For students, the objective is not to get an education, it’s to get a credential.
In the parlance of economics, students are “effort minimizers.”
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Leading Horses
Institutions lack a great deal of control over many facets of education production and post-graduate employment
• Borrowing – no mechanism to limit at school level?• Caliber of Students – 2/5 unprepared?• Major/Career Choice – Hooray more students in leisure studies• Academic Performance – No more in loco parentis• Completion Timeframe – Avg student changes majors 3x and 80%
do it at least once?• Future Earnings – College credential is not the only factor shaping
who gets what job.
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Student effort
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Student effort (cont’d)
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Student effort (cont’d)
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Student effort (cont’d)
Average student skips about 104 classes over their college career – the cost is about $2,400 ($6,600) at a public (private) institution.
That’s about $2,400 in grant aid blown on skipping.
Students who waste time are about 3x more likely to find themselves unemployed after leaving college and about 2x more likely to live back at home with their parents again.
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Final thoughts
Shortening degree programs is NOT the solution.
Lumina’s goal is simply absurd. Even DC and Boston don’t have attainment rates at these levels.
“Some college” is NOT better than “no college.”
The Pell program is a trainwreck and should be revamped as a performance-based grant program.
Students need more info on career earnings and less on college costs.
Novelty solutions like Straighter Line and edX platform suffer from credential comparison problem.
We are trying to fix a problem that we don’t know really exists.
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