College Costs, Benefits and Risk: Can the Middle Class Afford It?

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Last night, in my seminar on the Economics and Policies of the Middle Class, the subect was college.  We had a terrific guest, Dr. Susan Dynarski of the Kennedy School of Government, an economist who is a self-described contrarian on the subject of public support for student loans.  We read data-choked reports on the cost of college and financing college.

Dr. Dynarski’s takeaway was clear:  Sure, the cost of college is skyrocketing, but college pays off in long-term income.  And the policy implication?  The people who go to college should pay for it—without government help.  I read the same data and asked a different question:  Can all families afford to take the risk that college will pay off for their children?

The policy argument is well supported by the data.  Over time college is a great investment.  By Dr. Dynarski’s careful, detailed present-value calculation, including college costs and income lost while a student, college is a great lifetime deal.  And, college grads are leaving non-grads further behind economically, so it is getting better.  The policy implications are classic economics:  The benefits are reaped by those who go to college (higher earnings), so let them pay for it—and don’t push the costs onto non-college grads who pay taxes to support state schools.

But what about risk?  That increased earning over time is median earnings, not guaranteed earnings.  Half are above, but half are below.  Families and individuals must make their financing decisions one at a time, making outlays for themselves and their own children, not for statistical averages.  What if this kid doesn’t get a good job?  Doesn’t graduate on time?  Gets sick?  Looks the wrong way when she crosses the street?  The family or the student has invested in an education that won’t pay off.

One key to risk, of course, is that rich families and working families have to make that calculation very differently.  For the wealthy, the downside risk carries a low cost, but for a typical middle class family, the cost of college is one more very large rock in a heavy basket of risk.

I understand the argument for unsubsidized college, but let’s talk about what it does to middle class families.

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