Taxpayer funded tuition is a bailout to colleges

“Investment” is an almost totally devalued term nowadays, at least in political discourse. For politicians, every single penny of spending is an “investment” because saying you “invested” several million or billions of dollars sounds better than saying that you spent several million or billions of dollars.

But “investing” is not a synonym for “spending.” When you invest in something, you are doing so in the expectation of a return in the future. A college degree, for example, is an “investment” in that you expect it to raise your earning potential in the future. Sure, you have to pay for it, but if you think the benefits are large enough you’ll do it.

As with any investment, not all decisions to invest in college educations pay off. According to the Minnesota Department of Employment and Economic Development (DEED), four years after graduation, the average Bachelor’s graduate can expect to be earning an annual full-time median wage of $47,000. But this figure conceals as much as it reveals. Graduates with a Bachelor’s in Engineering can expect to earn an annual full-time median wage of $68,000 four years after graduation while for graduates with a Bachelor’s in Visual and performing arts the figure is $38,000, as Figure 1 shows.

Figure 1: Full time employment and earnings, 2nd, 3rd, and 4th year from Graduation

Source: Department of Employment and Economic Development

In terms of the financial return, then, not all degrees are created equal. When you read that 56% of respondents to a poll don’t think a traditional four-year college degree is worth pursuing, financially at least, that refers to some degrees more than others. A growing awareness of this might be why:

Skepticism is strongest among people ages 18-34, and people with college degrees are among those whose opinions have soured the most, portending a profound shift for higher education in the years ahead. 

This accounts for some of the ongoing decline in college enrollment in Minnesota. From a peak of 309,319 undergraduates enrolled in 2010, the number has fallen by 33% to 208,295 according to data from the Minnesota Office of Higher Education, shown in Figure 2. When you hear that Minnesota’s loss of residents to other states is “driven by college choicesthe new liberal line — those students aren’t leaving because Minnesota’s colleges are full up.

Figure 2:

Source: Minnesota Office of Higher Education

The fall in demand for some college degrees might be expected to lead to a fall in their price and / or a reduction in supply.

The latter is happening; my colleague Tom Steward recently relayed the situation at St. Cloud State where enrollments have plummeted by 44% from 18,000 students in 2010 to about 10,000 this year with the result that the college is drastically reducing the number of courses it offers.

But there is still plenty of scope for the former, a reduction in college tuition fees to reflect the falling demand for college courses. DEED noted in 2016 that “Weighted for inflation, post-secondary tuition and fees here have increased between 94 percent at private four-year colleges to 175 percent at the University of Minnesota since 1991,” as Figure 3 shows.

Figure 3:

Source: Minnesota Office of Higher Education

Of course, another way to respond to prices falling as a result of falling demand is to get the taxpayer to cover it. That is certainly the solution favored by the colleges. And that is what the state legislature voted to do in the most recent session with the North Star Promise program.

This program will be available to Minnesota residents — legal or not — who enroll in a public college or university within the state. The student’s family must have an adjusted gross income of less than $80,000 and they must also meet several academic qualifications: They must be taking at least one credit, have not yet earned a baccalaureate degree, and must show “satisfactory academic progress.” The scholarship will cover up to 60 credits toward a certificate or an associate degree, or up to 120 credits toward a bachelor’s degree and will be paid directly to the institution where the student is enrolled. The budget deal included roughly $117 million to set up the program and estimates it will cost nearly $50 million a year after that.

Once again, as with housing and childcare, we see Minnesota’s legislators reacting to a problem of high prices, not by trying to bring those prices down, but by simply shifting the burden to the taxpayer.

Of course, Minnesota’s colleges lobbied hard for this measure. The Star Tribune quotes Mike Dean, executive director of LeadMN, an organization representing students at two-year institutions in the Minnesota State system of colleges and universities, as saying that “We really think this is a game changer for students and their families.” Well, he would say that, wouldn’t he?

If the program sees lots more kids signing up to Engineering degrees maybe this won’t be so bad. But if, instead, we see a boom in graduates in Visual and performing arts, all we will have done is transfer the cost of the failed investment from the individual making the decision to the taxpayer. That will only encourage more malinvestment.