One Way It’s Cheaper To Be Poor In America

Here’s an interesting tidbit: A bachelor’s degree from a public university costs 40 percent more in the US than in Canada, but American financial aid policies mean that poor US students wind up paying a lower net tuition than their counterparts north of the border. Christopher Flavelle wonders why, given that fact, low-income Canadians are still more likely to attend college than low-income Americans are:

[Economist Lance] Lochner offered a few possible explanations. One is price transparency: The gap between the sticker price and what you’ll actually pay to attend most US. colleges is enormous and hard to quantify, and that may be more of a disincentive to low-income families than to those for whom money is less of a concern. A more troubling explanation, and one that’s far harder to fix, is that people are less likely to come into contact with those from other income groups in the US.

“In the US, people are much more segregated in where they live,” Lochner said. “It could be, because of that, you have more segregation of knowledge.” In Canada, by contrast, “you’re more likely to go to a school where everybody hears about” the advantages of going to college, and where somebody can help you figure out what steps to take to get there. If that’s true, it means that income inequality hasn’t just increased the economic value of going to college, by increasing the earnings premium associated with a degree. It has also made going to college harder, by reducing the odds that young people from poor families will be told that a college degree is something they can attain, or should even try to attempt.

David Leonhardt emphasizes how Americans generally pay less than the sticker price for their degrees:

I know what you’re thinking at this point: Wait a minute – college really is expensive and has gotten a lot more so. It’s certainly true that public colleges have become more expensive in recent years, partly because of state budget cuts. These rising costs have created financial struggles for many students and, most worrisome of all, have kept some from graduating or even applying in the first place. By almost any economic calculation, the country would be better off if college were more affordable for middle- and low-income families.

At the same time, it’s worth remembering that the perception of college costs comes in large part from the high list price of private colleges. The next time you hear somebody describe college as costing $60,000 a year, know that the truth is: It costs $60,000 for affluent students who don’t qualify for financial aid to attend one of the elite colleges that a tiny share of Americans attend (and the figures includes housing and food). Taking into account financial aid – some of which comes from the colleges themselves, some of which comes from the government – the average tuition and fees were $12,460 at private colleges last year and$3,120 for in-state students at public four-year colleges, according to the College Board. At those prices, college is an investment with an excellent return for the vast majority of students who graduate.

Reihan pushes back:

The problem with the passage above is that ”price” and “cost” are not actually the same thing. The price is what a consumer is charged. The cost reflects the resources required to produce a given product or service. The cost of educating a student at (say) a residential four-year college might actually be higher than even the full tuition charged an affluent student; the difference could be made up by, for example, income from an endowment, or some other infusion of funds.

If we embrace Leonhardt’s analysis, we might conclude that the only problem with higher education is that net prices, i.e., prices after financial-aid grants, are too high. He’s not alone in focusing on the net price of higher education and discounting the importance of the gap between the net price and the underlying cost, which is borne by some combination of private philanthropy (usually fairly minor) and taxpayer contributions (major). I believe that taxpayers ought to subsidize higher education to some degree. Yet I’m skeptical that taxpayers should utterly ignore the underlying cost of providing higher education services, not least because ignoring these costs, and the sources of the escalation of these costs, contributes to a lack of spending discipline.