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August 16, 2012

The difficulty in applying economic thinking to the value of college

By Cindy Ivanac-Lillig

Freakanomics.com has a new podcast out on the value of college: Is college really worth it? The podcast features a series of interviews with people ranging from college students to professors to education economists. The podcast avoids oversimplifying the conversation and tries to apply economic thinking to answer the question.

Most experts interviewed in the podcast seem to agree that the benefit of college is almost always greater than its cost (with the notable exception of students who might consider going into a trade); however, exactly why this is remains somewhat of a mystery...even to the experts.

One interviewee discusses how students don't remember much from their coursework and yet something about the process is transformative. It’s unclear if the benefit lies principally in knowledge acquisition, new perspectives, peer effects or simply being subject to higher expectations. Further, it is possible that the benefit is different for every individual.

And if the benefit side of this economic equation is a bit blurry, looking at the cost side might be even tougher. Another interviewee dwells on the fact that the gap between the sticker price and the actual price paid for college has widened, making price discrimination much more prevalent. Price discrimination is when you charge different prices for the same or similar service. A popular example of this concept in textbooks is usually airline ticket sales. In the case of college, this means that students are routinely charged vastly different prices based on a variety of factors. Therefore, the average actual price paid by students and their families, when available, is not that helpful when attempting to conduct a cost/benefit analysis.

Economists and thought leaders are somewhat stumped as to how to apply economic thinking to this issue, but they all seem to agree that only in limited cases is going to college not worth the price tag. What do you think?

If you happen to teach in a high school or university setting, consider having your students listen to the podcast and see what they think.

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Posted by Cindy at 4:28 PM | Comments (14) | TrackBack