The various legislative proposals designed to keep student-loan interest rates from doubling in July are now so loaded to the gunwales with ifs, ands, or buts that the whole boat is in danger of sinking. But the rancorous partisan debate is just an election-season show staged for the benefit of the college crowd. The real story is that this country is disinvesting in higher education at an alarming rate—as it has been doing for decades—and we are hurtling into the future unprepared for the economy that awaits us.
This should hardly be news. State legislators have been slashing funds for colleges and universities, leaving administrators on campuses to figure out how to make do with less. Meanwhile, the federal government, safely removed from the students whose educations depend on the availability of student loans, tinkers with the fine print of tax policy and eligibility requirements for Pell Grants. And all of this is taking place in a bitterly divided atmosphere in which there seems only one point of agreement: More government disinvestment is a grim inevitability.
Inevitable or not, it looks like nothing but trouble ahead for higher-education financing. The share of discretionary domestic spending, including spending on higher education, continues to decline as health care and defense eat up more and more of our resources. Already, this country's defense spending is more than all our allies' spending combined—and health care already accounts for 18 percent of our GDP, compared with 9 percent in other advanced nations. Even if President Obama's health-care law delivers every penny of savings it promises, spending on health care is on track to gobble up 22 percent of GDP by 2025. Throw in Social Security, and the whole budget tilts ever more precipitously toward guns, health care, and income transfers to the elderly—and away from domestic investment in human capital and infrastructure.
But consider this: By 2025 we will need 20 million more two- and four-year-college graduates, a vast effort that, at our current productivity rates, will require somewhere between $150- and $200-billion in annual postsecondary spending. With Congress intent on pay-as-you-go financing, that's enough of a shortfall to fuel several dozen $6-billion spats of the kind currently playing on Capitol Hill and on campuses everywhere. But if we don't meet this projected shortfall in qualified postsecondary graduates, we will lose some half a trillion dollars every year in the form of new businesses that never open and technological advances that other countries will make instead of us.
Nobody will notice, of course. It's a law of behavioral economics that people miss only tangible goods that are taken from them—as in more of their dollars spent in taxes, or paying for a tank of gas. But just because these losses will be hard to quantify doesn't make them any less real.
In truth, our disinvestment in postsecondary education did not begin with the current economic and entitlement crisis. We have been shortchanging postsecondary education and not noticing since about 1983, when we beat back the stagflation of the 1970s and the United States economy began its transformation from a tangible-goods economy into a knowledge economy. Since then, the economic demand for workers with some form of formal learning after high school has been growing by 3 percent a year, but the supply of college graduates has been growing by only 1 percent per year.
Want to know why there is a 74-percent wage premium for college credentials over high-school diplomas? Ever wonder why the earnings difference between those with college degrees and those without has become such a primary cause of our nation's growing wealth inequality? It's because the demand for educated workers has been exceeding the supply a little bit more every year.
A few economic trends have managed to disguise the degree of this disinvestment. Even before the recession, the real-estate bubble created an artificial cushion in construction that made it look as if there were tons of jobs out there for people with only a high-school diploma, especially young men. Then, in 2007, the real-estate bubble burst.
The Great Recession that followed also helped mask this problem, by increasing the rate of underemployment and outright unemployment among college graduates. But underneath the dismal employment numbers for new college graduates, technological change is accelerating the structural shift into an economy that depends more and more on postsecondary education.
As the economic recovery limps along, it is increasingly clear that most of the jobs that required only a high-school education, especially those male blue-collar jobs, are gone—and they are not coming back. As long as we are distracted by the blue-collar jobs receding in our rear-view mirror and by short-term budget spats right before us, we are likely to miss the fact that the road we're on leads straight off a cliff.