What Kind of Good Thing Is Education?

image
Published: 12 May, 2013
Updated: 14 Oct, 2022
3 min read

1_photo

"Every single day, this country invests in big banks by lending them money at near-zero rates. We should make the same kind of investment lending money to students, who are trying to get an education."--Elizabeth Warren

Elizabeth Warren electrified the left last week with her first bill, which stipulates that the federal government should charge the same interest rates for student loans as the Federal Reserve Board charges large banks for overnight loans—a rate currently set at 0.75%. In making this intriguing proposal, Warren makes it very clear that her ultimate purpose is to prevent student loan interest rates from doubling on July 1st from 3.4 to 6.8%-

Critics have been quick to point out that the proposal does not make a lot of economic sense because students default on school loans far more often than major banks default on overnight loans. This proposal, they say, amounts to nothing less than a taxpayer subsidy of the cost of higher education. Warren, who is actually an extremely intelligent person, knows this very well. Her point, I suspect, is that the taxpayers should subsidize higher education. It is a reasonable point.

The Warren bill is the most recent entry in a very long debate about higher education. Most people agree that a college education is a good thing, but Americans have often been divided about what kind of good thing it is. Is higher education a private good—like a new car or a laptop computer—that should be paid for by the consumer? Or is it a public good—like an airport or a park—that benefits everybody and should therefore be supported from public funds.

Education, of course, is both. Studies clearly show that a college education adds a million dollars or more to a person’s salary over the course of a lifetime, making money spent on college a personal investment with a remarkably high rate of return.

But everybody living in a society with a high percentage of college graduates benefits considerably from higher education—even those who never attend or complete college. An educated population produces more growth, creates more wealth, and retains jobs better than an uneducated one. As Anthony Carnevale and Stephen Rose document in their 2011 study “The Undereducated American,” the current graduation rate of 24% is not producing enough college graduates to meet the long-term demand of American industries.

This is very bad news for all Americans. Other countries—especially China and India—are rapidly closing the education gap with the United States and Western Europe. In order to remain competitive over the next 20 years, Carnevale and Rose conclude, America needs to add about 20 million more college graduates to the labor force than we will if the current trends continue.

And this is why, ultimately, Elizabeth Warren’s proposal makes a lot more sense than the current plan to double student loan interest rates to 6.8%--a rate about two points higher than most people pay for a new car. Every increase to the student loan interest rate means that fewer students will complete college, and that those who do will start their careers with greater burdens.

By loaning students money for education, (instead of simply making all college free) we acknowledge that higher education is, to some extent, a private good that benefits those who receive it. But by loaning this money well beneath the commercial interest rate, we acknowledge that education is also a public good that benefits us all.

IVP Donate

Latest articles

I voted buttons
After First RCV Election, Charlottesville Voters Back the Reform: 'They Get It, They Like It, They Want to Do It Again'
A new survey out of Charlottesville, Virginia, shows overwhelming support for ranked choice voting (RCV) following the city’s first use of the system in its June Democratic primary for City Council. Conducted one week after the election, the results found that nearly 90% of respondents support continued use of RCV....
03 Jul, 2025
-
3 min read
Crowd in Time Square.
NYC Exit Survey: 96% of Voters Understood Their Ranked Choice Ballots
An exit poll conducted by SurveyUSA on behalf of the nonprofit better elections group FairVote finds that ranked choice voting (RCV) continues to be supported by a vast majority of voters who find it simple, fair, and easy to use. The findings come in the wake of the city’s third use of RCV in its June 2025 primary elections....
01 Jul, 2025
-
6 min read
A man filling out his election ballot.
Oregon Activist Sues over Closed Primaries: 'I Shouldn't Have to Join a Party to Have a Voice'
A new lawsuit filed in Oregon challenges the constitutionality of the state’s closed primary system, which denies the state’s largest registered voting bloc – independent voters – access to taxpayer-funded primary elections. The suit alleges Oregon is denying the voters equal voting rights...
01 Jul, 2025
-
3 min read