welcome to crash course economics I'm
Adriene Hill and I'm Jacob Clifford some
of you might be watching this in school
right now but even if you're not you
probably spent a good chunk your life
getting educated nearly all countries
require at least some mandatory
schooling and most of those countries
provide that education for free but
nothing's ever actually free there's
always an opportunity cost the money and
resources that go into education might
be used to fund other social programs or
bring down the debt and if you go to
college the cost is not just tuition in
books it's also the income you could
have earned by going straight into the
workforce but as college even worth it
well let's look at the economics of
education
why do government spend billions funding
universal public education why not just
let profit-seeking businesses handle it
many argue that if education was
entirely privatized it's likely that
some children would be excluded and that
would make society as a whole worse off
education is a positive externality
education benefits individuals by
helping them get a job and earn more
income but it also benefits society as
these individuals create art invent cool
stuff cure diseases and make interesting
conversation at parties more education
increases productivity GDP and standards
of living so today we're going to look
at the education system in the United
States we're talking about the u.s. not
only because we make crash course in the
US but because education in this country
is going through a lot of changes this
way we get to talk about things like
education standards vouchers and student
debt now to be sure there are places
that do things differently for example
in the European Union college costs a
lot less than it does in the US or is
even free in America the government pays
for primary and secondary public
education and heavily subsidizes college
in 2015 the federal and state
governments will spend about six hundred
thirty four billion dollars on primary
and secondary education that's an
average of about $12,500 per student
each year which is a lot of money and
despite all that spending the US has
some serious problems with its education
system one of the biggest is inequality
students from low-income families tend
to have lower math and reading test
scores than those from higher income
families African American Latino and
Native American students are much more
likely to drop out of high school than
their white or Asian counterparts for
some economists the best way to level
the playing field is to focus on funding
they argue that the government should
pay for early education programs and
provide extra money for disadvantaged
and low-income students for others the
answer isn't just about more funding
it's about having more competition some
economists support charter schools and
voucher programs that allow parents to
pick schools or open enrollment among or
within school districts now in theory
this forces all schools to improve or
face losing their funding other
economists focus on the
teachers and argue they should be
incentivized to improve student
performance each of these ideas have
been implemented in the US with varying
success we have yet to find the magic
formula but it's clear that the first
step towards promoting equality is to
invest in primary and secondary
education
now what about higher education is that
a good investment well keep in mind that
there are many reasons not all of them
economic to go to college and to be
educated in general people go to college
because they enjoy learning and want to
know more or maybe they want to put off
getting a real job but in economics we
focus on financial benefits so is
college worth it the fact is college
graduates on average earn more
economists call this the College wage
premium among twenty five to thirty two
year olds college grads earned an
average of $45,000 versus only $28,000
for those who only have a high school
diploma also the unemployment rate for
college grads is pretty much always
lower right now for people over 25 with
a college degree unemployment is around
3%
now that's versus 5.4 percent for those
who only have a high school diploma and
it's 8.6 percent for those who didn't
finish high school so BAM college pays
off case closed
well not quite the people who graduate
from college are not a randomly selected
group first it takes a modicum of
intelligence and dedication to even get
into college second you have to receive
a fairly good primary and secondary
education to be able to keep up with
college work
third the student to attend college are
more likely to come from well-off
families with educated parents who have
the time and energy to help encourage
their success so when you compare
college grads to those with less
education you're often comparing people
from advantage backgrounds to people
without many of those advantages the
fact that college graduates make more
money isn't just about college it's also
about life circumstances let's go to the
thought-bubble economists point out two
main explanations for why college
graduates earn more the first is the
human capital theory the idea that going
to college actually teaches you skills
that'll help you get a higher income job
the second theory is called signaling
this is the idea that students have
shown they're smart and hard-working but
in a job interview
everyone's gonna claim sure I'm smart
and hardworking even applicants who
aren't so the talented applicants need
something else to validate their
abilities that can't be faked by others
a college degree sends a clear signal
look at me I graduated summa laude
and I got a notarized transcript
prove it many employers would prefer an
applicant who has an actual Harvard
degree over one that has the equivalent
self-taught education but a college
degree isn't only about signalling
ability we can accomplish that through a
test would take one day and $100 rather
than four years and potentially hundreds
of thousands of dollars college degrees
and other signals about socioeconomic
status and background both the human
capital theory and the signalling theory
are compatible with data both predict
that college graduates would earn more
money which is what we see but
economists have tried to figure out
which theory is correct they've compared
the earnings of people who have earned
seven and a half semesters worth of
college credit but didn't graduate to
people who finished and got a degree
both groups received about the same
amount of education so if the human
capital theory is correct they should
earn about the same amount of money if
the signalling theory is correct then
those with a degree should earn
noticeably more and they do but it's a
smaller gap than you would find with
just comparing high school and college
grads it seems that both theories apply
thanks thought-bubble ok so we know that
there are significant financial benefits
to completing college but what about the
costs going to college can be really
expensive often more than most families
can afford in the US students have over
1 trillion dollars of debt that's more
than Americans owe on their cars or
their credit cards more students are
attending college than ever and more of
those students are paying for at least
part of their education with loans in
2012 almost 70 percent of students took
out loans to pay for tuition and the
median amount they borrowed was around
$27,000 by comparison in 1993 the median
amount students borrowed was around
$12,500 and that's just the median so
even if some of the hand-wringing over
the total amount of student debt is
overblown the average student really is
taking on a larger burden so this is all
thanks to higher tuition right well not
exactly
at four-year public universities the
average cost of tuition room and board
has gone from ten thousand six hundred
dollars in 1994 to eighteen thousand
nine hundred dollars in 2014 when you
adjust for inflation the average tuition
at comparable private universities has
risen from twenty six thousand five
hundred dollars to forty two thousand
four hundred dollars during the same
period
but that rising tuition
is the sticker price for college in fact
most students receive very substantial
discounts students from wealthy families
with not so great SAT scores might pay
that full sticker price but once you
factor in cost reductions from
scholarships fellowships grants and
other sources many students pay
substantially less once you adjust for
discounting the rise in net tuition has
been kind of modest so while the debt
well for-profit colleges and
universities might be contributing to
this students at these schools tend to
take on more debt than students at
public schools or private nonprofits
it's also possible that student debt is
rising because graduate school
enrollment is up and grad students
borrow more than undergrads another
reason tuitions are increasing is
because the actual cost of running a
college is higher than a few decades ago
as some schools compete for students and
their money some of them build luxurious
dorms climbing walls and gourmet dining
to attract revenue another possibility
is that colleges now employ more
administrators and pay them a whole
bunch of money so in cold hard merciless
dollars doesn't make sense to spend or
borrow a bunch of money on a college
degree well it depends a lot on the
degree you get but on average the answer
is yes as long as you finish many of the
worst student debt horror stories
involve students who racked up large
debt but were unable to finish college
and that's surprisingly common every
year in the u.s. 60% of high school
graduates enroll in college but only a
little over half actually graduate
within six years that's right only half
but what about students that don't have
the means or the inclination to go to a
four-year university are they doomed to
live in squalor
well no but again better money can be
found in careers that require specific
training and skills which can be learned
to a community college or through an
apprenticeship the average car mechanic
earns $40,000 a year the average plumber
earns 50,000 the average electrician
$55,000 and it's more a young people off
to go to college and it's older people
and these careers retire most economists
expect these wages to rise so what's the
final conclusion is college even worth
it well I guess in the end we have to
say it depends it depends on where you
go to school how much you pay for your
degree and it depends on what degree you
get and of course on what you want to do
with your life education isn't just
another thing that you buy it isn't
only about individual gain there's a
social aspect to we want everyone to
have access to quality education because
having an educated populace benefits all
of us
education can also be a powerful tool
when it comes to reducing poverty and
addressing income inequality and we're
going to talk about that next time
thanks for watching thanks for watching
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