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Generational and Social Mobility in US Hampered by High Costs of University Education

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The future of an entire American generation is at stake. And the problem begins in public schools.

Miles Corak, one of Canada’s best known economists, is a professor at the University of Ottawa. In July, he was invited to testify to the US Senate Committee on Finance in Washington DC concerning Boosting Opportunities and Growth Through Tax Reform: Helping More Young People Achieve The American Dream (video of the Senate Committee Hearing available via the link).  He is currently completing some fascinating “homework” that Senator Max Baucus (D-Montana) and Orrin Hatch (R-Utah) gave him as a follow-up, and is presenting some of it on his blog for community discussion.

One entry concerns how current education policy and reality is affecting or hindering the “American Dream,” which is all about mobility when one thinks about it: The US Senate wonders about tax policy for the American Dream: why are schools failing to promote social mobility?

Miles Corak

Miles Corak, University of Ottawa

The question from Senator Baucus: “Education is one of the most important factors in providing every American with the opportunity to succeed. Our education system is one of the reasons that we have one of the most productive labor forces in the world, but not everyone seems to be benefiting. Why is our education system failing to achieve the same level of mobility that we see in other countries? How could the education system here in America do a better job of promoting mobility and opportunity?”

A classic Have and Have-not fight, directly linked to mobility, is currently playing out in Washington concerning extending tax breaks for the middle class and the wealthy, or letting them expire and starting anew with the risk of a “financial cliff,” or perhaps, steep hill, depending on the economist you talk to.  America’s current President is an example of mobility working.  But, will there be future Middle Class Kid Makes Good stories in the White House, or will only the rich inhabit the office?

I participated in Dr. Corak’s call for information concerning both public and higher education south of the 49th Parallel in the US by offering my take on both of them.  I’m no economist, but I led the local “Cable in the Classroom” initiative while working in the Cable TV industry, worked with 330 of the world’s premier universities as Chief Marketing Officer for a university honour society, graduated from secondary school in Canada, and received both my Bachelor and MBA degrees in the US, so I perhaps have a unique point of view on the subject.

The 2-cents worth I offered:

K-12: A Foundation for Mobility Barriers

Senator Max Baucus

Senator Max Baucus, D-MT

Affluent areas in the US benefit from higher and more tax revenues being allocated to schools than others. Less affluent areas suffer due to the reverse. Local laws often need to be passed to increase tax support of education, and those initiatives sometimes fail at the ballot box. This is very different from current realities in Canada.

Unlike Canadian education funds, which are doled out at the provincial level, US states have a much less hands-off approach, while the US federal Department of Education eats up a lot of the funds that, in Canada, would be spent by the provinces.  Imagine Ottawa attempting to control what happens at the local high school in Riverview, New Brunswick, but that is the reality in the US.  American school boards are often party politicized and divided just as city councils are (Democrat, Republican), which is a foreign idea in Canada and many other countries.  During this post-recession period, teachers have been laid off at the local level due to declining local tax funds.  That would not occur in any Canadian city or town, but could, perhaps, provincially.

Senator Orrin Hatch

Senator Orrin Hatch, R-UT

US teachers’ pay is often tied to federally mandated student test scores which are perceived as a sledgehammer by teacher unions.  In Canada, teacher evaluations are essentially meant to help the teacher and not to provoke fear.

Canada at 5.2% spends 0.5% less of GDP than the US does (5.7%) for arguably much better results. (Source: Nationmaster.com; United Nations Human Development Programme)

Finally, while Canada and Canadians now largely agree on how important public education is, US communities, teachers, teacher unions, school boards and state legislatures are often at loggerheads about the money and direction.

All of these factors and conflicts among adults often put what should be society’s prime concern, the students, at the back of the school bus.

International test scores prove that America is failing its young people even before (or if) they enter higher education, which is discussed next.

Many University Graduates Stymied & Desperate

Public K-12 education is just one piece of this puzzle.  American social and generational mobility issues extend to higher education and its quickly accelerating costs and debts that are, by far, the highest per student in OECD countries.  Outstanding student loans have now exceeded $1 Trillion.  Defaults are increasing. (There’s no need to go over all this in detail here as I address that in my 2011 article Defaults on college & university student loans: The next US economic bubble to burst?)

A Bachelor degree is now, essentially, the bare minimum to get a good job — what a high school diploma was 20 years ago — but the attached price tag in the US places huge walls in the way of mobility for many. Even so, as James Bradshaw reported in the 9/25/2011 Globe and Mail: there is “no firm guarantee of a return on investment in that expensive piece of paper,” the university degree. This is a universal reality in both the US and Canada, but the financial risk for Canadians is much less. There are Pell grants for some people who are essentially poor, but the maximum grant ($5550 annually) does not pay for all expenses, nor even all of the tuition tied to attending most universities, even public state schools.

The Higher Education Ball and Chain

Another reader of Dr. Corak’s series precisely details how easily it is for today’s American university graduates to acquire $200,000 to $300,000 in student loan debt for a 4-year degree, a number most Canadian and European parents and students cannot even fathom.  “Aaron’s” submission below Corak’s article is certainly worth a read, both for Canadian parents (who think they’re paying too much for their kid’s university) and bickering Canadian politicians, and also for Americans who are thinking there must be a better way.  As Aaron so succinctly writes: “I don’t think (this point) can be overemphasized: the post-secondary education system in the US is a key piece of the puzzle underlying the lack of mobility.”

Even unpaid internships are to blame, as only those who are at least reasonably affluent can do work for free and, therefore, are able to take advantage of gaining that on-the-job experience.

Corak has published many pieces, and indeed testified to the US Congress, concerning the fact that mobility in Canada (and some other countries including Australia) is much better than that in the US, which is falling behind, and has been since the Reagan years.  One can easily argue that huge mobility barriers are generated by a failing and inconsistent public school system which is at the mercy of local affluence / taxation, the high cost of education and the consequences of acquiring a lot of debt by young people entering the workforce.  Even worse, with thousands of graduates being forced to put off repayment, and potentially doubling or tripling the amount they have to pay back via deferments due to the lack of jobs, an entire generation is at risk.  So is America’s future.

The current dysfunctional education system, from kindergarten to graduate school, is only one of the founding issues that are hindering mobility, albeit a very important one.  There are many other societal forces at play; many of them interconnecting. I recommend readers of this column follow more of Corak’s “homework” on his blog.

Update November 29, 2012: The Economist writes in its December 1 article Not What It Used To Be: American universities represent declining value for money to their students: “There is growing anxiety in America about higher education. A degree has always been considered the key to a good job. But rising fees and increasing student debt, combined with shrinking financial and educational returns, are undermining at least the perception that university is a good investment.”  The Economist article is certainly worth reading and supports this article and my 2011 entry linked above.

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