A modest proposal on educational funding

What are the facts that justify government investment in higher education? One is that it is a public good. Knowledge generation and organization seem to be obvious public goods from higher education. So too is the investment in service capacity for the (unpaid) services that will be offered to the community.

I would suggest that some of the educational services are also public goods. Public health physicians, engineers and other professionals provide public services with important positive externalities -- those professionals do not appropriate all of the economic benefits that their services generate for the communities that they serve. Indeed, some of the educated people who create and operate enterprises create jobs and values that they do not themselves capture; the more college graduates in a local area, the better the economy seems to be for all "lifting all boats". In all of these cases, governments should support the higher education institutions.

There are also investments in human capital that will be reimbursed by future earnings. Students who can not make such investments out of savings or current earnings (their own or their parents') may borrow to obtain the education, repaying the loans from future earnings. If there are failures in the market for such loans, the government might justifiably step in to correct those market failures or make up for them if they can not be corrected.

We may wish to finance higher education for some students on the basis of leveling the playing field for them. For example, young people from families living below the poverty line or who have high educational costs due to some disability. Those would be public policy choices, and where legislatures make those choices in our name, they should be embodied in the law.

I also support public funding to repay debts under certain circumstances. For example, some students borrow to obtain degrees expecting to go into the private sector and obtain high paying jobs which would allow them to pay off the loans. Instead they go into low paid public service jobs or civil society jobs with significant public benefit. These deserve government stepping in to pay off the loans.

There are government expenditures on higher education that I would oppose. My wife and I are both studying after retirement, not to contribute to the economy but simply to learn. I see no reason for the state to subsidize such education which is pure consumption. So too, there are forms of tertiary education  which students choose on the basis of advertising which tells them falsely that the courses will pay off in future earnings. While some of this can be regulated out of existence, government should not pay for such courses.

So how about government funding by competitive grants to colleges and universities based on economic arguments. Proposals would justify the requests for funding by data showing that the applications were appropriate for public funding and competing on the basis of "bang for the buck" -- public benefits per dollar subsidy. States might make the grants, with partial funding through federal block grants to the states.