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Income Inequality and Higher Education

6/10/2015

Catharine Bond Hill

President Catharine Bond Hill of Vassar College (NY)

© Vassar College/ John Abbott

 

​Income inequality, having increased significantly since the 1970s, is receiving much attention in America these days. While access to higher education often gets mentioned as a culprit, rising income inequality is primarily the result of government policy failure, and not the failure of the higher education sector. Decisions about monetary and fiscal policy, including federal and state governments’ tax and expenditure policies, have had important effects on the increasingly unequal distribution of income in our society. If those in power wanted to address the distribution of income in our economy, they have the policy tools to do so.

At the same time, access to higher education is still important to both individuals and our society, and rising income inequality is making it more difficult for the higher education sector to address the access issue. Currently in America, getting a postsecondary degree—in particular a bachelor’s degree—generally results in higher incomes, greater job choice, satisfaction, and security, as well as other outcomes considered good for our society, such as voting and community service.  But access to higher education depends to a large extent on family income and race as well as merit. Higher education is not currently supporting equal opportunity and social mobility as much as it should. Despite claiming to be the land of opportunity, in fact our intergenerational income mobility is low by international standards and when compared to America’s past. Parents’ income is a good predictor of their children’s future income. Getting access to higher education increases income mobility for lower-income students, but access to higher education is difficult for low-income families, and the gap between rich and poor is increasing. Students from low-income families are less likely to go to college and less likely to graduate. 

A quick review of college and university mission statements will disclose that most are officially committed to access and equal opportunity. Gordon C. Winston, one of the first economists to do serious work in the field of the economics of higher education, referred to colleges and universities as “part church and part car dealer.” The commitment to access is the church part, and colleges and universities can do much to increase access. They can do this by recruiting and admitting a more racially and socioeconomically diverse student body. But this isn’t happening and there are lots of pressures working against it.

In the public sector, there have been cutbacks in public appropriations. In an attempt to protect quality, this has led to tuition increases that are not met by increased need-based financial aid. This has increased the net price that lower-income students face, hurting both enrollment and completion. In the private, non-profit sector, many colleges and universities responded to the financial crisis of 2008 by constraining financial aid in an attempt to protect other spending.

Rising income inequality has increased the challenges that colleges and universities face as they try to stay true to their commitment to access. Access to a great education and its returns is more concentrated among the children of wealthy families. And colleges and universities compete for these wealthy students, reflecting the car dealer side, where institutions respond to incentives in the market in which they operate. These wealthy students have had a lot of resources invested in them from birth (or before) through high school, so they have lots of great skills and attributes, and they can pay. Lower income students have come from weaker school systems, are often less well prepared, have had to work rather than learn how to play the violin or lacrosse, and need more financial aid. The trade-offs involved in admitting a low-income student rather than a high-income one have increased as a result of increasing income inequality in America.

Policies that could address these concerns and directly reduce inequality include increasing the minimum wage rate, adopting more progressive taxes, targeting government expenditures to benefit the poor, and simply allocating more resources to education, from preschool through higher education. Instead, despite the United States’ wealth and evidence that cutting income inequality would actually improve the economy’s efficiency, our policymakers have allowed income inequality to increase.

Other solutions include allocating more existing resources to need-based financial aid. Here, the government—along with foundations—could create incentives, but higher education institutions could also do so on their own, being true to their missions. Colleges and universities did this in the 1970s in response to the civil rights movement, increasing the representation of African Americans without waiting for government incentives.

Vassar has allocated significant resources to need-based financial aid, actively recruited talented lower income students to both apply and matriculate, and strengthened its support services for students while on campus. As a result, our share of students on financial aid and those eligible for Pell Grants have increased, and these students are graduating at high rates.

Efforts to innovate and reduce costs in ways that maintain quality and access to loan markets are also important in increasing access to higher education among non-wealthy families. Both support access on the part of lower-income students and are part of the solution.

Absent changes on the part of our government, taxpayers, and colleges and universities, income inequality and unequal access to the top of that income distribution through access to higher education seem likely to increase in the coming years.

 

Catharine Bond Hill is president and professor of economics at Vassar College (NY).

 
 
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