Education: The Wind at America’s Back

Today, I spoke to students at the Georgetown University Public Policy Institute, where I discussed the Administration’s efforts to promote short-term economic recovery, put the nation on a sustainable fiscal trajectory, and make investments to bolster long-term economic growth.  I have written here on many occasions about the first two topics covered in today’s talk, so I’ll use this post to delve a bit more into the final topic of making new investments to promote growth — and, in particular, by expanding access to and the quality of education. My slides on this topic can be found here.

As I said today, there is substantial evidence that growth in educational attainment has been a key engine in generating U.S. economic growth over much of our nation’s history.  This is why it is troubling to observe that the growth rate in U.S. educational attainment has slowed dramatically since the generation that entered adulthood around 1970.   The average educational attainment of natural-born U.S. citizens jumped from just over 7 years of schooling for those born a decade after the Civil War to just under 14 years of schooling for those born in the years immediately following World War II, but the average years of schooling for those born in 1950 versus those born in 1975 rose only by about one year. Said differently, the wind at our backs generated from increasing average levels of education has slowed to a soft breeze.

This slowdown in the growth of educational attainment has largely corresponded in time with a significant slowdown in economic productivity — along with a significant increase in economic disparity.  As Claudia Goldin and Lawrence Katz have shown, both effects are traceable to a decline in the relative supply of highly educated workers compared to continued high relative demand for their skills.  This imbalance decreases overall economic growth (relative to more rapid growth in the supply of highly educated workers) and is reflected in the increased economic return that accompanies graduating with a college degree — that is, the "wage premium" attached to being a college grad.  This is one motivation for the President’s commitment to having the United States lead the world in the proportion of our population graduating college by 2020.

To get there, we need to make it easier for students to go on to higher education and to get their degrees. Research shows that academic achievement in elementary and high school is an essential factor in determining who will go on to college, and, as a result, the Administration has put a heavy emphasis on reforming K-12 education.  But even among Americans who have the same scores on standardized tests, Americans who come from less well-off economic backgrounds are significantly less likely to enroll in four-year schools than those who come from families with higher incomes.  Research further shows that, once enrolled, students from families with lower incomes are less likely to graduate than students from families higher up the income scale.  In other words, family income still plays a large role in what kind of higher educational — and, ultimately, what kind of economic — prospects Americans enjoy.

Let me therefore mention two steps that we are taking to expand college access and completion, especially among middle- and low-income students.

First, the Administration is working to expand and reform the Pell Grant program.  We temporarily expanded the maximum Pell Grant award in the Recovery Act to $5,550 — and the President’s Budget has called for making that expansion permanent. In addition, the Administration has proposed to make Pell a stable and predictable mandatory program that is indexed in future years to better keep up with the growth in tuition costs so that no student in need has to doubt if those funds will be there for them once they enter college.

Second, the Administration is looking to removing unnecessary obstacles in obtaining the student aid we already provide.  Recent behavioral economics research has shown that even small uncertainties or burdens can discourage people from taking actions they know to be in their interest — and the current federal student aid application (the FAFSA), which is more than four times longer than the 1040 EZ tax form, is one of these burdens.  That is why the Administration is working to dramatically simplify the federal student aid application — so that families don’t need an accountant to apply for financial aid.  Such low-cost changes focused on how people actually behave can have substantial effects on educational attainment.  As I have previously blogged, one study found that, among college senior from low- to moderate-income families, simplifying the FAFSA and providing help in answering its questions increased college attendance by almost 30 percent — a remarkable and important result that we reflect in our policy.

Along with other steps, these types of efforts — increasing financial assistance, and making it less confusing to obtain — can help to expand college enrollment and completion and keep our economy growing for years to come.

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