VIA Peter Orszag: “More College Grads Equals Faster Economic Growth”

As if in response to last week’s scary graph (via the Middle Class Political Economist), here’s Peter Orszag (former CBO Director and Bloomberg columnist) giving his own interesting take on the outsized economic impact of financial aid in a post at the Washington Monthly College Guide:

For much of the 20th century, the U.S. benefited from rapidly rising educational levels, as the economists Claudia Goldin and Lawrence F. Katz of Harvard University showed in their 2008 book, “The Race Between Education and Technology.” Over the past 30 years, however, educational attainment has risen much more slowly. From 1960 to 1985, the share of adult Americans with at least a college degree more than doubled, to 19 percent from less than 8 percent. From 1985 to 2010, though, the share rose by only about half, to 30 percent. This slowdown has exacerbated inequality and crimped growth.

If the increase had continued at the same rate as before 1985, about half the adult population today would have at least a college degree. More graduates would mean lower inequality, because the wage premium for a college degree would be reduced by the additional supply. And it would mean higher national income, because better-educated workers are, on average, more productive.

After making suggestions to boost the numbers of college graduates, here’s a key point:

Among many considerations that influence a person’s decision to attend college, financial aid is a significant one. Aid to undergraduates totals about $200 billion a year in the U.S., and about two-thirds of students are eligible for some form of assistance. A variety of evidence suggests that every $1,000 of additional grant aid per student increases college enrollment by about three to four percentage points, according to a review of the literature by Susan Dynarski, a professor of public policy at the University of Michigan, and David Deming, an assistant professor of education at Harvard . . . . The reverse is also true; people who lack access to financial aid are less likely to invest in college.

Orszag wants to continue initiatives to increase high school graduation, make more financial aid available to students in need, and simplify the financial aid process. As he concludes, “U.S. economic growth depends on it.”