To Reduce Income Inequality and Boost Economic Growth, Make sure every Student has an Opportunity to Attend College
Rising levels of income inequality are acting as a drag on the U.S. economy, but we can counter the economic harm by expanding opportunities to attend college, according to a new report from Standard & Poor’s, a financial services company.
Here’s the crux of the report, in a sentence:
Our review of the data, as well as a wealth of research on this matter, leads us to conclude that the current level of income inequality in the U.S. is dampening GDP growth, at a time when the world’s biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population.
Pretty clear, right? Prominent policymakers, including President Obama, have warned time and again that high levels of income inequality are slowing economic growth. This report adds something new to the conversation in that it represents the viewpoint of a private sector company, and could be an indication that the business community is starting to view income inequality as a problem.
One of the challenges of talking about income inequality is that there are no easy solutions for improving economic opportunity for those at the bottom of the income ladder. But the Standard and Poor’s report points out that increasing access to college is a relatively simple way to ameliorate the harmful effects of high levels of income inequality, and argues that it’s time to put our money where our mouth is in terms of financing higher education:
With evidence indicating that a well-educated U.S. workforce is not just good for today’s workers and their children but also for the economy’s potential long-term growth rate and government balance sheets, what do we need to do to get there? This will likely require some investment in the human capital of the U.S. workforce, today and tomorrow. But studies have indicated that the benefits greatly outweigh the costs. Researchers estimate that, depending on the exact program, $1,000 in college aid results in a 3- to 6-percentage-point increase in college enrollment, with the total cost in aid averaging $20,000 to $30,000 to send one student to college. Given a college graduate is expected to earn about $30,000 more per year than a high school graduate over the course of their life, the benefits outweigh the costs. It also this means more tax revenue from higher income than otherwise would have been the case.
Here in Wisconsin, we have many opportunities to reduce financial obstacles to higher education. Last year, 57,000 students at University of Wisconsin institutions or technical colleges received need-based grants from the state’s Wisconsin Grants program. But another 41,000 students who were eligible did not receive a grant, due to lack of funds. That means 4 out of 10 college students who sought a grant were out of luck, because the state program simply had no more money. (This memo from the Legislative Fiscal Bureau has more information, including how the students were counted, and why some groups of students may be under- or over-counted.)
Investing in higher education is good common sense, but it also makes economic sense. By raising the education level of our workforce, we can make Wisconsin a more attractive place for businesses to grow, make sure economic gains are widely shared, and push back against the harmful effects of growing income inequality. We need to make sure that all college-bound students with financial need can count on the state for support, not just a fraction of the students.