Public and Private Incentives for Investment in Higher Education: Are They Sufficient, Especially for Black Males?

The institutional costs of higher education have been rising. With diminishing public support per student, tuition and fees private costs have also been rising. But so have the real earnings of college graduates. Are there still sufficient incentives on efficiency grounds for additional public investment in higher education? And in particular, given that recent studies reveal that the costs to society of the inadequate education by black males (i.e., costs of reduced tax revenue as a result of lack of marketable job skills as well as their reliance on public assistance) are enormous, are there incentives for public support and/or other policy insights that would help address the problem?

This paper estimates nationwide private and social rates of return computed by the ‘full method’ by degree for each race and sex, and then repeats this for a specific campus based on tracer study data. It controls for ‘ability’, and breaks these rates down by field of study. Mincer returns at the campus level are also computed.

Private rates of return are the rates that discount the stream of net increments to earnings after taxes over the lifecycle attributable to education back to their present value and equate them to the private investment costs to students and their families. Therefore the private rates of return are the returns relevant to individual students and their families. Social rates of return are the rates that discount the stream of net earnings differential before taxes over the lifecycle back to their present value and set the result back to the total institutional and foregone earnings costs. These social rates are relevant to decisions by government about development policies.

The article finds that both the private and social rates of return for black males are much lower than they are for whites or for black females at the bachelor’s level and in each field. Higher ‘ability’ raises these rates, but its effect on the rates of return is only about 2–3 percentage points, and is not much different for other races and sexes. The larger propensity of black males to choose low net return fields is a major source of the insufficient economic incentives, and additional counseling of other policy approaches may be needed to help reduce the large social costs incurred from the inadequate education of this group.