Abstract
This study leverages two national datasets to assess the changing value perceptions of higher education. Human capital and social contract theories are used to frame the analysis and discussion around the shifting perceptions. The study finds that, in 2016, approval rates for education borrowing dropped to the lowest level since 1992. Respondents who are younger, have debt, and are more willing to take risks are more likely to approve of borrowing. Women and Blacks are more likely to approve of borrowing. Women are more likely to indicate that the cost of higher education is not worth it. Income, education, and homeownership were associated with the belief that education was worth the cost, while having student loans was associated with the belief that education was not worth the cost. The results indicate that the social contract regarding higher education may be fracturing for specific groups in the US—specifically for women and those who need to borrow to finance their education. Implications for policymakers are discussed.
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Availability of Data and Material
The Survey of Consumer Finances (SCF) and the Survey of Household Economic Decisionmaking (SHED) are both public datasets available from the Federal Reserve Board.
Code Availability
(software application or custom code): Available upon request.
Notes
Arguably, the social contract aspect of higher education pursuit has become more important as students have become increasingly responsible for bearing most of the cost for higher education. Previously, there may have been a social contract in that qualified students would spend their time pursuing higher education and expected a return on their investment; however, the importance of the social contract has increased because the stakes are higher (i.e., students bear an increasing proportion of the direct costs of higher education).
Although we restrict the SHED analysis to individuals with at least a high school education, we did not restrict the SCF sample because respondents in the SCF are asked whether borrowing for education is acceptable for someone like the respondent. That is, the reference is the respondent so their perception of borrowing for higher education is meaningful.
An age squared term was initially included in the regression to account for the possibility of a change in effect as respondents age, but the term was not significant, so we removed it from the model.
See Lindamood et al. (2007) for a discussion of the distinction between household head and respondent in the SCF.
Because the net worth measure is the difference between assets and liabilities, the amount of debt could not be included as another predictor. A binary debt indicator variable should capture the effect of having debt while the net worth variable should capture the overall financial situation of the household.
Prior literature has found that smokers tend to have greater preference for the present (i.e., a higher rate of time preference) (Scharff & Viscusi, 2011) and has used smoking behavior as a proxy for time preference (Heckman & Montalto, 2016). Although there is a question in the SCF about planning horizon, Hong and Hanna (2014) concluded that the planning horizon question in the SCF is a situational factor rather than a measure of time preference.
To measure risk preferences, we used the SCF’s willingness to take risk scale, variable X7557. This measure was new to the 2016 SCF and will replace the measure used in previous SCF rounds (X3014).
We report unweighted sample characteristics due to our sample restrictions and because we combined two survey years.
X401 asks respondents whether “In general, do you think it is a good idea or a bad idea for people to buy things by borrowing or on credit?” The response options are (1) “good idea”, (2) “good in some ways, bad in others,” and (3) “bad idea.” We collapsed the first two groups for the purpose of creating a comparable approval rate.
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Heckman, S.J., Letkiewicz, J.C. & Kim, K.T. A Fracturing Social Contract? How Perceptions of the Value of Higher Education are Changing. J Fam Econ Iss 44, 156–174 (2023). https://doi.org/10.1007/s10834-021-09811-2
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DOI: https://doi.org/10.1007/s10834-021-09811-2