Grey Swan

In my previous blog I examined two types of students, those who pay full bill and those who do not. I proceeded to show that State schools are generally a better investment for wealthier students, financially. All of this reasoning assumed ceteris paribus. Today I want to refine this argument based on the non-financial value of top schools.

When examining the non-financial argument, we have to look at how much utility a person derives from a decision. For example, certain students value the ‘status’ of a top school more than others. Some students find the access to supposedly ‘better’ education rewarding whether or not it provides substantial financial rewards. To simplify this argument, I assume that there is no bias in students preference for non-financial reward based on wealth. Consequently, utility derived from college is constant across the spectrum of the population. The COST of college varies greatly, and it varies percentage wise differently than it varies in absolute numbers. This is important because most economists believe that each additional dollar provides less happiness than the previous dollar. For example, if Bill Gates earns an additional 10,000 dollars in a year, this makes little difference. If a struggling family earns 10,000 additional dollars, this would likely ease their life significantly and provide great utility. The result is that the same quantity of money means a different amount to different people.

A family that earns just enough to pay full bill for college will need to sacrifice a great percentage of their income to send their child to a top school. A really wealthy family, however, will sacrifice very little income percentage wise. Consequently the utility cost of money differs from person to person. However, since the value of college remains the same per person, it is those families who pay a proportionally larger share of income for college that have the greatest incentive to attend a state school. This makes the argument that the ‘middle class’ is hurt the most by college financial policies very true. In order to reduce this affect, the progressivism of college cost would need to be expanded across a much larger income range, and would probably need a higher start point (not zero dollars). Currently both the poor and the very wealthy have the greatest incentive to attend a top school. The upper middle class, the very people that top schools are best a producing, are penalized most.