Against Scholarships
Yet another of my unpopular positions
I.
I’ve discussed the problems with foundations and endowments being perpetuities. I’d like to take another controversial stance in a related area. I think scholarships for college are a bad idea. More precisely funding higher education primarily or significantly through scholarships has negative unintended consequences that outweigh the benefits overall.
To properly understand this, realize that my argument is that they are bad in an aggregate sense. Something might be a good idea and work well for individuals or in individual cases but still fail to work well and be a good idea at the macro level. Scholarships fit this model--good for thee but not for all.
Bryan Caplan demonstrated strongly in The Case Against Education how in education a fallacy of composition exists whereby every actor in the education arms race is pursuing rational self interest but at the same time the result for society is a large net loss. My argument relies on the same framework.
Scholarships drive up the cost of education and separate the decision-making process disconnecting buyer and seller, benefactor from beneficiary. Where it was thought that scholarships were solving a positive externality problem, I will argue that they in fact are just creating a negative externality problem where little to no problem existed to begin with.
To be sure this is a part of the bigger problem of how we fund education generally and higher education specifically. The same problem confronts health care via health insurance. Even when it comes to lending for higher education, we have the problem of government first implicitly and now explicitly crowding out the private market. The result there has been a disastrous cycle of bad lending with crushing debt implications for many borrowers.
Once you understand that we are subsidizing demand with how we fund education just as we do in other areas like housing and health insurance, you are well on your way to understanding the inherent concern. Namely, we are incentivizing spending.
Once you understand that the demand subsidy has a third-party element without appropriate skin in the game just as we do in low-income housing and all of health insurance, you are well on your way to understanding that this inherent concern of incentivizing spending is an inherent problem. Namely, we are incentivizing bad spending.
When we give money to students to spend on college, we incentivize university education to be more expensive than it would otherwise be, we encourage students to pursue future career paths that are not in their best interests, and we entice the college-industrial complex to overbuild and overextend beyond a desirable and economically justifiable size and scope.
II.
The scholarship system has the following problematic features, which are actually bugs that are sold as features:
We give scholarships based on “need” with an incorrect definition of financial need.
We give scholarships based on financial need without a connection to aptitude.
We give scholarships based on ability without a connection to financial need.
We give scholarships based upon arbitrary factors without a connection to either need or ability.
Let’s discuss each point.
General need-based scholarships where there exists basically no connection between general poverty and aptitude—Is the lack of funds the only thing holding back an otherwise good student candidate? Where else in life do we think “I can’t afford this but I want it” is a proper justification for getting the thing paid for by others?
We should first define what need actually is. I have what many would agree is a need for a car. It makes my life a lot easier including helping me get to my job. I have a financial shortcoming when it comes to buying the car I would really love to have—let’s say a Ferrari. I do not have a need, financial or otherwise, for a Ferrari. A properly defined financial need is one that requires financing. If I cannot obtain financing for the car I want because no one will loan me the funds or give me the funds for the Ferrari, this just means I am like all humans possessing insatiable wants and limited means.
Further, my “need” for a car of any kind is predicated on my ability to justify it economically. To wit, I need to be able to generate enough income from use of the car by, say, getting to work on time. If the car in this sense can’t pay for itself, I don’t actually “need” a car. (I could otherwise be able to pay for it by sacrificing other consumption, but that would be even further removed from the idea someone should pay for me to have a car.)
This directly relates to the second criticism of need-based scholarships—that there is not a strong connection between aptitude and financial need. Even if we can establish that there is a financing need because the would-be student is impoverished, we do that student a disservice if we financially incentivize him to pursue an education in an area where he doesn’t have a true aptitude.
There are two sides to the concept of aptitude here: a student’s abilities and the students prospects. I am really good at Air Hockey. Seriously, like extremely good once upon a time ranking 50th in the world. I gave it up long ago, though, because it is just a hobby with no ability to provide for me economically. In terms of productive employment it is perhaps my 1,000th best option. Encouraging students to pursue degrees where they have low likelihood of being productive is not in the students’ best interests.
A student may very well lack the current means to pay for college themselves. The solution to this problem is either a proper lending market (not the current monster run by the Federal government) or a generous benefactor who is close enough to the specific situation to assess if the need and the aptitude are aligned. Before you scream “that’s a scholarship!”, understand that this small carveout is an exception to the way it actually works >95% of the time. In a free market traditional loans, non-traditional financing like Income-Share Agreements, and thoughtful people and organizations sponsoring students (scholarships!) would alleviate much of any need for donors to blindly gift education funding.
Ability-based scholarships where there exists basically no connection between aptitude and financial need. Why are we giving kids from wealthy families money to pursue higher education? Even if the would-be students are highly intelligent/capable/possessing tremendous aptitude (see a few paragraphs above), if they do not have a financial hardship, there is little reason to believe they should be given funds to pursue further education. They have it covered on both ends—they have money to pay for it themselves (including from their families) or they have the proven abilities allowing them to obtain financing themselves.
I think a general argument for ability-based scholarships without regard to financial need would be something based on support for endeavors we want pursued including getting more students into a given field. But this begs the question of why we need to subsidize it to begin with. What is this thing that is so desirable no one wants to do it? How do we know we want more of it? Keep in mind that when we are talking about ability-based scholarships we are almost always talking about general funds without direction or earmark beyond that they must be spent “on college stuff”. Which in this case means we are saying we need more higher education via more higher-educated people among those who have very good higher education faculties. Wouldn’t these be the people who would already be pursuing higher education perhaps to excess?
This argument also raises the question of if this is the best method of subsidy—probably not. A more direct subsidy of the endeavor itself rather subsidizing than those who would study it seems much more appropriate. If that is higher education in general, we can have that argument. If it is subsidy for specific areas of higher education, then again fund that directly rather than funding high-ability students generally.
Arbitrary factors-based scholarships where there exists basically no connection to need or aptitude. All of the above criticisms apply to this category with the added problems that these scholarships are prejudicial by their very nature.
These come in a variety of flavors from affirmative action goals (race based, sex based, etc.) to historical coincidence rewards (location based, college major based, etc.) to substitution in lieu of wages (athletic based).
The purpose of affirmative action scholarships are fairly obvious and with good intention—where the aim is to presumably give advantage to someone based on the given factor because that factor is otherwise effectively a handicap or because that factor used to be a handicap. While we can debate the merits of this approach as well as the ethics of it, I leave that aside here. Instead I would just argue that giving scholarships based on these factors doesn’t negate the problems with scholarships mentioned above and may in fact exacerbate them since it increases the arbitrariness of the process.
The purpose of historical coincidence scholarships are just to satisfy some idiosyncratic desire on the part of the donor. These would include scholarships for a kid from the same hometown as the donor, a kid pursuing a degree favored by the donor, a kid who had a certain this combined with a certain that, and so on—all of which has little to nothing to do with connecting financial resources with those who need the resources today for investment that will presumably pay off in the future. If you think the kid from Idabel, OK pursuing a duel major in fine arts and mechanical engineering that is in the chess club and who is going to intern somewhere north of the Mason-Dixon Line deserves money for college because of all these circumstances, I think you’ve lost the plot.
The purpose of substitution in lieu of wages scholarships is to, well, . . . avoid paying people for productive work and/or incentivize talented people to do things we like to watch. These are possibly the best of this bunch. Sometimes it is very poor pay for the production provided (college football and basketball players generally create magnitudes more in value than the nominal value of their scholarship not to mention the marginal value, which to them is almost zero given their ability to get other scholarships and/or financial loan and grant assistance). Sometimes it is just a bad way of subsidizing what we want (just pay someone to do the sport). Still, at least it is a subsidy somewhat connected to the desired output.
III.
So if I’m against scholarships, how can I be an advocate for voucher programs and other backpack funding in primary and secondary schooling? Wouldn’t attaching a check to the child invite the same incentive problems? My response is to demur that the current mess in public government primary and secondary education is already immersed in this very problem. Vouchers would in no way introduce the system to the problem—the problem is its very lifeblood.
True, vouchers are probably a second-best solution. The first best is to simply let people figure out and finance on their own their children’s education. For those without the means to do so, they specifically could be provided assistance ideally through private philanthropy but also (inevitably) through means-tested government assistance. Unfortunately, human societies generally don’t go for first-best solutions. So we are left with the best to hope for being funding students rather than systems. At least that would introduce competition into education and allow an even playing field between private providers and government schools.
It would be great if scholarships were much like school vouchers. That would be a big improvement—another second-best solution. However, scholarships are overwhelmingly tied up with specific institutions and the need/ability/arbitrary factor criteria and its associated problems as identified above.
Scholarships are a false solution giving us an excessive amount and an inferior version of a product we desire (higher education) all at a much higher cost.
P.S. See here for more of my unpopular positions.