Public funding for college education?

Based on the possible beneficial externalities from college education, argue for whether or not a case exists for public funding of college education. Explain your rationale.

College education is beneficial for the student taking it since it would give higher wages to college graduates. However, college education may also benefit the society. The possible beneficial externalities of college education could be increase in productivity of the labour force and thus more efficient production and also the gain to the society in terms of more educated citizens ( like less crime, better enforcement of law, and greater participation in welfare programs). For example, college education could have knowledge spill over effects. The educated worker may be able to devise better production methods which can then be used by other less skilled workers, thereby increasing the overall productivity.

         Thus, there are benefits from college education that the individual getting it would not capture. So, to some extent education can be classified as a public good. Now, with the help of the following diagram, we can see the external benefits of education.

PMC= private marginal cost

SMC= social marginal cost

PMB= private marginal benefit

SMB= social marginal benefit

As is clear from the above figure, the social marginal benefit exceeds the private marginal benefit, whereas the social and private marginal costs are equal. Thus, when an individual decides how much education to undertake, he does not take into account the positive effects that it will have on the society. So, he chooses a level of education that is below the social optimal.  Qs is the social optimal and Qp is the private optimal. The shaded area shows the welfare loss. 

Therefore, there is a case for the government giving subsidies for college education. However, education cannot qualify as a pure pubic good. Two main characteristics of a pure public good are : non-excludability and non-rivalry. In case of education both these attributes are not present because it is possible to “exclude” students from college education and also education for one may reduce resources available for others ( like class rooms, teachers , books) which makes it rival in consumption.  So, public funding to some extent is justifiable from the positive externality point of view. However, there is a significant private part to education and so complete public funding may not be advisable. Whether college education is a public good, is not an either , or question, rather it is a matter of degree.