A small but influential group of economists and educators is pushing another pathway: for some students, no college at all. It’s time, they say, to develop credible alternatives for students unlikely to be successful pursuing a higher degree, or who may not be ready to do so.
A college degree comes with a wage premium. Colleges are often willing to accept marginally qualified applicants whose graduation outcomes are uncertain. These students may be willing to take the risk of wasted tuition and time in order to gain that wage premium. We are observing them choosing not to enroll in programs that are less valuable (in terms of the increase in wages they expect after completing these programs).
Note that high-school graduates will decide whether or not to attend college or alternative programs based on the difference of two differences. Specifically, they compare the cost and benefit of getting a college degree, the cost and benefit of getting an alternative degree, and compare the two. Therefore, an increase in either wages or a decrease in the cost would make a program more attractive.
Therefore, it is relevant to ask: what can we expect from an increase in the supply of these college-alternatives due to a subsidy? Certainly, the tuition of alternative programs will fall and enrollment will rise. The question, however, is the margin on which enrollment will rise. It is unclear that these programs will lure high school graduates away from college. In particular, if high school graduates are not currently enrolling in these programs, why should we expect that they will do so on the margin? It is quite possible that the increase in attendees will come from an older demographic seeking to improve their resume, or less qualified high school students.
The idea behind this is motivated graphically below (click to enlarge), and it parallels a previous analysis Corrections has provided. The idea is as follows: "quality" of both University program and student increases as one goes from top to bottom. Quantity is depicted by length. We assume positive assortative matching between students and universities. The diagram on the left displays that, if there are relatively more universities than high-quality candidates, we expect that an increase of community colleges will only impact non-college, non-alternative program high school graduates. The second diagram displays the same idea, just with an "alternative" program rather than more community colleges.
We can see that it is a definite possibility that the program would tend not to improve outcomes of marginal college students, but instead of the lower margin.
We might further, and incidentally, note that Nicole Fortin's "Higher Education and the College Wage Premium: Cross-State Evidence from the 1990s" (AER 2006) provides evidence that state appropriations for college impacts the wage premium negatively. We might expect that appropriations for alternative programs or community colleges would increase the college wage premium relative to those programs.