Now were going to talk about education, which is at least more commonly thought of as investment in Human Capital and shouldnt be as controversial and something well hear a lot about politically in coming months and years. We welcome sarah turner who has written paper which is posted on our website, university of virginia. Thank you very much. Sarah . Okay, let me get started. As everyone is coming in to sit down. First, we need to thank david and louise and kerry who just together a Wonderful Program and theyve been good at nudging various people to do what they should on time. So i want to just start out with general comment and turn to specifics. First off, education is an excellent investment. Both for individuals and for society. I think we can i want to make this case in terms of an efficiency argument. Okay. Failure to close the gaps which are really big and growing in Educational Attainment is likely to both hinder Economic Growth and increase the burden on taxpayers over the longterm. And i think there are just two big takeaways from this. First, Money Matters enormously in education. That a necessary, not sufficient condition. Then secondly funding needs to be matched to a commitment to accountability and in the education space innovation. And the federal government has a big role here. Okay. That said, the title of this event includes i believe from bridges to education. And its worth noting why education is different and arguably a good bit more complicated than the challenge of bridging a bridge. Economics of building a bridge is tough enough in terms of the allocative problem in terms of who pays it, how do we do it at the lowest cost. But there are blueprint. There is an Engineering Solution to building a bridge or building an airport. It is worth the sec distinction. Education is more difficult in that were still trying to uncover the underlying technological process that is what we should do with different populations of students. Were learning a lot, but these are really hard problems and its again, its worth making that distinction. Another sort of opening point is just about every big volume on education starts with a narrative about falling behind. It is true that the u. S. Lags other countries in terms of test score growth and changes in college completion, but its also worth putting a more optimistic note on the table. Weve seen some growth in test scores in the early grades. Theyve been stagnant in the middle grades. Weve seen some reductions in High School Dropout rates. In the most recent decade weve seen increases in college inrollment and Completion Rates. Those gains are not spread evenly across the population and we should be concerned about the degree of inequality. We know more about what works and actually what doesnt than we did two decades ago. Im sorry russ is not here. Some of this owes a big debt to the Education Sciences in 2002. Weve made progress and theres more to do. Two messages. We want to use evidence to shape policy and we need to innovate in this space. What are investments and priorities for federal education policy. I decided to make that a little bit narrower. There are two book ends here that are important. Prek, talk to dianne. I think sometimes the forgotten piece of graduate education and funding the sciences, but we have to set some boundaries here. Im going to set even a better boundary here, im going to do something that economists are pretty good at. We are going to exercise some division of labor here. Im going to concentrate on the post secondary margin which is my advantage and hes going to concentrate on k12. That said we have a lot to discuss and i think within k12 you can think of about three buckets. School accountability, School Choice mechanisms and teacher preparation. Were going to hit on those, i think, in the course of the next 40 minutes. Im going to talk in terms of the post secondary sphere, Student Financial aid and excellently choice and the supply side of Higher Education. I want to take a quick moment about the federal role in education policy here. It deserves some comment. We spend about 1. 2 trillion on education each year. The federal role is about a quarter of that. In that quarter thats about 100 million are equally divided between elementary secondary and k12 and then theres another 100 million or so thats off budget in terms of student loans. So you might ask what are the big missions of the federal government in the education sphere . Im going to hit three here. The first is addressing credit constraints. Those are one of those market failures that economists love to teach about in introductory classes and they really matter in education. Theres a reason to think that individuals cannot finance worthwhile endeavors in education. Second is what im going to call a limited but certainly not zero role of the federal government in regulation or auditing the use of its funds, preventing the worst outcomes. Third, and this is where i think hopefully well have more discussion is that the federal government really has an advantage in funding research, innovation and development. These are innovations that when we discover something that works in one area, we can spread them around to other communities. Many of these things need to be done at scale and it is only and the federal government is actually well positioned not necessarily to execute these experiments, but to at least seed them. The next preliminary i want to put on the table is just a reminder here of really the degree of inequality, the challenge that were facing in Educational Attainment. Its kristen noted those things start early. The gaps start actually very early before kids enroll in school, but they continue on so here are what im going to call the entrenched elementary secondary achievement gaps. The blue bars are comparisons by education and the red bars reflect the black white difference. Ill skip the precise characterization. You should think about these in terms of grade level of achievement. They are very meaningful in terms of grade levels of achievement and what is striking here is how large the economic gap is relative to the race gap. If you look back 50 years ago the race gap would have been larger than the economic gap, but things get worse as we go on to college enrollment. The Left Hand Panel is enrollment by Family Income on the bottom and the highest to the right, the right hand panels enrollment, the Left Hand Panel is completion. The dark dashed line is essentially the behavior of those students who are making College Going choices in the 80s. The lighter blue line is the students making College Choices at the beginning of the 21st century. The takeaways from these, if youre in the back, first off theres a positive gradient and second the gaps have widened and they have widened quite markedly over time. We have about a 30 percentage point difference in enrollment rates. Theres not much youre going to push up that enrollment rate. A 10 increase at the bottom which is the increase at the top of this distribution between the top and the bottom. One might rightly note these are not adjusted for differences in achievement on entry. Again, if you do this additional calculation, youd still see very large gaps and theyve increased over time. On the order of about 16 Percentage Points in college completion. Thats the preliminary. Thats the problem we need to address. As i say, im ceding some territory that well come back on k12. I want to talk about Higher Education given that the elementary act was just reauthorized. Whats on the table is reauthorization of the Higher Education act which somehow or another congress hasnt gotten to yet. Within this rubric are the title four programs. The other sort of key topics that i want to touch on are the College Choice problem and essentially the supply side problem. Okay. Federal aid. Grant aid. Weve got two slides on student is aid here. Again, i think we have really compelling evidence at this juncture from work that ive done on the gi bill, the transparent grant aid can have a very positive effect on collegiate attainment. We have grant aid on the table right now or effectively grant aid in the form of the pell grant, which we spend about 30. 6 billion a year on and the tuition tax credits which amount to another 18. 2 billion. If you look back at 2010 those not numbers totalled about 60 billion. The bad news is that even though these programs have two features that one might really like in a student aid program, that is theyre portable so in effect theyre like vouchers. Secondly theyre means tested. The problem is theyre not very transparent. And because theyre not very transparent, particularly the tuition tax credits, theyre not having necessarily the impact that we would like to see on student enrollment and more importantly helping students to finance really worthwhile collegiate investments. I think ill draw your attention to two issues here. First the tuition tax credits. Separate from the problem of really a total lack of salience. They dont matter to you your parents dont get paid for another 18 months. At that point you may have lost interest or its not going to effect your decision and indeed that comes through very clearly in the research literature. Many students dont even know about them. The pell grant is actually a bit of a challenge here because it services such a broad umbrella of students that its not very well targeted. The pell grant generosity has actually increased a bit in the last decade. I want you to draw your attention to the column on the right here, which is the proportion of students who are independent. That is likely over the age of 24. They have Young Children of their own. Now, one of the challenges is designing an aid system that meets the needs of this population, who are likely responding to near Term Economic shocks, as well as the needs of students who are recent high school graduates. And the system of Needs Analysis that we have doesnt accomplish either objective very well. And so given that im running out on time, well come back to this, but there are excellent recommendations by a supported panel called rethinking pell grants that would serve to divide the resources between pell grant Adult Program and a pell grant young program. Loans, everybodys favorite question here. Im going to just simply note that theres nobody anyone who has read a newspaper in the last ten years knows that there has been much attention with headlines like a generation hobbled by the soaring cost of college. Contrary to what some newspapers would have you believe, the number of undergraduate students drowning in six figures of debt is more like one in 30 rather than the median or the mode. Theres a point of getting the numbers right that are important and also theres a really important study that i believe was presented last year by adam loony that looks at what is a real increase in default rates, which has occurred over about the last eight years to increasing to about 10. 1 to about 5 and they ask why. There are two big factors that are at play here. The first has to do with the changing student population, that is a shift with the students most likely to struggle, are these older nontraditional, if you will, borrowers and second a shift in the institutions those students are attending. The loan issue is different than it has been often characterized. This brings you to the question, the real questions as to whether some of the students struggling are really being buried because they may be enrolled in a college that had weak returns in expectation, at the worst example of this would be the institutions that have turned out to be downright fraudulent and theres a question of can we help those students avoid those choices and then the question of what do we do with students struggling at repayment. Given that i am at negative time here, i am going to hit at one point on my list, which is one of the most popular policies from both sides of this aisle has been discussion of economybased repayment and there has unfortunately been little attention to how this Program Actually effects the liabilities of the federal government. A recent report notes the liability has increased to about 74 billion, which is about triple what it was estimated to be. Essentially what youre doing is youre trading an insurance mechanism for more moral hazard and adverse selection. The primary beneficiaries are going to not be those who have borrowed a little bit and really are struggling with small amounts of debt, but turn out to be those who are getting forgiveness for graduate borrowing. I think ill come back to this. Can i have two minutes . Two. Okay. Well come back to this. College choice. Theres much to do here, but this is a case where we need rnd sponsored by the federal government. Again, there are two groups of students who not very well guided at this point, particularly the older nontraditional students who dont have access to either peers who are going to college or traditional guidance mechanisms. There are very interesting experiments we can do there. Supply side. Again, resources matter enormously. If you see whats going on at public institution, resources per student have declined markedly. These are constant dollar. The issue here is how can we how can we encourage greater state funding . We see increased stratification, this is an issue to address. But really the challenge resources are what they are, but are there ways for the federal government to support productivity and enhancing innovations. Are there consolidations that can be supported and literally the billion dollar question is can Technology Change education productivity in the higher ed space . Okay. Main takeaway, weve got a role for accountability, addressing market failures. I want to end on this final note, which is were doing better. Were learning a lot about how markets work in education, but theres room for more investment here. Just as a relative point, this spending on research on education is about 279 million a year, which is about 102 times the spending on nih is about 102 times greater than spending on nasa. Theres room for more investment here and there are many highreturn projects to think about. Let me turn over this to the professor who is going to take over the k12 side, i believe. Sara has written a thoughtful, valuable paper. I agree with the roles for federal education policy. We agreed i would focus on recent research, how recent research informs the design of federal activities in three areas, accountability, teacher policy and School Choice. Just a few words on context. Inequality in educational outcomes among the 50 states, each of which has its own educational system is very high. This is evident in the results of the National Assessment education progress. Lowquality schools are associated with low rates of intergenerational mobility. This is worrisome because the promise of upward mobility provides a lot of the glue that has held democracy together. So improving education, especially in states with low quality state systems, and especially if children from low income families should be a goal of federal education policies. What are the policy tools . As sara writes in her paper, funding and regulation are the primary sets of tools. The federal government has attached strings to aid and this has effected the actions of states and School Districts. Theres Good Research on that, but as reaction in some states to the post great recession, Education Funding to adoption of the common core has shown regulations are not very popular. For instance such incentives to alter behavior. Every Student Success act that moves the design of accountability systems firmly to the states are still a regulatory role and are still up for grabs, what the details will look like ill come back to that. Turning to the first, buckets, accountability. Very important. Its also very difficult to get accountability right. A litmus test of that that would be whether an accountability system encourages skills for teachers to work in highpoverty skills. Thats the test that most accountability systems will fail. What are federal roles in that regard . I see four. One is the auditing function. Strong support for National Assessment of educational progress is absolutely critical. Also an opportunity would be cost sharing for states to participate in international assessing programs. Such as pisa and tims. Three american states that participated in the 2012 pisa assessment system for 15year olds, all these states by reports percent proficiency says theyre doing the same, but in fact one of those states had average scores way above the average. One had scores way below the average. Thats the importance of this auditing function and helping states to bench mark how theyre actually doing. So thats the second. Second, signal openness to innovation and accountability systems so its a Spark Innovation in school design. Currently all state accountability systems are based primarily on student math and reading scores. The skills that are measured are important and they matter, but there are at least four welldone Research Studies showing longterm effects of intervention design to improve the lives of lowincome children that did not effect test scores. One of these is moving to opportunity. As we heard earlier, very positive effects if the movement took place before the age of 13, no effect on test scores. That suggests the importance of thinking about accountability in a broader sense. The greater availability of data on college, on crime, on labor Market Participation wages suggests the possibility of desig