Tuesday, August 29, 2006

The Performance-Access Trade-Off

By Richard Vedder

A series of things in the last week have made me increasingly conscious of the fact that two goals of higher education sometimes conflict. On the one hand, we as a nation have a tradition of wanting to provide opportunities for all Americans to improve their lot in life --call it the egalitarian or equal opportunity ideal. At the same time, we want efficiency in our colleges and high performance per dollar spent. Therefore we want kids to go to college who will work hard,and will learn. By inference, we, appropriately, do not want to spend resources on kids who drop out and fail to succeed much academically.

Our goal of "equal access" leads us to massive student aid programs, such as Pell Grants and some of the student loan schemes. Our goal of improved productivity and efficiency leads us to anti-access policies, such as restricting enrollment of less qualified students. The plain fact is that many low income, disadvantaged students are poorly qualified for colleges. If we let these students have easy access to relatively expensive four year institutions, we squander a lot of resources and get the current 50 percent or so drop out rates. If we insist on high admission standards, however, we deny access to many low income students, and restrict access disproportionately to some minority groups, such as African-Americans and Hispanics.

There is no clear optimal way out of this dilemna. But there may be a middle ground that could help lower the increase in college costs while maintaining and even strengthening our commitment to access. That approach would be to promote, indeed insist, that students with low probability of success in college (based on test scores, high school performance, academic courses studied in high school) enter community colleges, which have relatively low per student costs, or that they demonstrate their competence for four year study through success in relatively low cost on-line programs. If they do reasonably well after one or two years, allow them to transfer to four year institutions. State financed four year schools should be pressured to ease transfer admission requirements and to be more willing to award the transfer of community college credits. To some extent, of course, this happens already, but perhaps it can be further encouraged, by financial incentives and otherwise.This would help reduce the annual growth in average postsecondary tuition costs.

That brings us to another dimension of the problem --financing student attendance. Before about 1975, most students simply financed their education from their own savings and that of their parents, as well as income earned while in college. It is interesting that the massive rise in student college participation largely occurred during this period of self-financing. The rise in both the student loan and student grant program coincides with a rise in the cost of higher education and a decline in the growth in student participation rates. As the demand for higher education increased relative to the supply as a consequence of new forms of student assistance, the price of higher education went up.

This brings us to the issue: what should be our public policy on financing student education? Leave it to the individuals involved and private charity? Continue the status quo, with loans growing 10 percent a year? Treating financing less like a bond (where a student borrows a fixed amount for future repayment) and more like a stock (where the student pays off his financial obligation by giving up a percentage of his income?) Or maybe something in between, like suggested by Arthur Beroz?

The disappointing thing about the Spellings Commission report is that it virtually ignored all the questions raised in the previous paragraph. Yet these are important questions, ones we should no longer duck answering.

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