Coming Attraction: Sloane and Leirer on Tax Exemptions in Higher Ed

By Richard Vedder

CCAP is starting to grow beyond being a blog site to doing more substantive research on issues of higher education. I hope to commission (particularly if some outside funding comes through) three types of additional efforts beside blogs and op-eds like the piece by Bryan O'Keefe and myself wrote for yesterday's New York Sun: research papers and studies by academics, perspective articles (opinion pieces) by persons interested in higher education issues (who may or may not be academics), and conferences.

The first in our Perspectives on Higher Education series will appear very shortly on the CCAP web site (collegeaffordability.net). We are aiming for a posting by tomorrow. Wick Sloane and Jonathan Leirer are questioning a stealth subsidy to higher education that benefits mainly the rich, elite schools: tax subsidies. The data show that the "rich are getting richer" faster than the "poor are getting richer" in higher ed --the spending gap between the private and public schools is widening sharply. Federal tax policy is a big factor in this growing elitism in higher education, as Wick and Jonathan show.

This piece is an interesting and unusual collaboration. Wick and Jonathan have never met each other. Wick was the former CFO at the University of Hawaii who I met at a Federal Reserve Bank of Chicago higher ed conference a year ago. I was impressed with his imaginative thinking and articulate (in a somewhat quirky way) method of presentation. So I contracted with him. Jonathan is the Chief Whiz Kid, an undergraduate kid who is working his way through school, working hard, studying hard and, being a typical young American college student of the early 21st century, playing hard. He and Wick make great music together, despite never having met. Be sure to check it out on the CCAP site.

Outsourcing Higher Ed

By Richard Vedder

When CCAP, the higher education research center that I run with the help of the estimable Bryan O’Keefe, decided to upgrade from our initial web page designed by my former student Brian Fruchey for nothing, we looked first at Washington, D.C. web designers and were quoted prices in the $5000 range --with $600 extra for quick service. What did we do? We went to India, and got an attractively designed site -- for $200.

There is a lesson or two in that for American higher education. First, projects using a good deal of brainpower and technical expertise can be performed much cheaper using some of the literally millions of low wage bright professionals in Asia. America is losing its "comparative advantage" (low cost edge) in some high tech knowledge-based areas.

To the extent Americans are going to increasingly use distance learning as a tool in disseminating knowledge, what is there to stop on-line institutions based largely in, say, India or China, from offering low cost degrees? Will globalization become an increasing factor in the U.S. academic marketplace?

I believe many people go to college as much to "consume" as to "invest." They go to have a good time, pass an amiable transition from high school to the world of work, picking up some marketable skills in the process. Drinking and sex are as much as college life for millions of students as books and exams. What my friend Jim Duderstadt (former prez at the University of Michigan) calls the "socialization" dimension of higher education is a major driver of college costs. For this vast market of students, cheap on-line Indian degrees are probably not much of a lure. But for working adults who want to "invest" in education to boast earning power or simply increase their sense of well being through learning, the cheap Indian degree is a real lure.

Already, entrepreneurs are aware of this and eyeing a broad international market in higher education at an affordable price. One such person with a great previous track record is Randy Best of Dallas, who made a pile of money on his Voyager reading program and is now entering higher ed in a big way in a variety of venues --an Early College program targeting high school kids, a national college of education, and a broader international university effort. I suspect the University of Phoenix and other heavyweights in for profit higher ed are also taking steps to tap this huge market. Randy Best once told me he thought he could make money with a $1500 a year college degree program. There are millions of persons living in Third World countries who are price sensitive and for whom Low Cost U is a real lure, assuming the quality is good. This possibility of outsourcing distance education may not ultimately do much for the incomes of some American academic types who earn a decent living doing on-line instruction, but it will serve the world and Americans, by offering lower cost alternatives to our increasingly pricy and inefficient system of higher education.

CCAP in the NY Sun

The New York Sun published an op-ed this morning by CCAP Director Richard Vedder and Associate Director Bryan O'Keefe. The piece explores why most colleges should not be cheering the new College Board study on tuition. Check it out and let us know what you think of it.

The piece can be found here

Higher Education and the Savings Rate: A Unorthodox View

By Richard Vedder

Conventional wisdom holds that high college costs lead people to save more, to help them overcome rising postsecondary educational expenses. The proliferation of tax preferred college savings plans is evidence of this trend.

I am not so sure. Why, for example, has the national personal savings rate fallen dramatically over the past 30 years, precisely the period of sharply rising college costs? Taken by itself, this almost implies a negative relationship between college expenses and personal savings.

Some exploration of income and financial aid data in the latest postsecondary.org newsletter suggests that people pay a significant marginal "tax" rate on their income in the form of reduced college financial assistance. If you save a lot and have a high income, you pay full tuition. Black students on average come from families with $25,000 less income than for the population as a whole (based on 2004 data), but receive almost $2,800 more in financial aid. For every dollar of added income above the $45,988 average earned by blacks, 11 cents less financial assistance was given by colleges (up to $71,000 in income). This is on top of conventional marginal tax rates of perhaps 30 or more percent. The high combined tax/reduced financial aid burden may be a significant deterrent to savings in the U.S., which, if true, has significant adverse macroeconomic implications for the nation. More and better data, for individuals, is needed to confirm this, but "need based" aid probably on balance is a deterrent to savings. Moreover, past savings lead to reductions in aid based on assets that go beyond the income-based determinants of aid discussed above.

Financial Aid and Race: Overuse of the "R" Word

By Richard Vedder

Tom Mortenson's Postsecondary Education Opportunity outfit does the higher education community a service by publishing great and detailed data. We at CCAP subscribe and enjoy their newsletter and colorful posters.

Having said this, I am saddened by the unjust inflammatory rhetoric in the October 2006 newsletter: "The ugly racism evident in the current financial aid system of the United States cannot be denied....The current system is racist." Startled by this comment, I carefully looked at their data. In 2004, for full-year students with one institutional affiliation who are dependents, the average grant made to whites was $3,375, while the average grant to blacks was $5,321, nearly 58 percent more. Total financial aid for whites was $7,259, compared with the 42 percent higher figure of $10,325 for blacks.

You might logically say that whites have higher incomes than blacks, so if aid is need-based, more should go to blacks. I agree. However, if one confines the analysis to only low income students (in the bottom one-fourth of the income distribution), we see the average black student still receives almost $2,000 (21-22 percent) more aid than the average white. Controlling for income, blacks are significantly favored relative to whites --perhaps reverse racism, if you will.

To be sure, because blacks on average are significantly poorer than whites (for reasons far divorced from student financial aid considerations), the parental contribution to their children's higher education is greater in percentage terms, although a good deal smaller in absolute dollars. While whites on average use financial assistance to partly reduce family financial contributions from the maximum bearable, blacks need every penny to pay the bills (and a bit more beside). Is this racism in financial aid? I think not. If anything, the data suggest that there is a sizable preferential treatment towards blacks after controlling for income. Calling our financial aid system "racist" is an unjustified slur, the worst form of race-based rhetoric. One can argue that "we should do more to meet the financial needs of minorities," but to imply that the nation is biased against minorities in college financial aid decisions is unfair and simply incorrect. It is purple prose that implies people running these programs are prejudiced and insensitive, and does nothing to resolve issues of access. Blacks have a harder time paying their college bills because they are poor, which is not the fault of the college financial aid system.

If one wanted to build a case of discriminatory treatment based on race, it is interesting to compare blacks and Hispanics. Average parental income is similar for the two groups (Hispanic income is less than four percent higher), but blacks receive on average more than 28 percent larger average grants. Although it is politically incorrect to say, I suspect colleges, wanting to demonstrate their purity and fairness in race matters, go out of their way to favor blacks over Hispanics. (Blacks historically have been politically more powerful and assertive in matters of affirmative action). Hispanics are relatively neglected -- total financial aid per student for poor Hispanics is less than for poor whites (perhaps the best evidence there is for conventionally defined racism).

It is interesting, also, that Hispanics and particularly Asians are reluctant to borrow. Asians on average attend the most costly schools (more so even that whites), but receive only about the same total financial aid as whites who average higher incomes. However, for every one dollar in grants, blacks on average borrow an additional 69 cents, whites an additional 78 cents, but Asians borrow less than 45 cents. Asians attend expensive schools and are reluctant to borrow, so their "unmet financial aid" is perhaps less of a critical access problem than for other groups.

If I had my way, it would be illegal to collect race data on students-- period. And I am saddened that postsecondary.org chooses to play the race card in its campaign to increase access and affordability.

George Will Scores a Touchdown

By Bryan O'Keefe

Like he does so many times in his writing, George Will hit the nail on the head yesterday with his column about the wisdom of college football programs and tax exemption. Now, I am hardly a prude about college athletics – anybody can ask my fiancée and she will tell you that many Saturdays in the fall are spent watching Penn State football and many Saturdays during the winter and early spring are at George Washington University basketball games (I'm a season ticket holder). College sports can be a lot of fun and certainly help give a sense of community for students.

But lots of things are fun and don’t receive preferential treatment from the government in the tax code (nor should they). With many coaches making millions of dollars and television networks paying the NCAA hundreds of millions of dollars for broadcast rights, it’s hard to fathom why inter-collegiate athletics (and especially football and basketball) continue to receive enormous tax breaks. Not all charitable contributions are the same and there is no reason whatsoever why somebody who donates to a lucrative college football program gets the same tax benefit as somebody donating to, say, the Red Cross or some truly charitable cause.

Collegiate football and basketball are big business; they should be treated as such by the federal government.

The Coming Elections and Universities: Part Two

By Richard Vedder

Today's INSIDE HIGHER ED has an interesting story on gubernatorial races in five states, and how higher education is a pretty important issue in all the races. What struck me is that several candidates, in both political parties, promoted policy recommendations that we have been adovating at CCAP since our inception, and that the Spellings Commission also promoted. On the whole, I am a bit more encouraged this morning that I was yesterday afternoon.

For example, several candidates called for better integration of the educational experiences between high school and college, and between colleges. In particular, there were calls for allowing good high school students to participate in dual credit programs, allowing them to earn college credit while in high school. The current system of more our less denying access to colleges for students until they reach, roughly, the age of 18 is wasteful and inefficient, as there are a lot of good 16 and 17 year old students who can and should be doing college work. A little parental bragging here: my own son got an A- in a college freshman English while in EIGHTH grade, and knocked a year off the 8 year high school/college experience (and saved some resources in the process).

Similarly, one candidate is calling for seamless transfer of credit between higher education institutions within the state. There are sometimes legitimate quality control issues, but too often institutions deny credit because of peculiarities of local graduation requirements rather than for any truly sound educational reason.

Another theme in some campaigns is support for community colleges as the lower cost alternative to increasingly costly four year universities. I am generally a fan of this trend. An awful lot of kids drop out of expensive four year schools, wasting vast resources. Too many of them belong in community colleges, where if they succeed, they can move on to the universities. This reduces the consequences of failure, and perhaps even the possibility of it. It saves money and works to lower the overall average tuition paid by postsecondary students.

On an completely different note, I see that EduCap, Inc. has cancelled a conference for higher education people planned at a luxury resort in Nevis. EduCap is run by Catherine Reynolds, who Doug Lederman of INSIDE HIGHER ED describes as "flamboyant" but who I found quite subdued during our mutual service on the Spellings Commission. I do worry about bribes, and payoffs to college officials who tout particular private student loan programs, and it was this concern that led to a small uproar culminating in the conference's cancellation. When billions of dollars are floating around, some corruption is bound to occur. A good case can be made for private student loan programs, but higher education suffers if their is a hint of corruption. I am opposed in general to having American academics attending conferences for other American academics held outside the U.S., on the grounds of efficiency and waste -- R and R for faculty. The same holds for financial aid officers.

The Coming Elections and Universities

By Richard Vedder

Colleges and universities are impacted by politics, being so dependent on governments for funding. National elections then are always important, and arguably more so this year than usual.

If the Democrats are successful in taking control of Congress, there will be efforts to vastly expand student assistance programs, especially Pell Grants, and to put the squeeze on private loan providers. There might be a willingness to increase other forms of governmental assistance (such as research grants), although there is little evidence the Democrats find these programs any more important than the Republicans who have presided over a spending spree during their recent control of Congress.

Three states have major constitutional restrictions regarding state spending on the ballot: Oregon, Nebraska, and Maine. Universities are worried because strict spending limits will force some reduction in what might be viewed as "discretionary" spending, which increasingly means funds to universities. When push comes to shove and budget cuts need to be made, university subsidies lose out --legislators rather reduce them than, for example, restrict Medicaid or lower K-12 educational subsidy payments. To politicians, easing the pain on middle class families whose children mightily benefit economically from a university education is less important than avoiding significant cuts in health care to lower income families, or even funding cuts to primary or secondary schools. The arrogance and extragvence of some universities has strengthened those convictions.

The President of the University of Oregon says if their constitutional proposal (similar to Colorado's Taxpayer Bill of Rights amendment) passes, the U. of Oregon may have to consider some form of privatization. I say, why not? The intellectual justification for state subsidies of institutions of higher education is increasingly weak.

There are some other interesting college-related issues on ballots. In Ohio, for example, gambling interests are promoting slot machines at race tracks and other locations, with 30 percent of the proceeds allegedly going for university scholarships (thereby giving universities incentive to raise tuition even more). At least one university board (Ohio State --the flagship university) has actually opposed the measure, but many university officials are secretly hoping for its passage.

All of this, of course, is of secondary importance in the broader scheme of things. The major problem with American universities is NOT inadequate funding, but rather a variety of other issues --inefficiency, lack of full accountability, the absence of transparency, dubious academic standards and performance, etc. It is not until these issues are addressed that we will be any closer to solving the problems faced by higher ed.

Here We Go Again...

By Richard Vedder

The College Board in its annual tuition survey reveals that little is changing. Tuition costs rose about six percent this fall at both public and private four year schools, at a time when the inflation rate is 3-4 percent. So tuition charges rose 2-3 percent more than the inflation rate, in keeping with the typical pattern over the past 25 years, and in keeping with the long run trend of tuition costs doubling every generation in an inflation-adjusted sense.

The College Board made something of the fact that public four year tuition rates are increasing at a slower rate compared with last year, which was below the same rate for 2004. True. But that is the usual pattern after a recessionary period -- high public school tuition increases for awhile to offset stagnant state appropriations, and then a return to "normal" increases, which are still greatly in excess of the rate of inflation. Perhaps we are at the beginning of a period of significant moderation of the tuition explosion, but so far I am pretty skeptical on this point.

On the bright side, two year college fees rose less, about 4 percent, again widening the two year/four year differential. Both types of schools are ostensibly in the same business. Why then are costs rising far faster at 4 year institutions? Because teaching is only a minor part of the enterprise at some of them, and research and administrative costs are exploding, not to mention student services. Also, salaries are rising far more in the four year institutions compared with two year ones. At some point, those who look at colleges mainly for the education that they provide might start revolting at the high fees --and the growing differential with 2 year schools.

By and large, schools are continuing in their own ways, greatly increasing costs, having no productivity advances, and not fundamentally changing their operations to improve efficiency. Change may be coming to the academy, but it is not coming overly rapidly, at least with respect to issues of affordability and productivity.

Academe Follies: Three Examples

By Richard Vedder

I have just completed a fascinating, if somewhat brutal, week of travel and had several experiences that reminded me how tenure and the lack of transparency in the academy leads to a lot of silliness, irresponsibility, and, arguably a waste of resources.

At my home university briefly between my sojourns, I learned that the faculty still refuse to condemn a plagiarism scandal that has tarnished the institution's reputation, finding any excuse not to do so. It reminds me that faculty tend to protect their own, to abuse tenure sometimes to thwart holding people responsible for their actions. And it shows that increasingly in this age of moral relativism, academic people do not know right from wrong.

At a delightfully organized symposium on Wal-Mart at the University of Connecticut Law School, on average I was more impressed with the students than the faculty. I heard about eight presentations (one by me), and would conclude that perhaps five of them were done using traditional standards of academic scholarship, making reasonably objective presentations appealing to evidence. The other three were largely ideologically based diatribes with little or no factual basis. One law school professor argued, with a straight face, that Wal-Mart was endangering women's health. She claims women do not walk as much as in the pre-Wal-Mart era, and this lack of exercise is health threatening. Of course, she had not a single shred of evidence to support this assertion. My hunch, and it is only a hunch,is that women walk MORE doing their shopping in the post-Wal-Mart era. In any case, female life expectancy seems to be rising nicely in recent years. Another assertion was that Wal-Mart was at least partially responsible for global warming. Again, not a bit of evidence. Only in the academy can persons supposedly dedicated to spreading truths make such factually dubious statements and continue to work and receive salary increases.

While on planes, when not grading exams I was reading a book by a young historian. Since I am reviewing the book, have not finished reading it, and believe that I should at least deliver the review to the publisher before putting it on the Internet (an old-fashioned view), I will not provide a lot of details, except that the author makes a tortured case that globalization is responsible for America's distinctive behavior as a nation -- American exceptionalism. In a world where we have scads of historians retreading old ground (in this case, the U.S. between 1865 and 1914), this reminds me how scholars seeking tenure and success have to engage in product differentiation --putting a new slant on things -- to get ahead. Globalization is trendy, popular, de rigueur, so why not write a book arguing that globalization has defined America's distinct character? At least the author is using traditional methods of scholarship (e.g, lots of citations and footnotes) to make a point, but the evidence is pretty weak and selectively used to bolster his case. We need historians, and constantly need to retell the past to new generations. But how many new books on the late 19th century America should society subsidize? My suspicion is that we over-research many areas on any rational cost-benefit calculus. Maybe this is another argument to increase teaching loads to help moderate rising college costs.

Traveling Across America, Broadly Defined

By Richard Vedder

I have been absent from this space for a few days. I am having a hectic week, being on 12 airplanes and giving lots of talks --all the while teaching two classes (twice each) at Ohio University. I generally do not travel with a computer, using travel time to get caught up on needed reading or, in my case, grading essay exams.

I gave a talk earlier this week at the University of Manitoba. Two interesting things: Manitoba has had a six year long tuition cap imposed legislatively, and attrition rates are similar to those in the States. At the University of Manitoba, in-province tuition is $3200 (Canadian), about $2900 U.S. This has squeezed the institutional budget a good deal, I was told. I generally am not fond of tuition caps, but the fiscal restraint it forces on institutions has a healthy dimension to it --it forces schools to become more conscious of the need to conserve resources, and often fosters some innovative thinking. On dropout rates, I was told that 56 percent of entering students at the U of M (as it is called) graduate within 6 years --pretty close to the U.S. figure. There is no selectivity (to speak of) in admissions. America's problem of college dropouts is not unique, and I suspect in both countries there is a fairly high price to pay for open admissions policies in terms of dropout rates and the inefficiencies associated with them.

Peter Stokes invited me to the Eduventures conference in Boston, where I spoke yesterday. I gave a pretty provocative talk pointing out all the reasons colleges are too expensive --the problems of third party payments, poor information,non-profit structure,price discrimination,lack of a bottom line, etc. etc. I harranged for 45 minutes. I braced myself for a torrent of hostile questions. Surprise!! NONE. I guess everyone in the audience agreed with every word I said --200 or so educrats from the higher ed community. Amazing. In reality, I think many members of the higher education community know that I am right, that "the system" leads colleges to do silly and expensive things. Actually, Eduventures put on a great conference, raising a lot of important issues that need addressing.

Today, I present a report on the Spellings Commission report to the Board of Trustees of Ohio University, which has some senior administrators at that institution very nervous given my propensity to be outspoken (the Trustees themselves asked for the report). Do they have anything to worry about? Time will tell. Tomorrow, I am speaking at the U. of Connecticut Law School, and hope to gain insights on trends in law school education. Stay tuned.

The University of the Artic: A Model for America?

By Richard Vedder

Some 36 years ago, while standing at a banquet at an international economic history meeting in the Taurida Palace in Leningrad (now Saint Petersburg), the chap next to me introduced himself and thereby began a 36 year friendship. Rune Ryden was a young Swedish scholar who later became a distinguished parliamentarian in his country. While in politics, Rune also continued to dabble in higher education, serving on the governing board of the University of Lund and, after retiring from Parliament, running the Latin American research institute at the University of Stockholm. In a recent chat, Rune mentioned he was now on the governing board of one of the world's most interesting universities, the University of the Artic.

The University of Artic is a confederation of several dozen universities located above the 60th parallel, from every nation in that region --Russia, the U.S., Canada, various Scandinavian countries. I believe the current head of the university lives in an Scandianvian country,while the admissions office is in Canada. It is truly a multinational university. Students at the U. of the Artic can take courses at any member institution, The two official languages are English and Russian. Thus the U. of Alaska at Fairbanks may teach a class for its students, and any U. of Artic student can also enroll. Credits are freely transferable between the various members of the broader University. The University serves an area with low population densitites where Internet education is critical, and by pooling resources, the various schools can offer more courses more efficiently.

No doubt there are some problems, but the concept is a sound one. In particular, the barriers between U.S. universities are too rigid, and institutional hubris trumps efficiency and convenience considerations most of the time. We need to make interuniversity student migration more seemless and less costly, and encourage more multi-university cooperative ventures. Perhaps the University of the Artic is a model worth exploring.

Michigan vs. Illinois: What Can We Learn

By Matthew Denhart

In the age of high-cost colleges one must wonder, “Where does all my money go?” What justifies charging such high tuition rates? Is there any way to reduce spending? Considerable disparity in spending statistics among similar universities suggests that definite inefficiencies exist.

Athletic conferences are a good method of grouping similar universities. Generally, schools in the same conference are similarly sized, in the same region, etc. Thus, they allow for a good basis of comparison of statistical data. I have examined the Department of Education’s IPEDS 2003 data of spending in four major categories: Instruction, academic support, student services and Institutional support. Even among members of the same athletic conferences, there are alarming spending differences.

Take for example two Big Ten schools, the University of Michigan and the University of Illinois. Beyond sharing an athletic conference, these two universities share many other similarities. The states themselves are similar in population, economic characteristics and location. Both institutions are the premier public university in their respective state. Statistical categories show even more similarities. Both have enrollments around the 40,000 mark and graduation rates above 80 percent. Each grants similar numbers of Doctor’s, Master’s and Bachelor’s degrees each year. Both universities are continually found among the top of national college rankings such as the US News and World Report. It seems that these two Big Ten schools are nearly identical except in one important regard: spending.

Michigan far out-paces every other Big Ten school (Northwestern has been excluded from this study) in instructional spending with $14,759 per student in 2003. In contrast, Illinois allotted $6,419—less than half that of Michigan. Michigan outspends Illinois in academic support and student services by around $500 per FTE in each category. While this disparity is less, the spending for institutional support also shows tremendous disparity. Michigan spends $2,427 compared to Illinois’s $608. As expected, the sum totals for spending per FTE in these four categories between Michigan and Illinois is immense. Michigan ranks as the highest spender in the Big Ten with $22,296, and Illinois the lowest with $11,037.

The biggest question is why does such a large disparity exist? On the one hand, it may seem noble to have higher spending, especially on instruction and academic support. But why are there such large differences? If both universities are so similar and provide a similar and prestigious education, why should Michigan have to spend twice the amount, in these core categories, of Illinois to reach the same end? All this seems to hint at a good deal of inefficiency and squandered resources, at least at the University of Michigan.

Unfortunately, this is not an isolated example. Data shows the same trends exist across the country, for example in the Big Twelve Conference. This leads to an interesting thought experiment: what if we created a new university from the various spending categories of schools in an athletic conference? We could take the best spending element from each school – for the Big Twelve conference, we would choose Nebraska for instruction, Colorado academic support, Kansas for student services, and Oklahoma for institutional support. Each of these schools has among the lowest spending in the conference in the given categories. The money saved by this new university could be used to freeze or, God forbid, lower tuition!

To be sure, one caveat is in order. The IPEDS data are not perfect, and schools have different ideas about how to categorize certain forms of spending (an argument for moving to a more uniform national data retrieval system). Nonetheless, the differences between schools are often so great to explain merely by different ways of categorizing spending efforts.

Overall, this data suggests that inefficiencies exist in spending by universities. The extra spending of University A relative to the similar University B does not seem to yield greater output. It’s a waste of precious resources that could be employed elsewhere to help solve the broader problems of affordability in higher education.

More Than $2 Billion Misallocated This Past Week

By Richard Vedder

My new friend and associate Wick Sloane is, with the help of Whiz Kid Jonathan Leirer, doing a great study for CCAP which will be released in the near future. In a draft written a few days ago, he noted that the tax advantages donors to Columbia University receive if it succeeds in its new $4 billion fundraising campaign would fund well over 200,000 Pell Grants.

Yet Stanford has now topped Columbia, announcing a $4.3 billion capital campaign. Suppose both campaigns are successful. Wealthy taxpayers will take over $8 billion in deductions against their gross incomes on their federal income tax forms, which should minimally lower their tax liability by $2 billion. That $2 billion could fund 500,000 Pell Grants at $4,000 apiece (far greater than the average Pell Grant today).

Lay those half-million students end-to-end, they would stretch from Washington, D.C. to nearly Indianapolis. Our tax system rewards the bastions of the elite at the expense of educating the poor.

We are giving huge tax subsidies to wealthy persons who want to make wealthy universities richer, and widen the gap between the haves and have nots in American universities. Should we be giving tax deductions to schools whose annual endowment income is, say $30,000 per student or more? How does this promote higher education access or affordability? What national purpose does it serve? Why should a dollar's gift to Harvard, with $1.6 million in endowment for every student, be encouraged as much by public subsidy as a dollar's gift to my university, with perhaps $10,000 in endowment per student? Or community colleges that have virtually no endowment?

Wick's forthcoming study promises to be provocative and more than a bit infuriating to some in the Higher Education Establishment. So be it. It needs to be said.

Arthur Beroz's Grant Loan Program: A Student's Perspective

By Jonathan Leirer

As a low-income student, I have first hand knowledge of the student loan system in America. After four years of working my way through college, I will leave not only with duel degrees in mathematics and economics but also with roughly $15,000 in student loans. While I am grateful for all the gift aid I have received through grants and scholarships and acknowledge the fact that not everyone receives such generous awards, I will still carry a significant burden of debt. This, coupled with graduate school and the possibility of an even greater debt burden, has provoked, as a result of my own self-interest, a poignant curiosity about possible improvements, revisions and alternatives to our current student loan system; therefore, when the opportunity to examine Arthur Beroz’s “Grantloan” program presented itself, I leapt at the opportunity.

The Grantloan program is really fairly simple. Throughout their college career, students apply for “grantloans” when needed. Then, upon graduating or otherwise exiting college and meeting one of four criteria, the “absolute liability” of the student would be calculated, taking into account the “full and absolute cost of the grantloan” over its lifetime. This is a fixed amount that would be paid off based on a month repayment schedule. These monthly repayment amounts are determined by taking many factors into account, including income and family responsibilities, i.e. spouse, children, etc. The percent of income required for repayment is progressive, thereby alleviating part of the repayment burden for those with low-incomes. Monthly repayment will continue until the “absolute liability” is paid off, until some maximum timeframe has been reached. For a more detailed breakdown and analysis of the Grantloan program, point your browser to www.arthurberoz.com.

I believe that a movement to the Grantloan system would be a laudatory endeavor. Granted there would be transitional problems and possible unforeseen consequences. However, as a whole I believe the Grantloan system to be preferable to our current loan system. If nothing else it would be preferred for its simplicity. As noted in past blogs, the current loan system is overly complicated and marred by redundancy. According to the recent report from The Secretary of Education's Commission on the Future of Higher Education, “at least 20 separate federal programs providing direct financial aid or tax benefits to individuals pursuing postsecondary education.” Not all of these are loan programs, but many of them are. This patchwork system of financial aid is unnecessarily complex, a problem which could be alleviated with the Grantloan program.

Furthermore, I believe that the Grantloan system would provide a greater incentive, or perhaps lessen the disincentive, for students to enter into programs whose careers have relatively diminished earnings potential. To cite one particular career infamously believed to have low earning potential, we can look at school teachers. While I personally cannot vouch for its legitimacy, it is often suggested that there is a great shortage of either school teachers or of quality school teachers. Yes, a large part of the problem stems from the system of rewards and compensations currently governing teacher salaries, but another part of the problem is the prohibitively burdensome student loan debt many potential teachers acquire while pursuing their education degree. This debt, coupled with low salaries, can make studying to become a teacher more of a sacrifice then an investment. Granted, the Grantloan system is not a panacea, but it would nevertheless help alleviate some of the current deficiencies in the market for school teachers.

This argument is analogous for many other careers as well, many of which can be viewed as beneficial to society; such as the aforementioned school teachers, philosophers, painters or other artists, social workers, etc. These professions do not carry with them enticing monetary compensations, yet many would agree that society as a whole benefits from them. Additionally, as a student with a somewhat romanticized few of the world, I would have liked to have the ability to choose my career based more on my personal interest and less on its earnings potential. Even from an economic stand point, it can be suggested that certain low salaried, “noble” professions might actually have large positive externalities. Therefore, it may be in our own self interest to subsidize the education of these professionals.

With the availability of “grantloans,” I believe we would also see a great increase in low income students obtaining college degrees. While we cannot do much to alleviate the implicit costs of college for low income students, who may find income today to be a much more pressing issue then expected income tomorrow, the Grantloans program will help decrease some of the explicit costs of college. By offering a payment plan that is manageable on almost any income, college becomes a more realistic goal for those economically disadvantaged.

The biggest drawback with the Grantloan plan is that it doesn’t go far enough in helping low income individuals. Gift aid is an important part of maintaining an equality of educational opportunity. However, the Grantloan system takes great measures to ensure that not only the richest of the rich and the poorest of the poor have an opportunity to afford college, but that everyone in between does as well, thereby extending the equality of educational opportunity to every income bracket. I see great value in that. For some, equality of opportunity may not be an important virtue, but I cannot see how anyone, especially anyone who applauds the merits of capitalism, could suggest that rewarding someone based on the achievements of their ancestors is preferable to rewarding someone based on their own achievements. To me, it would be the optimal strategy for a society as a whole to give each individual the opportunity to develop their maximum potential and pursue their comparative advantages, rather than reward the progeny of those successful in the past.

All in all, I would support the Grantloan system for its potential success in advancing, at least in higher education, the opportunities afforded to an individual, regardless of their prior economics situation.

How Costly Does Higher Education Need to Be?

By Richard Vedder

I have had a couple of pleasant phone conversations recently with Vance Fried, the Brattain Professor of Management at Oklahoma State University, over the issue of university costs. We have discussed the question: how much does it really cost to offer a quality education at a four year institution? Both of us think that the amount is a lot less than most universities currently spend, and that many of the affordability/access questions would largely disappear if we organized universities efficiently, with cost containment a paramount objective, not merely an after thought to which we pay some trivial rhetorical homage.

On occasion, I ask myself: if I was designing Low Cost U from the beginning, with the objective of offering a quality 4 year education, but with few bells or whistles (or climbing walls or Jacuzzis), how much would it cost society per student attending? The answer is probably less than $10,000 a year, perhaps a good deal less. How would I do it?

1) Faculty would be reasonably well compensated, but would teach high teaching loads --maybe 12 hours per week using a semester system, possibly even 15 hours weekly.

2)Elective course offerings that are today taught mainly because the professor wants to and not because of a crying educational need would be drastically curtailed. College course offerings in total would be reduced at least 50 percent from the conventional levels today.

3) Clean but utilitarian buildings would be utilized to the hilt, and instruction would be on-going throughout the year. Perhaps lower tuition fees would be offered for courses taught in the summer or at unpopular times, such as 8:00 a.m. or on Fridays or in the evening.

4) The University would stay out of ancillary businesses about which they have no particular expertise, such as housing and feeding students or running quasi-professional athletic teams that have effectively become the minor leagues for professional sports.

5) Where possible, cost-effective distance learning would be encouraged, such as Internet instruction.

6) Administrative staffs would be lean. Some academic-related student services would be provided, such as placement services, but a huge bureaucracy to administer to student needs would be avoided.

In some ways, I have defined the modern for-profit institution that tries to minimize costs in order to maximize profits. So be it. The problem is that there are few incentives for current not-for-profit institutions to morph into Low Cost U. Perhaps those incentives could be created, likely rewarding academic entrepreneurs on cost containment, or on having a high "value added" (learning) to cost ratio. New ventures like Western Governors University have some promise, but no states seem to be showing any interest in starting Low Cost U. Perhaps some should.

Low Cost U is not ideal for everyone. Many students, particularly from relatively affluent homes, want to buy the "socialization" or consumption dimension of higher education. Graduate and professional education requires a different model for the most part. Campus-wide lecture series, concerts, and even athletic events add to the joy of going to college and often have some educational value as well, but they add to costs. You probably cannot have a champagne education on a beer budget, but we can offer a reasonably high quality academic program at much lower prices than today -- if we put our mind to it. I have asked Professor Fried to share with me his thoughts on this, and, with his permission, my sidekick Bryan and I will post them in this space at a future date.

Community College of Vermont vs Organized Labor

By Bryan O'Keefe


One area of continued interest for CCAP is the spread of unionization on college campuses. This is especially alarming since other industries where unions developed strongholds have experienced tremendous financial problems and productivity declines. The last thing that many colleges and universities need is to become more like GM or Ford.

That’s why the defeat of organized labor at the Community College of Vermont
is good news. For background, the Community College of Vermont is a unique institution – it’s comprised entirely of part-time instructors, spread out over 12 centers, and conducts many of its classes online. In many ways, it represents an innovative approach to higher education that other schools would be wise to copy.

The part-time nature of its faculty is what attracted the eye of organized labor. Unions have devoted tremendous resources for organizing adjunct or part-time faculty members. They have been somewhat successful in this venture, often times breeding jealousy amongst the part-time faculty for the perks that the full-timers enjoy. (this strategy is similiar to the class warfare rhetoric that Democratic politicians often use too).

However, this time, the trick didn’t work and the part-time faculty voted down the union by a rather lopsided margin. The response from labor was of course to blame the college’s leaders for running an alleged “anti-union” campaign, though they offer few details of what exactly this means. The Community College of Vermont has a right – and indeed a moral obligation --- to explain to its employees the effects of unionization. While I don’t know exactly what those effects would be, my general guess is that a vote for unionization would have been a complete disaster for the Community College of Vermont. In all likelihood the university would have lost control of their workforce both as far as scheduling and compensation and many of the unique features of the institution would have disappeared. The college committed no crime in explaining that to employees.

The role of labor unions in higher education will continue to be controversial in the years to come. The Community College of Vermont is but one small story in a much larger saga. The main point is that unions are experiencing historic declines in their membership and are now looking anywhere and everywhere for new members. Unions are like any other institution – they want to find ways of continuing their existence. Union leaders are paid relatively well and have an incentive to stop the membership bleeding. College campuses are fertile grounds for union organizers, even if it doesn’t make financial and practical sense for the students, faculty, staff, administration, and taxpayers. The tension between what’s good for unions and their leaders and what’s good for higher education as a whole will not die.

Why Universities Are Losing Political Support: Three Examples

By Richard Vedder

Universities have been complaining for years about what they perceive to be inadequate public support. State universities complain that legislative appropriations are showing no growth in real per student terms. The private research universities lament sluggish growth in federal research funds. We are told the universities are creating the next generation of our nation's leaders and extending the frontiers of science, but paltry public support is jeopardizing our future quality of life. University presidents shake their heads in sorrowful wonderment at the shortsightedness of our political leaders.

One reason why governmental support is increasingly hard to come by is that universities and their coordinating bodies often behave irresponsibly, taking actions that most Americans view as inappropriate or unwise. Three examples that have surfaced over the past couple of weeks make this point.

In Ohio, there is a ballot initiative pushed by gambling interests that would allow more gambling at race tracks and other venues, with the state's take of the proceeds to be earmarked for higher education scholarships. The State's Board of Regents has publicly said it was taking no stand on the issue, yet weekend revelations show that emails from the Regents office reveal that its staff has been working hand-in-glove with the proponents. Moreover, one member of the Board of Regents is a paid lobbyist for the gambling interests. I think the proposal itself can be attacked on a variety of grounds, but what is particularly disturbing is the lying -- saying "we are neutral" and simultaneously working behind the scene for the amendment's passage.

I read in this morning's Inside Higher Ed that the nation's college admissions officers are continuing to do their bit to weaken American higher education. A few days ago, it was reported that several schools are dropping the SAT exam, an instrument with proven value as a forecaster of likely college success. Now, however, we learn that some schools are considering extending the already highly dubious affirmative action concept to incorporate special treatment for gays. At Middlebury College, other things equal, I learn that you are more likely to be admitted if you profess you are homosexual than if you profess that you are heterosexual or, are silent as to sexual preferences. Choosing students for colleges partially on the basis of who they want to sleep with is a bad idea, in my judgment, and my guess is that most Americans would not like this either. Middlebury is a private school, and can do what it wishes, but I suspect actions like these have negative spillover effects that hurt all of higher education in terms of building public support.

Finally, at Ohio University (where I teach), the Columbus Dispatch revealed a week ago that 17 football players (14 percent of the total) have been arrested for various crimes in 2006. Bad enough. But the story also showed that NONE of them had missed one minute of football play for legal transgressions, even a player who beat up another person (and former football player) after being kicked out of a bar for disorderly conduct. The University's first response was to say the coach's punishment (that the players had to STUDY for a few days in his office) was severe enough. Fortunately, the Chairman of the Board of Trustees (Greg Browning) was furious enough that he roused an usually somnolent board into action, forcing the Administration to finally crack down and suspend a few players.

While these incidents mainly hurt the affected schools (e.g., Middlebury and Ohio) the most, they reflect poorly on higher education in general and make legislators and Members of Congress ask: why do we want to subsidize this type of behavior?

Good News From Harvard

aBy Richard Vedder

While the Center for College Affordability and Productivity (CCAP) is primarily interested in cost, affordability, productivity, and accountability issues, the major "output" of most institutions of higher education is the learning imparted to students, so what is taught is a matter deserving our occasional attention. Harvard is the nation's oldest, wealthiest, and most elite university, so its curricular reforms appropriately attract considerable attention.

Of late, Harvard's efforts at reforming its "general education" core have been something of an embarassment, with several proposed changes being roundly criticized on campus and beyond, including by such eminent scholars as Yale's Donald Kagan. Now a new general education proposal has been unveiled, and from news accounts that I have read it seems to have some promise.

Harvard is narrowing considerably the menu approach to learning, still giving students some choices but more narrowly defining areas where some formal study is expected. I was pleased to see a required course on U.S. history or institutions, a similar one relating to non-U.S. areas ("the world'), and one on "faith and reason." Students are being nudged to learn a bit about the American past, and about the evolution of non-U.S. societies, and to explore religions of the world. That is all to the good. As the recent Intercollegiate Studies Institute study shows, Harvard students seem to add little to their existing knowledge of U.S. civic institutions in their four years in Cambridge. Certainly potential leaders of our nation should know more about their heritage than they currently do. For our society to be cohesive, for us to find those common things that bind diverse citizens together in a political entity we call America, we need to know a good deal about our past. Harvard's propsed new curriculum encourages that learning.

To be sure, it would be nice if all students had a good grounding in lots of things --economics, history, political science, philosophy, sciences,foreign languages, etc. But there is a finite limit of things we can teach our students, and the demands for specialized knowledge in some "major" field are also present. After all, colleges need to fulfill the vocational objectives of higher education, and presumably what is learned in these specialized courses prepares students for careers (that assumption, however, has only limited validity in the real world, as many students take jobs only remotely connected with their major).

Necessarily, we must be very selective in determining what is truly vital and essential for everyone to know. Harvard seems like it is making an honest and arguably successful effort in defining that essential core body of knowledge. I would have preferred even more specificity -- e.g., a requirement that students take a specific survey course in U.S. history --but this is a step in the right direction. Let us hope the Harvard faculty has the good sense to approve it, and that other schools look to Harvard just as they did several decades ago when the Harvard "red book" was influential in impacting curricular change nationally.

Teddy Kennedy On Higher Education

By Richard Vedder

Listening to Senator Edward Kennedy lecture us on higher education is a bit like listening to a talk from Monica Lewinsky or Madonna on the virtues of virginity or from Lorena Bobbitt on alternative approaches to surgery. It is faintly ridiculous, because, whatever the Senator's other virtues, he is not a great sage, and his Harvard career was, to put it mildly, undistinguished.

That said, however, the senator wrote some moderately intelligent things in his opinion piece in yesterday's edition of Inside Higher Ed. He generally had some fairly nice things to say about the Spellings Commission report and the Secretary's response, but criticized the lack of a real discussion of student loan programs. On that he was right on target. Our current programs are, as the Commission and Kennedy both said, "dysfunctional" (actually, that word was interjected into the commission report by me). The myriad of programs have disparate aims, are often duplicative, and are based on no coherent strategy. In some cases, student loan programs are to the upper middle class what food stamps are to the poor.

We need to revamp the whole system. The absolutely indefatigable Arthur Beroz has his "grantloan" scheme, that got some interest decades ago but has been ignored since. He challenges anyone to tell him where there are major flaws in his program. I think the time has come to analyze and debate Arthur's scheme. Or, taking an altogether different approach, why don't we phase out federal participation in lending activities altogether except for genuinely poor students? In other words, why don't we privatize this activity? Whatever your perspective, we need to have a serious conversation about student loan programs, with a goal of reforming them dramatically. In elevating attention to the issue, I agree with Senator Kennedy, an extremely rare event for me.

US News Rankings and Learning: Statistical Evidence

By Richard Vedder

As readers know from previous epistles, I very much liked the Intercollegiate Studies Institute (ISI) study of civic learning in American universities, because it is one of the very few attempts to explicitly report, school by school, the "value added" by university training with respect to one area of knowledge. I would like the testing expanded both in terms of content and the number of schools examined, and hope to explore with other educational reformers whose thinking mirrors my own ways of making this happen.

I put the CCAP Whiz Kids (Jonathan Leirer, Matt Denhart, James Woodward) to work on doing some statistical analysis of the relationship between learning in college (as measured by the ISI study) and the ranking of the school in the US News & World Report (hereafter USN&WR) rankings. We looked specifically at the 29 schools for which we had ISI data that were on the national rankings list for national universities or liberal arts colleges. Did the top ranked schools (e.g., Princeton, Harvard, Yale, Williams, Amherest) show higher levels of "value added" learning by their students than the kids going to lower ranked (but generally pretty good) schools?

We found no statistically significant relationships between the USN&WR rankings and student learning in college. To be sure, there is a bias against the prestigious highly ranked schools in using the raw ISI test results. Those schools get students as freshman who do relatively well on the test initially, and thus have less knowledge left to learn in order to have a perfect comprehension. But even after correcting for that in various ways, there is no statistically significant relationship observed. Kids at the top USN&WR schools did somewhat better on the ISI test in their senior year than students at other schools, but that is solely because they knew more as freshman. Dollar for dollar, learning was far greater at the lesser ranked schools than at the prestige universities.

To be sure, the ISI test only examined one area of learning, albeit an important one. The sample of schools examined was pretty small. The testing might be criticized because the same students were not examined three (or four) years apart, first as freshman and then as seniors -- different students were being tested. Nonetheless, the results show that the metrics typically used to measure collegiate excellence, such as the USN&WR rankings, are very poor, and we need to take the ISI methodological approach and expand it to provide useful information to parents and policymakers about our universities --we need to create a good "bottom line."

The Spellings Commission liked that idea, as does, at least rhetorically, Secretary of Education Spellings herself (and presumably the Bush administration). I hope that the private sector can do an expanded version of the ISI test in the hopes of shaming the body politic and the universities into developing a truly national system measuring "value added" in college. This would be a giant step forward in making the universities more accountable, and making them suffer market consequences in cases where learning is meager in relation to the costs of college. This type of "value added" testing also would be a great way that private for-profit providers could demonstrate they offer a quality product and deliver learning results.

Buy Your Way into College: A New Form of Prostitution

By Richard Vedder

A few years ago, Daniel Golden of the Wall Street Journal, in a stellar example of investigative journalism, revealed how elite private universities sometimes will admit the kids of rich persons who make major contributions to the school. He told the story of Margaret Bass, a Groton School grad with a composite SAT score of 1220 who was admitted to Stanford, while eight of her classmates with higher scores were rejected; Margaret's father, Robert, had given Stanford $25 million. The term "development admits" has been used to describe this practice. Now Golden has a new book detailing this more extensively. I have ordered it, and soon will eagerly be reading it. I suspect it is a compelling read.

I am less incensed by this practice than some. Most of these schools are private institutions, and money has always been a rationing device for determining who gets into school. Moreover, the financial contributions made by the rich benefactors arguably might serve some broader educational purpose. The fact that persons get a tax break for gifts that actually serve a private goal (getting a child into Elite U) raises some questions, but that is part of a broader issue of whether we should even allow tax deductions for gifts to country club-like elite havens that are today's top private universities, gifts that widen the divide between the rich and merely moderately affluent public flagship universities. Why should we subsidize colleges who have as a major institutional principle the DENIAL of admission of many generally bright and worthy students?

What does especially irritate me, however, is the hypocrisy of universities regarding this issue. Many schools claim that admission is determined strictly on the basis of merit, except of course, if you have a favored (non-white) skin complexion, or if you have some special talent (e.g., shooting a ball through a hoop). I would be less irritated by "development admits" if schools admit that they engage in some whoring, particularly if the customer will pay top dollar. I am reminded of the story where George Bernard Shaw reputedly offered some very proper lady one million pounds if she would sleep with him. She agreed. He then said something to the effect that he had reconsidered, and would pay her only one shilling (a few dollars in today's currency). She said, "Mr. Shaw, what to you take me for, a prostitute?" He supposedly replied, "We have already established that; we are merely haggling over the price." For the right price, even the best of schools will become academic hookers. That is fine, but I question whether the taxpayers should be subsidizing academic prostitution.