Thursday, July 12, 2007

A Good $7000 University

By Richard Vedder

Vance Fried of Oklahoma State University opined once for us that a good quality college education could be offered for a fraction of current cost. Texas entrepreneur extraordinaire Randy Best has told me that a good quality Internet based education could be offered world wide for under $2000 a year per student. I can see even a traditional (student-faculty personal interaction) university offer good quality instruction for $7000 a year. That is pretty close to costs at the good quality for profit schools. If we offered, say, $5000 maximum vouchers (Pell Grants?) to poorer students, they could finance an education without student loans. If we gave out 6 million of these vouchers averaging $4,000 apiece, the total cost, $24 billion would be vastly less than current public spending.

What would the university look like? Much like current for-profits.

1)Course offerings would be vastly more limited than at present. Professors would have much higher teaching loads. Libraries would be small and mostly internet-based.

2) Research would be financed separately at separate research institutes, as would graduate education. This would make transparent the enormous cross subsidization going on in higher education.

3) There would be a very small administrative staff of registrars, admissions people, etc., and no PR specialists, diversity coordinators, football coaches (there would be no intercollegiate athletics), or residence life people (no dorms).

4) Buildings would be clean, modern and utilitarian, but not luxurious and used 80-90 hours a week and year round. There would be no climbing walls, indoor running tracks, 50 seat Jacuzzis or the like (common in today's residential colleges).

5) Technology would be used to the hilt, with traditional teaching mixed with a lot of computer and television based instruction. Great lectures from superstar teachers, for example, would be used for years and replayed frequently, with the instructors paid handsomely, but with low per lecture costs per student.

6) There would be no tenure, no art galleries, no development office, etc.

7) Learning would be measured, outcomes reported and transparent.

8) There would be no Office of Student Financial Aid.

Students wanting socialization, country club like facilities, football teams, etc., could go to the high priced alternative, but would be expected to shoulder the extra cost of such institutions themselves. The government would otherwise get out of the undergraduate education business. I have nothing against Cadillac/Lexus quality education at yuppie residential schools (I went to one myself). But I question whether it is a public responsibility to pay for it. We do not pay for high school kids to go to Phillips Exeter or Groton (expensive private boarding schools) -- why do we pay for them to go to Harvard?

Such an idea would save money, improve access, lower the growth in college costs (vouchers would go up only with the rate of inflation). We would have more and better educated college graduates a generation from now. Why don't we do it? The Establishment of university folks, student loan providers, etc., do not want this. So we pay more for less, and suffer as a nation as a consequence.


test said...

High teaching loads and complete separation of teaching and research will not work in most fields. The reason is - this would be a career dead end for an academic. This cheap college would be a place of last resort for an unemployed academic - maybe a step above community college. Consequently, the quality of teaching will be low as you'd be scraping the bottom of the barrell.

Teaching is a stressful job; 10 hours in the classroom (~3 courses) per week is about all one can handle without ill effects on health, family, etc. So, high-performing teachers will have an incentive to leave for a more relaxed place.

sciencedoc said...

test you are right. Nobody in an "employable" field would work at a dump like that except as a last resort. I'm not sure it would be a step above community college. The full-time faculty at the local CC get tenure and aren't teaching their brains out.

And why would one want to study at such a place, except out of dire necessity?

TC said...


Seems like you two are launching turds in the punchbowl - which is what usually happens when nobody has a better idea or likes the status quo (even though sciencedoc doesn't even like the status quo).

"Nobody in an "employable" field would work at a dump like that except as a last resort. I'm not sure it would be a step above community college. The full-time faculty at the local CC get tenure and aren't teaching their brains out." My compliments, egotistical, yet arrogant.

In recent days, on talk stations in my location, many callers have made the claim that only greed (i.e., the greed of oil companies) explains the high cost of fuel at the pump, and that the oil companies have banded together to make us pay the price they want us to pay. These callers have also claimed that oil companies should be “fair” and cut back on their profits because everyone needs fuel. In other words, like university educations fuel is “becoming ever more expensive” and “ever more indispensable.” So why don’t universities, in order to be fair, and since everyone pretty much needs a university degree now-days, just drop their prices? (And, of course, those publishers should do the same.)

Observe a few facts about university professor salaries (from the most recent years I could get figures for in a hurry):

Private Research Universities Where Average Salary of Full Professors Exceeds $125,000, 2004-5

University Professors’ Average Salary

Rockefeller University $169,173
Harvard University $163,162
Princeton University $151,077
Stanford University $148,548
University of Chicago $148,426
California Inst. of Technology $145,745
Yale University $145,550
University of Pennsylvania $143,409
Columbia University $140,391
New York University $138,087
Northwestern University $136,326
Massachusetts Inst. of Technology $135,005
Emory University $131,898
Duke University $131,246
Cornell University (endowed units) $131,092
Washington University in St. Louis $128,385
Georgetown University $127,135

Public Universities Where Average Salary of Full Professors Exceeds $110,000, 2004-5

University Professors’ Average Salary

University of California at Los Angeles $123,328
University of California at Berkeley $121,781
New Jersey Inst. of Technology $121,509
University of Maryland at Baltimore $120,529
University of Michigan at Ann Arbor $120,173
Georgia Inst. of Technology $118,960
University of Virginia $118,073
Rutgers University at Newark $116,433
SUNY Health Science Center at Brooklyn $115,478
University of California at San Diego $113,838
Rutgers University at New Brunswick $112,874
University of North Carolina at Chapel Hill $112,722
Penn State University $112,580
Rutgers University at Camden $112,387
University of Illinois at Urbana-Champaign $111,820
University of Maryland at College Park $111,037
University of Connecticut $110,922
University of California at Santa Barbara $110,637

Think about all those middle class families, taking out second mortgages to pay, not for fuel at the pump, but for those indispensable university educations.

Now, I ask, what do university professors do to earn salaries like those? They don’t have to give anyone a return on investment. They don’t have to turn a profit. The customer (i.e., the student or his parents, as the case may be) shows up and is told (1) how much he shall pay for the product and (2) when he has received a product that he shall have to be satisfied with. The university takes a student’s money, and then puts the student to work to earn what he’s paying the money for. And it is the professor, not the student, who decides if the student has received what he’s paying for. That’s a really sweet deal.

I design structures which, if not designed properly, could result in serious injury, even death. I don’t make what a university professor makes. Odd when you think about the higher stakes involved in my line of work. (Although, I must admit, I do make a very decent salary.) Not only that, but it is the customer who tells me if he’s satisfied with the product, not the other way round. (Oh, yes. And my company doesn’t band together with other companies in our line of work to make them pay us what we want. It’s every company for itself.)

Salaries aside. People need the product which universities sell; and they need it just about as badly as they need fuel. Maybe more so, since they need jobs in order to buy that fuel, and a university education in order to get the jobs. Those greedy universities (run and staffed mostly by liberals, oddly enough) should just drop their tuition costs. It’s what most of them want oil companies to do.

It’s only fair.

NOTE: You might want to split a relevant hair with me. You might want to point out that universities are non-profit institutions and oil companies are for-profit institutions. But the non-profit status of universities only means that (insofar as they operate in the black) the surplus does not inure to the benefit of any individual, or group of them, as his private property. It certainly does not mean that universities don’t make money; it certainly does not mean that they do not take in more than it costs them to operate. With respect to the amount charged for the product, the distinction between for-profit and non-profit is a distinction without a relevant difference. You might also want to raise the issue of Exxon Mobiles hundreds of billions in profit last year. But since that amounts to 10%, I will of course want to know if there are any universities who managed to take in 10% more last year than it cost them to operate.


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sciencedoc said...

Well, tc, no, I don't think much of the idea of the $7000 university. If anyone really thinks it's a good idea, let them try it. How you came up with the idea that I don't like the status quo, I'll let you explain. What the oil companies have to do with any of this, I'll leave it for others to figure out.

If you really think those salaries are so great, say at Caltech, try hiring those professors in the commercial world at those salaries and see how far you get. And I've got news for you: the "customers" are lined up to get into those schools. The greedy professors must be giving them something.

tc, you seem to think those professors are overpaid compared to you. Here's a suggestion: apply to Caltech or MIT or Berkeley or UT Austin to be a professor in mechanical or structural engineering. It's a free country. Good luck! You may get the job, but I wouldn't hold my breath.

TC said...

Sciencedoc, I got the impression you did not like the status quo from your comment on the previous blog.

Regarding the oil to college comparison, I have made an observation that (1) college is becoming ever more expensive and (2) It's becoming ever more indispensable (credentialing) - Just like oil. But exchange listed oil companies are as transparent as laws force them to be by requiring them to file quarterly (10Q) and annual (10K) reports (“Results of Operations”). So as a consumer, I can use that information for investment purposes and/or use the information to make a decision whether I want to buy oil from that company. For example, after a major DUI infraction by the skipper of the Exxon Valdez, and after record profits by Exxon last year, I no longer invest in, or buy fuel from Exxon. I spend a couple cents more per gallon and get my gas at Conoco, or somewhere else. But I digress

Now, when it comes to selecting a college in which to invest my money on my children’s future, I have absolutely no objective financial criteria that I can think of to aid me in making an informed decision about the college. How does the college decide what the price is for my children? After-all, with the FAFSA, the college pretty much holds all the cards. Colleges and Universities use price discrimination practices. How much do they spend on faculty versus administration? How much of the take is going toward building such things as have been mentioned here before, such as climbing walls and 50 seat Jacuzzis? How much of the take is going toward buildings and furnishings when colleges and universities have underused or unused capacity? What is my return on investment (ROI)? Was the value added by teaching professors (who like their very important jobs) equal to, or greater than the cost of his/her class?

I guess the bottom line is: What am I getting for my money?

Finally, the general consensus, and data shows us that tuition costs are increasing at a greater rate than inflation, COLA, etc. Why is this? I sure don’t know. And a lot of other very smart people don’t know the conclusive, undisputed answer either - because there is no transparency. So people say, “Just cut tuition or show us why it’s so high” – just as they believe oil companies are price gouging and should just lower their prices. Then there’s the government solution: “make college more accessible by throwing money at the colleges so they can charge even higher tuitions because the money supply has grown as a result and more candidates have access to college. So your statement: “And I've got news for you: the "customers" are lined up to get into those schools. The greedy professors must be giving them something.” doesn’t wash with me because you can not quantify what, if anything professors are giving. What is the unit of measurement? Neurons fired per fortnight? It also doesn’t wash because of the phenomena I described above – the Fed’s step in and increase the money supply – which is why customers are lined up. But what thought is given to how much a student or family is leveraged to pay for an education.

So once again, I have to ask, what do university professors do to earn salaries like those? They don’t have to give anyone a return on investment. They don’t have to turn a profit. The customer (i.e., the student or his parents, as the case may be) shows up and is told (1) how much he shall pay for the product and (2) when he has received a product that he shall have to be satisfied with. The university takes a student’s money, and then puts the student to work to earn what he’s paying the money for. And it is the professor, not the student, who decides if the student has received what he’s paying for. That’s a really sweet deal. What other business operates like this?

I don’t know if professors make too much compared to me – or anyone else for that matter. Until the value added by a professor becomes measurable, I remain open minded.

I’d love to teach at a college, absolutely no question about it – and it doesn’t have to be a Université Suprême. But I don’t have the credentials and never had the money to pay for them. By the time I had the money to pay for them, I was a little to old. Besides, I’m just a surly old cowboy that has landed on his melon too many times.

Thanks for your reply.

sciencedoc said...

What I was saying in my post on the previous column was that I think the tenure system as it exists now is pretty good, and in some ways saves a lot of money. People who could earn much more in other kinds of jobs are willing to sacrifice quite a lot in income for the freedom and security of tenure, if they can get it. $135K per year may seem like a lot to pay a Caltech professor (or wherever, that list you gave is of places all on the high side, they're not paying that kind of dough in Montana), but most of those Caltech professors could be making a hell of a lot more in the commercial world if they wanted to. I remember a few years back, in the heyday of the internet boom, when fresh Ph.D.'s from Caltech in some fields were starting in business at $200+K. Most of those people would not be competitive for faculty jobs at Caltech or the equivalent, however good they might be.

The bottom line about higher education is that that there isn't a bottom line, not really. It's not really a business. For starters, in most businesses, you don't grade your customers, not after you have decided to do business with them. You don't flunk them out in most businesses (unless they are unable to come up with the dough). You don't tell someone "you're a C- or B customer and if you want to be an A customer, you're just going to have to work harder and do better". But it happens in academia all the time. ALL the time.

There's no bottom line in other ways, too. You can take one student at Harvard who majors in music theory, and doesn't make any money at all out of it; and another who majors in finance or something like that, and makes a fortune. It all depends. You can take somebody at Caltech who wants to win a Nobel prize and becomes a professor and lives a modestly well-to-do life. Even the tiny few who win the Nobel prize probably don't get rich. You can have others who get a Ph.D. in theoretical physics and then don't get an academic job and go to work for Golman Sachs and then make 50 or 100 times as much as the professor. This is not a hypothetical situation. Who has gotten the most out of the education?

As to where the tuition money goes, you would be surprised how little of it actually goes to paying the faculty, the tenure-track faculty in particular. At the state university where I work, maybe 15% of the total budget. If you take out dorms, athletics, research, the other "restricted" funds, maybe 30% of the remaining "general budget". It is interesting to see where the rest goes. The truth is very few people have both the knack for numbers and the interest to delve into this. I know this from personal experience that I can't go into here.

Why do costs go up faster than inflation? I'd say basically because (1) academia is a service which nobody has figured out how to make more productive. A professor can still teach only one class at a time. Yet incomes are going up generally. The professors (and others who make up the bulk of the payroll) demand and get their share of the increasing pie. Perhaps more than their share, because the universities are competing for talent with businesses where incomes have been going up very fast (the rich getting richer phenomena). (2) the reward for academic degrees has gone up markedly over the past few decades, so people are willing to pay more. (3) there is just a hell of a lot more money out there, especially among the rich. You may think $50K /year is outrageous to pay for college. I might too. But there are a lot of people for whom that is not that much money, who are willing to shell it out.

For other people, I'd say the college probably will give you a much better deal if you can't afford $50K. If they don't, it's probably not worth it, go to a cheaper place, go to an in-state public university or if you really are short on dough, start out a community college.

As for the $7000 university: community colleges may come close to that for the first two years (in total expenditures per student). I'm really skeptical that it can be done for four-year colleges in a way that people would go for. If anybody really thinks they can make a go of it, they're welcome to try. I wouldn't take it on the say-so of an associate professor of business (as I recall) from Oklahoma State (where things are not that cheap, but where they may be some religious colleges that might actually come close, where he might be able to hone his skills).

sciencedoc said...

Oh, I forgot. You asked "what do university professors do to earn salaries like those?" A good question. In the first place, those are full professor salaries, that's the average of the top-paid people. Second, it depends on the field. Philosophy professors make less than physics professors who make less than law professors, business professors. The top of the heap are probably the medical school professors. It's all market driven, it has nothing to do with innate merit or talent, whatever that means. Oh, I forgot, the football coach will make more than anyone, but he's usually not considered a professor.

What does a Caltech chemistry professor do? An unusual place, so let's take a University of Illinois chemistry professor. (I'm not talking about me.) Also a fine place, more of the usual behemoth state university model, but better than most. Expected to do a lot of research during most of a career, work with graduate students, postdocs, raise grant money. The more money you bring in, the higher your pay is apt to be. I'm sitting in my office somewhere else, Sunday evening, summer, that should tell you something except that I'm not getting any research done doing this. Hired to teach classes, undergraduate and graduate. Meet students during "office hours". In the case of big classes, manage an army of teaching assistants and graders. A certain amount of administrative work, advising. Bring in outside seminar speakers. A surprising amount of time goes into doing departmental and university chores. It's not easy to find faculty candidates who one can be confident will do all these things well. Hence the trouble in filling positions even when there are a 100 applicants for each job.

I could go on, but that's a start.