Tuesday, September 11, 2007

More on Differential Pricing

By Richard Vedder

A very useful source of news about higher education is the Greentree Gazette, whose publisher, Jeff Wendt, recently interviewed me for an article in the November issue. There is a free on-line version weekly available by clicking here.

They have run an interesting two part story on the growth of differential tuition pricing, using examples such as the University of Wisconsin and Arizona State University. As I have said before, in principle it makes sense for different pricing for different majors, if for no other reason than the costs of instruction vary considerably across disciplines.

At the same time, however, a lot of these new differential fees are feeding, and disguising, some of the tuition inflation, and also enabling institutional hubris. We read that ASU has decided it wants to be a leading journalism school, has spent $71 million on a new building, and is hiring superstar faculty like Aaron Brown, formerly of CNN. Then, to partially finance this, it raises fees ($250 in this case) to consumers. The University of Wisconsin, noting that their overall ratings are slipping because they are inadequate in faculty resources (e.g., not paying faculty enough), is tacking on fees to enhance faculty pay.

Question: Is it efficient to educate students using Socrates-era technology, paying junior business school faculty well over $100,000 a year for perhaps 200 hours in the classroom? Rather than tacking on more fees, perhaps business schools should look for new ways to conserve their extremely high priced help. That is ostensibly what they train students to do who go out into the real world. The problem, of course, is it is easier to initiate new fees than to innovate, restructure, and rethink ways of doing things. That is academia today. Raise prices and our problems are solved. If General Motors tried to do that, they would be bankrupt within three years.

At a typical university, faculty salaries eat up only less than one-half of tuition fees. Why don't faculty band together, rent cheap buildings as classrooms, and offer a superior education for less money, cutting out most of the outrageous overhead and frills universities have? To some extent, that is what the for-profits are doing. Without state subsidies to their inefficient non-profit competitors, they would be taking over higher education.


Bishirjian said...

Richard Vedder is one of the great voices in higher education who brings an Economist's feel for markets to discussions about higher education. In today's blog he asks why college Faculty don't set up shop in inexpensive facilities and go into business for themselves.

This, of course, is a great idea and Dr. Vedder should know the answer why this is not a realistic proposal. The system of academic accreditation is designed to keep out new entrants. Startup institutions cannot aspire to national or regional accreditation unless they jump through a variety of technical, reporting, legal, and financial hoops.

The Institute of World Politics in Washington, DC which was founded by national security scholars doing exactly what Dr. Vedder proposes took fifteen years to attain accreditation!

In all Dr. Vedder's writings and most especially his wonderful "Going Broke by Degree," he ignores the regulatory aspects of entry into and operation of the higher education marketplace.

And the other day, he wrote this:
"Margaret Spellings, who is asking the right questions and trying to make progress in improving accreditation, reporting of information, simplification of the FAFSA form, etc., etc. She is being thwarted by her boss's indifference or unwillingness to help her fight the battle."

This is the first time I've seen anyone blame Bush and not Margaret Spellings for squandering the opportunity Republicans had when Bush was first elected. Eight years into Bush's president, Margaret Spellings still hasn't a clue about the operation of the education marketplace and has even reduced the number of accrediting associations granting accreditation. Instead of making it easier to attain accreditation, or to found new accrediting associations, Charles Miller and Secretary Spellings want to regulate the marketplace by imposing national testing of, get this, "learning outcome behaviors." Spellings and Miller have not even tried open up the higher education marketplace to competition. A Texan familiar with Charles Miller's views calls him a "National Industrial Policy Democract." In other words, Miller is a socialist.

Given all the time Dr. Vedder spent with these Spellings and Miller, surely he came to appreciate that Spellings and Miller are regulation pronte and thus the problem, not the solution?

The AEI panel is too heavily weighted to defend an Administration that has done more damage to higher education than did LBJ when he pushed the Higher Education Act of 1965 through a Congress that he dominated.

R. Bishirjian, Yorktown University

sciencedoc said...

I took a look at the website for Richard Bishirjian's Yorktown University. At least on my computer, many of the links do not work, but with some effort, it's possible to find quite a bit of the information of interest.

It is difficult for me to find out just what the course offerings are. The cost is not especially low -- $34,000 ($8,500 per year for 4 years) in tuition and "exam proctoring" charges for a bachelor's degree in a very low number of "majors" -- I counted two. Not especially high cost, but not much lower than the expenditure (tuition + state subsidy + private giving) in comparable majors at the state university where I work -- admittedly, a rather low-budget operation. The "comparable majors" part is important, poly sci and business are not especially expensive programs.

I notice that many of the faculty have positions at other colleges and universities. I wonder, do they have full-time positions and salaries in these other positions? At my university, working for an independent online university in addition to a full-time salary would be considered breach of contract and would probably result in disciplining or dismissal.

Many of these points are questions. I raise them because my curiosity is aroused by going to the website and having a look. I realize this is a startup operation in a field of endeavor that does not welcome such things. I'm not necessarily opposed to such endeavors -- I own stocks in for-profit higher education companies, I've been kind of embarrassed to myself by the scandals in which they've been involved.

What I see here at the Yorktown site obviously is intended to be a higher-class operation, but quite a bit about it raises my eyebrows a notch.