By Andrew Gillen
This is the third in a four part series that will explore the similarities between the housing bubble and rapidly increasing tuition. A study that explores these issues in greater detail will be available at the conclusion of the series.
Part 1 is available here.
Part 2 is available here.
How these parallels play out in higher education
The previous postings in this series have shown that in the markets for both higher education and housing pre-2007, interest rates were low and there were lax lending standards. To be clear, these two phenomena have different causes. In the case of the housing market, low interest rates can be attributed to the Fed, while lax lending standards were encouraged by securitization. With higher education however, both phenomena can be attributed to government policy, specifically guarantees for student loans.
These lax lending standards and artificially low interest rates fuel tuition increases because they increase the ability of students to pay, which encourages schools to raise tuition. Why are schools able to get away with this? After all, most businesses can't raise prices simply because their customers' ability to pay has increased without risking losing the customers. The answer is that there are some uncommon features of the market for higher education.
Their first uncommon feature is that the field is dominated by public and non-profit schools. This means that profit maximization assumptions may not be appropriate. Indeed, when we look at the actions of schools, it is apparent that it is not profits that schools are trying to maximize, but prestige (perceived quality). Schools are always seeking more money of course, but they want more funds not to distribute as residual income to shareholders (as profit maximizing organizations do) but so that they can build a better institution.
Viewing schools as prestige rather than profit maximziers explain a lot of otherwise inexplicable decisions by colleges and universities, including the fact that they consistently turn away potential customers (applicants). It also explains the excessive funding (from the academics point of view) of athletic programs. The fact that the great majority of them lose money is irrelevant. Administrators view them as a marketing expense, because they increase the visibility and popularity of the school (which of course increases the prestige of the institution).
As it turns out, money is very useful when a school is trying to increase its prestige. It allows you to spend $136 million on a new dorm, fund popular athletic programs, and create a country club atmosphere on campus. This gives schools an incentive to charge as much as they can.
But couldn't a school undercut the competition by charging lower tuition or maybe even cutting tuition from year to year? This is where a second feature of the market for higher education comes in. With no real measure of the output of a school (what students actually learn in college), it is very difficult to have price competition, especially in light of the fact that price itself is used as a proxy for quality. This means that if a school charges less next year than it did this year, people will tend to think not that the school eliminated wasteful spending and is passing the savings on to students, but as a sign of desperation or that the school is cutting corners. Finally, we are unlikely to see prices falling because schools tend to be bureaucratic, and bureaucracies don't tend to advocate for lower budgets.
Coming Tuesday: The Conclusion
Friday, November 30, 2007
A Businessman’s Thoughts About Higher Education
By: Don Bunker
A clear historical picture of productivity in Higher Education would change most people’s perception of what is needed to fix the cost problems chronicled about Higher Education.
During a recent debate in a Colorado State Legislative campaign, it was stated by the conservative candidate that the productivity for the average professor at the University of Colorado, had reduced from 15 credit hours taught per semester in 1955 to 5.5 credit hours per professor in 2005. As a Colorado resident I wondered how true this “statistic” really was?
If the average bricklayer’s productivity was recorded to lay 600 bricks per day in 1955, even the most uneducated person can appreciate that a brick layer, laying 220 bricks in 2005 is unacceptable and think new management is in order.
Teaching 5-three credit hour classes seems reasonable, it requires 15 hours of being in the class room per week and allows 25 hours for preparation, meetings and testing. Frequently the 5 courses taught would actually be the same course taught multiple times or similar courses taught multiple times. 5.5 credit hours per semester sounds like 220 bricks a day.
So why don’t we find out what the historical productivity trend really is, since productivity translates to number of employees and number of employees equals cost in a labor-intensive activity such as education?
Mr. Bunker is a former Vice President of Operations for a major computer equipment manufacturer.
A clear historical picture of productivity in Higher Education would change most people’s perception of what is needed to fix the cost problems chronicled about Higher Education.
During a recent debate in a Colorado State Legislative campaign, it was stated by the conservative candidate that the productivity for the average professor at the University of Colorado, had reduced from 15 credit hours taught per semester in 1955 to 5.5 credit hours per professor in 2005. As a Colorado resident I wondered how true this “statistic” really was?
If the average bricklayer’s productivity was recorded to lay 600 bricks per day in 1955, even the most uneducated person can appreciate that a brick layer, laying 220 bricks in 2005 is unacceptable and think new management is in order.
Teaching 5-three credit hour classes seems reasonable, it requires 15 hours of being in the class room per week and allows 25 hours for preparation, meetings and testing. Frequently the 5 courses taught would actually be the same course taught multiple times or similar courses taught multiple times. 5.5 credit hours per semester sounds like 220 bricks a day.
So why don’t we find out what the historical productivity trend really is, since productivity translates to number of employees and number of employees equals cost in a labor-intensive activity such as education?
Mr. Bunker is a former Vice President of Operations for a major computer equipment manufacturer.
Subsidizing The Gated Communities of Higher Education
By Richard Vedder
A big part of the difference between liberals and conservatives is that liberals get angry and resentful over great wealth, while conservatives grow envious and desirous. Liberals fixate on redistributing the income pie, while conservatives fixate on growing it.
Yet there is one trend in higher education on which both conservatives and liberals can join hands. The richest schools are getting richer, and tend to have few poor persons in their midst. That angers liberals. Much of the increased wealth of the Uber Rich Universities (URUs) is created by public policies, especially tax policies that ultimately burden taxpayers. That angers conservatives. The perfect storm is created, and the URUs better watch out.
In the last two days, there were great stories in both the Wall Street Journal (quoting our CCAP colleague Lynne Munson) and Business Week on the growth of rich colleges relative to poor. Whiz Kid Gordy Ruchti has documented that the inequality in endowment size amongst American institutions is on the rise. As Business Week points out, Princeton spent roughly a quarter of a million dollars per student on its new Whitman residential college with a dining hall with a 35 foot ceiling that outshines those found in all but a few of the nation's finest mansions. Whiz Kid Matt Denhart has regressions hot off the press showing that the salary of full professors at most Ivy League schools is far higher than that predicted from a sample of about 150 schools (the top 100 on the US News& World Report national university list, plus the top 50 liberal arts colleges).The employees at the URUs are not beyond taking a little of the money being dropped out of airplanes over their campuses for themselves.
The Ivy League, according to the last data we saw, had 11.7 percent of its students with Pell Grants, well below the national average or even the average (18.1 percent) of 103 schools with the largest endowments. While it is true that these schools will give a lot of money to poor kids who meet the extremely high academic standards, they are nonetheless wealthy elitist bastions that are the academy's equivalent of gated communities. They do not share the American egalitarian ideal of using higher education to promote economic success for all to the same degree as poorer schools do. It does not have to be that way. Berea College, for example, excludes kids that are rich, using its large endowment to lower student costs rather than to raise per student spending. It is dedicated to using education as a pathway for economic success for poor Appalachian Americans. No one would ever say that Harvard, Yale and Princeton do the same.
Where does the government come in? They subsidize these rich schools vastly more than the poor ones. When Meg Whitman of eBay gives $30 million to Princeton to pay for luxury housing, she gets a tax deduction worth probably at least $10 million. When Harvard makes $4-5 billion last year in capital gains, dividends and other income from its endowment, it pays no taxes, even though if Bill Gates made that same money he would face a tax liability of hundreds of millions of dollars. When a wealthy plutocrat leaves $100 million to Princeton, there is no estate tax, but if that plutocrat left the money to his own son, the feds would demand tens of millions. Giving to children is bad; giving to country club universities is good, at least in the eyes of the feds. Finally, research grants per student are vastly greater at Harvard, M.I.T., Stanford, etc., than at less rarified public institutions such as the one I teach at, in part because of the huge salaries the URUs pay to get the best and the brightest. Federal higher education tax policy is thus brutally regressive, probably more so than if we financed higher education with a head tax on every American regardless of economic circumstance. Liberals should be up in arms over the unfairness of it all; conservatives should be mad about the inefficiency, the extravagance, the lack of transparency, and the contempt for the taxpayer.
In Going Broke By Degree, I said current trends in higher education are unsustainable, and when change comes, it may not be pretty. The wealthy privates who are belatedly reducing the financial aid expected from lower income students and admitting a few more kids (e.g, Whitman College at Princeton), are going to face a political pounding only marginally more nuanced than the aristocracy suffered during the French or Russian Revolutions if they don't change their ways --starting new colleges, creating ‘sister’ schools that they aid and mentor, eliminating tuition for all but the uber rich etc. URUs --don't say you haven't been warned.
A big part of the difference between liberals and conservatives is that liberals get angry and resentful over great wealth, while conservatives grow envious and desirous. Liberals fixate on redistributing the income pie, while conservatives fixate on growing it.
Yet there is one trend in higher education on which both conservatives and liberals can join hands. The richest schools are getting richer, and tend to have few poor persons in their midst. That angers liberals. Much of the increased wealth of the Uber Rich Universities (URUs) is created by public policies, especially tax policies that ultimately burden taxpayers. That angers conservatives. The perfect storm is created, and the URUs better watch out.
In the last two days, there were great stories in both the Wall Street Journal (quoting our CCAP colleague Lynne Munson) and Business Week on the growth of rich colleges relative to poor. Whiz Kid Gordy Ruchti has documented that the inequality in endowment size amongst American institutions is on the rise. As Business Week points out, Princeton spent roughly a quarter of a million dollars per student on its new Whitman residential college with a dining hall with a 35 foot ceiling that outshines those found in all but a few of the nation's finest mansions. Whiz Kid Matt Denhart has regressions hot off the press showing that the salary of full professors at most Ivy League schools is far higher than that predicted from a sample of about 150 schools (the top 100 on the US News& World Report national university list, plus the top 50 liberal arts colleges).The employees at the URUs are not beyond taking a little of the money being dropped out of airplanes over their campuses for themselves.
The Ivy League, according to the last data we saw, had 11.7 percent of its students with Pell Grants, well below the national average or even the average (18.1 percent) of 103 schools with the largest endowments. While it is true that these schools will give a lot of money to poor kids who meet the extremely high academic standards, they are nonetheless wealthy elitist bastions that are the academy's equivalent of gated communities. They do not share the American egalitarian ideal of using higher education to promote economic success for all to the same degree as poorer schools do. It does not have to be that way. Berea College, for example, excludes kids that are rich, using its large endowment to lower student costs rather than to raise per student spending. It is dedicated to using education as a pathway for economic success for poor Appalachian Americans. No one would ever say that Harvard, Yale and Princeton do the same.
Where does the government come in? They subsidize these rich schools vastly more than the poor ones. When Meg Whitman of eBay gives $30 million to Princeton to pay for luxury housing, she gets a tax deduction worth probably at least $10 million. When Harvard makes $4-5 billion last year in capital gains, dividends and other income from its endowment, it pays no taxes, even though if Bill Gates made that same money he would face a tax liability of hundreds of millions of dollars. When a wealthy plutocrat leaves $100 million to Princeton, there is no estate tax, but if that plutocrat left the money to his own son, the feds would demand tens of millions. Giving to children is bad; giving to country club universities is good, at least in the eyes of the feds. Finally, research grants per student are vastly greater at Harvard, M.I.T., Stanford, etc., than at less rarified public institutions such as the one I teach at, in part because of the huge salaries the URUs pay to get the best and the brightest. Federal higher education tax policy is thus brutally regressive, probably more so than if we financed higher education with a head tax on every American regardless of economic circumstance. Liberals should be up in arms over the unfairness of it all; conservatives should be mad about the inefficiency, the extravagance, the lack of transparency, and the contempt for the taxpayer.
In Going Broke By Degree, I said current trends in higher education are unsustainable, and when change comes, it may not be pretty. The wealthy privates who are belatedly reducing the financial aid expected from lower income students and admitting a few more kids (e.g, Whitman College at Princeton), are going to face a political pounding only marginally more nuanced than the aristocracy suffered during the French or Russian Revolutions if they don't change their ways --starting new colleges, creating ‘sister’ schools that they aid and mentor, eliminating tuition for all but the uber rich etc. URUs --don't say you haven't been warned.
Wednesday, November 28, 2007
Marc Sheer Improves A Good Idea
By Richard Vedder
Some of the blogs I do are not terribly inspirational or innovative, but I thought my last epistle on limiting federal student aid to students to three years was a good idea. I still do --but a reader had a stellar idea on how to make it better.
Much federal financial aid goes through college financial aid offices (I wish it did not). Marc Sheer asks, "why put the onus on the students?" Make the colleges feel the pinch for fourth, fifth and sixth year of attendance. Stop providing colleges money for these students (e.g., Pell Grant funds), so that the colleges have to pick up the bills themselves. Actually, there are probably few formal differences in the Vedder vs. Sheer approach, but psychologically, students want some assurance on financial aid, and if the colleges have to bear more of the costs of the fourth or fifth year in a very explicit way, they might respond negatively (cutting off aid to students near the end of their college careers) or positively (providing incentives for students to complete school in timely fashion). The former approach would hurt schools competitively in the long run, so I think schools would be forced to get innovative --lower tuition for summer school, reduce costs for taking overload courses, have higher tuition for the fourth year of attendance, etc. Faculty resistance to this idea -- always high with any new idea -- will cool when they see more summer supplemental teaching pay. The faculty can always be bribed, and often very cheaply.
Accompanying any federal moves should be state moves to lower institutional subsides. Some states-- Ohio for example-- give higher subsidies for students in their fourth or fifth year than their first year, and much higher subsidies for graduate education. Maybe we should reverse that --cut subsidies after the third year of full time residence, and eliminate them after four years of enrollment. Class close outs, arcane distributional requirements, and other impediments to orderly graduation would disappear. Colleges are slow in innovating, in changing, and in researching and measuring what they are doing. But money talks -- colleges will do almost anything for more dollars, and getting more efficient might be one of them. Thanks to Mr. Sheer for improving my idea.
Some of the blogs I do are not terribly inspirational or innovative, but I thought my last epistle on limiting federal student aid to students to three years was a good idea. I still do --but a reader had a stellar idea on how to make it better.
Much federal financial aid goes through college financial aid offices (I wish it did not). Marc Sheer asks, "why put the onus on the students?" Make the colleges feel the pinch for fourth, fifth and sixth year of attendance. Stop providing colleges money for these students (e.g., Pell Grant funds), so that the colleges have to pick up the bills themselves. Actually, there are probably few formal differences in the Vedder vs. Sheer approach, but psychologically, students want some assurance on financial aid, and if the colleges have to bear more of the costs of the fourth or fifth year in a very explicit way, they might respond negatively (cutting off aid to students near the end of their college careers) or positively (providing incentives for students to complete school in timely fashion). The former approach would hurt schools competitively in the long run, so I think schools would be forced to get innovative --lower tuition for summer school, reduce costs for taking overload courses, have higher tuition for the fourth year of attendance, etc. Faculty resistance to this idea -- always high with any new idea -- will cool when they see more summer supplemental teaching pay. The faculty can always be bribed, and often very cheaply.
Accompanying any federal moves should be state moves to lower institutional subsides. Some states-- Ohio for example-- give higher subsidies for students in their fourth or fifth year than their first year, and much higher subsidies for graduate education. Maybe we should reverse that --cut subsidies after the third year of full time residence, and eliminate them after four years of enrollment. Class close outs, arcane distributional requirements, and other impediments to orderly graduation would disappear. Colleges are slow in innovating, in changing, and in researching and measuring what they are doing. But money talks -- colleges will do almost anything for more dollars, and getting more efficient might be one of them. Thanks to Mr. Sheer for improving my idea.
A Tuition Bubble? Part 2 of 4
By Andrew Gillen
This is the second in a four part series that will explore the similarities between the housing bubble and rapidly increasing tuition. A study that explores these issues in greater detail will be available at the conclusion of the series. Part 1 is available here.
Similarities in Higher Education
Part 1 of this series explored how lax lending standards and artificially low interest rates contributed to the housing bubble. This part is concerned with how they may be doing the same thing to tuition rates.
For many students, the only way to pay for rapidly increasing tuition is to take out student loans, primarily through government programs run by their schools' financial aid office, but increasingly through private lenders as well. The Federal government encourages this by providing guarantees for a large number of these student loans. This essentially means that lenders don't need to worry about default, since the government will pick up any slack. And it is clear that lenders have almost nonexistent lending standards when it comes to student loans Choy and Li (2006) analyzed the default rates of the 1992-1993 cohort of graduates, and found that 20% of those who borrowed more than $15,000 had defaulted on their loans.
The interest rate on student loans secured through government programs is also much lower than would otherwise be the case. Student loans are essentially loans with no collateral to people with uncertain repayment prospects. As such, we would expect for the interest rates to be high, a reflection of the riskiness of the loan for the lender. But interest rates on loans secured through government programs are reasonable, even downright low. This is entirely due to the government guarantees. To be sure, lower rates are typically a condition that the government requires for the loans it guarantees, but even without that requirement, interest rates would be lower because there is less risk involved for the lender. The impact of the guarantees on interest rates is huge. Currently, the rate for government backed loans is 6.8%, while for private loans, which don't have a guarantee, the rate can be as high as 18%.
While lax lending standards and low interest rates for the housing market were caused by securitizaiton and the Fed respectively, they are both caused by government guarantees for student loans when it comes to higher education. Unfortunately, while these would appear at first to improve access to college by increasing the ability of students to afford college, their main effect is to make it easier for colleges to increase their tuition rates. Part 3 in the series will explore the reasons for this.
Coming Friday: Part 3: How these parallels play out in higher education
This is the second in a four part series that will explore the similarities between the housing bubble and rapidly increasing tuition. A study that explores these issues in greater detail will be available at the conclusion of the series. Part 1 is available here.
Similarities in Higher Education
Part 1 of this series explored how lax lending standards and artificially low interest rates contributed to the housing bubble. This part is concerned with how they may be doing the same thing to tuition rates.
For many students, the only way to pay for rapidly increasing tuition is to take out student loans, primarily through government programs run by their schools' financial aid office, but increasingly through private lenders as well. The Federal government encourages this by providing guarantees for a large number of these student loans. This essentially means that lenders don't need to worry about default, since the government will pick up any slack. And it is clear that lenders have almost nonexistent lending standards when it comes to student loans Choy and Li (2006) analyzed the default rates of the 1992-1993 cohort of graduates, and found that 20% of those who borrowed more than $15,000 had defaulted on their loans.
The interest rate on student loans secured through government programs is also much lower than would otherwise be the case. Student loans are essentially loans with no collateral to people with uncertain repayment prospects. As such, we would expect for the interest rates to be high, a reflection of the riskiness of the loan for the lender. But interest rates on loans secured through government programs are reasonable, even downright low. This is entirely due to the government guarantees. To be sure, lower rates are typically a condition that the government requires for the loans it guarantees, but even without that requirement, interest rates would be lower because there is less risk involved for the lender. The impact of the guarantees on interest rates is huge. Currently, the rate for government backed loans is 6.8%, while for private loans, which don't have a guarantee, the rate can be as high as 18%.
While lax lending standards and low interest rates for the housing market were caused by securitizaiton and the Fed respectively, they are both caused by government guarantees for student loans when it comes to higher education. Unfortunately, while these would appear at first to improve access to college by increasing the ability of students to afford college, their main effect is to make it easier for colleges to increase their tuition rates. Part 3 in the series will explore the reasons for this.
Coming Friday: Part 3: How these parallels play out in higher education
Limit Federal Aid to Three Years
By Richard Vedder
The hallmark of Bill Clinton's welfare reform of the mid-1990s, passed with strong Republican support, was a limit on the time a person could receive welfare payments. Within a few years, the welfare rolls had shrunk, poverty rates were falling, and federal spending on welfare (and associated matching state government spending) had declined. Nearly everyone agrees the welfare reform program was a big success -- a highlight of the otherwise not particularly distinguished Clinton presidency.
Why don't we consider federal assistance to college students a form of welfare, subject to time limits? Why not limit Pell Grants, federally subsidized student loans, tax credits, and other forms of aid to three years for bachelor's students? Why not have the federal government push schools to get students through college in three years, rather than four (or five, or six, or never)?
Manchester College in Indiana is now offering a three year option. Kids work a bit harder during the conventional school year. The National Survey of Student Engagement implies that most students at most schools work less than 40 hours a week attending class, studying, writing papers, etc. Party time rivals study time in magnitude. Make our college students behave like Americans, not Frenchmen --push them a bit harder. Have them attend summer school for a couple of years to achieve the same number of credits that conventional students receive.
For years, I taught in a great Honors Tutorial College program at Ohio University where students graduated in three years. Some of my three year students ended up in Ph.D. programs at schools like Harvard or Northwestern, or at law schools like Michigan. And they succeeded in life as well. (The current director of that program, very unwisely in my judgment, has abandoned the 3 year nature of the program --three years works at Oxford, apparently, but it is not enough at Ohio University). My own son, taking a lot of college classes while in high school, managed to get two degrees in three years -- and graduate Phi Beta Kappa.
In short, I see no reason why students cannot get out of college in three years --with a quality education. Doing so enormously saves on resources, reduces family college costs, raises labor force participation of well educated Americans, saves taxpayers money, etc. Why isn't it done?
I will tell you why. Most people oppose the idea. Where tried, it has one tepid approval --students would rather work less hard, linger a while longer at college, have more time at the student rec center, chasing members of the opposite sex, or drinking beer. College is fun --and they don't want to end the fun. Colleges want the kids too --more tuition revenues, often more state subsidy payments. But is it the job of society to provide "fun" for millions of persons from comparatively affluent families? Is it society's goal to maximize university revenues? I think not. Cutting back to three years of support on financial aid would force colleges into all sorts of innovative actions to get kids through college faster. And that is a good thing to do.
The hallmark of Bill Clinton's welfare reform of the mid-1990s, passed with strong Republican support, was a limit on the time a person could receive welfare payments. Within a few years, the welfare rolls had shrunk, poverty rates were falling, and federal spending on welfare (and associated matching state government spending) had declined. Nearly everyone agrees the welfare reform program was a big success -- a highlight of the otherwise not particularly distinguished Clinton presidency.
Why don't we consider federal assistance to college students a form of welfare, subject to time limits? Why not limit Pell Grants, federally subsidized student loans, tax credits, and other forms of aid to three years for bachelor's students? Why not have the federal government push schools to get students through college in three years, rather than four (or five, or six, or never)?
Manchester College in Indiana is now offering a three year option. Kids work a bit harder during the conventional school year. The National Survey of Student Engagement implies that most students at most schools work less than 40 hours a week attending class, studying, writing papers, etc. Party time rivals study time in magnitude. Make our college students behave like Americans, not Frenchmen --push them a bit harder. Have them attend summer school for a couple of years to achieve the same number of credits that conventional students receive.
For years, I taught in a great Honors Tutorial College program at Ohio University where students graduated in three years. Some of my three year students ended up in Ph.D. programs at schools like Harvard or Northwestern, or at law schools like Michigan. And they succeeded in life as well. (The current director of that program, very unwisely in my judgment, has abandoned the 3 year nature of the program --three years works at Oxford, apparently, but it is not enough at Ohio University). My own son, taking a lot of college classes while in high school, managed to get two degrees in three years -- and graduate Phi Beta Kappa.
In short, I see no reason why students cannot get out of college in three years --with a quality education. Doing so enormously saves on resources, reduces family college costs, raises labor force participation of well educated Americans, saves taxpayers money, etc. Why isn't it done?
I will tell you why. Most people oppose the idea. Where tried, it has one tepid approval --students would rather work less hard, linger a while longer at college, have more time at the student rec center, chasing members of the opposite sex, or drinking beer. College is fun --and they don't want to end the fun. Colleges want the kids too --more tuition revenues, often more state subsidy payments. But is it the job of society to provide "fun" for millions of persons from comparatively affluent families? Is it society's goal to maximize university revenues? I think not. Cutting back to three years of support on financial aid would force colleges into all sorts of innovative actions to get kids through college faster. And that is a good thing to do.
Tuesday, November 27, 2007
More Ivy League Students
By Richard Vedder
Success in most endeavors comes by getting bigger --selling more and better mousetraps, for example. America's peculiar institution, higher education, is different: success comes in turning customers away. The more students a school rejects, the higher the likely ranking of the school, the academy's equivalent of a bottom line.
But the real job of colleges is to educate --hopefully to educate well, and hopefully to educate a meaningful portion of the American population. Supply rigidities --selective admissions -- have aggravated the tuition inflation in the long run because as demand for colleges has risen, supply has not moved up as much in order to relieve the price increases and enhance enrollment. When the price of wheat soars (as it is doing now), farmers plant more wheat. When the price of college soars, colleges do little on the supply side --at least the prestigious colleges into which many of our best and brightest students aim to achieve.
As more elite schools get obscenely rich, with more than one million dollars of endowment wealth per student, they literally have trouble spending all of the money they extract from students in the form of high tuition, from rich alums, or from the $50,000 or so annual endowment income per student.
A couple of years ago, Princeton did something novel --it said it was going to let enrollments rise a bit. Make a Princeton education available to more students. Now, motivated by guilt, shame or maybe a sense of obligation, several other schools are following suit, include Yale. Harvard claims its campus is too small to grow much (solution: make it bigger). Dartmouth is making noises about maybe following suit. All of this is to the good. While I think too many people in general go to college, I do think the corpus of Americans studying at top institutions is substantially larger than the enrollment of the Ivy League, and the growth in supply at quality top-notch institutions is good news.
Success in most endeavors comes by getting bigger --selling more and better mousetraps, for example. America's peculiar institution, higher education, is different: success comes in turning customers away. The more students a school rejects, the higher the likely ranking of the school, the academy's equivalent of a bottom line.
But the real job of colleges is to educate --hopefully to educate well, and hopefully to educate a meaningful portion of the American population. Supply rigidities --selective admissions -- have aggravated the tuition inflation in the long run because as demand for colleges has risen, supply has not moved up as much in order to relieve the price increases and enhance enrollment. When the price of wheat soars (as it is doing now), farmers plant more wheat. When the price of college soars, colleges do little on the supply side --at least the prestigious colleges into which many of our best and brightest students aim to achieve.
As more elite schools get obscenely rich, with more than one million dollars of endowment wealth per student, they literally have trouble spending all of the money they extract from students in the form of high tuition, from rich alums, or from the $50,000 or so annual endowment income per student.
A couple of years ago, Princeton did something novel --it said it was going to let enrollments rise a bit. Make a Princeton education available to more students. Now, motivated by guilt, shame or maybe a sense of obligation, several other schools are following suit, include Yale. Harvard claims its campus is too small to grow much (solution: make it bigger). Dartmouth is making noises about maybe following suit. All of this is to the good. While I think too many people in general go to college, I do think the corpus of Americans studying at top institutions is substantially larger than the enrollment of the Ivy League, and the growth in supply at quality top-notch institutions is good news.
Are Texans Smart?
By Richard Vedder
I have long been struck by how the Bush Administration believes most great ideas in education emanate from Texas. Of course the Prez is Texan, and many of his key White House advisers came from Texas. The Department of Education is run by two Texans --Margaret Spellings and Sara Martinez Tucker. The chair of the Spellings Commission, Charles Miller, is from Texas. Occasionally I try to suggest to one of these individuals that some good ideas come from outside the Lone Star State, usually with only grudging acceptance that I might be right. Texans think they are pretty cool.
Yet, sometimes the evidence supports this self-confidence. Texas A & M University is doing something next summer that I have advocated for years --drastically reducing summer school tuition. The marginal cost of using university buildings 12 months a year instead of 9 or 10 is very low, and salaries paid for summer school instructors are usually far lower, on a per course basis, than those prevailing during the regular year. In the long run, having more students attend summer school can save enormous amounts of resources --not only university resources, but also those the students themselves. By graduating in three years instead of four, or at least four years instead of five, students gain another year of gainful employment, becoming greater net contributors to society rather than net users of society's resources.
Using price mechanisms to more efficiently utilize resources can be extended further. Classrooms are usually empty on Friday, Saturday and Sunday. Perhaps peak load pricing should be used --the history department has to pay rent on classrooms used on Monday through Thursdays from 9 a.m. to 4 p.m., but no rent for use of those rooms early in the morning, late in the afternoon or in the evenings, or on Fridays and Saturdays. Students taking courses in low demand that cost relatively little to teach (medieval history, for example), maybe should pay lower tuition than courses that are more expensive to teach (finance, for example) and for which demand is relatively high. Prices should be slashed on unpopular dormitory rooms but raised on those much in demand. Professors should be given spending accounts from which they pay for travel, supplies, phone calls, etc. Professors demanding especially nice offices maybe should have to pay rent for the space, chargeable to the spending accounts. Maybe some professors will have to choose between having a luxurious office, parking next to the office, or being able to take a trip or two each year.
I also read (thanks to Whiz Kid Jim Coleman) that Kentucky has some good ideas too. It is trying to lure adult college dropouts back to finish their degrees, offering to reduce the hassle of returning to school after a prolonged absence. While this could be a boondoggle, conceptually it is a decent approach at minimizing the dropout rate (my enthusiasm for the idea is reduced however by the fact that, deep down, I believe college attendance is above, not below, the optimal level, and that many dropping out did not belong in college in the first place).
I have long been struck by how the Bush Administration believes most great ideas in education emanate from Texas. Of course the Prez is Texan, and many of his key White House advisers came from Texas. The Department of Education is run by two Texans --Margaret Spellings and Sara Martinez Tucker. The chair of the Spellings Commission, Charles Miller, is from Texas. Occasionally I try to suggest to one of these individuals that some good ideas come from outside the Lone Star State, usually with only grudging acceptance that I might be right. Texans think they are pretty cool.
Yet, sometimes the evidence supports this self-confidence. Texas A & M University is doing something next summer that I have advocated for years --drastically reducing summer school tuition. The marginal cost of using university buildings 12 months a year instead of 9 or 10 is very low, and salaries paid for summer school instructors are usually far lower, on a per course basis, than those prevailing during the regular year. In the long run, having more students attend summer school can save enormous amounts of resources --not only university resources, but also those the students themselves. By graduating in three years instead of four, or at least four years instead of five, students gain another year of gainful employment, becoming greater net contributors to society rather than net users of society's resources.
Using price mechanisms to more efficiently utilize resources can be extended further. Classrooms are usually empty on Friday, Saturday and Sunday. Perhaps peak load pricing should be used --the history department has to pay rent on classrooms used on Monday through Thursdays from 9 a.m. to 4 p.m., but no rent for use of those rooms early in the morning, late in the afternoon or in the evenings, or on Fridays and Saturdays. Students taking courses in low demand that cost relatively little to teach (medieval history, for example), maybe should pay lower tuition than courses that are more expensive to teach (finance, for example) and for which demand is relatively high. Prices should be slashed on unpopular dormitory rooms but raised on those much in demand. Professors should be given spending accounts from which they pay for travel, supplies, phone calls, etc. Professors demanding especially nice offices maybe should have to pay rent for the space, chargeable to the spending accounts. Maybe some professors will have to choose between having a luxurious office, parking next to the office, or being able to take a trip or two each year.
I also read (thanks to Whiz Kid Jim Coleman) that Kentucky has some good ideas too. It is trying to lure adult college dropouts back to finish their degrees, offering to reduce the hassle of returning to school after a prolonged absence. While this could be a boondoggle, conceptually it is a decent approach at minimizing the dropout rate (my enthusiasm for the idea is reduced however by the fact that, deep down, I believe college attendance is above, not below, the optimal level, and that many dropping out did not belong in college in the first place).
Monday, November 26, 2007
A Tuition Bubble? Part 1 of 4
By Andrew Gillen
This is the first in a four part series that will explore the similarities between the housing bubble and rapidly increasing tuition. A study that explores these issues in greater detail will be available at the conclusion of the series.
What Happened in the Housing Market
Before we can start comparing the housing bubble to the increases in tuition, we first need to establish how the housing bubble occurred.
In the wake of the 9/11 attacks, the Fed lowered interest rates to stave off a recession. One of the impacts was to lower the rate that banks charge for home mortgage loans. At a lower interest rate, people can take out larger loans (assuming a fixed income). With more people qualifying for larger loans, the demand for housing increased, which naturally led to an increase in housing prices.
At the same time, a trend called securitization was taking off. In the old days, when a bank made a loan, the loan would be kept on the bank’s books. If the borrower defaulted, the bank would lose money. This helped ensure that banks tried to make only loans that they were confident could be paid back. With securitization however, this was no longer the case. Now when a bank made a loan, it would sell it to investors who typically bought packages of these loans called collateralized debt obligations (CDOs). This allows for investors to have a lower overall exposure to risk since holding multiple loans lessens the impact from any one of them defaulting. While doing a wonderful job of spreading risk, securitization leads to a principal agent problem between the banks and the investors. Because the banks will no longer shoulder the costs of a bad loan, they don't have an incentive to make sure that the loans they make are likely to be paid back. As a result, the banks lowered their lending standards.
Between the low interest rates and the lack of lending standards, people making very little money were qualifying for enormous loans. This increased the demand for houses which in turn lead to increases in prices. The increasing prices then attracted speculators who sought to make a fortune flipping houses, which drove up demand and prices even more.
Everybody was happy until the Fed increased interest rates. This led to an increase in the payments on variable rate loans. Some borrowers, especially in the sub-prime category, were unable to meet these higher payments, and started to default on their loans. The investors, who were expecting payments from all these loans, started to realize that many of the loans that they held were not worth much, and stopped buying mortgages from the banks. The banks, unable to offload bad loans on investors anymore, quickly re-established rational lending standards. With fewer people qualifying for loans, the demand for housing dropped, leading to lower prices, which in turn scared off the speculators, which led to even lower prices as demand from them subsided as well.
While the relative contribution to the housing bubble of each of these three factors (low interest rates, a lack of lending standards, and speculation) will no doubt be debated for years to come, CCAP has noticed some troubling parallels when it comes to tuition.
Coming Wednesday: Similarities in Higher Education
This is the first in a four part series that will explore the similarities between the housing bubble and rapidly increasing tuition. A study that explores these issues in greater detail will be available at the conclusion of the series.
What Happened in the Housing Market
Before we can start comparing the housing bubble to the increases in tuition, we first need to establish how the housing bubble occurred.
In the wake of the 9/11 attacks, the Fed lowered interest rates to stave off a recession. One of the impacts was to lower the rate that banks charge for home mortgage loans. At a lower interest rate, people can take out larger loans (assuming a fixed income). With more people qualifying for larger loans, the demand for housing increased, which naturally led to an increase in housing prices.
At the same time, a trend called securitization was taking off. In the old days, when a bank made a loan, the loan would be kept on the bank’s books. If the borrower defaulted, the bank would lose money. This helped ensure that banks tried to make only loans that they were confident could be paid back. With securitization however, this was no longer the case. Now when a bank made a loan, it would sell it to investors who typically bought packages of these loans called collateralized debt obligations (CDOs). This allows for investors to have a lower overall exposure to risk since holding multiple loans lessens the impact from any one of them defaulting. While doing a wonderful job of spreading risk, securitization leads to a principal agent problem between the banks and the investors. Because the banks will no longer shoulder the costs of a bad loan, they don't have an incentive to make sure that the loans they make are likely to be paid back. As a result, the banks lowered their lending standards.
Between the low interest rates and the lack of lending standards, people making very little money were qualifying for enormous loans. This increased the demand for houses which in turn lead to increases in prices. The increasing prices then attracted speculators who sought to make a fortune flipping houses, which drove up demand and prices even more.
Everybody was happy until the Fed increased interest rates. This led to an increase in the payments on variable rate loans. Some borrowers, especially in the sub-prime category, were unable to meet these higher payments, and started to default on their loans. The investors, who were expecting payments from all these loans, started to realize that many of the loans that they held were not worth much, and stopped buying mortgages from the banks. The banks, unable to offload bad loans on investors anymore, quickly re-established rational lending standards. With fewer people qualifying for loans, the demand for housing dropped, leading to lower prices, which in turn scared off the speculators, which led to even lower prices as demand from them subsided as well.
While the relative contribution to the housing bubble of each of these three factors (low interest rates, a lack of lending standards, and speculation) will no doubt be debated for years to come, CCAP has noticed some troubling parallels when it comes to tuition.
Coming Wednesday: Similarities in Higher Education
Sunday, November 25, 2007
Shrewd Investment Strategy, or Reckless Gambling?
By Richard Vedder
The lead story in Sunday's Columbus Dispatch was about growing concern among leading politicians and others over the large hedge fund investments of Ohio's public universities. Ohio State, Miami, and Ohio University all have invested roughly 15 percent of available funds (mostly endowments) in hedge funds, investments unregulated by federal authorities, where investors often do not even know specifically where their funds are invested. Is it appropriate for institutions serving the public good to have "secret" investments not know even to the institution's financial officers?
Everyone agrees these are risky investments, but they also have yielded very high rates of return over the past decade. Should universities be making these kinds of risky investments? The argument for doing so is that, if endowments are large, investing in a number of these funds simultaneously has acceptable risks but the potential for big returns --and the evidence of the last decade seems to support that argument. If a university invests equally in 10 hedge funds, two of which fail but three of which have huge returns, the aggregate combined returns on the 10 funds probably will be pretty good; if a university had invested in only one of those funds, however, there is a 20 percent chance that the investment would turn out disastrously --an unacceptable risk. By big diversification into many such funds, risks are minimized --or so it is argued. Since minimum hedge fund investments are usually fairly substantial, only those with fairly big endowments --perhaps $100-200 million or more can safely even consider these investments.
Yet I am still somewhat skeptical of investing in highly risky ventures. As the crash of several private equity markets offerings and big problems with sub-prime lending (both areas where hedge funds invest heavily) attest, the past stellar earnings record may not be emulated in the future. While it is true Harvard, Yale and Princeton can afford to take a $100 or $200 million investment loss from the crash of a fund, smaller schools (like my own Ohio University) that depend heavily on endowment funds to augment very tight budgets could face severe adverse consequences if hedge fund valuations turn south. The notion that hedge funds are protection against falling equity markets strikes me as a dubious argument and an excuse for reckless use of monies designed to augment educational services.
As publicity grows on the great returns that the big schools are getting on hedge fund investments, I fear lots of smaller, less wealthy institutions (such as my own Ohio University) are moving into them in a big way --just as the returns on them are on the verge of crashing. Harvard spends only 3 or 3.5 percent a year of its endowment principle on operating funds, and apparently feels it can gamble some funds because its wealth is so great that even with a big endowment loss it still could maintain current payouts from endowment. But most universities are not in that position. As we review federal tax policy towards universities, a review of investment policy from endowments is very much in order.
The lead story in Sunday's Columbus Dispatch was about growing concern among leading politicians and others over the large hedge fund investments of Ohio's public universities. Ohio State, Miami, and Ohio University all have invested roughly 15 percent of available funds (mostly endowments) in hedge funds, investments unregulated by federal authorities, where investors often do not even know specifically where their funds are invested. Is it appropriate for institutions serving the public good to have "secret" investments not know even to the institution's financial officers?
Everyone agrees these are risky investments, but they also have yielded very high rates of return over the past decade. Should universities be making these kinds of risky investments? The argument for doing so is that, if endowments are large, investing in a number of these funds simultaneously has acceptable risks but the potential for big returns --and the evidence of the last decade seems to support that argument. If a university invests equally in 10 hedge funds, two of which fail but three of which have huge returns, the aggregate combined returns on the 10 funds probably will be pretty good; if a university had invested in only one of those funds, however, there is a 20 percent chance that the investment would turn out disastrously --an unacceptable risk. By big diversification into many such funds, risks are minimized --or so it is argued. Since minimum hedge fund investments are usually fairly substantial, only those with fairly big endowments --perhaps $100-200 million or more can safely even consider these investments.
Yet I am still somewhat skeptical of investing in highly risky ventures. As the crash of several private equity markets offerings and big problems with sub-prime lending (both areas where hedge funds invest heavily) attest, the past stellar earnings record may not be emulated in the future. While it is true Harvard, Yale and Princeton can afford to take a $100 or $200 million investment loss from the crash of a fund, smaller schools (like my own Ohio University) that depend heavily on endowment funds to augment very tight budgets could face severe adverse consequences if hedge fund valuations turn south. The notion that hedge funds are protection against falling equity markets strikes me as a dubious argument and an excuse for reckless use of monies designed to augment educational services.
As publicity grows on the great returns that the big schools are getting on hedge fund investments, I fear lots of smaller, less wealthy institutions (such as my own Ohio University) are moving into them in a big way --just as the returns on them are on the verge of crashing. Harvard spends only 3 or 3.5 percent a year of its endowment principle on operating funds, and apparently feels it can gamble some funds because its wealth is so great that even with a big endowment loss it still could maintain current payouts from endowment. But most universities are not in that position. As we review federal tax policy towards universities, a review of investment policy from endowments is very much in order.
Tuesday, November 20, 2007
The World, as We Know It, Has Ended
By Richard Vedder
The war between the academic rent-seekers intensifies. Leaks to INSIDE HIGHER ED are occurring (horrors of horrors!!!). Thank God poison gas is outlawed by the Geneva Convention!! There are those who are worried that the calls for accountability and performance standards may actually be heeded!!! The world as we know it is ending!! We are going to move beyond talk into action --and that cannot be permitted!!! The American Council of Learned Societies is in a tizzy. I suspect David Ward ("Ward of the State") of the American Council of Education wished his retirement had already started. I must admit, however, that I am rather enjoying the spectacle of in-fighting within the academy.
I am referring, above, of course, to the nasty battles breaking out lately --sometimes between colleges and accreditors, but in today's discussion, it is a different group at war with one another. Two remarkable women whom I count as friends are Judith Eaton and Carol Geary Schneider, heads of CHEA and AAC&U respectively, both major higher education organizations. They have been working together to implement, in a responsible manner, some accountability standards, picking up on the growing public insistence, first strongly manifested in the Spellings Commission report, that colleges provide useful information of what they do. This information is needed by policymakers but especially by parents and students. People want some notion of how learning and other goals are being met --what are the kids learning? Are they better citizens leaving than when they arrived at college? These leaders are smart enough to know that the usual collegiate approach of "just say no" and have high paid lobbyists tough it out may not work this time --Congress might just impose some nasty mandates. To prevent that, Carol and Judith have been working on an accountability project that, rhetorically at least, has great promise.
Of course, the devil is in the details. I am very worried that before the accountability document is agreed to by the major university players, big time watering down will occur. Any semblance of testing will go, precise and clear standards will give way to mush, etc. The Establishment that leaked the latest AAAC&U/CHEA document to the press will successfully tame leaders like Carol and Judith into submission. But the Establishment is dealing with two savvy, street smart gals, hopefully with Margaret Thatcher-like attributes, fighting for what is right.
These are interesting times. But are they the best of times or the worst of times? Time will tell. In any case, the rhetorical war is rising --my recent CCAP study got 20 comments after hitting the Chronicle, for example. Don't say that the Higher Education community hasn't been warned that society is serious in demanding more from them in the way of tangible evidence on how they are performing. And never forget that the society that confers all sorts of privileges and benefits on higher education can also take them away.
The war between the academic rent-seekers intensifies. Leaks to INSIDE HIGHER ED are occurring (horrors of horrors!!!). Thank God poison gas is outlawed by the Geneva Convention!! There are those who are worried that the calls for accountability and performance standards may actually be heeded!!! The world as we know it is ending!! We are going to move beyond talk into action --and that cannot be permitted!!! The American Council of Learned Societies is in a tizzy. I suspect David Ward ("Ward of the State") of the American Council of Education wished his retirement had already started. I must admit, however, that I am rather enjoying the spectacle of in-fighting within the academy.
I am referring, above, of course, to the nasty battles breaking out lately --sometimes between colleges and accreditors, but in today's discussion, it is a different group at war with one another. Two remarkable women whom I count as friends are Judith Eaton and Carol Geary Schneider, heads of CHEA and AAC&U respectively, both major higher education organizations. They have been working together to implement, in a responsible manner, some accountability standards, picking up on the growing public insistence, first strongly manifested in the Spellings Commission report, that colleges provide useful information of what they do. This information is needed by policymakers but especially by parents and students. People want some notion of how learning and other goals are being met --what are the kids learning? Are they better citizens leaving than when they arrived at college? These leaders are smart enough to know that the usual collegiate approach of "just say no" and have high paid lobbyists tough it out may not work this time --Congress might just impose some nasty mandates. To prevent that, Carol and Judith have been working on an accountability project that, rhetorically at least, has great promise.
Of course, the devil is in the details. I am very worried that before the accountability document is agreed to by the major university players, big time watering down will occur. Any semblance of testing will go, precise and clear standards will give way to mush, etc. The Establishment that leaked the latest AAAC&U/CHEA document to the press will successfully tame leaders like Carol and Judith into submission. But the Establishment is dealing with two savvy, street smart gals, hopefully with Margaret Thatcher-like attributes, fighting for what is right.
These are interesting times. But are they the best of times or the worst of times? Time will tell. In any case, the rhetorical war is rising --my recent CCAP study got 20 comments after hitting the Chronicle, for example. Don't say that the Higher Education community hasn't been warned that society is serious in demanding more from them in the way of tangible evidence on how they are performing. And never forget that the society that confers all sorts of privileges and benefits on higher education can also take them away.
Monday, November 19, 2007
Let the Sun Shine in--A Bit
Why isn't anyone reading the House Higher Education Act reauthorization bill closely enough? Oh, that's right: Its 700+ pages long. Well, for those following the great endowment debate, here's a cliff notes hint--check out page 658. Congressman John Tierney (D-MA) who has worked for many years to try to make college more affordable, has quietly inserted a section titled "Endowment Report" that could have real consequences for the longstanding practice of higher education endowment hoarding. The section calls on the Secretary of Education to "conduct a study on the amounts, uses, and public purposes of the endowments of institutions of higher education." The study will look not just at endowment size and the last decade of growth, but at the amount of payout and purposes to which those expenditures have gone. The report will be due a year from the day of the bill's reauthorization.
Lynne Munson
Lynne Munson
The War Between the Rent Seekers Continues
By Richard Vedder
Who should take the lead role in evaluating whether universities are performing their mission, or, better yet, the missions that society expects them to perform? The schools themselves? The U.S. Department of Education? Regional accreditation agencies? State and local governments and oversight agencies, such as Boards of Regents?
At least the question is being asked, and in a messy way, probably will be answered in the next few months or years. The fact that we are even talking about performance standards is a step forward, one heavily promoted by the Spellings Commission. Are colleges succeeding or failing in meeting their mission? Who knows? We do little to measure "value added" during the college years.
Enter the U.S. Department of Education. Impatient with what they view as lax, overly chummy accreditation standards, the Department moved last spring to set tough standards for the accreditors themselves. Both the accreditors and various establishment college organizations yelled foul, ran to their favorite congressmen and congresswomen, and blocked the Department's move.
As the Higher Education Act reauthorization proceeded, the college lobbyists managed, to the chagrin of many (including myself), to put the performance assessment matter squarely in the hands of colleges themselves. The accreditors watched, somewhat dismayed, and finally did something about it, getting a last minute change in the legislation when the college lobbyists were apparently having their Gucci shoes shined. It was a vintage, classic back door political machination of the type that at times make me wonder if I would rather be governed by the first 535 names in, say, the Paris telephone directory than the Congress of the United States. The new House standard gives considerable power to the accrediting organizations, who are now at something of a war with college groups like the American Council of Education.
My view? Primary evaluation of colleges should be done by outsiders. Consumer Reports rates car companies; Underwriter Laboratories evaluates the safety of electrical equipment. Respected, outside agencies do the job. I have some reservations about the accreditors doing the job, since they tend to be very cozy with the colleges, who provide most of the staffing used in evaluations. There has been little substantive move to clear "value added" measures required under the watch of accreditors. However, I understand some of the reluctance to turn things over to the Educrats on Maryland Avenue (U.S. Department of Education). Why not compromise --and turn it over to everyone --have mountains of data published on college performance that any enterprising entrepreneur (e.g., US News & World Report, J.D. Powers and Associates) could bundle into easy to understand aggregate measures of performance which are then sold or given away to the general public? Just a thought.
Who should take the lead role in evaluating whether universities are performing their mission, or, better yet, the missions that society expects them to perform? The schools themselves? The U.S. Department of Education? Regional accreditation agencies? State and local governments and oversight agencies, such as Boards of Regents?
At least the question is being asked, and in a messy way, probably will be answered in the next few months or years. The fact that we are even talking about performance standards is a step forward, one heavily promoted by the Spellings Commission. Are colleges succeeding or failing in meeting their mission? Who knows? We do little to measure "value added" during the college years.
Enter the U.S. Department of Education. Impatient with what they view as lax, overly chummy accreditation standards, the Department moved last spring to set tough standards for the accreditors themselves. Both the accreditors and various establishment college organizations yelled foul, ran to their favorite congressmen and congresswomen, and blocked the Department's move.
As the Higher Education Act reauthorization proceeded, the college lobbyists managed, to the chagrin of many (including myself), to put the performance assessment matter squarely in the hands of colleges themselves. The accreditors watched, somewhat dismayed, and finally did something about it, getting a last minute change in the legislation when the college lobbyists were apparently having their Gucci shoes shined. It was a vintage, classic back door political machination of the type that at times make me wonder if I would rather be governed by the first 535 names in, say, the Paris telephone directory than the Congress of the United States. The new House standard gives considerable power to the accrediting organizations, who are now at something of a war with college groups like the American Council of Education.
My view? Primary evaluation of colleges should be done by outsiders. Consumer Reports rates car companies; Underwriter Laboratories evaluates the safety of electrical equipment. Respected, outside agencies do the job. I have some reservations about the accreditors doing the job, since they tend to be very cozy with the colleges, who provide most of the staffing used in evaluations. There has been little substantive move to clear "value added" measures required under the watch of accreditors. However, I understand some of the reluctance to turn things over to the Educrats on Maryland Avenue (U.S. Department of Education). Why not compromise --and turn it over to everyone --have mountains of data published on college performance that any enterprising entrepreneur (e.g., US News & World Report, J.D. Powers and Associates) could bundle into easy to understand aggregate measures of performance which are then sold or given away to the general public? Just a thought.
Stirring the Pot
By Richard Vedder
Reading INSIDE HIGHER EDUCATION today, I learn that the higher education community is going to be "infuriated" with a study that CCAP just released that I have written entitled Over Invested and Over Priced: American Higher Education Today. That reflects a basic problem with higher education: they get mad a lot --especially when one critically assesses any activity that they undertake. This anger probably reflects the fact that the very freedom of expression that our system of higher education is designed to protect leads sometimes to unrestrained ad hominem gestures that are unrelated to facts or interpretations of empirical evidence.
I was delighted, however, that Jim Garland came to my defense, stating that people are really unhappy with the evidence as I present it, and that I am viewing the issue of higher education the way academics should view it --by looking at evidence, evaluating the costs and benefits of decisions, etc. Jim himself is a distinguished scientist who served with great distinction as the president of one of America's great public universities, Miami of Ohio. I appreciate the support. Ironically, in this paper, I do not present a whole lot of evidence, but rather outline a series of stylized facts that work to increase college costs, lead to some malinvestments, etc. We at CCAP are planning to release more studies, generally full of facts and figures. We are not out to hurt higher education, but rather to tell the truth about it and help it improve over time.
Reading INSIDE HIGHER EDUCATION today, I learn that the higher education community is going to be "infuriated" with a study that CCAP just released that I have written entitled Over Invested and Over Priced: American Higher Education Today. That reflects a basic problem with higher education: they get mad a lot --especially when one critically assesses any activity that they undertake. This anger probably reflects the fact that the very freedom of expression that our system of higher education is designed to protect leads sometimes to unrestrained ad hominem gestures that are unrelated to facts or interpretations of empirical evidence.
I was delighted, however, that Jim Garland came to my defense, stating that people are really unhappy with the evidence as I present it, and that I am viewing the issue of higher education the way academics should view it --by looking at evidence, evaluating the costs and benefits of decisions, etc. Jim himself is a distinguished scientist who served with great distinction as the president of one of America's great public universities, Miami of Ohio. I appreciate the support. Ironically, in this paper, I do not present a whole lot of evidence, but rather outline a series of stylized facts that work to increase college costs, lead to some malinvestments, etc. We at CCAP are planning to release more studies, generally full of facts and figures. We are not out to hurt higher education, but rather to tell the truth about it and help it improve over time.
Friday, November 16, 2007
Good News on or near the Potomac
By Richard Vedder
It is probably good news when the House Education Committee votes 44 to nothing to move the Higher Education Act along. The colleges are starting to realize that all the high priced lobbyists in the world and personal visits to Congressional offices (the President of my university was in DC yesterday making the rounds) cannot neutralize the anger that Republicans and Democrats equally feel toward colleges for their flagrant disregard for the consumer and how their parochial pursuit of higher rankings seemingly trumps any consideration of costs and efficiency.
The revised higher ed act is imperfect, and I have learned of more imperfections in it from talking to staff for extremely high level Administration officials. For example, while I generally like the Hall of Shame approach with respect to tuition (and strongly oppose overt tuition controls), I think revisions are needed to make it more effective and to reduce the gaming of the system by colleges and universities determined to subvert the will of the people's representatives.
************************
When I served on the Spellings Commission, I kept hearing about the good things that Brit Kirwan was doing at the University of Maryland. I was impressed with Kirwan during his brief tenure at Ohio State, and after reading a story in today's Washington Post my admiration goes up. Kirwan has a far greater appreciation than most academic leaders for the public mood on higher education and the ability of legislators, governors and, ultimately, the general public to reduce or eliminate the privileged position that universities have in our society. Kirwan has dramatically reduced, indeed almost eliminated, budgetary growth, and has kept tuition increases the last couple of years below the general inflation rate. He has increased teaching loads, slashed unnecessary staff, and encouraged innovations in teaching.
Moreover, Kirwan is honest enough to admit he is doing this to win legislative confidence and support --and he is getting it. The Maryland legislature, like that in other states, is reversing earlier cuts in real appropriation levels. Legislators have competing claims on funds, and also taxpayers hate to have the price of government rise through tax increases. Medicaid in particular is a thorny problem, and if it comes to choosing between subsidizing upper middle class kids wanting advanced education in a country club like setting or older citizens needing medical care to stay alive and have a decent quality of life, they will go with the old people all the time (if for no other reason than that most of them vote, unlike college students). Kirwin sees the problem with giving many merit based scholarships (as opposed to need based ones) in an era of rising student debt. In short, he is sensitive to the fact that we have a government of the people, for the people, and by the people, and the people are increasingly skeptical of how universities operate, their arrogance, and their isolation from the real world of real people.
***************
A little farther from the Potomac is Philadelphia. I had some nice things to say yesterday about Peirce College and its president Art Lendo, a friend of mine who has taken an institution offering two year training to a thousand or so students a year and made it into a four year college with nearly triple that enrollment. I got home last night and opened my mail, only to learn that Art has announced he is retiring. Good luck in the future to a person who has been a positive and innovative force in American higher education.
It is probably good news when the House Education Committee votes 44 to nothing to move the Higher Education Act along. The colleges are starting to realize that all the high priced lobbyists in the world and personal visits to Congressional offices (the President of my university was in DC yesterday making the rounds) cannot neutralize the anger that Republicans and Democrats equally feel toward colleges for their flagrant disregard for the consumer and how their parochial pursuit of higher rankings seemingly trumps any consideration of costs and efficiency.
The revised higher ed act is imperfect, and I have learned of more imperfections in it from talking to staff for extremely high level Administration officials. For example, while I generally like the Hall of Shame approach with respect to tuition (and strongly oppose overt tuition controls), I think revisions are needed to make it more effective and to reduce the gaming of the system by colleges and universities determined to subvert the will of the people's representatives.
************************
When I served on the Spellings Commission, I kept hearing about the good things that Brit Kirwan was doing at the University of Maryland. I was impressed with Kirwan during his brief tenure at Ohio State, and after reading a story in today's Washington Post my admiration goes up. Kirwan has a far greater appreciation than most academic leaders for the public mood on higher education and the ability of legislators, governors and, ultimately, the general public to reduce or eliminate the privileged position that universities have in our society. Kirwan has dramatically reduced, indeed almost eliminated, budgetary growth, and has kept tuition increases the last couple of years below the general inflation rate. He has increased teaching loads, slashed unnecessary staff, and encouraged innovations in teaching.
Moreover, Kirwan is honest enough to admit he is doing this to win legislative confidence and support --and he is getting it. The Maryland legislature, like that in other states, is reversing earlier cuts in real appropriation levels. Legislators have competing claims on funds, and also taxpayers hate to have the price of government rise through tax increases. Medicaid in particular is a thorny problem, and if it comes to choosing between subsidizing upper middle class kids wanting advanced education in a country club like setting or older citizens needing medical care to stay alive and have a decent quality of life, they will go with the old people all the time (if for no other reason than that most of them vote, unlike college students). Kirwin sees the problem with giving many merit based scholarships (as opposed to need based ones) in an era of rising student debt. In short, he is sensitive to the fact that we have a government of the people, for the people, and by the people, and the people are increasingly skeptical of how universities operate, their arrogance, and their isolation from the real world of real people.
***************
A little farther from the Potomac is Philadelphia. I had some nice things to say yesterday about Peirce College and its president Art Lendo, a friend of mine who has taken an institution offering two year training to a thousand or so students a year and made it into a four year college with nearly triple that enrollment. I got home last night and opened my mail, only to learn that Art has announced he is retiring. Good luck in the future to a person who has been a positive and innovative force in American higher education.
Thursday, November 15, 2007
Hall of Shame II
By Richard Vedder
I am writing this from a classroom, where I am administering an exam in American Economic History to 46 students of diverse talents (one apparently just won a Marshall Scholarship, one of the most prestigious awards made to undergraduate students). While proctoring the test, I read part of the Higher Education Act reauthorization bill before the U.S. House, namely the parts dealing with shaming colleges which raise fees a lot.
I still like the idea. I would go farther and print the increases in presidential salaries over the last 3 years (including fringes and hidden benefits) along with the large tuition hikes, in order to show that parts of the huge tuition increases are going to line the pockets of institutional leaders.
Yet the bill has a huge number of technical problems, most of them minor, all of them resolvable; and this gets to an essential truth: it is hard to legislate in a way that does not impede on college operations in an overly intrusive way and simultaneously achieve a legitimate policy objective. For example, the definition of "net price" is subject to multiple interpretations. Personally, I would prefer to emphasize sticker prices which are the prices quoted to students before they actually fill out the hated FAFSA form. However, academic units within universities can and do tack on extra fees --how are they to be accounted for? What about schools that raise tuition a little --but room and board charges a lot, requiring students to live in dorms and eat college provided food sold at monopoly prices?(Princeton did that this year).
The bill calls for colleges to provide a lot of good consumer information on an easy to access web site --a great idea in keeping with the spirit if not letter of Spellings Commission recommendations.
I would actually restrict the Hall of Shame more than the House bill does --limit it to the top 10 or at most top 20 percent of schools in each institutional classification, not the top half or so as proposed in the bill. If lots of schools are on the list, targeted institutions feel less conspicuous and less shamed.
One objection to the Hall of Shame is that in some cases poor schools have to increase tuition more than the rich ones. I am dubious of this argument, but Congress could, if it wanted, provide more rigorous standards for endowment-rich schools, say those with endowments exceeding $500,000 per full time equivalent student. Maybe those schools should be on the Hall of Shame list if tuition fees rise more than the CPI plus one percent. My preferred approach would be to phase out tax exemption for schools with both high endowments and high sticker prices. An alternative or additional approach would be to require colleges to spend more out of their endowments, which our friend Lynne Munson has been advocating.
Then there is the brouhaha over accreditation. A last minute revision in the bill allowed accreditors a good deal of power and leeway in the area of performance standards not in the original bill --causing the college reps to be furious. Tough bananas. However, I am not sure I want to turn a lot of power over to the people who have restricted access to higher education and run higher education cartels, but I think performance standards are needed, transparency is required, and, on the whole, the House bill in these areas is moving in the right direction. Stay tuned --I need to tend to my students.
I am writing this from a classroom, where I am administering an exam in American Economic History to 46 students of diverse talents (one apparently just won a Marshall Scholarship, one of the most prestigious awards made to undergraduate students). While proctoring the test, I read part of the Higher Education Act reauthorization bill before the U.S. House, namely the parts dealing with shaming colleges which raise fees a lot.
I still like the idea. I would go farther and print the increases in presidential salaries over the last 3 years (including fringes and hidden benefits) along with the large tuition hikes, in order to show that parts of the huge tuition increases are going to line the pockets of institutional leaders.
Yet the bill has a huge number of technical problems, most of them minor, all of them resolvable; and this gets to an essential truth: it is hard to legislate in a way that does not impede on college operations in an overly intrusive way and simultaneously achieve a legitimate policy objective. For example, the definition of "net price" is subject to multiple interpretations. Personally, I would prefer to emphasize sticker prices which are the prices quoted to students before they actually fill out the hated FAFSA form. However, academic units within universities can and do tack on extra fees --how are they to be accounted for? What about schools that raise tuition a little --but room and board charges a lot, requiring students to live in dorms and eat college provided food sold at monopoly prices?(Princeton did that this year).
The bill calls for colleges to provide a lot of good consumer information on an easy to access web site --a great idea in keeping with the spirit if not letter of Spellings Commission recommendations.
I would actually restrict the Hall of Shame more than the House bill does --limit it to the top 10 or at most top 20 percent of schools in each institutional classification, not the top half or so as proposed in the bill. If lots of schools are on the list, targeted institutions feel less conspicuous and less shamed.
One objection to the Hall of Shame is that in some cases poor schools have to increase tuition more than the rich ones. I am dubious of this argument, but Congress could, if it wanted, provide more rigorous standards for endowment-rich schools, say those with endowments exceeding $500,000 per full time equivalent student. Maybe those schools should be on the Hall of Shame list if tuition fees rise more than the CPI plus one percent. My preferred approach would be to phase out tax exemption for schools with both high endowments and high sticker prices. An alternative or additional approach would be to require colleges to spend more out of their endowments, which our friend Lynne Munson has been advocating.
Then there is the brouhaha over accreditation. A last minute revision in the bill allowed accreditors a good deal of power and leeway in the area of performance standards not in the original bill --causing the college reps to be furious. Tough bananas. However, I am not sure I want to turn a lot of power over to the people who have restricted access to higher education and run higher education cartels, but I think performance standards are needed, transparency is required, and, on the whole, the House bill in these areas is moving in the right direction. Stay tuned --I need to tend to my students.
Inequality Between Universities: Endowments
By Richard Vedder and Thomas G. Ruchti
An interesting phenomenon in the last generation is that the elite private schools have grown far more prosperous than other institutions. It appears that the gap between the "rich" and "poor" schools is growing. For example, average salaries of professors have risen far more in the elite private universities than in the top public ones. Even the average SAT score gap has widened and more of the increasingly wealthy private schools buy the best students regardless of their family economic status.
The same thing appears to be true of college endowments. We took 105 of the highest endowment schools (nearly all of the richest institutions) and calculated a Gini coefficient to measure inequalities in endowment size. A Gini coefficient of 0 would mean perfect equality--all schools had the same endowment. A Gini coefficient of 1 would be perfect inequality--one school had all the money, the other 104 had nothing. With respect to income distributions, a Gini of over .40 usually indicates considerable inequality, while for family wealth distributions, a high Gini would be around .50.
In 1999, the Gini coefficient for this large sample was 0.514 --pretty high (Harvard was dozens of times wealthier than schools like SUNY Buffalo or DePauw). Interestingly, the Gini rose every single year after 1999, reaching .561 in 2005. The gap between the richest and poorest grew very substantially --in a sample where the "poorest" are actually moderately prosperous schools. If all schools were included, the Gini probably would have been much higher --exhibiting vastly greater inequality than we observe in distributions of household wealth.
This has tremendous implications for public policy. We suspect that federal tax and subsidy policies in general have worked to increase inequality. Independent of that, the case for treating Harvard the same as SUNY Buffalo and Bucknell University weakens the greater the disparity between these schools becomes fiscally. As Charlie Rangel pushes the Mother of All Tax Reforms in the House, and Senators Baccus and Grassley contemplate the tax exempt status of universities in the Senate, they might want to ask whether Harvard, with two million dollars of endowment for every student, should be treated the same as schools like the one we are writing this from (Ohio University), with per capita endowments of only one-half of one percent as large.
Richard Vedder directs the Center for College Affordability and Productivity while Thomas G. Ruchti is an undergraduate mathematics major at Ohio University.
An interesting phenomenon in the last generation is that the elite private schools have grown far more prosperous than other institutions. It appears that the gap between the "rich" and "poor" schools is growing. For example, average salaries of professors have risen far more in the elite private universities than in the top public ones. Even the average SAT score gap has widened and more of the increasingly wealthy private schools buy the best students regardless of their family economic status.
The same thing appears to be true of college endowments. We took 105 of the highest endowment schools (nearly all of the richest institutions) and calculated a Gini coefficient to measure inequalities in endowment size. A Gini coefficient of 0 would mean perfect equality--all schools had the same endowment. A Gini coefficient of 1 would be perfect inequality--one school had all the money, the other 104 had nothing. With respect to income distributions, a Gini of over .40 usually indicates considerable inequality, while for family wealth distributions, a high Gini would be around .50.
In 1999, the Gini coefficient for this large sample was 0.514 --pretty high (Harvard was dozens of times wealthier than schools like SUNY Buffalo or DePauw). Interestingly, the Gini rose every single year after 1999, reaching .561 in 2005. The gap between the richest and poorest grew very substantially --in a sample where the "poorest" are actually moderately prosperous schools. If all schools were included, the Gini probably would have been much higher --exhibiting vastly greater inequality than we observe in distributions of household wealth.
This has tremendous implications for public policy. We suspect that federal tax and subsidy policies in general have worked to increase inequality. Independent of that, the case for treating Harvard the same as SUNY Buffalo and Bucknell University weakens the greater the disparity between these schools becomes fiscally. As Charlie Rangel pushes the Mother of All Tax Reforms in the House, and Senators Baccus and Grassley contemplate the tax exempt status of universities in the Senate, they might want to ask whether Harvard, with two million dollars of endowment for every student, should be treated the same as schools like the one we are writing this from (Ohio University), with per capita endowments of only one-half of one percent as large.
Richard Vedder directs the Center for College Affordability and Productivity while Thomas G. Ruchti is an undergraduate mathematics major at Ohio University.
Wednesday, November 14, 2007
Academic Entrepreneurship in Philadelphia
By Richard Vedder
When you think of higher education in Philadelphia, you usually think of the Ivy League school that ranks consistently in the top 10 in the US News & World Report rankings, the University of Pennsylvania. Or maybe the less prestigious but still major schools like Villanova or Temple. But sometimes I think of Peirce College.
Peirce College is a smaller school offering degrees in business and information technology to mostly working class adults. It is on no one's list of great American colleges. It does not cater to a trendy, elitist group of bright teenagers by offering classes with famous professors and a country club setting for recreation. It does not have Nobel Prize winning scientists on its faculty who are importantly expanding the frontiers of our knowledge. But it provides, at a relatively low cost, a decent quality education to many for whom going to college is a challenge. It was into "improved higher education access" long before it became trendy to talk about it at meetings of the academic elite. And it does not just talk about it, it does something about it.
Peirce's long-time president is Arthur Lendo, who has become something of a friend (we bump into each other at seminars for college presidents, etc.). Art is a bit of an academic entrepreneur (he is a professor of management), and he has expanded the school's horizons in multiple ways --becoming a serious player in on-line education, opening new centers away from the old Philadelphia campus, etc. Enrollments are rising briskly (5-6 percent a year), the school, while relatively poor, is fiscally sound and solidly in the black, and it is starting to get more private gifts, although 87 percent of revenues still come from tuition fees. It is a school that will die if it does not satisfy customers, a situation that keeps it on its toes (and which, unfortunately, does not apply to many schools with a rich endowment or state subsidy cushion). The average daily increase in the value of Harvard's endowment last year roughly equalled the total annual operating expenses of Peirce College. However, I will bet you almost any amount of money that -- dollar for dollar -- Peirce got more good from its very modest resources than Harvard did from its vast riches. As Congress considers taxation and other policies relating to universities, they should think about not only Harvard, but also Peirce and other such colleges that are doing more to fulfill the Jeffersonian vision of equal educational opportunity than schools exuding arrogant elitism.
When you think of higher education in Philadelphia, you usually think of the Ivy League school that ranks consistently in the top 10 in the US News & World Report rankings, the University of Pennsylvania. Or maybe the less prestigious but still major schools like Villanova or Temple. But sometimes I think of Peirce College.
Peirce College is a smaller school offering degrees in business and information technology to mostly working class adults. It is on no one's list of great American colleges. It does not cater to a trendy, elitist group of bright teenagers by offering classes with famous professors and a country club setting for recreation. It does not have Nobel Prize winning scientists on its faculty who are importantly expanding the frontiers of our knowledge. But it provides, at a relatively low cost, a decent quality education to many for whom going to college is a challenge. It was into "improved higher education access" long before it became trendy to talk about it at meetings of the academic elite. And it does not just talk about it, it does something about it.
Peirce's long-time president is Arthur Lendo, who has become something of a friend (we bump into each other at seminars for college presidents, etc.). Art is a bit of an academic entrepreneur (he is a professor of management), and he has expanded the school's horizons in multiple ways --becoming a serious player in on-line education, opening new centers away from the old Philadelphia campus, etc. Enrollments are rising briskly (5-6 percent a year), the school, while relatively poor, is fiscally sound and solidly in the black, and it is starting to get more private gifts, although 87 percent of revenues still come from tuition fees. It is a school that will die if it does not satisfy customers, a situation that keeps it on its toes (and which, unfortunately, does not apply to many schools with a rich endowment or state subsidy cushion). The average daily increase in the value of Harvard's endowment last year roughly equalled the total annual operating expenses of Peirce College. However, I will bet you almost any amount of money that -- dollar for dollar -- Peirce got more good from its very modest resources than Harvard did from its vast riches. As Congress considers taxation and other policies relating to universities, they should think about not only Harvard, but also Peirce and other such colleges that are doing more to fulfill the Jeffersonian vision of equal educational opportunity than schools exuding arrogant elitism.
Tuesday, November 13, 2007
Pride and Prejudice at Illinois
By Richard Vedder
One of my alma maters, the University of Illinois, is in the news a lot lately. They are bursting with pride over their football team's defeat of number one Ohio State, rising from the ashes and showing some of the glory that Illinois felt decades ago.
But in another area, they are behaving in an all too predictable fashion. A group of conservatives wants to create a free market think tank, such as exists in dozens of locales in the U.S., a few of them (e.g., the Hoover Institution at Stanford) on university campuses. They are willing to pay for it. They are not trying to strike down the freedom of expression of existing U of I faculty, nor are they trying to crowd out funds going for research on other topics. They just want to have a respectable academic program with a campus presence. Yet the faculty say, "No --we did not approve it! We don't want unbalanced, biased programs.” (This is laughable, as Anne Neal observes, if you look at the syllabi or program descriptions of campus radical/feminist programs that are ideologically prone). The faculty are claiming the moral high ground. To me, this is just another attempt to stifle freedom of expression and stifle true diversity (intellectual diversity). It makes me sad. Today, I am less loyal to you, Illinois. To be sure, there needs to be some oversight to be sure that the program does not become simply an ideological program, but one that uses legitimate research tools to reach conclusions about our society. But with those safeguards in place, the alums should be allowed to proceed. If the university still says "NO," they should start their own program in the shadows of the university, hiring university faculty to work for them on a part-time adjunct basis. And the contributors should partly finance this by reducing their contributions to the U of I because of its intolerance and contempt for diversity.
One of my alma maters, the University of Illinois, is in the news a lot lately. They are bursting with pride over their football team's defeat of number one Ohio State, rising from the ashes and showing some of the glory that Illinois felt decades ago.
But in another area, they are behaving in an all too predictable fashion. A group of conservatives wants to create a free market think tank, such as exists in dozens of locales in the U.S., a few of them (e.g., the Hoover Institution at Stanford) on university campuses. They are willing to pay for it. They are not trying to strike down the freedom of expression of existing U of I faculty, nor are they trying to crowd out funds going for research on other topics. They just want to have a respectable academic program with a campus presence. Yet the faculty say, "No --we did not approve it! We don't want unbalanced, biased programs.” (This is laughable, as Anne Neal observes, if you look at the syllabi or program descriptions of campus radical/feminist programs that are ideologically prone). The faculty are claiming the moral high ground. To me, this is just another attempt to stifle freedom of expression and stifle true diversity (intellectual diversity). It makes me sad. Today, I am less loyal to you, Illinois. To be sure, there needs to be some oversight to be sure that the program does not become simply an ideological program, but one that uses legitimate research tools to reach conclusions about our society. But with those safeguards in place, the alums should be allowed to proceed. If the university still says "NO," they should start their own program in the shadows of the university, hiring university faculty to work for them on a part-time adjunct basis. And the contributors should partly finance this by reducing their contributions to the U of I because of its intolerance and contempt for diversity.
The Hall of Shame
By Richard Vedder
When I read Doug Lederman's excellent story a few days ago about the House bill on the extension of the Higher Education Act, I found several things interesting in it, but deferred writing; after all, the bill is about as long as Gone with The Wind , but probably not half as interesting. I simply am uncomfortable endorsing or attacking something on the basis of a news story alone.
Then two friends of mine who are well known and influential in the higher education policy community called and asked my opinion on the tuition control portions of the bill. Again, after cautioning them that I had not read the actual bill, I said I was in cautious agreement with the spirit of what is being suggested. The Higher Ed Establishment thought the Dems would roll over and capitulate to their entreaties, but they have been proven wrong. The Dems are as angry about the tuition fee explosion as the GOP, maybe even more so. The colleges are facing a bipartisan consensus: something has to be done about tuition increases.
I am strongly against governmental price controls in free markets --but whoever said higher education was a free market, particularly when government itself mightily influences both the demand and supply for higher education services? Moreover, the bill purports to do something that is not overt price controls --it plans to issue a “Hall of Shame” -- a list of schools with a "public be damned" attitude on tuition --schools that persist in raising fees dramatically more than the inflation rate.
I have often thought shaming people is sometimes a more brutal punishment than jailing them or fining them. Holding people up to shame and even ridicule leads to behavioral modification. The question is: do universities have any shame? I am a bit skeptical, but I see zero harm in publicizing those schools that through big tuition increases defy the will of the taxpayers who finance much of their activities. And I see some possible good.
At a time when partisan bickering is the rule in Congress, I have not seen such bipartisan agreement on issues in years as I see today on some higher education matters, in both the House and Senate. As a longtime congressional observer and onetime employee myself, I think university lobbyists who think they can buy their way out of any legislation they don't like might actually be mistaken this time. This is not about "price controls" or "restricting institutional autonomy." This is about making more transparent that some schools choose to ignore the wishes of our elected representatives and the American people. Indeed, this is a good compromise between rigid price controls and doing nothing at all.
When I read Doug Lederman's excellent story a few days ago about the House bill on the extension of the Higher Education Act, I found several things interesting in it, but deferred writing; after all, the bill is about as long as Gone with The Wind , but probably not half as interesting. I simply am uncomfortable endorsing or attacking something on the basis of a news story alone.
Then two friends of mine who are well known and influential in the higher education policy community called and asked my opinion on the tuition control portions of the bill. Again, after cautioning them that I had not read the actual bill, I said I was in cautious agreement with the spirit of what is being suggested. The Higher Ed Establishment thought the Dems would roll over and capitulate to their entreaties, but they have been proven wrong. The Dems are as angry about the tuition fee explosion as the GOP, maybe even more so. The colleges are facing a bipartisan consensus: something has to be done about tuition increases.
I am strongly against governmental price controls in free markets --but whoever said higher education was a free market, particularly when government itself mightily influences both the demand and supply for higher education services? Moreover, the bill purports to do something that is not overt price controls --it plans to issue a “Hall of Shame” -- a list of schools with a "public be damned" attitude on tuition --schools that persist in raising fees dramatically more than the inflation rate.
I have often thought shaming people is sometimes a more brutal punishment than jailing them or fining them. Holding people up to shame and even ridicule leads to behavioral modification. The question is: do universities have any shame? I am a bit skeptical, but I see zero harm in publicizing those schools that through big tuition increases defy the will of the taxpayers who finance much of their activities. And I see some possible good.
At a time when partisan bickering is the rule in Congress, I have not seen such bipartisan agreement on issues in years as I see today on some higher education matters, in both the House and Senate. As a longtime congressional observer and onetime employee myself, I think university lobbyists who think they can buy their way out of any legislation they don't like might actually be mistaken this time. This is not about "price controls" or "restricting institutional autonomy." This is about making more transparent that some schools choose to ignore the wishes of our elected representatives and the American people. Indeed, this is a good compromise between rigid price controls and doing nothing at all.
Creative Destruction and Managerial Incentives in Higher Education
By Richard Vedder
I always rather liked Joseph Schumpeter's term "creative destruction." In competitive market capitalism, firms flourish and become wealthy at the same time others wither and die. Just like the human life cycle, firms are born, grow, decline, and die. The death of firms teaches lessons, and punishes firms that are not meeting consumer wants or failing to reduce costs and achieve the efficiency levels needed for profitability.
The not-for-profit sector is heavily subsidized by third parties, and one effect of that is that institutions seldom die. It was big news when Antioch College announced it was "temporarily" closing its flagship Yellow Springs campus. Antioch is an old school with a venerable tradition, offering progressive education to those wanting something a bit different from that available at most other alternatives. Now the third parties --in this case Antioch alums -- have come through with millions of bucks, and it appears there is a decent chance that the institution will survive.
Antioch pushed a flaky, counter-culture approach to higher education at a time (the 1980s through the present) when students were becoming more conservative and vocational in their orientation. It ignored the country club dimensions of life that students want these days -- the hot tubs, climbing walls, air conditioned dorms, etc. It overextended itself with new campuses across the country, ignoring its major brand identity. In the private for-profit sector, it would pay for it --and die. However, it will likely survive and live another day. I love diversity (true intellectual diversity, not the racist/sexist kind revered by college administrators), so I think there ought to be an “Antioch” around. Nevertheless, I also think that, on balance, probably more colleges should die, and more should be born as well (and that process is currently controlled by a form of academic birth control called accreditation).
****************
Poor performance often escapes adverse consequences in higher education, but apparently good performance is increasingly rewarded. The new Chronicle survey of university presidents shows continued real salary increases of a fairly sizable amount, with median salaries at research universities rising at a compounded annual rate approaching 7 percent a year over the last five years. But how do we know these people are doing a good job? What performance measures do most schools employ in evaluating presidents? At least the football coaches have a win-loss record. As the million dollar president becomes commonplace, I ask: what happens to bad presidents? How do we know a president is worth a million dollars? As we drop more money out of airplanes, the academy is increasingly rewarding itself very well for a performance level generally unknown --and most colleges seem to want to keep it that way. Shame.
I always rather liked Joseph Schumpeter's term "creative destruction." In competitive market capitalism, firms flourish and become wealthy at the same time others wither and die. Just like the human life cycle, firms are born, grow, decline, and die. The death of firms teaches lessons, and punishes firms that are not meeting consumer wants or failing to reduce costs and achieve the efficiency levels needed for profitability.
The not-for-profit sector is heavily subsidized by third parties, and one effect of that is that institutions seldom die. It was big news when Antioch College announced it was "temporarily" closing its flagship Yellow Springs campus. Antioch is an old school with a venerable tradition, offering progressive education to those wanting something a bit different from that available at most other alternatives. Now the third parties --in this case Antioch alums -- have come through with millions of bucks, and it appears there is a decent chance that the institution will survive.
Antioch pushed a flaky, counter-culture approach to higher education at a time (the 1980s through the present) when students were becoming more conservative and vocational in their orientation. It ignored the country club dimensions of life that students want these days -- the hot tubs, climbing walls, air conditioned dorms, etc. It overextended itself with new campuses across the country, ignoring its major brand identity. In the private for-profit sector, it would pay for it --and die. However, it will likely survive and live another day. I love diversity (true intellectual diversity, not the racist/sexist kind revered by college administrators), so I think there ought to be an “Antioch” around. Nevertheless, I also think that, on balance, probably more colleges should die, and more should be born as well (and that process is currently controlled by a form of academic birth control called accreditation).
****************
Poor performance often escapes adverse consequences in higher education, but apparently good performance is increasingly rewarded. The new Chronicle survey of university presidents shows continued real salary increases of a fairly sizable amount, with median salaries at research universities rising at a compounded annual rate approaching 7 percent a year over the last five years. But how do we know these people are doing a good job? What performance measures do most schools employ in evaluating presidents? At least the football coaches have a win-loss record. As the million dollar president becomes commonplace, I ask: what happens to bad presidents? How do we know a president is worth a million dollars? As we drop more money out of airplanes, the academy is increasingly rewarding itself very well for a performance level generally unknown --and most colleges seem to want to keep it that way. Shame.
Monday, November 12, 2007
The College Learning Portrait - Great Leap Forward
By Richard Vedder
I am usually complaining about the University Establishment, the host of organizations in the DuPont Circle vicinity of our nation's capital that seem so often to fight any attempts to improve our higher education system, parochially seeking to maintain some semblance of an unacceptable status quo. However, I am extremely pleased with how two groups, the National Association of State Universities and Land Grant Colleges (NASULGC) and the American Association of State Colleges and Universities (AASCU) have responded to the Spellings Commission call for more performance measures, transparency, and accountability. They deserve kudos.
These groups have just unveiled their "College Learning Portrait," a much debated effort to meet the crying need for better measures of institutional success. It is not perfect, and if I were czar of the higher education system (a frightening thought even to me), I would strengthen some of the reporting requirements; but it is a document that is a product of compromise, and if widely implemented would be a huge step forward. For example, did the University of North Carolina at Chapel Hill have a good year in 2007? Who knows? With the College Learning Portrait, it appears we will have a much better idea. Some big players (e.g., UNC, University of Wisconsin, California State University system) have already agreed to participate. The University of California system has said "no", using the tired old line that institutional autonomy is being violated (which never seems to bother them if there is enough money attached to the mandates imposed).
From news accounts, it appears that the CLP will improve our admittedly somewhat erroneous statistics on student retention and graduation rates. Many kids transfer from one institution to another, which is not taken into account in the current IPEDS statistics of the Department of Education. The CLP will try to give some indication of what students do with their time --requiring schools to use and report results of an instrument such as the National Survey of Student Engagement.
Although as Charles Miller keeps appropriately reminding me, the Nessie test (and other similar ones) does not measure student learning --the alleged purpose of college. The CLP program takes care of that, requiring institutions to significantly sample freshmen and seniors on tests designed to give some indication of learning outcomes --exams prepared by the American College Testing (ACT) folks, the Educational Testing Service (ETS), or the Collegiate Learning Assessment (CLA) --which people tell me is a great test but no one has let me see it so I can be my own judge.
The CLP project is not perfect. It is important that the learning testing be done in a scientifically responsible fashion, with decent sized, random samples of both freshman and seniors to permit some measure of "value added." Samples sizes of fewer than 100, for example, would be suspect. I can understand the universities do not want testing to become too intrusive, but sampling a few hundred students in a random or at least reasonably unbiased fashion on campuses with five digit numbers of undergraduates would not seem overly burdensome and could greatly improve our knowledge of what colleges are doing. That would be a great and important development.
As to the University of California and other schools of the "public be damned" school of thought, I say let us shame them, ostracize them and, most importantly, cut off money to them. How about removing federal tax deductibility to any school that does not administer the CLP? (I can hear private school maven David Warren screaming already, arguing that life as we know it is about ready to end!!). Why don't state legislatures mandate participation of public institutions as a condition for funding? Maybe a bit strong, but it shows that the government has some leverage which it should use. The libertarian side of me (which is a huge side), says that the government should get out of the higher education business altogether, but if it is going to be in the business and use lots of taxpayer resources, some performance requirements are warranted.
I am usually complaining about the University Establishment, the host of organizations in the DuPont Circle vicinity of our nation's capital that seem so often to fight any attempts to improve our higher education system, parochially seeking to maintain some semblance of an unacceptable status quo. However, I am extremely pleased with how two groups, the National Association of State Universities and Land Grant Colleges (NASULGC) and the American Association of State Colleges and Universities (AASCU) have responded to the Spellings Commission call for more performance measures, transparency, and accountability. They deserve kudos.
These groups have just unveiled their "College Learning Portrait," a much debated effort to meet the crying need for better measures of institutional success. It is not perfect, and if I were czar of the higher education system (a frightening thought even to me), I would strengthen some of the reporting requirements; but it is a document that is a product of compromise, and if widely implemented would be a huge step forward. For example, did the University of North Carolina at Chapel Hill have a good year in 2007? Who knows? With the College Learning Portrait, it appears we will have a much better idea. Some big players (e.g., UNC, University of Wisconsin, California State University system) have already agreed to participate. The University of California system has said "no", using the tired old line that institutional autonomy is being violated (which never seems to bother them if there is enough money attached to the mandates imposed).
From news accounts, it appears that the CLP will improve our admittedly somewhat erroneous statistics on student retention and graduation rates. Many kids transfer from one institution to another, which is not taken into account in the current IPEDS statistics of the Department of Education. The CLP will try to give some indication of what students do with their time --requiring schools to use and report results of an instrument such as the National Survey of Student Engagement.
Although as Charles Miller keeps appropriately reminding me, the Nessie test (and other similar ones) does not measure student learning --the alleged purpose of college. The CLP program takes care of that, requiring institutions to significantly sample freshmen and seniors on tests designed to give some indication of learning outcomes --exams prepared by the American College Testing (ACT) folks, the Educational Testing Service (ETS), or the Collegiate Learning Assessment (CLA) --which people tell me is a great test but no one has let me see it so I can be my own judge.
The CLP project is not perfect. It is important that the learning testing be done in a scientifically responsible fashion, with decent sized, random samples of both freshman and seniors to permit some measure of "value added." Samples sizes of fewer than 100, for example, would be suspect. I can understand the universities do not want testing to become too intrusive, but sampling a few hundred students in a random or at least reasonably unbiased fashion on campuses with five digit numbers of undergraduates would not seem overly burdensome and could greatly improve our knowledge of what colleges are doing. That would be a great and important development.
As to the University of California and other schools of the "public be damned" school of thought, I say let us shame them, ostracize them and, most importantly, cut off money to them. How about removing federal tax deductibility to any school that does not administer the CLP? (I can hear private school maven David Warren screaming already, arguing that life as we know it is about ready to end!!). Why don't state legislatures mandate participation of public institutions as a condition for funding? Maybe a bit strong, but it shows that the government has some leverage which it should use. The libertarian side of me (which is a huge side), says that the government should get out of the higher education business altogether, but if it is going to be in the business and use lots of taxpayer resources, some performance requirements are warranted.
Thursday, November 08, 2007
Some Progress Is Being Made
By Richard Vedder
I am alternatively pessimistic and optimistic about American higher education. This week, however, there has been some good news. More institutions are starting to go tuition free for a larger number of lower and even middle income applicants, even elite secondary schools like Exeter. But the really great news was that over 250 schools allowed USA Today to publish the results for their schools on the National Survey of Student Engagement --Nessie to higher education junkies.
I am turning the Whiz Kids loose on the Nessie data. We are trying to find out if student engagement varies with institutional type, or whether institutions with more engaged students have other common characteristics (in short, we are running tons of regression equations). It is too early to predict the final results, but the fact that more schools are willing to let the world know something about their students and how they use their time in college is reassuring. To be sure, for every school letting USA Today do this, there were three that did not. They need to be harassed, pressured, ostracized, until they come clean. And some other schools need to start using the Nessie instrument.
The Nessie is not a perfect test --I don't know if one exists. It has its limitations --it does not really measure learning, for example. But it gives us some perspective on how students perceive the challenges of college, whether they feel neglected or embraced, etc. That is useful information to consumers, and USA Today, Nessie, and participating colleges are to be congratulated.
I am alternatively pessimistic and optimistic about American higher education. This week, however, there has been some good news. More institutions are starting to go tuition free for a larger number of lower and even middle income applicants, even elite secondary schools like Exeter. But the really great news was that over 250 schools allowed USA Today to publish the results for their schools on the National Survey of Student Engagement --Nessie to higher education junkies.
I am turning the Whiz Kids loose on the Nessie data. We are trying to find out if student engagement varies with institutional type, or whether institutions with more engaged students have other common characteristics (in short, we are running tons of regression equations). It is too early to predict the final results, but the fact that more schools are willing to let the world know something about their students and how they use their time in college is reassuring. To be sure, for every school letting USA Today do this, there were three that did not. They need to be harassed, pressured, ostracized, until they come clean. And some other schools need to start using the Nessie instrument.
The Nessie is not a perfect test --I don't know if one exists. It has its limitations --it does not really measure learning, for example. But it gives us some perspective on how students perceive the challenges of college, whether they feel neglected or embraced, etc. That is useful information to consumers, and USA Today, Nessie, and participating colleges are to be congratulated.
Daniel Searle
By Richard Vedder
As I write this, the funeral for Daniel Searle is about to take place in Florida. Dan was a wonderful man, a person who contributed a lot to higher education and to me personally. Dan was for many years the CEO of Searle Pharmaceuticals, a company that invented many great products, ranging from The Pill to NutraSweet. A Yale graduate, Dan was nonetheless a loyal supporter of my alma mater, Northwestern University, being a major benefactor and a long time Trustee.
CCAP would not exist if it were not for Dan Searle. My last three books (including the one I am working on now) for the American Enterprise Institute would not have been written if it were not for Dan Searle. He has provided me the resources to explore issues not only in higher education, but in other fields as well (e.g., retail trade, income growth and distribution).
Dan wanted to make society a better place. Increasingly, he wanted to make a difference by directing resources to do the kinds of research that often do not get done in universities. His provision for the Searle Freedom Trust and his support of AEI, for example, are commitments to research designed to promote both better and freer lives, free from oppression and interference by the state. In spite of poor health, Dan was vigorously active in managing his philanthropic activities.
There is a broader point here, one I have made before. Universities are one way to expand the frontiers of knowledge, but they are not the only way. Much university "research" is costly explorations of exceedingly marginal value by faculty members who research what they are interested in, not what would benefit society. Much of this research is done to achieve job security or promotion, not expand our scholarly knowledge. Some of it is ideological political correctness. To be sure, much good research goes on at universities as well, but as in everything else, competition is good, and Dan has helped fund some non-university approaches to the gathering and dissemination of knowledge. Universities have a distinct left-wing, anti-capitalist orientation, and Dan's gifts have helped balance that, by circumventing the academy to fund research that appreciates the benefits and advantages of competitive free market capitalism.
I thank Dan Searle personally for enriching my life these last several years. Thank him also for his good works and generosity, giving back to society more than he took from it.
As I write this, the funeral for Daniel Searle is about to take place in Florida. Dan was a wonderful man, a person who contributed a lot to higher education and to me personally. Dan was for many years the CEO of Searle Pharmaceuticals, a company that invented many great products, ranging from The Pill to NutraSweet. A Yale graduate, Dan was nonetheless a loyal supporter of my alma mater, Northwestern University, being a major benefactor and a long time Trustee.
CCAP would not exist if it were not for Dan Searle. My last three books (including the one I am working on now) for the American Enterprise Institute would not have been written if it were not for Dan Searle. He has provided me the resources to explore issues not only in higher education, but in other fields as well (e.g., retail trade, income growth and distribution).
Dan wanted to make society a better place. Increasingly, he wanted to make a difference by directing resources to do the kinds of research that often do not get done in universities. His provision for the Searle Freedom Trust and his support of AEI, for example, are commitments to research designed to promote both better and freer lives, free from oppression and interference by the state. In spite of poor health, Dan was vigorously active in managing his philanthropic activities.
There is a broader point here, one I have made before. Universities are one way to expand the frontiers of knowledge, but they are not the only way. Much university "research" is costly explorations of exceedingly marginal value by faculty members who research what they are interested in, not what would benefit society. Much of this research is done to achieve job security or promotion, not expand our scholarly knowledge. Some of it is ideological political correctness. To be sure, much good research goes on at universities as well, but as in everything else, competition is good, and Dan has helped fund some non-university approaches to the gathering and dissemination of knowledge. Universities have a distinct left-wing, anti-capitalist orientation, and Dan's gifts have helped balance that, by circumventing the academy to fund research that appreciates the benefits and advantages of competitive free market capitalism.
I thank Dan Searle personally for enriching my life these last several years. Thank him also for his good works and generosity, giving back to society more than he took from it.
Friday, November 02, 2007
Good and Bad News
By Richard Vedder
Today's INSIDE HIGHER ED has good and bad news. It sort of reminds me of the economy --the "real" economy is humming, with good output and employment growth, but the "financial" economy is nervous and complaining of hard times (largely through mistakes of their own). A classic good news, bad news scenario. The same is true of colleges.
THE GOOD NEWS, MAYBE
Elite colleges are increasingly getting out of the student loan business. In principle, I think borrowing for college is a legitimate idea, and indeed colleges should loan, not give, money to students from moderately affluent families. However, the loan programs have been abused somewhat, and endowments are being underutilized in some cases. Harvard could lower tuition for everyone to zero without breaking a sweat. So, I was not unhappy when Williams College joined other elite schools (e.g., Princeton, Davidson, Amherst) in saying they are only going to give grants, not loans. The trend in this direction is building partly because colleges are now scrambling to deal with the inconvenient truth that they have become more elitist and less available to low and even low-middle income students. Others (e.g., Wesleyan, Bowdoin) are rumored to be ready to follow this lead.
THE BAD NEWS, MAYBE
Congress reminds me of over-sexed teen-aged boys --they have trouble doing things in moderation. The Aristolean golden mean is foreign to their thinking. Earlier, the President signed a bill, very much to my chagrin, that, among other things, increased the maximum Pell Grant by around 19 percent for the coming year. Congress now is saying that is not enough, and they want to raise the maximum by another $150 --for a total increase for the year of around 24 percent.
CCAP likes giving money to kids, not institutions, so we generally like the Pell Grant program (although in principle we are not overly wild about any third party payments to higher education), but we also think the financial aid offices of colleges should have absolutely nothing to do with it. As a Spellings Commission member, I went along with Jim Hunt's plea to raise the Pell maximum. However, huge increases in Pell Grants all at once are an open invitation for universities to raise their tuition charges. Tuition inflation is up, not down, this year, as the colleges talk a good game but continue to tell the public to go to hell on the issue most concerning them. No big attempt is being made to rein in costs, which, admittedly, is nearly impossible to do when Congress continues to allow universities to avoid fiscal responsibility and accountability by increasingly subsidizing either them or their customers.
The prediction is that the President will veto the bill. Of course he should (it includes the budget of the Department of Education). What he should do and what he will do, however, often do not coincide when it comes to fiscal responsibility and adherence to sound principles.
Today's INSIDE HIGHER ED has good and bad news. It sort of reminds me of the economy --the "real" economy is humming, with good output and employment growth, but the "financial" economy is nervous and complaining of hard times (largely through mistakes of their own). A classic good news, bad news scenario. The same is true of colleges.
THE GOOD NEWS, MAYBE
Elite colleges are increasingly getting out of the student loan business. In principle, I think borrowing for college is a legitimate idea, and indeed colleges should loan, not give, money to students from moderately affluent families. However, the loan programs have been abused somewhat, and endowments are being underutilized in some cases. Harvard could lower tuition for everyone to zero without breaking a sweat. So, I was not unhappy when Williams College joined other elite schools (e.g., Princeton, Davidson, Amherst) in saying they are only going to give grants, not loans. The trend in this direction is building partly because colleges are now scrambling to deal with the inconvenient truth that they have become more elitist and less available to low and even low-middle income students. Others (e.g., Wesleyan, Bowdoin) are rumored to be ready to follow this lead.
THE BAD NEWS, MAYBE
Congress reminds me of over-sexed teen-aged boys --they have trouble doing things in moderation. The Aristolean golden mean is foreign to their thinking. Earlier, the President signed a bill, very much to my chagrin, that, among other things, increased the maximum Pell Grant by around 19 percent for the coming year. Congress now is saying that is not enough, and they want to raise the maximum by another $150 --for a total increase for the year of around 24 percent.
CCAP likes giving money to kids, not institutions, so we generally like the Pell Grant program (although in principle we are not overly wild about any third party payments to higher education), but we also think the financial aid offices of colleges should have absolutely nothing to do with it. As a Spellings Commission member, I went along with Jim Hunt's plea to raise the Pell maximum. However, huge increases in Pell Grants all at once are an open invitation for universities to raise their tuition charges. Tuition inflation is up, not down, this year, as the colleges talk a good game but continue to tell the public to go to hell on the issue most concerning them. No big attempt is being made to rein in costs, which, admittedly, is nearly impossible to do when Congress continues to allow universities to avoid fiscal responsibility and accountability by increasingly subsidizing either them or their customers.
The prediction is that the President will veto the bill. Of course he should (it includes the budget of the Department of Education). What he should do and what he will do, however, often do not coincide when it comes to fiscal responsibility and adherence to sound principles.
Thursday, November 01, 2007
Are Professors Too Satisfied?
By Richard Vedder
A new TIAA-CREF study shows 96 percent of full-time faculty at four-year schools is highly or at least somewhat satisfied with their jobs --only 4 percent feel otherwise. By contrast, on average about 20 percent of workers in other occupations are less than somewhat satisfied with their work --five times the proportion amongst the full-time professoriate at four-year schools. No doubt, the academic underclass of adjuncts, part-timers, graduate teaching assistants and the like have much lower levels of satisfaction than their higher paid and more secure senior colleagues. Nonetheless, the extremely high levels of job satisfaction are consistent with a feeling growing strongly in me in recent years --- the professoriate is collecting a lot of economic rent --payments beyond those necessary to keep them employed at current levels of productivity, and that economic rent has been enhanced by growing research grants and student loans.
Other things equal, a happy faculty is probably better than an unhappy one; but why, on average, are faculty happier than other professional or non-professional workers for whom, other things equal, happiness is also preferable to an unhappy state? A lot has to do with the fact that faculty have very few constraints on what they do, or how they do it. They have a huge role to play in decisions relating to their mission. They face few consequences (at least after tenure is granted) for mediocre or even poor performance. They are reasonably well paid, and have relatively few formal demands on their time. They can earn lots of extra money teaching summer school, consulting for businesses, doing contracted research, etc. Why shouldn't they be happy?
One of the reasons reform comes slowly in higher education is that the faculty know they have it good --and therefore realize that reform cannot help but threaten their nice way of life. Trying to fight the faculty and ram reform down their throats is an appealing approach to many, but it seldom works at most traditional not-for-profit institutions. No major reform of American higher education will occur without confronting the governance issue --who decides the future direction of American universities?
One approach to deal with this problem is to bribe the faculty into submission --pay faculty to give up some of their traditional prerogatives. In a crude sense, that is what happened when capitalistic enterprises replaced some state-owned ones after the fall of Soviet communism. It is not a perfect or even a fair solution, but it might work. Another approach is to increase market forces in higher education by slowly keeping universities from drinking so much at the public trough. There are several models that can make an overly satisfied professoriate more like other professional workers --not immune to the consequences of poorly serving the consuming public.
A new TIAA-CREF study shows 96 percent of full-time faculty at four-year schools is highly or at least somewhat satisfied with their jobs --only 4 percent feel otherwise. By contrast, on average about 20 percent of workers in other occupations are less than somewhat satisfied with their work --five times the proportion amongst the full-time professoriate at four-year schools. No doubt, the academic underclass of adjuncts, part-timers, graduate teaching assistants and the like have much lower levels of satisfaction than their higher paid and more secure senior colleagues. Nonetheless, the extremely high levels of job satisfaction are consistent with a feeling growing strongly in me in recent years --- the professoriate is collecting a lot of economic rent --payments beyond those necessary to keep them employed at current levels of productivity, and that economic rent has been enhanced by growing research grants and student loans.
Other things equal, a happy faculty is probably better than an unhappy one; but why, on average, are faculty happier than other professional or non-professional workers for whom, other things equal, happiness is also preferable to an unhappy state? A lot has to do with the fact that faculty have very few constraints on what they do, or how they do it. They have a huge role to play in decisions relating to their mission. They face few consequences (at least after tenure is granted) for mediocre or even poor performance. They are reasonably well paid, and have relatively few formal demands on their time. They can earn lots of extra money teaching summer school, consulting for businesses, doing contracted research, etc. Why shouldn't they be happy?
One of the reasons reform comes slowly in higher education is that the faculty know they have it good --and therefore realize that reform cannot help but threaten their nice way of life. Trying to fight the faculty and ram reform down their throats is an appealing approach to many, but it seldom works at most traditional not-for-profit institutions. No major reform of American higher education will occur without confronting the governance issue --who decides the future direction of American universities?
One approach to deal with this problem is to bribe the faculty into submission --pay faculty to give up some of their traditional prerogatives. In a crude sense, that is what happened when capitalistic enterprises replaced some state-owned ones after the fall of Soviet communism. It is not a perfect or even a fair solution, but it might work. Another approach is to increase market forces in higher education by slowly keeping universities from drinking so much at the public trough. There are several models that can make an overly satisfied professoriate more like other professional workers --not immune to the consequences of poorly serving the consuming public.
For Profits on the March
By Richard Vedder
A little not-for-profit institution of higher education, Touro College in New York, started an on-line division some time ago, apparently rather successfully, and has now announced it is selling it to a private equity group to be run as a for-profit venture. The price, $190 million, is over five times the size of Touro's endowment.
This appears to be a win-win situation. Touro gets a huge financial boost. But why would someone pay that much for a relatively modest sized on-line operation? Two reasons come to mind. First, it is up and running and has accreditation, which is costly to obtain. Second, the private buyers must feel, no doubt correctly, that with the incentives of markets at work, they can operate Touro International University more efficiently, market it more aggressively, and turn a nice little on-line operation into a rapidly growing and highly profitable entity.
There is an emerging trend for for-profits to buy up part or all of not-for-profits, which may reflect the effect of the innate superiority of market disciplined organizations in offering some forms of educational services. The data continue to show that the for-profit sector is the most rapidly growing and most innovative in American higher education. We will be speaking up more on for-profits when a new study we are working on is released, hopefully in the next month or so. Stay tuned.
A little not-for-profit institution of higher education, Touro College in New York, started an on-line division some time ago, apparently rather successfully, and has now announced it is selling it to a private equity group to be run as a for-profit venture. The price, $190 million, is over five times the size of Touro's endowment.
This appears to be a win-win situation. Touro gets a huge financial boost. But why would someone pay that much for a relatively modest sized on-line operation? Two reasons come to mind. First, it is up and running and has accreditation, which is costly to obtain. Second, the private buyers must feel, no doubt correctly, that with the incentives of markets at work, they can operate Touro International University more efficiently, market it more aggressively, and turn a nice little on-line operation into a rapidly growing and highly profitable entity.
There is an emerging trend for for-profits to buy up part or all of not-for-profits, which may reflect the effect of the innate superiority of market disciplined organizations in offering some forms of educational services. The data continue to show that the for-profit sector is the most rapidly growing and most innovative in American higher education. We will be speaking up more on for-profits when a new study we are working on is released, hopefully in the next month or so. Stay tuned.
AFT Rent Seeking
By Jim Coleman
The American Federation of Teachers recently released a statement on academic freedom. In the statement, the AFT enumerates what it believes to be the largest threats to academic freedom today. One of the “threats” that caught my attention was “the increasingly vocational focus of higher education.” In my opinion, this is no real threat, but rather an attempt to shroud special interest and rent seeking behavior in the language of the public good, a tactic not uncommon to unions.
According to the AFT, an increasing vocational focus of higher education is a threat to academic freedom because students are increasingly seen as “customers.” As a consequence, universities are more apt to modify the curriculum to suit the demands of students. This, says the AFT, is a very bad thing, because students are no longer obligated by universities to run a gauntlet of general education requirements exposing them to “what is good, bad or beautiful in life.” Instead students, if they choose, may increasingly focus on classes that are relevant to the real-world job market.
I think the special interests at work here are quite clear. An increasingly vocational focus of schools is less a threat to academic freedom and more of a threat to the jobs of marginal faculty members. If students are granted consumer sovereignty, they will choose classes that they perceive to be of high value, the classes which are most likely relevant to their future careers. Consequently, demand for classes that are not relevant will fall as will the incentive for the university to employ faculty who teach those low valued courses. The AFT calls such vocational trends detrimental to academic freedom and invokes the hackneyed argument of saying it will harm the public good, claiming that it is for the good of the students that the trend must be reversed— In reality, it is for the good of their union members that the AFT wants to see the trend change, as faculty who teach obscure or inapplicable courses may soon find themselves out of a job.
Contrary to what the AFT may claim, the truth is that the good of students does lie in an increasingly vocational focus of higher education; and despite what the AFT may think, students are smart and do put a great deal of thought into what classes they take. Left to their own devices and freed from the burden of cumbersome general education requirements, students can effectively choose classes that will benefit them in both the long and short run. My personal experience as a student attests that even when they are not mandated by the university to take general education requirements some business majors will still take philosophy classes and some engineering majors will still take art classes, because they find legitimate value in the classes. So the increasing vocational focus of schools does not spell the death of liberal arts education, it just entails trimming off some dead weight, eliminating the most marginal classes and faculty, and creating a university environment that is more responsive to those it serves, the students—a minor detail the AFT seems to have forgotten. Moreover, with a streamlined curriculum students will be able to graduate in 2-3 years instead of 4-5. From a financial perspective this certainly would be beneficial to students and the public.
Jim Coleman is a research associate at the Center for College Affordability and Productivity and a senior major in both economics and philosophy at Ohio University.
The American Federation of Teachers recently released a statement on academic freedom. In the statement, the AFT enumerates what it believes to be the largest threats to academic freedom today. One of the “threats” that caught my attention was “the increasingly vocational focus of higher education.” In my opinion, this is no real threat, but rather an attempt to shroud special interest and rent seeking behavior in the language of the public good, a tactic not uncommon to unions.
According to the AFT, an increasing vocational focus of higher education is a threat to academic freedom because students are increasingly seen as “customers.” As a consequence, universities are more apt to modify the curriculum to suit the demands of students. This, says the AFT, is a very bad thing, because students are no longer obligated by universities to run a gauntlet of general education requirements exposing them to “what is good, bad or beautiful in life.” Instead students, if they choose, may increasingly focus on classes that are relevant to the real-world job market.
I think the special interests at work here are quite clear. An increasingly vocational focus of schools is less a threat to academic freedom and more of a threat to the jobs of marginal faculty members. If students are granted consumer sovereignty, they will choose classes that they perceive to be of high value, the classes which are most likely relevant to their future careers. Consequently, demand for classes that are not relevant will fall as will the incentive for the university to employ faculty who teach those low valued courses. The AFT calls such vocational trends detrimental to academic freedom and invokes the hackneyed argument of saying it will harm the public good, claiming that it is for the good of the students that the trend must be reversed— In reality, it is for the good of their union members that the AFT wants to see the trend change, as faculty who teach obscure or inapplicable courses may soon find themselves out of a job.
Contrary to what the AFT may claim, the truth is that the good of students does lie in an increasingly vocational focus of higher education; and despite what the AFT may think, students are smart and do put a great deal of thought into what classes they take. Left to their own devices and freed from the burden of cumbersome general education requirements, students can effectively choose classes that will benefit them in both the long and short run. My personal experience as a student attests that even when they are not mandated by the university to take general education requirements some business majors will still take philosophy classes and some engineering majors will still take art classes, because they find legitimate value in the classes. So the increasing vocational focus of schools does not spell the death of liberal arts education, it just entails trimming off some dead weight, eliminating the most marginal classes and faculty, and creating a university environment that is more responsive to those it serves, the students—a minor detail the AFT seems to have forgotten. Moreover, with a streamlined curriculum students will be able to graduate in 2-3 years instead of 4-5. From a financial perspective this certainly would be beneficial to students and the public.
Jim Coleman is a research associate at the Center for College Affordability and Productivity and a senior major in both economics and philosophy at Ohio University.
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