By Richard Vedder
Like most others, we at CCAP have taken a little break from the daily higher education scene to celebrate Christmas and rest our minds a bit. But I am already thinking of what we aim to accomplish in 2008. Here is a list of projects that hopefully will be completed.
STUDY ON GRIGGS DECISION
In cooperation with our good friends at the Pope Center in North Carolina, we are very shortly going to publish a significant study authored by Bryan O'Keefe on the impact on higher education of the Griggs Supreme Court decision in the early 1970s. Bryan does a fine job of outlining the consequences of Griggs, and we also have some empirical evidence that suggests Griggs may be important in explaining the explosion in college costs.
FOR PROFIT UNIVERSITIES
Jim Coleman, a Whiz Kid and sometime student of mine, has done a fine job of summarizing the growth in for profit universities. We hope to get his study to the printer early in the new year. For profits are part of the solution to the problem --they are a dynamic, cost- conscious form of educational delivery that continues to expand market share, using the powers of the market and profit signals to foster positive change.
NORTH CAROLINA, WASHINGTON, TEXAS,IOWA, GEORGIA, AND VIRGINIA
By far the most massive undertaking CCAP is doing is a series of fairly lengthy reports on the higher education systems of six states. We have essentially completed the North Carolina study, and will be publishing that, along with others on the aforementioned states. The last five studies will actually be produced by state policy think tanks in collaboration with us --a form of interthink tank synergy that we find exciting. We are working closely with the State Policy Network (SPN) on this project.
ENDOWMENTS AND OTHER FEDERAL REGULATORY AND TAX POLICY ISSUES
I am almost done with a study on university endowments. I discuss the virtues and the defects of various federal policies. Above all, I am skeptical of federal government subsidies for higher education, and argue that there is at least as strong of a case for taxing universities as there is for subsidizing them. While our friend Lynne Munson has made a good case for having an endowment spending rule for universities, their are some problems with that approach as well, which I outline in the paper.
OTHER STUDIES AND CONFERENCES
Jim Coleman has done still another study on market based management approaches to higher education. Other whiz kids (Matt Denhart, Jonathan Robe, and Gordy Ruchti) are doing some cool research that may result in further studies. I suspect Bryan will do his usually sterling job on a study on the role of unions and collective bargaining in higher edcuation. The updating and revision of our web site, which has lagged behind expectations, should become a priority. We hope to have conferences at the American Enterprise Institute both on endowments and, likely, for profit education. I will be speaking literally coast to coast on higher education issues. In short, as we mature, our output expands and we hope to be a positive form in making higher education better and more efficient.
Thursday, December 27, 2007
Friday, December 21, 2007
Taxing Universities: The IRS Gets into the Act
By Richard Vedder
Dean Zerbe, a top aide to Senator Charles Grassley, once told me "if you want to change university behavior, make more use of the IRS to do it." That may be good advice. The IRS is now going to be asking the universities for more information for the 990 Form that universities must file. While there is always a tradeoff between administrative costs to the university and the public's right to know, I suspect the IRS changes in the 990 form are reasonable. We need more detailed information on, for example, how universities use tax exempt endowment income.
Beyond that, the IRS is going to sample several hundred schools and get even more detailed information --how much did the president make, and how is her salary determined? How much tax exempt money went for essentially non-academic enterprises --improving the stadium, for example? This, too, is a welcome move. I don't like an overly large and intrusive IRS, and think federal taxes are a significant impediment to economic growth. However, if we are going to have this system, we need to be sure the universities are not significantly abusing the public interest and thwarting the spirit if not the letter of our tax laws.
Our tax code is a mess. It is perversely complex, raising compliance and administrative costs by literally hundreds of billions of dollars annually. It violates basic concepts of horizontal equity by taxing persons of similar economic circumstances vastly different amounts. The Tax Army (tax collectors, H & R Block type firms, many accountants and lawyers) is now bigger than the U.S. Army. We need to simplify the system --drastically. Basic principles of economic neutrality are routinely violated. The university dimension on this is actually comparatively small. But we need to rethink how we treat universities with respect to taxes. And before rethinking, we need to know what the universities are doing. The IRS approach is reasonable and proper.
Dean Zerbe, a top aide to Senator Charles Grassley, once told me "if you want to change university behavior, make more use of the IRS to do it." That may be good advice. The IRS is now going to be asking the universities for more information for the 990 Form that universities must file. While there is always a tradeoff between administrative costs to the university and the public's right to know, I suspect the IRS changes in the 990 form are reasonable. We need more detailed information on, for example, how universities use tax exempt endowment income.
Beyond that, the IRS is going to sample several hundred schools and get even more detailed information --how much did the president make, and how is her salary determined? How much tax exempt money went for essentially non-academic enterprises --improving the stadium, for example? This, too, is a welcome move. I don't like an overly large and intrusive IRS, and think federal taxes are a significant impediment to economic growth. However, if we are going to have this system, we need to be sure the universities are not significantly abusing the public interest and thwarting the spirit if not the letter of our tax laws.
Our tax code is a mess. It is perversely complex, raising compliance and administrative costs by literally hundreds of billions of dollars annually. It violates basic concepts of horizontal equity by taxing persons of similar economic circumstances vastly different amounts. The Tax Army (tax collectors, H & R Block type firms, many accountants and lawyers) is now bigger than the U.S. Army. We need to simplify the system --drastically. Basic principles of economic neutrality are routinely violated. The university dimension on this is actually comparatively small. But we need to rethink how we treat universities with respect to taxes. And before rethinking, we need to know what the universities are doing. The IRS approach is reasonable and proper.
Soak the Rich!!!
By Richard Vedder
As one who has been accused of being to the right of Genghis Khan with a severe hangover, the headline on today's blog may seem a bit startling. Herbert Allen, who Forbes Magazine tells us is the 410th richest man in the world, in today's New York Times argues that endowment inequality is huge and growing. That, in turn, disadvantages most American universities and contributes to the costly academic arms race. Hence, let us tax rich universities. Harvard made $7 billion or so last year from its endowments --why not tax them 15 percent of that ($1 billion) and give the proceeds to other, but poorer schools? Allen is an investment banker, a director of prestigious corporations (e.g., Coca Cola), and is a respected name on Wall Street. When the Wall Street establishment starts calling for taxing Harvard, that is news.
Actually, what Allen is proposing is similar to what I suggest as one option in a study I have just completed, but not posted yet, on federal tax policy towards universities. If we are going to give huge tax breaks to wealthy schools, they should use those funds in a way to serve the broader public interest --perhaps by expanding supply (e.g., opening up Harvard West in Arizona, Princeton South in Alabama), or by providing assistance to "less developed universities” similar to the way foreign aid is handed out by prosperous countries to less affluent nations. If, however, they fail to spend the funds appropriately, we should tax them.
The libertarian side of me has some problems with all of this --but it has problems also with taxing kids who inherit the family farm in Iowa upon their parents' death, but then make Meg Whitman exempt from taxation for providing luxury hotels for upper class kids going to Princeton.
I have proposed an Under Spending Tax—set some threshold spending level based on the fairly long run past investment return of the institution in question (say the last 10 years). Spending below that threshold will be taxed at 15 percent. If Harvard has a 10 year rate of return on investment (excluding endowment growth from new gifts) of, say, 12 percent, set the threshold at, say, 7.5 percent (12 percent minus 3.5 percent for inflation minus an additional 1 percent because of alleged inherent difficulties in reducing college costs). On Harvard's current endowment, that would mean spending about $2.6 billion annually. Harvard in fact spends a little over $1 billion. Impose the under spending tax of 15 percent on the $1.5 billion differential -- about $225 million a year.
Allen, I think, would give this money to poorer universities. My inclination would be to give the money to students—the consumers, not the producers. GIVE IT TO THEM DIRECTLY, not to the financial aid offices of the schools, who then manipulate their own aid so the total aid package is what they want it to be, independent of the student's best interest.
Suppose my under spending tax raises $2.5 billion a year (not implausible, I think). Give one million new $2,500 vouchers to students annually who are: 1) from low to moderate income families, 2) who show good academic promise and 3) who will agree to repay the amount with interest if and when their post-graduate income exceeds by 50 percent the minimum annual earnings of full-time, year round American workers. This creates a redistribution of wealth away from plutocratic universities towards moderate income kids with ambition and academic success, but does it in a way that does not seriously jeopardize the supremacy of the rich schools. It is a politically doable approach --not ideal, but perhaps better than doing nothing.
To be sure, this is a Second Best type solution. Ideally, the government should be getting out of the financing of higher education—period. I think its infusion of funds has corrupted the academy, led to inefficiencies and promoted an arrogance towards the general population that is both astounding and revolting. But as long as tax-exempt private financing is going to continue, let us start to channel funds to students, not institutions, and let us use those funds to promote equality of educational opportunity as well as institutional equality amongst American universities. Just a thought.
As one who has been accused of being to the right of Genghis Khan with a severe hangover, the headline on today's blog may seem a bit startling. Herbert Allen, who Forbes Magazine tells us is the 410th richest man in the world, in today's New York Times argues that endowment inequality is huge and growing. That, in turn, disadvantages most American universities and contributes to the costly academic arms race. Hence, let us tax rich universities. Harvard made $7 billion or so last year from its endowments --why not tax them 15 percent of that ($1 billion) and give the proceeds to other, but poorer schools? Allen is an investment banker, a director of prestigious corporations (e.g., Coca Cola), and is a respected name on Wall Street. When the Wall Street establishment starts calling for taxing Harvard, that is news.
Actually, what Allen is proposing is similar to what I suggest as one option in a study I have just completed, but not posted yet, on federal tax policy towards universities. If we are going to give huge tax breaks to wealthy schools, they should use those funds in a way to serve the broader public interest --perhaps by expanding supply (e.g., opening up Harvard West in Arizona, Princeton South in Alabama), or by providing assistance to "less developed universities” similar to the way foreign aid is handed out by prosperous countries to less affluent nations. If, however, they fail to spend the funds appropriately, we should tax them.
The libertarian side of me has some problems with all of this --but it has problems also with taxing kids who inherit the family farm in Iowa upon their parents' death, but then make Meg Whitman exempt from taxation for providing luxury hotels for upper class kids going to Princeton.
I have proposed an Under Spending Tax—set some threshold spending level based on the fairly long run past investment return of the institution in question (say the last 10 years). Spending below that threshold will be taxed at 15 percent. If Harvard has a 10 year rate of return on investment (excluding endowment growth from new gifts) of, say, 12 percent, set the threshold at, say, 7.5 percent (12 percent minus 3.5 percent for inflation minus an additional 1 percent because of alleged inherent difficulties in reducing college costs). On Harvard's current endowment, that would mean spending about $2.6 billion annually. Harvard in fact spends a little over $1 billion. Impose the under spending tax of 15 percent on the $1.5 billion differential -- about $225 million a year.
Allen, I think, would give this money to poorer universities. My inclination would be to give the money to students—the consumers, not the producers. GIVE IT TO THEM DIRECTLY, not to the financial aid offices of the schools, who then manipulate their own aid so the total aid package is what they want it to be, independent of the student's best interest.
Suppose my under spending tax raises $2.5 billion a year (not implausible, I think). Give one million new $2,500 vouchers to students annually who are: 1) from low to moderate income families, 2) who show good academic promise and 3) who will agree to repay the amount with interest if and when their post-graduate income exceeds by 50 percent the minimum annual earnings of full-time, year round American workers. This creates a redistribution of wealth away from plutocratic universities towards moderate income kids with ambition and academic success, but does it in a way that does not seriously jeopardize the supremacy of the rich schools. It is a politically doable approach --not ideal, but perhaps better than doing nothing.
To be sure, this is a Second Best type solution. Ideally, the government should be getting out of the financing of higher education—period. I think its infusion of funds has corrupted the academy, led to inefficiencies and promoted an arrogance towards the general population that is both astounding and revolting. But as long as tax-exempt private financing is going to continue, let us start to channel funds to students, not institutions, and let us use those funds to promote equality of educational opportunity as well as institutional equality amongst American universities. Just a thought.
Thursday, December 20, 2007
College and Success in Life: New Findings
By Richard Vedder, James Coleman, and Thomas Ruchti:
The Center for College Affordability and Productivity is embarking on a long range project to look at the relationship between college training and success in life. We will be seeking funds from outside sources to broaden and intensify our small, initial effort, but those efforts are providing some fascinating results.
We have taken a sample of 2,610 entries (about three percent of total entries) in Who's Who in America,2008 Edition. We asked the question: did these successful persons go to college? Where? Did they complete graduate or professional training?
We found that 93 percent of the sample graduated from college --college is becoming a necessary, but not sufficient, qualification for success. But is it important where you get your degree? The answer is a qualified "yes." Some schools have far more famous people (even adjusting for enrollments) than others. However, most famous Americans did not go to top schools, and the correlation between US News & World Report rankings and college success is far from perfect.
The graph below shows the 10 schools with the most Who's Who entrants. To be sure, five of the ten schools are in the Ivy League. Harvard is number one, but when correction is made for school enrollments (done in future reports), Princeton and Yale were about as well represented as Harvard. Four of the top 10 schools were public institutions. The University of Illinois is in the top five schools in number of famous Americans, but a mere 38th in the US News rankings. To be sure, the U. of I. is a big institution, and adjusting for enrollment they would fare less well. Nonetheless, the results comport with my own belief that the Big Ten public universities are very good relative to many private institutions (two of the top ten schools were in the Big Ten and Wisconsin just missed the list coming in at 11th).
Although much, much more work needs to be done, it appears that after you get beyond the top dozen or so schools in the US News and World Report rankings, the differences in the incidence of appearance in Who's Who are pretty small --the 100th ranked school does almost as well as the 40th ranked one. We still need to expand the sample, do some historical analysis (earlier editions of Who's Who, etc.), but the initial results are interesting and potentially provocative.
The Center for College Affordability and Productivity is embarking on a long range project to look at the relationship between college training and success in life. We will be seeking funds from outside sources to broaden and intensify our small, initial effort, but those efforts are providing some fascinating results.
We have taken a sample of 2,610 entries (about three percent of total entries) in Who's Who in America,2008 Edition. We asked the question: did these successful persons go to college? Where? Did they complete graduate or professional training?
We found that 93 percent of the sample graduated from college --college is becoming a necessary, but not sufficient, qualification for success. But is it important where you get your degree? The answer is a qualified "yes." Some schools have far more famous people (even adjusting for enrollments) than others. However, most famous Americans did not go to top schools, and the correlation between US News & World Report rankings and college success is far from perfect.
The graph below shows the 10 schools with the most Who's Who entrants. To be sure, five of the ten schools are in the Ivy League. Harvard is number one, but when correction is made for school enrollments (done in future reports), Princeton and Yale were about as well represented as Harvard. Four of the top 10 schools were public institutions. The University of Illinois is in the top five schools in number of famous Americans, but a mere 38th in the US News rankings. To be sure, the U. of I. is a big institution, and adjusting for enrollment they would fare less well. Nonetheless, the results comport with my own belief that the Big Ten public universities are very good relative to many private institutions (two of the top ten schools were in the Big Ten and Wisconsin just missed the list coming in at 11th).
Although much, much more work needs to be done, it appears that after you get beyond the top dozen or so schools in the US News and World Report rankings, the differences in the incidence of appearance in Who's Who are pretty small --the 100th ranked school does almost as well as the 40th ranked one. We still need to expand the sample, do some historical analysis (earlier editions of Who's Who, etc.), but the initial results are interesting and potentially provocative.
Wednesday, December 19, 2007
Give Professor Walter Lewin a Raise
By Richard Vedder
The front page of the New York Times today has a fascinating story about a 71 year old physics professor at M.I.T., Walter H.G. Lewin. Lewin is a master teacher, who meticulously prepares each lecture that is videotaped. He uses a lot of ingenuity, zany humor, enthusiasm and showmanship to promote concepts (e.g., the physics of pendulums) that brings physics alive to students at M.I.T.
Yet any of us can watch Dr. Lewin's lectures --free. M.I.T. has put his videotaped lectures online via the OpenCourse Ware of M.I.T. People from around the world are fascinated about how he makes physics sound exciting, even beautiful. Similar charismatic teachers offer instruction in other subjects --and not just at M.I.T. (Yale, for example, is beginning to offer several popular courses).
After all the gloom and doom of my recent blogs about accreditors who don't want to push for higher standards, a state higher education commission (New York's) that has a worse-than-useless report, etc., this is a inspiring story about the potential to use technology to expand learning in a high quality way at lower costs.
Someone should (and no doubt will) say to potential students, "watch Prof. Lewin's lectures, read some assigned reading material (posted on the Internet) and take several exams externally administered (say by ACT or the College Board), and we will give you credit. String together 32 or so of these courses, and you will get a degree.
At the moment there are tons of problems. Prof. Lewin and others, appropriately, may want royalties. An accrediting organization has to okay the arrangement, which is easier said than done. M.I.T., Yale and other open source schools might stop putting lectures up on the Web, demanding a cut of the revenues. A good entrepreneur, however, can overcome these obstacles and created a low cost web-based university that offers quality instruction, even if it does not have the country club or resort like facilities that residential college students want as part of their $200,000 learning experience. Three cheers for Prof. Lewin, M.I.T., and others who have made the idea discussed above a possibility.
The front page of the New York Times today has a fascinating story about a 71 year old physics professor at M.I.T., Walter H.G. Lewin. Lewin is a master teacher, who meticulously prepares each lecture that is videotaped. He uses a lot of ingenuity, zany humor, enthusiasm and showmanship to promote concepts (e.g., the physics of pendulums) that brings physics alive to students at M.I.T.
Yet any of us can watch Dr. Lewin's lectures --free. M.I.T. has put his videotaped lectures online via the OpenCourse Ware of M.I.T. People from around the world are fascinated about how he makes physics sound exciting, even beautiful. Similar charismatic teachers offer instruction in other subjects --and not just at M.I.T. (Yale, for example, is beginning to offer several popular courses).
After all the gloom and doom of my recent blogs about accreditors who don't want to push for higher standards, a state higher education commission (New York's) that has a worse-than-useless report, etc., this is a inspiring story about the potential to use technology to expand learning in a high quality way at lower costs.
Someone should (and no doubt will) say to potential students, "watch Prof. Lewin's lectures, read some assigned reading material (posted on the Internet) and take several exams externally administered (say by ACT or the College Board), and we will give you credit. String together 32 or so of these courses, and you will get a degree.
At the moment there are tons of problems. Prof. Lewin and others, appropriately, may want royalties. An accrediting organization has to okay the arrangement, which is easier said than done. M.I.T., Yale and other open source schools might stop putting lectures up on the Web, demanding a cut of the revenues. A good entrepreneur, however, can overcome these obstacles and created a low cost web-based university that offers quality instruction, even if it does not have the country club or resort like facilities that residential college students want as part of their $200,000 learning experience. Three cheers for Prof. Lewin, M.I.T., and others who have made the idea discussed above a possibility.
Dropping Money Out of Airplanes in New York
By Richard Vedder
I guess I am naive. The Spellings Commission on Higher Education, while far from perfect, made some very good recommendations for change at the federal level. Though they did not go far enough (which almost led me to NOT sign the report), but their proposals were mostly constructive ideas designed to improve American higher education. Based on this experience, I have, on several occasions, suggested that individual states have "little Spellings Commissions" to serve as catalysts for reform.
Maybe that was not such a good idea. The state of New York has a new higher education commission report on higher education in the Empire State. It emphasizes "giving the schools more resources." Of the top four recommendations in the report's executive summary --three call for spending more money. New York needs a $3 billion research fund (why $3billion? why not $30 billion? --who knows?). The SUNY and CUNY systems need 2,000 more professors, including 250 distinguished scholars. A new state funded student loan system is needed. Important things to the Spellings Commission --measuring outcomes, providing more accountability, etc., are given low or no billing. The gist of the report is "we need more money to be more competitive."
The report is terrible. A perusal of its 93 pages shows little to no evidence that added resources would have a positive payoff. There are no serious attempts to promote efficiency, merely efforts to spend more money. The emphasis is on inputs, not outcomes. Adopting its recommendations would, I suspect, make education in New York more costly, less efficient, and would do little or nothing to make New York more competitive --indeed, it probably would worsen New York's already tattered reputation as a high cost place to do business (since it would no doubt increase pressures to raise taxes).
It is not surprising the Higher Education Commission made these types of recommendations. More than one-third of the members were university presidents or chancellors, most actively serving. Three labor union leaders were on the panel, along with a handful of professors, students and trustees. Most of the members were people in the higher education community itself. Business was virtually unrepresented --one Wall Street type, not a single representative of a business that manufactures things. No business associations like the Chamber of Commerce or the National Federation of Independent Business. In short, it was predominantly a group of academics saying "give us more money." To be sure, there are a few sensible things about articulation between institutions, etc., included in the report to give it a veneer of respectability, but on the whole it is an effort of the rent seekers, for the rent seekers, and by the rent seekers --an exercise in ripping off taxpayers instead of dealing with the real issues --soaring college costs, dubious levels of learning achievement, falling productivity, etc.
The higher education community is tone deaf to the need for fundamental reform. Whether it will be able to maintain the "public be damned" attitude much longer is a debatable proposition.
I guess I am naive. The Spellings Commission on Higher Education, while far from perfect, made some very good recommendations for change at the federal level. Though they did not go far enough (which almost led me to NOT sign the report), but their proposals were mostly constructive ideas designed to improve American higher education. Based on this experience, I have, on several occasions, suggested that individual states have "little Spellings Commissions" to serve as catalysts for reform.
Maybe that was not such a good idea. The state of New York has a new higher education commission report on higher education in the Empire State. It emphasizes "giving the schools more resources." Of the top four recommendations in the report's executive summary --three call for spending more money. New York needs a $3 billion research fund (why $3billion? why not $30 billion? --who knows?). The SUNY and CUNY systems need 2,000 more professors, including 250 distinguished scholars. A new state funded student loan system is needed. Important things to the Spellings Commission --measuring outcomes, providing more accountability, etc., are given low or no billing. The gist of the report is "we need more money to be more competitive."
The report is terrible. A perusal of its 93 pages shows little to no evidence that added resources would have a positive payoff. There are no serious attempts to promote efficiency, merely efforts to spend more money. The emphasis is on inputs, not outcomes. Adopting its recommendations would, I suspect, make education in New York more costly, less efficient, and would do little or nothing to make New York more competitive --indeed, it probably would worsen New York's already tattered reputation as a high cost place to do business (since it would no doubt increase pressures to raise taxes).
It is not surprising the Higher Education Commission made these types of recommendations. More than one-third of the members were university presidents or chancellors, most actively serving. Three labor union leaders were on the panel, along with a handful of professors, students and trustees. Most of the members were people in the higher education community itself. Business was virtually unrepresented --one Wall Street type, not a single representative of a business that manufactures things. No business associations like the Chamber of Commerce or the National Federation of Independent Business. In short, it was predominantly a group of academics saying "give us more money." To be sure, there are a few sensible things about articulation between institutions, etc., included in the report to give it a veneer of respectability, but on the whole it is an effort of the rent seekers, for the rent seekers, and by the rent seekers --an exercise in ripping off taxpayers instead of dealing with the real issues --soaring college costs, dubious levels of learning achievement, falling productivity, etc.
The higher education community is tone deaf to the need for fundamental reform. Whether it will be able to maintain the "public be damned" attitude much longer is a debatable proposition.
Sex and Tenure
By Richard Vedder
Two good economists, Ryan Amacher and Roger Meiners, wrote a pretty good book a few years ago about the academy, Faulty Towers. They did say that most of the criticism of tenure was unfounded, and that that institution did not prevent universities from getting rid of undesirable faculty members. In a review of the book, I somewhat dissented, saying that while that may be legally true, as a practical matter tenure raises the cost of bringing about desired personnel changes.
I was reminded of all of this when I read in INSIDE HIGHER ED about the tenure battle at the University of Michigan Law School involving Peter Hammer. Prof. Hammer was denied tenure because the faculty voted 18 to 12 in favor --two votes shy of the necessary two-thirds for approval. Hammer, of course, sued (meanwhile, he is teaching at nearby Wayne State law school).
There are no doubt many issues in the case, including the usual ones about the quality and quantity of academic research. It is always a judgment call about where to draw the line between what is acceptable and what is unacceptable to justify the awarding of a lifetime employment contract. But Hammer seems to be basing much of his argument over issues relating to the fact that he is gay.
Sexual orientation should have absolutely nothing to do with tenure cases. To be sure, if Hammer can demonstrate that members voted against him primarily because of his sexual orientation, that would be an appropriate argument to make in trying to overturn the decision. But Hammer is arguing that persons belonging to churches with an aversion to homosexuality are, therefore, guilty of discriminatory behavior that should render their vote void. Under that reasoning, no members of certain religions could vote in cases involving gays. Perhaps Muslims could not vote in cases involving Christians. People trying to use their sexual preferences, their race, their gender, or whatever group characteristic they have to overcome adverse evaluations of individual behavior do not have my respect. I have no idea whether Prof. Hammer should have been tenured or not, but I hope that efforts to try to overturn a vote based on the religious preferences of faculty members will be unsuccessful.
Two good economists, Ryan Amacher and Roger Meiners, wrote a pretty good book a few years ago about the academy, Faulty Towers. They did say that most of the criticism of tenure was unfounded, and that that institution did not prevent universities from getting rid of undesirable faculty members. In a review of the book, I somewhat dissented, saying that while that may be legally true, as a practical matter tenure raises the cost of bringing about desired personnel changes.
I was reminded of all of this when I read in INSIDE HIGHER ED about the tenure battle at the University of Michigan Law School involving Peter Hammer. Prof. Hammer was denied tenure because the faculty voted 18 to 12 in favor --two votes shy of the necessary two-thirds for approval. Hammer, of course, sued (meanwhile, he is teaching at nearby Wayne State law school).
There are no doubt many issues in the case, including the usual ones about the quality and quantity of academic research. It is always a judgment call about where to draw the line between what is acceptable and what is unacceptable to justify the awarding of a lifetime employment contract. But Hammer seems to be basing much of his argument over issues relating to the fact that he is gay.
Sexual orientation should have absolutely nothing to do with tenure cases. To be sure, if Hammer can demonstrate that members voted against him primarily because of his sexual orientation, that would be an appropriate argument to make in trying to overturn the decision. But Hammer is arguing that persons belonging to churches with an aversion to homosexuality are, therefore, guilty of discriminatory behavior that should render their vote void. Under that reasoning, no members of certain religions could vote in cases involving gays. Perhaps Muslims could not vote in cases involving Christians. People trying to use their sexual preferences, their race, their gender, or whatever group characteristic they have to overcome adverse evaluations of individual behavior do not have my respect. I have no idea whether Prof. Hammer should have been tenured or not, but I hope that efforts to try to overturn a vote based on the religious preferences of faculty members will be unsuccessful.
Saint Anne the First
By Richard Vedder
The Accreditor of the Accreditors, NACIQI, met yesterday and if Doug Lederman's superb account of the meeting is accurate (and it always is, I have found), I am glad I was not there, given my history of hypertension.
To begin with, the group had a training session, a little bit of an insult to an ensemble of highly professional persons of stature; the message to the group: "be nice or you guys will be out of a job, because Congress doesn't like you." Cool the attacks on the accreditors and the universities --sound like you want standards, but don't push TOO hard.
Saint Anne the First, better known as Anne Neal, the feisty, annoying, troublesome, but oh so necessary head of the American College of Trustees and Alumni, started asking hard questions. How do you know if the kids at the schools you are accrediting know anything? What if only 10 percent are literate by the standards of the National Literacy Survey? Don't you have any standards beyond ones that the colleges set internally? Embarrassing, naughty questions. But SOMEONE has to ask them.
Meanwhile, the accreditors behaved deplorably. They said things like we believe in "self assessment"—meaning the universities can declare their own wishy-washy goals and announce that they have achieved them. Then WHY HAVE ACCREDITATION AT ALL? The Jerk of the Day, one Steven Crow of the North Central Association, gloated that he would have eaten better at lunch if he had known Anne would not be questioning him.
And why did Anne Neal NOT question him? She was forced to recluse herself because she is an unpaid member of an advisory panel for a proposed new research center at the University of Illinois, which is accredited by North Central. Get real!!! She also works with trustees of universities that belong to all the regional accreditors in her PAID job --but that is not a conflict of interest? The excuse used to muzzle her was pretty pathetic, even by Washington standards.
The whole thing is a charade. The first commenter on the INSIDE HIGHER ED web site this morning, Fred Lapides, got it right: name one school that has accreditation for simply being bad --academically deficient. Glen McGhee, a regular writer to the web site whose views I greatly respect, was similarly thoughtfully critical of attempts to stifle measurement of academic performance.
The Higher Education Establishment is doing its utmost to keep the Spellings Commission call for accountability and transparent measures of academic achievement from being implemented. The Accreditors are their partners in crime. Pox on both of their houses. All this puts me in a foul mood as I contemplate what I am going to say when I address members of the Council of Higher Education Accreditation (CHEA) at its forthcoming annual conclave. It is not likely going to be pretty.
The Accreditor of the Accreditors, NACIQI, met yesterday and if Doug Lederman's superb account of the meeting is accurate (and it always is, I have found), I am glad I was not there, given my history of hypertension.
To begin with, the group had a training session, a little bit of an insult to an ensemble of highly professional persons of stature; the message to the group: "be nice or you guys will be out of a job, because Congress doesn't like you." Cool the attacks on the accreditors and the universities --sound like you want standards, but don't push TOO hard.
Saint Anne the First, better known as Anne Neal, the feisty, annoying, troublesome, but oh so necessary head of the American College of Trustees and Alumni, started asking hard questions. How do you know if the kids at the schools you are accrediting know anything? What if only 10 percent are literate by the standards of the National Literacy Survey? Don't you have any standards beyond ones that the colleges set internally? Embarrassing, naughty questions. But SOMEONE has to ask them.
Meanwhile, the accreditors behaved deplorably. They said things like we believe in "self assessment"—meaning the universities can declare their own wishy-washy goals and announce that they have achieved them. Then WHY HAVE ACCREDITATION AT ALL? The Jerk of the Day, one Steven Crow of the North Central Association, gloated that he would have eaten better at lunch if he had known Anne would not be questioning him.
And why did Anne Neal NOT question him? She was forced to recluse herself because she is an unpaid member of an advisory panel for a proposed new research center at the University of Illinois, which is accredited by North Central. Get real!!! She also works with trustees of universities that belong to all the regional accreditors in her PAID job --but that is not a conflict of interest? The excuse used to muzzle her was pretty pathetic, even by Washington standards.
The whole thing is a charade. The first commenter on the INSIDE HIGHER ED web site this morning, Fred Lapides, got it right: name one school that has accreditation for simply being bad --academically deficient. Glen McGhee, a regular writer to the web site whose views I greatly respect, was similarly thoughtfully critical of attempts to stifle measurement of academic performance.
The Higher Education Establishment is doing its utmost to keep the Spellings Commission call for accountability and transparent measures of academic achievement from being implemented. The Accreditors are their partners in crime. Pox on both of their houses. All this puts me in a foul mood as I contemplate what I am going to say when I address members of the Council of Higher Education Accreditation (CHEA) at its forthcoming annual conclave. It is not likely going to be pretty.
Monday, December 17, 2007
The Untold Story: Republicans Subsidizing Democrats
By Richard Vedder
Several times a year, I find myself hobnobbing with wealthy philanthropists, almost all of them conservative Republicans or even libertarians (some are closet or not-so-closet supporters of Ron Paul). Almost all of them give some money to their favorite university.
Why? Fred Fransen is leading a group financed by some very wealthy Americans that is exposing the numerous violations of donor intent on the part of the universities, the focus of a huge lawsuit between the Robertson family and Princeton University. This is a good, much needed effort.
But that aside, the fact remains most faculty are very liberal, and when rich people drop money out of airplanes (Gulfstream business jets, typically) over campuses, some of the money supports people and principles they despise. Every time you give a dollar to Harvard or Duke or Northwestern or Stanford, you are giving at least a fraction of a penny of that to Barack Obama, Hilary Clinton, or even worse, the populist demagogue John Edwards. There is nothing wrong with giving money to these persons, but it certainly is not the intent of conservative donors who give undoubtedly the majority of university private gifts for this to happen.
This all was brought to mind reading THE CHRONICLE OF HIGHER EDUCATION this morning. Donations to Democrats by university employees are running three times donations to Republicans. To be sure, donations from ANYONE to Dems are relatively high this year, given GOP abandonment of basic small government principles that have served as the glue binding the party together. Nonetheless, the professoriate tends to be liberal, particularly in the more relevant social sciences and humanities (scientists seem to be too busy working to pay much attention to politics, on average).
Again, I see nothing wrong with giving to Barack or Hiliary or even John Edwards. The point is that the academy IS politically left-leaning, and conservative Republicans often give lots of bucks to Alma Mater without thinking of the unintended consequences. The typical full professor at Harvard makes well over $200,000 a year with fringe benefits --do you think she would be making so much if the school did not have a $35 billion endowment given by persons that many liberal Democrats want to tax, regulate and harass? Do you think donations to political campaigns are greater from those making $200,000 at Harvard than, say, with fringe benefits, perhaps $90,000 a year for full professors teaching 17 miles away at low endowment Salem State College?
Here is the scenario in brief. Successful business career conservative economic and political outlook. Successful business career, high college contributions. High contributions, high endowments. High endowments, high salaries. High salaries, high contributions to liberal democrats.
Several times a year, I find myself hobnobbing with wealthy philanthropists, almost all of them conservative Republicans or even libertarians (some are closet or not-so-closet supporters of Ron Paul). Almost all of them give some money to their favorite university.
Why? Fred Fransen is leading a group financed by some very wealthy Americans that is exposing the numerous violations of donor intent on the part of the universities, the focus of a huge lawsuit between the Robertson family and Princeton University. This is a good, much needed effort.
But that aside, the fact remains most faculty are very liberal, and when rich people drop money out of airplanes (Gulfstream business jets, typically) over campuses, some of the money supports people and principles they despise. Every time you give a dollar to Harvard or Duke or Northwestern or Stanford, you are giving at least a fraction of a penny of that to Barack Obama, Hilary Clinton, or even worse, the populist demagogue John Edwards. There is nothing wrong with giving money to these persons, but it certainly is not the intent of conservative donors who give undoubtedly the majority of university private gifts for this to happen.
This all was brought to mind reading THE CHRONICLE OF HIGHER EDUCATION this morning. Donations to Democrats by university employees are running three times donations to Republicans. To be sure, donations from ANYONE to Dems are relatively high this year, given GOP abandonment of basic small government principles that have served as the glue binding the party together. Nonetheless, the professoriate tends to be liberal, particularly in the more relevant social sciences and humanities (scientists seem to be too busy working to pay much attention to politics, on average).
Again, I see nothing wrong with giving to Barack or Hiliary or even John Edwards. The point is that the academy IS politically left-leaning, and conservative Republicans often give lots of bucks to Alma Mater without thinking of the unintended consequences. The typical full professor at Harvard makes well over $200,000 a year with fringe benefits --do you think she would be making so much if the school did not have a $35 billion endowment given by persons that many liberal Democrats want to tax, regulate and harass? Do you think donations to political campaigns are greater from those making $200,000 at Harvard than, say, with fringe benefits, perhaps $90,000 a year for full professors teaching 17 miles away at low endowment Salem State College?
Here is the scenario in brief. Successful business career conservative economic and political outlook. Successful business career, high college contributions. High contributions, high endowments. High endowments, high salaries. High salaries, high contributions to liberal democrats.
More Good News from Harvard and Its Clones
By Richard Vedder
As the Christmas season approaches (note I deliberately and insensitively commit the high sin of calling it the "Christmas season" and not the holiday season), there are several small pieces of good news from the most elite halls of academia. The academy is running a bit scared, or feeling a bit ashamed, or something, but the elite goods are doing some good things, which might percolate down to Joe Six Pack University. Let me mention three.
********
First, Harvard's announcement last week that they are increasing tuition discounts for a lot of student is having the expected domino effect. Cal Tech has followed suit and Yale is going to make some announcement soon. Before the year is out, expect nearly every top 25 school to do something. Even state universities are getting in on the act. The University of Washington months ago announced it was going tuition free for lower income students, and now Indiana University seems to be following suit. In part this is a response to rising public resentment of rich schools charging so much, and also an attempt to at least nominally meet some of the goals outlined by the Spellings Commission.
**************
I already announced I was putting crimson lights on the Christmas tree in honor of Harvard. That is a done deal. Now I need to put a few more crimson ornaments on. Why?
As INSIDE HIGHER ED points out, Harvard is dealing with one of the biggest scandals in higher education --the long, long, long time it takes to get a Ph.D. in the humanities and social sciences. Harvard's solution is great --reduce the ability to take in new students the greater the number of Ph.D. candidates who have been in the pipeline more than eight years. The Harvard policy seems to be effective. Money talks ---big-- in higher ed, and I have advocated state governments eliminate subsidies for Ph.D. students of more than six years in duration (arguably, four).
***************
One reason prices are rising so much in higher ed is that supply curves are nearly perfectly inelastic amongst the best schools -- greater demand has absolutely no impact on actual admissions. Harvard has not expanded enrollment among undergraduate students materially for decades, and the same is true of many other top schools, including my alma mater Northwestern.
Princeton's moderately sizable (more than a 10 percent increase) expansion is being duplicated at numerous other campuses --e.g., Chicago, Duke, Rice (INSIDE HIGHER ED tells me). Now Stanford is talking of growing its undergraduate enrollment of nearly 7,000 a bit, and Yale might not be far behind.
In some cases, the motives for doing all of this may not be all pure. These schools are getting increasingly criticized for being overly rich, overly elitist, and insensitive to the rising demand for quality higher education. Criticism is threatening to become legislative --forced minimum spending levels from endowments is one idea. Whatever the motives, whether pure and pristine or base and crass, these are all welcome moves.
As the Christmas season approaches (note I deliberately and insensitively commit the high sin of calling it the "Christmas season" and not the holiday season), there are several small pieces of good news from the most elite halls of academia. The academy is running a bit scared, or feeling a bit ashamed, or something, but the elite goods are doing some good things, which might percolate down to Joe Six Pack University. Let me mention three.
********
First, Harvard's announcement last week that they are increasing tuition discounts for a lot of student is having the expected domino effect. Cal Tech has followed suit and Yale is going to make some announcement soon. Before the year is out, expect nearly every top 25 school to do something. Even state universities are getting in on the act. The University of Washington months ago announced it was going tuition free for lower income students, and now Indiana University seems to be following suit. In part this is a response to rising public resentment of rich schools charging so much, and also an attempt to at least nominally meet some of the goals outlined by the Spellings Commission.
**************
I already announced I was putting crimson lights on the Christmas tree in honor of Harvard. That is a done deal. Now I need to put a few more crimson ornaments on. Why?
As INSIDE HIGHER ED points out, Harvard is dealing with one of the biggest scandals in higher education --the long, long, long time it takes to get a Ph.D. in the humanities and social sciences. Harvard's solution is great --reduce the ability to take in new students the greater the number of Ph.D. candidates who have been in the pipeline more than eight years. The Harvard policy seems to be effective. Money talks ---big-- in higher ed, and I have advocated state governments eliminate subsidies for Ph.D. students of more than six years in duration (arguably, four).
***************
One reason prices are rising so much in higher ed is that supply curves are nearly perfectly inelastic amongst the best schools -- greater demand has absolutely no impact on actual admissions. Harvard has not expanded enrollment among undergraduate students materially for decades, and the same is true of many other top schools, including my alma mater Northwestern.
Princeton's moderately sizable (more than a 10 percent increase) expansion is being duplicated at numerous other campuses --e.g., Chicago, Duke, Rice (INSIDE HIGHER ED tells me). Now Stanford is talking of growing its undergraduate enrollment of nearly 7,000 a bit, and Yale might not be far behind.
In some cases, the motives for doing all of this may not be all pure. These schools are getting increasingly criticized for being overly rich, overly elitist, and insensitive to the rising demand for quality higher education. Criticism is threatening to become legislative --forced minimum spending levels from endowments is one idea. Whatever the motives, whether pure and pristine or base and crass, these are all welcome moves.
Wednesday, December 12, 2007
American Universities in 2027: Christian Bateson's View
By Richard Vedder
I got a great email today from Christian Bateson, a Dartmouth College graduate of the class of 1999 who works as a financial analyst in New York for Bear Stearns and who seems to me to have a remarkably perceptive view of American higher education now and in the future (translation: he agrees with me). Let me, with his permission, quote extensively from his email:
"If cost increases keep up at the rates of recent years, and if my (as yet unborn) children want to go to private institutions, it will cost me millions of dollars....If costs continue to increase at 7-8% per annum, and if people in my economic situation choose to pay full tuition, it will essentially represent a large (and ever increasing) wealth transfer from the most productive (and probably more politically conservative...) element of society, to a part of society whose productivity is, at the least, very hard to measure (and politcally very left leaning...) It would be one thing if that was leading to smaller class sizes and better education, but instead it's going to hire more 'diversity deans' and 'sustainability specialists.'...As for me, I have faith in the markets...My prediction is that for-profit educational institutions will grow in number and acceptance, and will ultimately lose much of the stigma they have now. If parents in 2027 want to pay $700,000 to send their son to Vassar, they can do so, but for a mere $100,000 they will also be able to send him to Time Warner Media School or GE School of Electrical Engingeering. ...'traditional' private schools will lose their advantage."
Amen. I said pretty much the same thing in Going Broke By Degree. His comments on the income distributional effects of current policies with respect to political ideology, however, are pretty original and I think exactly on target. Maybe Lenin was thinking of university giving when he said the capitalists will hang themselves with the rope they manufacture and sell (or something like that). The battle of alums to have great control over affairs at Bateson's alma mater may have had its roots in the fact that left wing academics want to hustle resources from nostalgic right wing alums, but don't want those nasty plutocrats to interfere or constrain their own highly dubious professorial behavior.
Will the Vassars (or Dartmouths or Harvards) disappear? Of course not. Some people want the prestige that likely will continue to be associated with Ivy League education. Others want the country club like amenities that Princeton will provide but the GE School may not --college is a consumption good as much as investment good for many. Life in the new $250,000 a room Whitman College at Princeton will be pretty nice, I suspect. Students will love looking out of their triple glazed leaded glass windows on a bucolic campus scene.
Still, the theory of relative prices explains an awful lot in life, and I think higher education is not immune to the pressures imposed by the existence of scarcity and resource limitations on our planet. And the less prestigious private schools that emulate Harvard might have a rude awakening some day when few if any freshmen show up the first day in the fall. We at CCAP are trying merely to push for more aggressive use of the market mechanism now, to let prices reflect true values, and to increase awareness of alternatives to the status quo.
Three cheers for Christian Bateson!!!!
I got a great email today from Christian Bateson, a Dartmouth College graduate of the class of 1999 who works as a financial analyst in New York for Bear Stearns and who seems to me to have a remarkably perceptive view of American higher education now and in the future (translation: he agrees with me). Let me, with his permission, quote extensively from his email:
"If cost increases keep up at the rates of recent years, and if my (as yet unborn) children want to go to private institutions, it will cost me millions of dollars....If costs continue to increase at 7-8% per annum, and if people in my economic situation choose to pay full tuition, it will essentially represent a large (and ever increasing) wealth transfer from the most productive (and probably more politically conservative...) element of society, to a part of society whose productivity is, at the least, very hard to measure (and politcally very left leaning...) It would be one thing if that was leading to smaller class sizes and better education, but instead it's going to hire more 'diversity deans' and 'sustainability specialists.'...As for me, I have faith in the markets...My prediction is that for-profit educational institutions will grow in number and acceptance, and will ultimately lose much of the stigma they have now. If parents in 2027 want to pay $700,000 to send their son to Vassar, they can do so, but for a mere $100,000 they will also be able to send him to Time Warner Media School or GE School of Electrical Engingeering. ...'traditional' private schools will lose their advantage."
Amen. I said pretty much the same thing in Going Broke By Degree. His comments on the income distributional effects of current policies with respect to political ideology, however, are pretty original and I think exactly on target. Maybe Lenin was thinking of university giving when he said the capitalists will hang themselves with the rope they manufacture and sell (or something like that). The battle of alums to have great control over affairs at Bateson's alma mater may have had its roots in the fact that left wing academics want to hustle resources from nostalgic right wing alums, but don't want those nasty plutocrats to interfere or constrain their own highly dubious professorial behavior.
Will the Vassars (or Dartmouths or Harvards) disappear? Of course not. Some people want the prestige that likely will continue to be associated with Ivy League education. Others want the country club like amenities that Princeton will provide but the GE School may not --college is a consumption good as much as investment good for many. Life in the new $250,000 a room Whitman College at Princeton will be pretty nice, I suspect. Students will love looking out of their triple glazed leaded glass windows on a bucolic campus scene.
Still, the theory of relative prices explains an awful lot in life, and I think higher education is not immune to the pressures imposed by the existence of scarcity and resource limitations on our planet. And the less prestigious private schools that emulate Harvard might have a rude awakening some day when few if any freshmen show up the first day in the fall. We at CCAP are trying merely to push for more aggressive use of the market mechanism now, to let prices reflect true values, and to increase awareness of alternatives to the status quo.
Three cheers for Christian Bateson!!!!
$7000 U, Yuppie U, Meritorious U
By Richard Vedder
This is a tale of three mythical universities --all of which are attainable, all of which would serve their constituencies well. Diversity, choice, differences --that is what America is all about, and what our higher ed system should be about. Let me describe three different types of universities that we could have in our country, and, to some extent, we do have.
$7000 U
Our Oklahoma State friend Vance Fried is working on devising a plan for a high quality university that would cost $7000 a student to society --whether those bills are paid for from tuition, taxpayers, etc. It would have limited course offerings, not a lot of expensive administrators, a modest number of majors, etc. --but it would offer good, quality instruction that would prepare students for the real world. The for-profits have shown this is doable, and our friend Randy Best says it can be done for far less than even $7000 using electronic means of dissemination of knowledge. $7000 U is perfect for the low or middle income kid of reasonable but not exceptional talent who looks at college as a ticket for a decent career.
YUPPIE U
I have long said that some school ought to clean up on enrolling good students from prosperous, affluent homes ---families making between $100,000 and $300,000 a year. Colleges shower aid on low income kids, and the uber rich do not worry about tuition fees. But the nicer suburbs of America are filled with lots of kids going to pretty decent high schools from families with attentive parents. These families currently largely pay close to sticker prices, and while they are prosperous, $40,000 or more annual fees and charges are something of a strain. I have always thought some prominent university should slash tuition fees in general, financed by reduced tuition discounting for the poor or special talented students. Lower the sticker cost for tuition only from, say, $33,000 a year to $22,000 a year, and applications would pour in. Such a good would be underrepresented by poor kids, but most good schools are anyway. Harvard took a step in this direction with its new price reductions for kids from families with $60,000 to $180,000 income.
MERITORIOUS U
There ought to be schools that accept kids on one criteria only --prospects for academic success. They take only the best, no matter how rich one's parents are, whether they are alums or not, etc. Academic promise is the criteria --we don't care if you spend your free time helping orphans in Ghana, chasing women in bars, or trying to save the whales. Cal Tech pretty closely meets these criteria now. The Big Three Ivies (Harvard, Yale and Princeton) certainly are heavily merit-based, but money sometimes talks (BIG money, to be sure),and admissions people go for students who have politically correct backgrounds or behaviors, reducing the merit component of the admission decision. Harvard, Yale and Princeton could convert to Meritorious U all the way, given the quality of applicants, and each could lower undergraduate tuition to zero and disband the financial aid office --- but they won't, partly because of alumni pressure, partly because of greed (they want to take kids from rich families as that enhances wealth in the long run), and partly because they honestly believe there is more to life than being first rate academically.
Of course we have many other models. The Community College has elements of $7000 U. Some public flagships (the University of Virginia particularly comes to mind) are much like Yuppie U. Antioch College, on the brink of extinction in Yellow Springs, is a niche (progressive left) school, just as Hillsdale College (conservative/libertarian) is. And then there is Berea College, which is the un-Yuppie school appealing to the poor. Meaningful choice makes our system of higher education vibrant, often very good. Now, if we could just make it more efficient. I wonder if government went away and ignored higher education --what would we have? My guess is, we would have a pretty good system of schools, lots of diversity, and significantly lower costs than exist today. That, however, is a subject for another blog (or maybe even book).
This is a tale of three mythical universities --all of which are attainable, all of which would serve their constituencies well. Diversity, choice, differences --that is what America is all about, and what our higher ed system should be about. Let me describe three different types of universities that we could have in our country, and, to some extent, we do have.
$7000 U
Our Oklahoma State friend Vance Fried is working on devising a plan for a high quality university that would cost $7000 a student to society --whether those bills are paid for from tuition, taxpayers, etc. It would have limited course offerings, not a lot of expensive administrators, a modest number of majors, etc. --but it would offer good, quality instruction that would prepare students for the real world. The for-profits have shown this is doable, and our friend Randy Best says it can be done for far less than even $7000 using electronic means of dissemination of knowledge. $7000 U is perfect for the low or middle income kid of reasonable but not exceptional talent who looks at college as a ticket for a decent career.
YUPPIE U
I have long said that some school ought to clean up on enrolling good students from prosperous, affluent homes ---families making between $100,000 and $300,000 a year. Colleges shower aid on low income kids, and the uber rich do not worry about tuition fees. But the nicer suburbs of America are filled with lots of kids going to pretty decent high schools from families with attentive parents. These families currently largely pay close to sticker prices, and while they are prosperous, $40,000 or more annual fees and charges are something of a strain. I have always thought some prominent university should slash tuition fees in general, financed by reduced tuition discounting for the poor or special talented students. Lower the sticker cost for tuition only from, say, $33,000 a year to $22,000 a year, and applications would pour in. Such a good would be underrepresented by poor kids, but most good schools are anyway. Harvard took a step in this direction with its new price reductions for kids from families with $60,000 to $180,000 income.
MERITORIOUS U
There ought to be schools that accept kids on one criteria only --prospects for academic success. They take only the best, no matter how rich one's parents are, whether they are alums or not, etc. Academic promise is the criteria --we don't care if you spend your free time helping orphans in Ghana, chasing women in bars, or trying to save the whales. Cal Tech pretty closely meets these criteria now. The Big Three Ivies (Harvard, Yale and Princeton) certainly are heavily merit-based, but money sometimes talks (BIG money, to be sure),and admissions people go for students who have politically correct backgrounds or behaviors, reducing the merit component of the admission decision. Harvard, Yale and Princeton could convert to Meritorious U all the way, given the quality of applicants, and each could lower undergraduate tuition to zero and disband the financial aid office --- but they won't, partly because of alumni pressure, partly because of greed (they want to take kids from rich families as that enhances wealth in the long run), and partly because they honestly believe there is more to life than being first rate academically.
Of course we have many other models. The Community College has elements of $7000 U. Some public flagships (the University of Virginia particularly comes to mind) are much like Yuppie U. Antioch College, on the brink of extinction in Yellow Springs, is a niche (progressive left) school, just as Hillsdale College (conservative/libertarian) is. And then there is Berea College, which is the un-Yuppie school appealing to the poor. Meaningful choice makes our system of higher education vibrant, often very good. Now, if we could just make it more efficient. I wonder if government went away and ignored higher education --what would we have? My guess is, we would have a pretty good system of schools, lots of diversity, and significantly lower costs than exist today. That, however, is a subject for another blog (or maybe even book).
Tuesday, December 11, 2007
A Tale of Two Colleges: Harvard and Berea
By Richard Vedder
Watching our colleague Lynne Munson adroitly handle herself on the new Harvard tuition initiative on the Neil Cavuto show on Fox News this afternoon, I was reminded of Berea College. Harvard is getting great plaudits for reducing tuition charges for kids from families making up to $180,000 a year (half the Harvard class --the typical student comes from a home with triple the median family income nationally). Yet Berea College outdid Harvard years ago --with far less money. Harvard has fewer than 10 percent of its students with Pell Grants, while Berea College has 75 percent. Berea has shown a commitment to making college affordable that is all action, not rhetoric, and did it not to forestall nasty federal legislation, but because of a sincere belief it was the right thing to do.
The Berea web site tells the story:
"Every Berea student is awarded a 4-year, tuition scholarship...The actual cost to students and their families is $0...But a Berea education isn't free. We have the same financial obligations that other colleges do. The difference is our endowment. It's a resource made available by people who believe exceptional students shouldn't be denied an outstanding education."
Harvard's move was, on the whole, a very positive one, lowering costs for perhaps 40 percent of the Harvard student body. And it will force some action by other schools. But it was probably more a PR move to head off congressional attack than a true commitment to reducing college costs. Still, it is welcomed. But little Berea, where most kids are poor, has done something more remarkable than Harvard for every dollar of resources it has --it offers a quality liberal arts education to poor Appalachian students at no cost. That is a remarkable achievement. It is more interested in seeing kids achieve the American Dream than competing successfully in the academic arms race. In adhering to principles, however, it has been showered with resources from non-alumni Americans who admire, as I do, what they do at this school in an impoverished area of Kentucky.
Watching our colleague Lynne Munson adroitly handle herself on the new Harvard tuition initiative on the Neil Cavuto show on Fox News this afternoon, I was reminded of Berea College. Harvard is getting great plaudits for reducing tuition charges for kids from families making up to $180,000 a year (half the Harvard class --the typical student comes from a home with triple the median family income nationally). Yet Berea College outdid Harvard years ago --with far less money. Harvard has fewer than 10 percent of its students with Pell Grants, while Berea College has 75 percent. Berea has shown a commitment to making college affordable that is all action, not rhetoric, and did it not to forestall nasty federal legislation, but because of a sincere belief it was the right thing to do.
The Berea web site tells the story:
"Every Berea student is awarded a 4-year, tuition scholarship...The actual cost to students and their families is $0...But a Berea education isn't free. We have the same financial obligations that other colleges do. The difference is our endowment. It's a resource made available by people who believe exceptional students shouldn't be denied an outstanding education."
Harvard's move was, on the whole, a very positive one, lowering costs for perhaps 40 percent of the Harvard student body. And it will force some action by other schools. But it was probably more a PR move to head off congressional attack than a true commitment to reducing college costs. Still, it is welcomed. But little Berea, where most kids are poor, has done something more remarkable than Harvard for every dollar of resources it has --it offers a quality liberal arts education to poor Appalachian students at no cost. That is a remarkable achievement. It is more interested in seeing kids achieve the American Dream than competing successfully in the academic arms race. In adhering to principles, however, it has been showered with resources from non-alumni Americans who admire, as I do, what they do at this school in an impoverished area of Kentucky.
Monday, December 10, 2007
Hurray for Harvard!!!!!
By Richard Vedder
For a year, we have been complaining about Harvard, noting the school has the financial wherewithal to eliminate all undergraduate tuition, which we have advocated. In a study I am writing on federal tax policy for higher ed, I am advocating eliminating tuition at Harvard-like schools for students from modestly above average income families (say up to $90,000 a year), and reducing expected payments for those earning up to double that amount ($180,000 a year).
Harvard has just announced doing something very similar to what we have advocated. News stories indicate that no Harvard student from families with an $180,000 a year income or less will have to pay more than 10 percent of his/her income to the school. Currently, a student from a family with an $180,000 income typically pays $30,000 to go to Harvard --now that will be $18,000. At $120,000 a year income, the family cost of $12,000 probably compares favorably to that at many public universities. Moreover, Harvard is no longer expecting students to take out student loans as part of the financial aid package.
The cost of this to Harvard is chump change --$22 million a year at first. This is less than seven basis points on its endowment. If Harvard is spending 3.25 percent a year from endowment principal annually, now it will have to spend 3.32 percent --big whoop. The school could have gone farther, been bolder, but this strikes me as good, and about right. People from families with $150,000 incomes should be spending something for their expensive education. On technical grounds, I see a need to slightly tweak the formula to avoid some problems, but probably Harvard has already taken care of this.
This does show political heat and public pressure matters. We at CCAP, including our adjunct colleague Lynne Munson, have been yelling at schools like Harvard to do something like this for months, and Harvard is scared out of its wits by a potential endowment spending rule that Lynne, Senator Grassley and others are advocating. This is smart politics for Harvard. But most important, it is a victory for those promoting greater affordability and access to America's premier colleges.
I am going to put crimson lights on my Christmas tree in honor of Harvard this year.
For a year, we have been complaining about Harvard, noting the school has the financial wherewithal to eliminate all undergraduate tuition, which we have advocated. In a study I am writing on federal tax policy for higher ed, I am advocating eliminating tuition at Harvard-like schools for students from modestly above average income families (say up to $90,000 a year), and reducing expected payments for those earning up to double that amount ($180,000 a year).
Harvard has just announced doing something very similar to what we have advocated. News stories indicate that no Harvard student from families with an $180,000 a year income or less will have to pay more than 10 percent of his/her income to the school. Currently, a student from a family with an $180,000 income typically pays $30,000 to go to Harvard --now that will be $18,000. At $120,000 a year income, the family cost of $12,000 probably compares favorably to that at many public universities. Moreover, Harvard is no longer expecting students to take out student loans as part of the financial aid package.
The cost of this to Harvard is chump change --$22 million a year at first. This is less than seven basis points on its endowment. If Harvard is spending 3.25 percent a year from endowment principal annually, now it will have to spend 3.32 percent --big whoop. The school could have gone farther, been bolder, but this strikes me as good, and about right. People from families with $150,000 incomes should be spending something for their expensive education. On technical grounds, I see a need to slightly tweak the formula to avoid some problems, but probably Harvard has already taken care of this.
This does show political heat and public pressure matters. We at CCAP, including our adjunct colleague Lynne Munson, have been yelling at schools like Harvard to do something like this for months, and Harvard is scared out of its wits by a potential endowment spending rule that Lynne, Senator Grassley and others are advocating. This is smart politics for Harvard. But most important, it is a victory for those promoting greater affordability and access to America's premier colleges.
I am going to put crimson lights on my Christmas tree in honor of Harvard this year.
The Equality-Reputation Tradeoff
By Richard Vedder and Thomas Ruchti
A major justification of public subsidies for American higher education --both private and public -- is that they make college more accessible to the poor, students who otherwise would be unable to attend college. Yet colleges want to maximize their reputation, not to mention their wealth, and taking in lower income students hurts them. Lower income students are likely to have lower SAT scores on average, and lower SAT scores hurts a school's US News & World Report rankings. Poorer kids are less likely to attend schools with lots of Advanced Placement classes, after school enrichment programs, etc. Their French Club, if they have one, is less likely to go to Paris over spring break.
Hence colleges face a trade-off --meet the access/egalitarian needs, by taking in lots of poor kids, or meet the "academic standards/high quality" reputation needs by being indifferent to those students. Also, taking in a poor kid instead of a rich kid is costly financially --- the rich kid pays the sticker price and parents give a financial contribution, while the poor kids requires expensive scholarships.
Data on Pell Grants, a good measure of low income presence on campus, bears out our conclusion. See the graph. Kids going to the top 20 schools in the US News & World Report national university rankings are only half as likely to get Pell Grants as those going to a broader sample of universities of varying levels of quality and distinction. The less distinguished colleges are coming closer to meeting the national egalitarian ideal. The high ranking schools --which typically are the wealthier ones as well--give only lip service to serving the lower income part of the population.
Having said that, the growing concern about this problem is leading to some changes at the top, as today's majestic announcement by Harvard attests (dramatically reducing costs for kids from all but the most affluent homes). As the economic barriers to entry at the top erode, the schools still impose rigid academic standards. There are good justifications for these, but schools wanting to more fully meet the egalitarian ideal will perhaps adopt an "income-adjusted" admission criteria, that accepts lower income students with high but not pristine grades and SAT scores but who are far better students than what their socioeconomic circumstances would suggest. Students who overcome adversity should have some advantage, and perhaps that is the way to do it.
A major justification of public subsidies for American higher education --both private and public -- is that they make college more accessible to the poor, students who otherwise would be unable to attend college. Yet colleges want to maximize their reputation, not to mention their wealth, and taking in lower income students hurts them. Lower income students are likely to have lower SAT scores on average, and lower SAT scores hurts a school's US News & World Report rankings. Poorer kids are less likely to attend schools with lots of Advanced Placement classes, after school enrichment programs, etc. Their French Club, if they have one, is less likely to go to Paris over spring break.
Hence colleges face a trade-off --meet the access/egalitarian needs, by taking in lots of poor kids, or meet the "academic standards/high quality" reputation needs by being indifferent to those students. Also, taking in a poor kid instead of a rich kid is costly financially --- the rich kid pays the sticker price and parents give a financial contribution, while the poor kids requires expensive scholarships.
Data on Pell Grants, a good measure of low income presence on campus, bears out our conclusion. See the graph. Kids going to the top 20 schools in the US News & World Report national university rankings are only half as likely to get Pell Grants as those going to a broader sample of universities of varying levels of quality and distinction. The less distinguished colleges are coming closer to meeting the national egalitarian ideal. The high ranking schools --which typically are the wealthier ones as well--give only lip service to serving the lower income part of the population.
Having said that, the growing concern about this problem is leading to some changes at the top, as today's majestic announcement by Harvard attests (dramatically reducing costs for kids from all but the most affluent homes). As the economic barriers to entry at the top erode, the schools still impose rigid academic standards. There are good justifications for these, but schools wanting to more fully meet the egalitarian ideal will perhaps adopt an "income-adjusted" admission criteria, that accepts lower income students with high but not pristine grades and SAT scores but who are far better students than what their socioeconomic circumstances would suggest. Students who overcome adversity should have some advantage, and perhaps that is the way to do it.
The Edict of Nantes Approach to Academic Peace
By Richard Vedder
In 1598, the King of France ended decades of religious wars by issuing the Edict of Nantes, guaranteeing Protestants certain rights of property and freedom from legal harassment (it is interesting how bits of western civ. courses taken nearly a half a century ago come to mind). Recently, warring factions (colleges and accreditation organizations) met to reach a near-truce on a battle over the question: who is going to determine whether colleges and universities are meeting goals regarding the academic accomplishments of students. While each wants control, what they fear most is for neither of them to determine academic success, and that standards control would pass into the hands of the Common Enemy, namely the U.S. Department of Education. So the Establishment Educrats are trying to read a modern name equivalent of the Edict of Nantes, giving some power to the accreditors (the Protestants of old), while retaining much power in the hands of the universities (the Catholics of late 16th century France).
The good news here is that everyone at least rhetorically accepts the Spellings Commission plea that measures of value added during college be developed, and that these measures should have consequences. To me, it is insane to have the colleges police themselves. The U.S. Department of Education is a group least beholden to the college constituencies.
I suspect the following will happen. The colleges and accreditors will make a deal. Colleges will set their own measures of success, but accreditors will have a big role in determining whether success has been made in meeting standards. The U.S. Department of Education will be told to stay out of it. Universities will set mushy standards and little substantively will happen to measure whether students are learning anything while in school. The parents will be as clueless as favor as to whether the schools their kids are applying to add value to their children's lives.
I hope my cynicism is unwarranted. Time will tell. If we can get data on learning out of schools, we can let private vendors disseminate it, as they will gladly do, to help information-starved parents and students make better college choices.
In 1598, the King of France ended decades of religious wars by issuing the Edict of Nantes, guaranteeing Protestants certain rights of property and freedom from legal harassment (it is interesting how bits of western civ. courses taken nearly a half a century ago come to mind). Recently, warring factions (colleges and accreditation organizations) met to reach a near-truce on a battle over the question: who is going to determine whether colleges and universities are meeting goals regarding the academic accomplishments of students. While each wants control, what they fear most is for neither of them to determine academic success, and that standards control would pass into the hands of the Common Enemy, namely the U.S. Department of Education. So the Establishment Educrats are trying to read a modern name equivalent of the Edict of Nantes, giving some power to the accreditors (the Protestants of old), while retaining much power in the hands of the universities (the Catholics of late 16th century France).
The good news here is that everyone at least rhetorically accepts the Spellings Commission plea that measures of value added during college be developed, and that these measures should have consequences. To me, it is insane to have the colleges police themselves. The U.S. Department of Education is a group least beholden to the college constituencies.
I suspect the following will happen. The colleges and accreditors will make a deal. Colleges will set their own measures of success, but accreditors will have a big role in determining whether success has been made in meeting standards. The U.S. Department of Education will be told to stay out of it. Universities will set mushy standards and little substantively will happen to measure whether students are learning anything while in school. The parents will be as clueless as favor as to whether the schools their kids are applying to add value to their children's lives.
I hope my cynicism is unwarranted. Time will tell. If we can get data on learning out of schools, we can let private vendors disseminate it, as they will gladly do, to help information-starved parents and students make better college choices.
Sunday, December 09, 2007
Surprise! Surprise!!! Student Loan Defaults Are Rising
By Richard Vedder
My CCAP colleague Andy Gillen has adroitly likened the student loan situation to the subprime lending mess facing the nation. Loans made at below market rates of interest led to a ballooning in debt. Not only are homeowners (and some private equity borrowers) going broke, but the same is happening in higher education, if the Saturday Wall Street Journal is right (as I am sure it is).
Officially stated student loan default rates are too low, since they are based on only two years of post-schooling history. Now the big lenders are starting to take balance sheet hits from bigger losses (except for the federal government, which does not even have a balance sheet, and if it did, it would be meaningless as it would fail to record tens of trillions of dollars of unfunded health care and pension liabilities).
Some are predicting the following not so rosy scenario. The economy will enter a downturn, new college kids will graduate and have trouble getting good jobs --but will be faced with healthy five digit sums of debt requiring thousands of dollars in annual payment to service --even with subsidized interest rates. While I am not nearly as sure of a recession as some of my friends, the problem outlined is there --and will continue to grow unless we fundamentally change the system. Moderate increases in Pell Grants and tinkering with interest rates is not 'fundamental change". As long as the ratio of debt repayments to disposable income of new college graduates continues to rise, this problem will worsen. The effects of the inefficiencies of the higher education system could rear up and bite some pretty big financial services firms, or, if bailouts occur (as is Congresses' tendency), taxpayers could take it on the chin. If the financial services companies take a hit, some may exit the business, as the feds are already trying to cut the fees they receive for their loan involvement.
The root cause of the problem, of course, is the soaring cost of colleges --to students and to society. We must find a way to stop the academic arms race (I am surprised someone has not proposed disarmament talks!) College presidents are worried more about how their colleagues will receive them at meetings of the American Council of Education or similar organizations than on what the general public is saying. The "public be damned", "let them eat cake", attitudes dominate, costs rise faster than inflation, debt soars, the debt-income ratio increases, and defaults rise. What's next? The bad solution would be for Congress to simply drop more money out of airplanes to borrowers of student loans in distress. The good solution would be to face up to the root causes, clamp down on publicly funded or guaranteed student loan growth, and, sadly to be sure, let some people fail as a lesson to the nation of the pitfalls of a debt-financed decline in higher education productivity. Above all, this shows federal involvement in the market for student credit causes more problems than it solves - the feds are doing to student loans what they have done to pensions for the elderly, treating them irresponsibly.
My CCAP colleague Andy Gillen has adroitly likened the student loan situation to the subprime lending mess facing the nation. Loans made at below market rates of interest led to a ballooning in debt. Not only are homeowners (and some private equity borrowers) going broke, but the same is happening in higher education, if the Saturday Wall Street Journal is right (as I am sure it is).
Officially stated student loan default rates are too low, since they are based on only two years of post-schooling history. Now the big lenders are starting to take balance sheet hits from bigger losses (except for the federal government, which does not even have a balance sheet, and if it did, it would be meaningless as it would fail to record tens of trillions of dollars of unfunded health care and pension liabilities).
Some are predicting the following not so rosy scenario. The economy will enter a downturn, new college kids will graduate and have trouble getting good jobs --but will be faced with healthy five digit sums of debt requiring thousands of dollars in annual payment to service --even with subsidized interest rates. While I am not nearly as sure of a recession as some of my friends, the problem outlined is there --and will continue to grow unless we fundamentally change the system. Moderate increases in Pell Grants and tinkering with interest rates is not 'fundamental change". As long as the ratio of debt repayments to disposable income of new college graduates continues to rise, this problem will worsen. The effects of the inefficiencies of the higher education system could rear up and bite some pretty big financial services firms, or, if bailouts occur (as is Congresses' tendency), taxpayers could take it on the chin. If the financial services companies take a hit, some may exit the business, as the feds are already trying to cut the fees they receive for their loan involvement.
The root cause of the problem, of course, is the soaring cost of colleges --to students and to society. We must find a way to stop the academic arms race (I am surprised someone has not proposed disarmament talks!) College presidents are worried more about how their colleagues will receive them at meetings of the American Council of Education or similar organizations than on what the general public is saying. The "public be damned", "let them eat cake", attitudes dominate, costs rise faster than inflation, debt soars, the debt-income ratio increases, and defaults rise. What's next? The bad solution would be for Congress to simply drop more money out of airplanes to borrowers of student loans in distress. The good solution would be to face up to the root causes, clamp down on publicly funded or guaranteed student loan growth, and, sadly to be sure, let some people fail as a lesson to the nation of the pitfalls of a debt-financed decline in higher education productivity. Above all, this shows federal involvement in the market for student credit causes more problems than it solves - the feds are doing to student loans what they have done to pensions for the elderly, treating them irresponsibly.
Friday, December 07, 2007
"Go To Hell, You Did Not Fund My Pell"
By Richard Vedder
Our intrepid Boston friend and sometime partner in crime, Wick Sloane, in an email just received, suggests a variant on today's blog heading as a new college chant, or perhaps part of a college protest song. I read this just after getting off the phone talking to a reporter at a major newsmagazine about endowments. Actually, I realized these two things were connected: Pell Grants and endowments are intimately related.
Our Whiz Kid Gordy Ructi is running regressions and doing analysis of endowments at hundred of American universities. The evidence is not all in, and work is incomplete. But the following seem to be roughly true statements ("stylized facts") worth pondering:
1) Endowments have soared in value in modern times, as the cost of colleges to students has continued to rise by healthy amounts.
2) The proportion of students on Pell Grants at the most endowed schools usually is very low -- around 10 percent or less in many cases. Higher per student endowments typically do not lead to large increases in aid to poor students that lead to higher attendance rates among that group.
3) The "tax expenditures" involved with tax deductions associated with endowments are worth billions of dollars a year -- an estimate of $15 billion annually may be close to accurate in some years.
4) Had the government collected, say, even $10 billion more in revenue by taxing endowment income (not new contributions), it could fund a vastly expanded Pell Grant program -- giving literally millions more students Pell Grants, increasing the size of existing grants by 50 percent or more, or by doing a combination of both.
Americans do believe tax policy should be used to achieve social objectives, and, for many, one national objective is greater equality of educational opportunity. Given the four stylized facts above, it is not surprising that there is rising discontent about endowments --alleged inadequate endowment-funded spending to make education more accessible to more disadvantaged students, the lack of transparency about how they are invested and used, etc. Even college officials sometimes are in the dark on exactly how funds are invested which, given the vast resources granted to the colleges through the political process, is not defensible in my opinion.
Recognizing this, the American Enterprise Institute, in cooperation with CCAP, plans a conference within the next two months on this important topic. Stay tuned.
Our intrepid Boston friend and sometime partner in crime, Wick Sloane, in an email just received, suggests a variant on today's blog heading as a new college chant, or perhaps part of a college protest song. I read this just after getting off the phone talking to a reporter at a major newsmagazine about endowments. Actually, I realized these two things were connected: Pell Grants and endowments are intimately related.
Our Whiz Kid Gordy Ructi is running regressions and doing analysis of endowments at hundred of American universities. The evidence is not all in, and work is incomplete. But the following seem to be roughly true statements ("stylized facts") worth pondering:
1) Endowments have soared in value in modern times, as the cost of colleges to students has continued to rise by healthy amounts.
2) The proportion of students on Pell Grants at the most endowed schools usually is very low -- around 10 percent or less in many cases. Higher per student endowments typically do not lead to large increases in aid to poor students that lead to higher attendance rates among that group.
3) The "tax expenditures" involved with tax deductions associated with endowments are worth billions of dollars a year -- an estimate of $15 billion annually may be close to accurate in some years.
4) Had the government collected, say, even $10 billion more in revenue by taxing endowment income (not new contributions), it could fund a vastly expanded Pell Grant program -- giving literally millions more students Pell Grants, increasing the size of existing grants by 50 percent or more, or by doing a combination of both.
Americans do believe tax policy should be used to achieve social objectives, and, for many, one national objective is greater equality of educational opportunity. Given the four stylized facts above, it is not surprising that there is rising discontent about endowments --alleged inadequate endowment-funded spending to make education more accessible to more disadvantaged students, the lack of transparency about how they are invested and used, etc. Even college officials sometimes are in the dark on exactly how funds are invested which, given the vast resources granted to the colleges through the political process, is not defensible in my opinion.
Recognizing this, the American Enterprise Institute, in cooperation with CCAP, plans a conference within the next two months on this important topic. Stay tuned.
Donor Intent: The Latest Higher Ed Controversy
By Bryan O’Keefe
I had the opportunity yesterday to attend a terrific conference put on by our friend Fred Fransen and his new organization, the Center for Excellence in Higher Education. The topic was donor intent and included two panels, one a more first-hand look at donor intent horror stories and then a second panel which took a longer view about what can be done, the context for donor relationships, etc. A summary of the event can be found in today’s INSIDE HIGHER ED where our own Lynne Munson also gives some of her thoughts about the extent of the problem.
The central donor intent case right now involves the Robertson family and Princeton University, which is currently winding its way through the court system. A representative from the Robertson family spoke at yesterday’s conference and he was very persuasive that Princeton has misused the gift that his parents originally gave to the university. Some of the other donor intent stories were less straight-forward than Robertson, but nonetheless presented interesting questions that will also be resolved by the courts in the near future.
I think from a PR perspective however that colleges and universities would want to avoid these types of disputes. It does not bode well for future fundraising if the current donors are up in arms about how their gifts were used. Part of this can also be blamed on the colleges and universities themselves, whose arrogance can lead them astray in how they use gifts. If anything, colleges and universities should be going out of their way to ensure that the gifts are used precisely as the donor intended.
One of the panelists suggested that the problem itself is overblown and that most donor intent disputes are solved without the assistance of the legal system. That might be true, but Fred Fransen’s new group and various media stories about it have already shown that there are many donors out there who are not happy with how higher education has used their generous contribution. It could very well be that with renewed attention on this issue and important legal cases such as Robertson coming down the pipeline that donor intent will emerge as a growing controversy within the Ivory Tower.
I had the opportunity yesterday to attend a terrific conference put on by our friend Fred Fransen and his new organization, the Center for Excellence in Higher Education. The topic was donor intent and included two panels, one a more first-hand look at donor intent horror stories and then a second panel which took a longer view about what can be done, the context for donor relationships, etc. A summary of the event can be found in today’s INSIDE HIGHER ED where our own Lynne Munson also gives some of her thoughts about the extent of the problem.
The central donor intent case right now involves the Robertson family and Princeton University, which is currently winding its way through the court system. A representative from the Robertson family spoke at yesterday’s conference and he was very persuasive that Princeton has misused the gift that his parents originally gave to the university. Some of the other donor intent stories were less straight-forward than Robertson, but nonetheless presented interesting questions that will also be resolved by the courts in the near future.
I think from a PR perspective however that colleges and universities would want to avoid these types of disputes. It does not bode well for future fundraising if the current donors are up in arms about how their gifts were used. Part of this can also be blamed on the colleges and universities themselves, whose arrogance can lead them astray in how they use gifts. If anything, colleges and universities should be going out of their way to ensure that the gifts are used precisely as the donor intended.
One of the panelists suggested that the problem itself is overblown and that most donor intent disputes are solved without the assistance of the legal system. That might be true, but Fred Fransen’s new group and various media stories about it have already shown that there are many donors out there who are not happy with how higher education has used their generous contribution. It could very well be that with renewed attention on this issue and important legal cases such as Robertson coming down the pipeline that donor intent will emerge as a growing controversy within the Ivory Tower.
Tuesday, December 04, 2007
Two for One: Another Reason for the Tuition Explosion
By Richard Vedder and Matthew Denhart
College professors, who join campaigns with a drop of a hat to save the whales, slow down global warming, or exhort the virtues of same sex marriages, have been pretty slow to jump on the bandwagon to hold down tuition increases. Why is that? Don't professors embrace the idea that greater affordability of higher education helps people realize the American Dream? Isn't cheap education a path to greater income mobility and greater equality of opportunity? They certainly are, and professors and their bosses (deans and university presidents) proclaim that when they hold their hat out for money from taxpayers and major donors.
Some recent statistical analysis that we have done with respect to public four year universities, explaining the difference in average full professor pay between states, suggests that professors have good reason not to fight tuition increases. Each one dollar increase in tuition charged per student is associated with a two dollar increase in annual professorial salary; similarly a dollar more of state higher education appropriations raises salaries as well, albeit not quite as much as higher tuition charges.
We also learn that, other things equal, professors at big schools (which tend to be more research oriented) tend to make more than ones at small institutions. Additionally, the more liberal the state (as measured by the percentage voting for John Kerry in the 2004 presidential election), the higher salaries are (liberals help their own?). Compare a state with 55 percent voting for Kerry with one where the percent is 45 percent. We predict salaries would average $4,721 more annually for professors in the bluer, more liberal states.
Indeed, one reason professors tend to be liberal may be that being so is financially rewarding. High levels of appropriations (which liberals usually favor) mean higher salaries. By the way, early results on university presidential salaries suggest that some of the same factors apply (each added dollar in tuition is worth five dollars to the prez, although the results are less robust statistically).
We have made the point before, but added university resources inevitably end up, in part, going to provide added income to the major university players. They want big spending, higher tuition levels, etc., in part to support the good life --higher salaries, perhaps lower teaching loads, nicer facilities to work in, etc. There is nothing immoral or even surprising about it, but it does mean that a little cynicism is in order when university presidents proclaim the crying need for tuition increases several percentage points above the overall inflation rate.
College professors, who join campaigns with a drop of a hat to save the whales, slow down global warming, or exhort the virtues of same sex marriages, have been pretty slow to jump on the bandwagon to hold down tuition increases. Why is that? Don't professors embrace the idea that greater affordability of higher education helps people realize the American Dream? Isn't cheap education a path to greater income mobility and greater equality of opportunity? They certainly are, and professors and their bosses (deans and university presidents) proclaim that when they hold their hat out for money from taxpayers and major donors.
Some recent statistical analysis that we have done with respect to public four year universities, explaining the difference in average full professor pay between states, suggests that professors have good reason not to fight tuition increases. Each one dollar increase in tuition charged per student is associated with a two dollar increase in annual professorial salary; similarly a dollar more of state higher education appropriations raises salaries as well, albeit not quite as much as higher tuition charges.
We also learn that, other things equal, professors at big schools (which tend to be more research oriented) tend to make more than ones at small institutions. Additionally, the more liberal the state (as measured by the percentage voting for John Kerry in the 2004 presidential election), the higher salaries are (liberals help their own?). Compare a state with 55 percent voting for Kerry with one where the percent is 45 percent. We predict salaries would average $4,721 more annually for professors in the bluer, more liberal states.
Indeed, one reason professors tend to be liberal may be that being so is financially rewarding. High levels of appropriations (which liberals usually favor) mean higher salaries. By the way, early results on university presidential salaries suggest that some of the same factors apply (each added dollar in tuition is worth five dollars to the prez, although the results are less robust statistically).
We have made the point before, but added university resources inevitably end up, in part, going to provide added income to the major university players. They want big spending, higher tuition levels, etc., in part to support the good life --higher salaries, perhaps lower teaching loads, nicer facilities to work in, etc. There is nothing immoral or even surprising about it, but it does mean that a little cynicism is in order when university presidents proclaim the crying need for tuition increases several percentage points above the overall inflation rate.
A Tuition Bubble? Part 4 of 4
By Andrew Gillen
This is the fourth 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.
Part 3 is available here.
A working paper that addresses this issue in greater detail is available from our website.
Conclusion
The previous post showed how because schools are prestige rather than profit maximizers, and because a lack of any measure of their output precludes normal price competition, widely available government subsidies will contribute to higher tuition rates.
Government guarantees for student loans contribute to artificially low interest rates and lax lending standards, which were two of the driving forces of the housing bubble. Of course, the bubbles themselves are driven by other causes (speculators in the housing market and market characteristics in higher education), but artificially low interest rates and lax lending standards enable these culprits to exert greater influence. Thus it should come as no surprise that we witness tuition increasing at an unsustainable rate, just as housing prices were until 2007. They are both driven, at least partially, by the same phenomena, artificially low interest rates and a lack of lending standards.
If it took a rise in interest rates to pop the housing bubble, do interest rates need to rise to pop the tuition bubble? If so, current policies like The College Cost Reduction Act of 2007, which is seeking to expand the availability of loans and to lower interest rates even more, will accomplish little other than allowing schools to raise their tuition.
Public policy should cease guaranteeing student loans for so many students. The characteristics of the market for higher education ensure that when the ability of the typical student to pay is increased, schools will simply raise tuition. Restricting loans to low income students would make it harder for schools to raise tuition. Besides, grants are a better method of funding the education of low income students because they do not lead to some of the other problems associated with loans.
The main lesson to draw from the housing bubble (when it comes to higher education at least) is that guarantees for student loans result in artificially low interest rates and lax lending standards. When these subsidies are too widely available, they increase the ability of the typical student to pay for schooling, which encourages schools to raise tuition more than they otherwise could.
This is the fourth 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.
Part 3 is available here.
A working paper that addresses this issue in greater detail is available from our website.
Conclusion
The previous post showed how because schools are prestige rather than profit maximizers, and because a lack of any measure of their output precludes normal price competition, widely available government subsidies will contribute to higher tuition rates.
Government guarantees for student loans contribute to artificially low interest rates and lax lending standards, which were two of the driving forces of the housing bubble. Of course, the bubbles themselves are driven by other causes (speculators in the housing market and market characteristics in higher education), but artificially low interest rates and lax lending standards enable these culprits to exert greater influence. Thus it should come as no surprise that we witness tuition increasing at an unsustainable rate, just as housing prices were until 2007. They are both driven, at least partially, by the same phenomena, artificially low interest rates and a lack of lending standards.
If it took a rise in interest rates to pop the housing bubble, do interest rates need to rise to pop the tuition bubble? If so, current policies like The College Cost Reduction Act of 2007, which is seeking to expand the availability of loans and to lower interest rates even more, will accomplish little other than allowing schools to raise their tuition.
Public policy should cease guaranteeing student loans for so many students. The characteristics of the market for higher education ensure that when the ability of the typical student to pay is increased, schools will simply raise tuition. Restricting loans to low income students would make it harder for schools to raise tuition. Besides, grants are a better method of funding the education of low income students because they do not lead to some of the other problems associated with loans.
The main lesson to draw from the housing bubble (when it comes to higher education at least) is that guarantees for student loans result in artificially low interest rates and lax lending standards. When these subsidies are too widely available, they increase the ability of the typical student to pay for schooling, which encourages schools to raise tuition more than they otherwise could.
Monday, December 03, 2007
Universities and Contempt for the Middle Class
By Richard Vedder
Two astute social scientists, Joel Kotkin and Fred Siegel (hereafter, K and S), had a great op-ed in yesterday's edition of the Los Angeles Times.K and S argue that liberals are once again gaining the upward hand in American politics after a generation in the political wilderness. Yet, the Democrat party today has a different agenda than the one they had a generation ago, or so says K and S. A generation or two ago, Democrats were interested in workers and lower middle class issues --bread and butter issues like wages, health care benefits, low cost educational opportunities, etc. This emphasis started to dissipate when liberal intellectuals like the late Arthur Schlesinger, Jr., became prominent in the Democratic Party, and has accelerated since.
Today's Democratic Party is greatly influenced by wealthy liberal elites, many of them closely associated with universities --latter-day Schlesinger clones. These "gentry liberals" are not so interested in the bread and butter issues that would have absorbed Harry Truman's time if he were alive, like the housing bubble and its aftermath or rising tuition charges, but rather broader economic and social issues like global warming and gay rights. According to K and S, the Dems are interested in trendy issues of interest to intellectuals; the Republicans are interested in keeping businesses happy and taxes down on the affluent, neither party really much cares about bread and butter issues important to the middle class.
I think K and S have it mostly right and this is one reason why higher education cost containment is only now slowly coming to the forefront as a major issue --despite widespread angst among middle class parents. One reason college intellectuals don't push tuition containment is simple -- it might reduce their income. Regressions Matt Denhart, Gordy Ruchti and I have been running generally show a positive correlation between tuition fees and faculty salaries. Take money from parents (higher tuition) and give some of it to professors. Thus the Democrats have been slow to jump on this issue (and the Republicans even slower), just as they are not about ready to promote tort reform despite rising health care costs simply because it will offend big donors. Academics provide a lot of the intellectual fire power (such as it is) and some of the money for the Democratic Party, so the Dems are going to give the colleges that employ their allies a relatively easy time.
There are, however, limits to this. As anger amongst parents of future and present college students grows, the political elites are starting to respond --after all, elections are coming up and these concerned people are articulate, moderately affluent citizens with high rates of voter participation. Dropping ever larger number of dollars out of airplanes over college campuses to appease their liberal allies is a strategy now being overshadowed by rising anger from the rank and file voters.
The mystery to me is why Republicans have not taken this issue on. They are losing market share among upper middle class persons who are heavily concerned about rising college costs. The academy is their natural enemy anyhow. Why not take money away from the bad guys (in their way of thinking) --liberal academics -- and give it to the good guys (middle and even upper class parents paying the bills for college?). The massive income redistribution from Joe Six Pack to liberal intellectuals associated with government largess towards universities surely is not in the narrow interests of the Republican Party --nor, do I think, in the interests of the broader community of American citizens. As I keep reminding readers, there is probably a negative correlation between government higher education spending and economic growth.
In conclusion, let me also mention that Charles Miller and Kevin Carey had a marvelous op-ed on higher education about a week ago in the Houston Chronicle . One higher education entrepreneur friend called it the best short appraisal of higher education he had ever read.
Two astute social scientists, Joel Kotkin and Fred Siegel (hereafter, K and S), had a great op-ed in yesterday's edition of the Los Angeles Times.K and S argue that liberals are once again gaining the upward hand in American politics after a generation in the political wilderness. Yet, the Democrat party today has a different agenda than the one they had a generation ago, or so says K and S. A generation or two ago, Democrats were interested in workers and lower middle class issues --bread and butter issues like wages, health care benefits, low cost educational opportunities, etc. This emphasis started to dissipate when liberal intellectuals like the late Arthur Schlesinger, Jr., became prominent in the Democratic Party, and has accelerated since.
Today's Democratic Party is greatly influenced by wealthy liberal elites, many of them closely associated with universities --latter-day Schlesinger clones. These "gentry liberals" are not so interested in the bread and butter issues that would have absorbed Harry Truman's time if he were alive, like the housing bubble and its aftermath or rising tuition charges, but rather broader economic and social issues like global warming and gay rights. According to K and S, the Dems are interested in trendy issues of interest to intellectuals; the Republicans are interested in keeping businesses happy and taxes down on the affluent, neither party really much cares about bread and butter issues important to the middle class.
I think K and S have it mostly right and this is one reason why higher education cost containment is only now slowly coming to the forefront as a major issue --despite widespread angst among middle class parents. One reason college intellectuals don't push tuition containment is simple -- it might reduce their income. Regressions Matt Denhart, Gordy Ruchti and I have been running generally show a positive correlation between tuition fees and faculty salaries. Take money from parents (higher tuition) and give some of it to professors. Thus the Democrats have been slow to jump on this issue (and the Republicans even slower), just as they are not about ready to promote tort reform despite rising health care costs simply because it will offend big donors. Academics provide a lot of the intellectual fire power (such as it is) and some of the money for the Democratic Party, so the Dems are going to give the colleges that employ their allies a relatively easy time.
There are, however, limits to this. As anger amongst parents of future and present college students grows, the political elites are starting to respond --after all, elections are coming up and these concerned people are articulate, moderately affluent citizens with high rates of voter participation. Dropping ever larger number of dollars out of airplanes over college campuses to appease their liberal allies is a strategy now being overshadowed by rising anger from the rank and file voters.
The mystery to me is why Republicans have not taken this issue on. They are losing market share among upper middle class persons who are heavily concerned about rising college costs. The academy is their natural enemy anyhow. Why not take money away from the bad guys (in their way of thinking) --liberal academics -- and give it to the good guys (middle and even upper class parents paying the bills for college?). The massive income redistribution from Joe Six Pack to liberal intellectuals associated with government largess towards universities surely is not in the narrow interests of the Republican Party --nor, do I think, in the interests of the broader community of American citizens. As I keep reminding readers, there is probably a negative correlation between government higher education spending and economic growth.
In conclusion, let me also mention that Charles Miller and Kevin Carey had a marvelous op-ed on higher education about a week ago in the Houston Chronicle . One higher education entrepreneur friend called it the best short appraisal of higher education he had ever read.
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