By Richard Vedder
After World War II, President Truman appointed a commission headed by former president Herbert Hoover to recommend reforms in the way the federal government was run. It came in with some constructive ideas, many of which were adopted. This led state governments to create "little Hoover Commissions" to review the way state governments were run, and to reform them to make them more efficient, more transparent, and more accountable. Not all were a success, but many did positive things.
A couple of years ago, the U.S. Secretary of Education, Margaret Spellings, similarly created a commission to recommend reforms in the way universities are run. Its recommendations have received a good deal of attention and, believe it or not, there has been some positive movement in meeting some of its goals --the FAFSA form is being simplified, colleges are talking seriously about providing some measures of performance, accreditation is being scrutinized more carefully, schools have become a bit less aggressive in raising tuition fees, etc. Some constructive progress has been made.
Yet in many ways it is state and local governments who run our public sector universities, and provide the largest amount of subsidies for their operation. We need little Spellings Commissions to push to implement the Spellings Commission reforms in the states, and to consider issues specific to each individual state, such as the system of governance (the role of the central state coordinating body for higher education, for example).
I was delighted to read Oregon is creating such a commission. Often commissions are a waste of time and effort, particularly when populated by persons with strong vested interests in higher education outcomes and who lack gravitas. Commissions made up of the best minds in the state, with a small number of retired respected university leaders, top business persons, a couple of leading professionals, perhaps a couple of retired politicians, etc., would be ideal. Have them report both to the Governor and the Legislature. As a member of the Spellings Commission myself, I am sure that members of that body would be glad to be of assistance, particularly in states where they live or have a special interest.
I plan to suggest to Charles Miller (Spellings Commission chair) and to leaders in the U.S. Department of Education that a push be initiated to appoint bipartisan (or better, nonpartisan) groups with prestige and no axes to grind to review each state's system of universities, particularly those under public control.
Friday, August 31, 2007
Wednesday, August 29, 2007
Ripping Off Taxpayers, Pennsylvania Style
By Richard Vedder
Probably nothing has lowered the respect of the public for higher education more than the payment of huge salaries and bonuses, compensation far out of line with most public service jobs and with any historical norms. We now have million dollar university presidents (and, of course, two million dollar football coaches). Poor kids borrow buckets of money to pay soaring tuition fees that finance the soaring growth in compensation.
My sidekick Bryan, a Pennsylvania native who reads the Pittsburgh papers religiously, has informed me of the scandal du jour. The Pennsylvania Higher Education Assistance Agency, which supposedly is in the business of helping kids go to college, is also into the business of ripping off taxpayers, by paying top executives perhaps double what they should be getting. Dick Wiley, the head of this nefarious organization, was recently granted a six digit bonus on top of a salary already nearly double that of the governor (Ed Rendell)--and three other top execs got six digit bonuses as well, bringing their annual pay to well over $300,000 a year (Wiley's was closer to $500,000).
Why is this happening? Proponents of this rip off will argue "we have to pay what the market dictates." The reality is most of these payments are pure economic rents --unnecessary transfers of income from one class of persons (taxpayers) to another (the executives). They occur because accountability is nearly absent. I suspect that the day will come when taxpayers will shower retribution on the higher education organizations employing these greedy individuals who look at public employment not mainly as a way to serve fellow citizens, but rather as a way to get rich at public expense.
What is the solution? For starters, I might simply get rid of the Pennsylvania Higher Education Assistance Agency. States should not be in lending business, and scholarships are best administered as universal vouchers available to reasonably good and diligent students on demand, without a huge, expensive bureaucracy. Short of that, some salary caps are needed, even though in principle I abhor price and wage controls. But stealing is stealing, even if it is legal. I would also fire the PHEAA's board and make its employees civil servants like most government workers, with good but not exorbitant rates of pay. If Mr. Wiley doesn't like it, he can go elsewhere.
Probably nothing has lowered the respect of the public for higher education more than the payment of huge salaries and bonuses, compensation far out of line with most public service jobs and with any historical norms. We now have million dollar university presidents (and, of course, two million dollar football coaches). Poor kids borrow buckets of money to pay soaring tuition fees that finance the soaring growth in compensation.
My sidekick Bryan, a Pennsylvania native who reads the Pittsburgh papers religiously, has informed me of the scandal du jour. The Pennsylvania Higher Education Assistance Agency, which supposedly is in the business of helping kids go to college, is also into the business of ripping off taxpayers, by paying top executives perhaps double what they should be getting. Dick Wiley, the head of this nefarious organization, was recently granted a six digit bonus on top of a salary already nearly double that of the governor (Ed Rendell)--and three other top execs got six digit bonuses as well, bringing their annual pay to well over $300,000 a year (Wiley's was closer to $500,000).
Why is this happening? Proponents of this rip off will argue "we have to pay what the market dictates." The reality is most of these payments are pure economic rents --unnecessary transfers of income from one class of persons (taxpayers) to another (the executives). They occur because accountability is nearly absent. I suspect that the day will come when taxpayers will shower retribution on the higher education organizations employing these greedy individuals who look at public employment not mainly as a way to serve fellow citizens, but rather as a way to get rich at public expense.
What is the solution? For starters, I might simply get rid of the Pennsylvania Higher Education Assistance Agency. States should not be in lending business, and scholarships are best administered as universal vouchers available to reasonably good and diligent students on demand, without a huge, expensive bureaucracy. Short of that, some salary caps are needed, even though in principle I abhor price and wage controls. But stealing is stealing, even if it is legal. I would also fire the PHEAA's board and make its employees civil servants like most government workers, with good but not exorbitant rates of pay. If Mr. Wiley doesn't like it, he can go elsewhere.
Tuesday, August 28, 2007
Alums , Students and College Wealth Inequality
By Richard Vedder
On several occasions, I have argued that schools like Harvard have such a large endowment that they could literally eliminate tuition without any serious financial implications. Harvard literally does not know what to do with all its money (it would deny that of course), spending only around 3.5 percent of its principal each year, such a paltry percentage that it would be forced to pay taxes if it were a non-university form of charity.
Well, today's Wall Street Journal tells us that some alums are catching on, realizing that their alma mater is extremely wealthy and that the law of diminishing returns is at work. A dollar given to the poorer local university will have much greater impact than the dollar given to the rich school attended perhaps 40 or 50 years ago. Moreover, the donor who is a big fish in a little pond is more likely to get major recognition relative to the one who is a little fish in a big pond. Slippery Rock will name a building after you for $3 million, whereas it might take $25 million for that to happen at Harvard.
I hope this trend continues, as it is a step toward reducing the huge inequality in resources between schools. I still give a few bucks annually to the wealthy private school I attended (Northwestern), but also give larger amounts to poorer schools, including Ohio University where I teach, since they feel the impact of the money more greatly.
*****************************
Speaking of Ohio University, we do something here with students and our endowment that has been truly win-win for students and the university alike. A few years ago, I urged our Vice President for Finance to turn a little bit of the endowment over to finance students in our business school to invest. Our professional investors and amateur alumni investment committee were doing a mediocre job, and I felt the students would likely do just as well, while gaining genuine real world experience. The idea was implemented. Now, several years later, the student portfolio management group has outperformed the professionals nearly every year and the university has increased the funds given to them (albeit, not enough). One byproduct: graduates of the university from the student investor group have gotten excellent jobs, some with New York financial giants. It is a case where financial theory is blended with financial practice, making the study of corporate finance and investing more interesting. The students receive no pay, so the university saves expensive investment fees. Only the best and brightest kids get selected, and they work their hearts out, showing an enthusiasm rarely seen in conventional classes. Some other schools are doing this too --a wonderful idea.
On several occasions, I have argued that schools like Harvard have such a large endowment that they could literally eliminate tuition without any serious financial implications. Harvard literally does not know what to do with all its money (it would deny that of course), spending only around 3.5 percent of its principal each year, such a paltry percentage that it would be forced to pay taxes if it were a non-university form of charity.
Well, today's Wall Street Journal tells us that some alums are catching on, realizing that their alma mater is extremely wealthy and that the law of diminishing returns is at work. A dollar given to the poorer local university will have much greater impact than the dollar given to the rich school attended perhaps 40 or 50 years ago. Moreover, the donor who is a big fish in a little pond is more likely to get major recognition relative to the one who is a little fish in a big pond. Slippery Rock will name a building after you for $3 million, whereas it might take $25 million for that to happen at Harvard.
I hope this trend continues, as it is a step toward reducing the huge inequality in resources between schools. I still give a few bucks annually to the wealthy private school I attended (Northwestern), but also give larger amounts to poorer schools, including Ohio University where I teach, since they feel the impact of the money more greatly.
*****************************
Speaking of Ohio University, we do something here with students and our endowment that has been truly win-win for students and the university alike. A few years ago, I urged our Vice President for Finance to turn a little bit of the endowment over to finance students in our business school to invest. Our professional investors and amateur alumni investment committee were doing a mediocre job, and I felt the students would likely do just as well, while gaining genuine real world experience. The idea was implemented. Now, several years later, the student portfolio management group has outperformed the professionals nearly every year and the university has increased the funds given to them (albeit, not enough). One byproduct: graduates of the university from the student investor group have gotten excellent jobs, some with New York financial giants. It is a case where financial theory is blended with financial practice, making the study of corporate finance and investing more interesting. The students receive no pay, so the university saves expensive investment fees. Only the best and brightest kids get selected, and they work their hearts out, showing an enthusiasm rarely seen in conventional classes. Some other schools are doing this too --a wonderful idea.
Friday, August 24, 2007
Do College Kids Study? A Student's Perspective
By Matthew Denhart
Postsecondary Opportunity reported an interesting study, conducted by the Bureau of Labor Statistics and Census Bureau, in their July issue on time use of college students. The results are quite discouraging, but based on my own understanding of the average college student, probably quite accurate.
Students devote only 3.1 hours to “educational activities” on the average weekday. Furthermore, the peak time for this educational activity is between the hours of 9:00 AM and 12:00 PM, not coincidentally when most classes are in session. This suggests that much of those 3.1 hours could be class time and actual out of class preparation is miniscule if existent at all. To think that our students—supported by taxpayers’ dollars—only spend an eighth of the school day indeed doing school work is frightening and begs the question “why?”
The respected National Survey on Student Engagement (NSSE) suggests that many students, especially freshmen, report not feeling a great deal of academic challenge. Having recently completed my first year at Ohio University I would tend to agree. Many first-year classes have over 100 students and universities assign graduate students or junior faculty to teach them. The best, most interesting and experienced senior faculty often teach only upper-level courses. Freshmen who are the most likely to transfer or drop-out are in most need of engaging professors. Furthermore, the current method of student course evaluations weighs heavily on grades. This clearly encourages grade inflation, and reduces academic challenge.
While many blame universities for unchallenging academics, graduation rates are nothing short of embarrassing. If college is so easy, and requires only 3 hours of work a day, why is it that on average more than half of students fail to graduate within six years? It seems to me that the greatest problem is student engagement and interest in one’s own learning.
The solution to this problem, and many others, is for our universities and professors to simply challenge students, and encourage them to take interest in their studies. This does not necessarily mean they must assign more homework, papers or write unusually difficult exams. As NSSE suggests, professors need to do much more to encourage meaningful thought, not just simple memorization. Even if actually thinking is a bit more difficult, we students certainly appreciate and enjoy such classes. Evidence is as close as the infamous “rate my professor” website. In doing a quick search of an economics class taught by an energetic and thoughtful professor, student comments read: “Difficult class, but worth every second. A ‘Must Take,’” and referring to the instructor: “He grades pretty tough and an A is very hard to get. I love him!!!” These comments hardly suggest that we students are opposed to doing meaningful studying.
Engagement in studies will not only help to limit the infamous “party scene,” but would also improve retention and graduation rates. Universities need to be doing much more to encourage this. Forcing senior faculty to actually teach lower level classes is a good start. Evidenced by such low levels of study time, I think it’s safe to send this message to our universities and professors: Please…challenge us!
Matthew Denhart is a "Whiz Kid" (student assistant) at CCAP and a sophomore at Ohio University, where he majors in political science.
Postsecondary Opportunity reported an interesting study, conducted by the Bureau of Labor Statistics and Census Bureau, in their July issue on time use of college students. The results are quite discouraging, but based on my own understanding of the average college student, probably quite accurate.
Students devote only 3.1 hours to “educational activities” on the average weekday. Furthermore, the peak time for this educational activity is between the hours of 9:00 AM and 12:00 PM, not coincidentally when most classes are in session. This suggests that much of those 3.1 hours could be class time and actual out of class preparation is miniscule if existent at all. To think that our students—supported by taxpayers’ dollars—only spend an eighth of the school day indeed doing school work is frightening and begs the question “why?”
The respected National Survey on Student Engagement (NSSE) suggests that many students, especially freshmen, report not feeling a great deal of academic challenge. Having recently completed my first year at Ohio University I would tend to agree. Many first-year classes have over 100 students and universities assign graduate students or junior faculty to teach them. The best, most interesting and experienced senior faculty often teach only upper-level courses. Freshmen who are the most likely to transfer or drop-out are in most need of engaging professors. Furthermore, the current method of student course evaluations weighs heavily on grades. This clearly encourages grade inflation, and reduces academic challenge.
While many blame universities for unchallenging academics, graduation rates are nothing short of embarrassing. If college is so easy, and requires only 3 hours of work a day, why is it that on average more than half of students fail to graduate within six years? It seems to me that the greatest problem is student engagement and interest in one’s own learning.
The solution to this problem, and many others, is for our universities and professors to simply challenge students, and encourage them to take interest in their studies. This does not necessarily mean they must assign more homework, papers or write unusually difficult exams. As NSSE suggests, professors need to do much more to encourage meaningful thought, not just simple memorization. Even if actually thinking is a bit more difficult, we students certainly appreciate and enjoy such classes. Evidence is as close as the infamous “rate my professor” website. In doing a quick search of an economics class taught by an energetic and thoughtful professor, student comments read: “Difficult class, but worth every second. A ‘Must Take,’” and referring to the instructor: “He grades pretty tough and an A is very hard to get. I love him!!!” These comments hardly suggest that we students are opposed to doing meaningful studying.
Engagement in studies will not only help to limit the infamous “party scene,” but would also improve retention and graduation rates. Universities need to be doing much more to encourage this. Forcing senior faculty to actually teach lower level classes is a good start. Evidenced by such low levels of study time, I think it’s safe to send this message to our universities and professors: Please…challenge us!
Matthew Denhart is a "Whiz Kid" (student assistant) at CCAP and a sophomore at Ohio University, where he majors in political science.
Reforming University Research
By Richard Vedder
One of the cost drivers that has made higher education so expensive is university research. Teaching loads have fallen to allow faculty to do institutionally supported research, my guess by roughly 25 percent over the past 40-50 years. The number of scholarly journals has soared over the decades. Government grant programs have grown, especially in the sciences. University-private partnerships in research have greatly expanded.
Much of the public subsidy of research has been justified on externality grounds --research has positive spillover effects. While undeniably much research is valuable, I have often wondered if most of the financial benefits of doing research cannot be captured by the researchers and their institutions through the patent mechanism. Interestingly, the proportion of research done privately in the U.S. has grown over time relative to university research, suggesting there are considerable private gains realizable from innovation --as any drug manufacturer will tell you.
CCAP has been relatively quiet on these research issues. We have strongly criticized congressional research earmarks, we have advocated moving to a standardized federal overhead reimbursement rate at a comparatively modest level for research grants, and we have even wondered why more research projects have not been put out for bid, rather than awarded in the current fashion where there is only one investigator bidding to do a very specific project. Finally, we have speculated that diminishing returns have long set in on much academic research, especially in the social sciences and humanities --we have too many journals, are having too many obscure papers written of little social value, etc.
Another concern I have relates to research dissemination. The typical referee process of scholarly journals is expensive, cumbersome, and, most importantly, delays dissemination of results. But my main concern is that I think sometimes provocative, creative and innovative works gets stifled. If one referee doesn't like the piece, often that is enough to kill it. Or sometimes the author has to suppress certain provocative ideas in order to get a referee to grudgingly accept publication --this has happened to me more than once. Hence I am big on the open access movement, and with placing all journals on-line, reducing the power of quicker referees to reject. And, with that, of course, a reduction in journal prices to zero. I support, generally, the move to have research at federally funded institutions made available online within months of its release, a goal pursued by some Democratic legislators.
I have been somewhat controversial over the years, and have had many good papers killed or intellectually cleansed to make them politically more acceptable, I think to the detriment of intellectual diversity and progress. Along with Jonathan Leirer and others, I have argued that public support for higher education is not associated with more economic growth --do you think I could get that idea published in a conventional very high quality journal? I am presently talking to a prestigious university press about publishing the results, and time will tell whether my pessimism here is warranted. Too often, good but politically incorrect ideas are suppressed -- I see this in the viciously hostile attitudes toward respected scientists who are skeptical of the conventional view on global warming. In short, in general, there are many changes worth considering as we evaluate the efficacy of university research.
One of the cost drivers that has made higher education so expensive is university research. Teaching loads have fallen to allow faculty to do institutionally supported research, my guess by roughly 25 percent over the past 40-50 years. The number of scholarly journals has soared over the decades. Government grant programs have grown, especially in the sciences. University-private partnerships in research have greatly expanded.
Much of the public subsidy of research has been justified on externality grounds --research has positive spillover effects. While undeniably much research is valuable, I have often wondered if most of the financial benefits of doing research cannot be captured by the researchers and their institutions through the patent mechanism. Interestingly, the proportion of research done privately in the U.S. has grown over time relative to university research, suggesting there are considerable private gains realizable from innovation --as any drug manufacturer will tell you.
CCAP has been relatively quiet on these research issues. We have strongly criticized congressional research earmarks, we have advocated moving to a standardized federal overhead reimbursement rate at a comparatively modest level for research grants, and we have even wondered why more research projects have not been put out for bid, rather than awarded in the current fashion where there is only one investigator bidding to do a very specific project. Finally, we have speculated that diminishing returns have long set in on much academic research, especially in the social sciences and humanities --we have too many journals, are having too many obscure papers written of little social value, etc.
Another concern I have relates to research dissemination. The typical referee process of scholarly journals is expensive, cumbersome, and, most importantly, delays dissemination of results. But my main concern is that I think sometimes provocative, creative and innovative works gets stifled. If one referee doesn't like the piece, often that is enough to kill it. Or sometimes the author has to suppress certain provocative ideas in order to get a referee to grudgingly accept publication --this has happened to me more than once. Hence I am big on the open access movement, and with placing all journals on-line, reducing the power of quicker referees to reject. And, with that, of course, a reduction in journal prices to zero. I support, generally, the move to have research at federally funded institutions made available online within months of its release, a goal pursued by some Democratic legislators.
I have been somewhat controversial over the years, and have had many good papers killed or intellectually cleansed to make them politically more acceptable, I think to the detriment of intellectual diversity and progress. Along with Jonathan Leirer and others, I have argued that public support for higher education is not associated with more economic growth --do you think I could get that idea published in a conventional very high quality journal? I am presently talking to a prestigious university press about publishing the results, and time will tell whether my pessimism here is warranted. Too often, good but politically incorrect ideas are suppressed -- I see this in the viciously hostile attitudes toward respected scientists who are skeptical of the conventional view on global warming. In short, in general, there are many changes worth considering as we evaluate the efficacy of university research.
Wednesday, August 22, 2007
Harvard: The Good, The Bad and the Ugly
By Richard Vedder
The Good
Harvard has now admitted Kim Woo. Kim was the immigrant child from a disadvantaged background who, while working several jobs, managed to get through Bunker Hill Community College with top grades. Bright and determined, she applied for transfer admission to Harvard-- and appeared to be heading for rejection. Many, including our indefatigable friend Wick Sloane and CCAP itself, argued that she should be admitted, if extraordinary merit and consideration of family background were truly relevant anymore. Harvard has admitted her. Congratulations to both Harvard and to Kim.
The Bad
Is it good public policy to allow institutions with vast endowment resources to get additional gifts induced by tax deductions? I doubt it. Yet Harvard's increment to its endowment of $5.7 billion over the past year-- over $300,000 a student-- would be enough to finance (from investment income, not principal) most of the total budget at a typical school of comparable size. Why do we let schools with such huge resources get tax breaks, or implicit public subsidies? Should Harvard be taxed or subsidized?
The Ugly
Harvard's endowment is now $34.9 billion, or close to $2 million for every student, including those at the graduate and professional schools. At the beginning of the fiscal year 2007, Harvard's endowment was $29.2 billion, and it spent somewhere around $1.1 billion in income from the endowment on financing programs during that fiscal year --about 4 percent of the beginning principal, and perhaps 3.5 percent of the average principal during the year. If Harvard had spent 5 percent of its endowment principal (as required of non-university foundations), and if it had devoted the added spending to reducing tuition, fees, and room and board charges, all such charges could have been eliminated for all students attending Harvard College.
Our CCAP associate Lynne Munson has been arguing long and hard for universities to spend more out of their endowments, and in this case a prudent, conservative adoption of her suggestion could eliminate all tuition at Harvard, and perhaps revolutionize American higher education. Why don't they do it, and eliminate their undergraduate office of Student Financial Aid?
To nudge them along the way, why does Congress not force colleges to spend 5 percent of their endowments, just as other foundations do? Alternatively, why not tax investment income of colleges where endowments exceed $1 million per student --enough to generate $50,000 in per student income?
The Good
Harvard has now admitted Kim Woo. Kim was the immigrant child from a disadvantaged background who, while working several jobs, managed to get through Bunker Hill Community College with top grades. Bright and determined, she applied for transfer admission to Harvard-- and appeared to be heading for rejection. Many, including our indefatigable friend Wick Sloane and CCAP itself, argued that she should be admitted, if extraordinary merit and consideration of family background were truly relevant anymore. Harvard has admitted her. Congratulations to both Harvard and to Kim.
The Bad
Is it good public policy to allow institutions with vast endowment resources to get additional gifts induced by tax deductions? I doubt it. Yet Harvard's increment to its endowment of $5.7 billion over the past year-- over $300,000 a student-- would be enough to finance (from investment income, not principal) most of the total budget at a typical school of comparable size. Why do we let schools with such huge resources get tax breaks, or implicit public subsidies? Should Harvard be taxed or subsidized?
The Ugly
Harvard's endowment is now $34.9 billion, or close to $2 million for every student, including those at the graduate and professional schools. At the beginning of the fiscal year 2007, Harvard's endowment was $29.2 billion, and it spent somewhere around $1.1 billion in income from the endowment on financing programs during that fiscal year --about 4 percent of the beginning principal, and perhaps 3.5 percent of the average principal during the year. If Harvard had spent 5 percent of its endowment principal (as required of non-university foundations), and if it had devoted the added spending to reducing tuition, fees, and room and board charges, all such charges could have been eliminated for all students attending Harvard College.
Our CCAP associate Lynne Munson has been arguing long and hard for universities to spend more out of their endowments, and in this case a prudent, conservative adoption of her suggestion could eliminate all tuition at Harvard, and perhaps revolutionize American higher education. Why don't they do it, and eliminate their undergraduate office of Student Financial Aid?
To nudge them along the way, why does Congress not force colleges to spend 5 percent of their endowments, just as other foundations do? Alternatively, why not tax investment income of colleges where endowments exceed $1 million per student --enough to generate $50,000 in per student income?
Tuesday, August 21, 2007
Keeping Consumers in the Dark
By Richard Vedder
Many times I have echoed the Spellings Commission's plea for more consumer information on student outcomes --what do students learn while in college? What do they do with their lives after graduation? Providing this information would have a positive effect on devising better rankings of colleges, improving the assessment of university efficiency and productivity, and making more informed and intelligent consumers. It would enhance competition and productivity, I believe.
Yet there are other types of information that are also not routinely provided in an objective standardized fashion by the U.S. Department of Education. Provision of this information would serve the public well in terms of providing more informed consumers, and would give us a better idea as to what employees in universities actually do. I list seven examples of desirable data below --there are others.
1) Teaching loads --while we can tell with precision how many teachers there are by skin color or gender status, we have no idea of how many hours weekly or yearly the typical faculty member is in the classroom. Why? The number in most cases is embarrassingly low, and colleges don't want to report it.
2) Distribution of class sizes -- At research universities, many senior professors teach seminars with 10 graduate students, while junior faculty, adjunct instructors and graduate students teach the undergraduate masses --sometimes in lecture halls with 300-400 or more students. While some private magazines give some self reported data, there is no attempt to provide good class size information centrally in an objective standardized fashion, despite the fact many parents want to know the class sizes their kids will face.
3) There is no direct data on the ratio of spending on undergraduate teaching as a percent of total university expenditures -- a measure of the relative importance of this mission to institutions. More generally, we do not get a good, easy-to-understand feel for what percent of university funds (aside from commercial operations) go for undergraduate instruction, graduate instruction, research, administration, student services, intercollegiate athletics, etc. Yet that information tells a person a good deal about the nature of an institution and its priorities.
4) What percent of kids live on campus in university housing? Off campus in private housing? At home with other family members? This helps discern whether the college is truly a residential college, a commuter school, etc.
5) What percent of classes are taught by graduate teaching assistants, or adjunct faculty? What percent are taught by persons with less than two years of teaching experience? What percent of student credit hours are taught by these classes of faculty? Are my children getting cheap, usually inexperienced part time faculty or more seasoned veterans in the classroom?
6) What are the grade distributions? Is there any attempt to impose rigorous performance standards?
7) Are there core courses as part of a general education requirement that all students must take? What are they? Are you required to learn about western civilization, the English language, our historical evolution, the nature of our civic institutions, or any science or math?
Why doesn't the Department of Education require provision of this type of information by colleges as a condition for the provision of loan funds or federal grants to applicants to a particular college or university? Why do they let the Educrats get away with hiding needed information from potential consumers and from policymakers?
Many times I have echoed the Spellings Commission's plea for more consumer information on student outcomes --what do students learn while in college? What do they do with their lives after graduation? Providing this information would have a positive effect on devising better rankings of colleges, improving the assessment of university efficiency and productivity, and making more informed and intelligent consumers. It would enhance competition and productivity, I believe.
Yet there are other types of information that are also not routinely provided in an objective standardized fashion by the U.S. Department of Education. Provision of this information would serve the public well in terms of providing more informed consumers, and would give us a better idea as to what employees in universities actually do. I list seven examples of desirable data below --there are others.
1) Teaching loads --while we can tell with precision how many teachers there are by skin color or gender status, we have no idea of how many hours weekly or yearly the typical faculty member is in the classroom. Why? The number in most cases is embarrassingly low, and colleges don't want to report it.
2) Distribution of class sizes -- At research universities, many senior professors teach seminars with 10 graduate students, while junior faculty, adjunct instructors and graduate students teach the undergraduate masses --sometimes in lecture halls with 300-400 or more students. While some private magazines give some self reported data, there is no attempt to provide good class size information centrally in an objective standardized fashion, despite the fact many parents want to know the class sizes their kids will face.
3) There is no direct data on the ratio of spending on undergraduate teaching as a percent of total university expenditures -- a measure of the relative importance of this mission to institutions. More generally, we do not get a good, easy-to-understand feel for what percent of university funds (aside from commercial operations) go for undergraduate instruction, graduate instruction, research, administration, student services, intercollegiate athletics, etc. Yet that information tells a person a good deal about the nature of an institution and its priorities.
4) What percent of kids live on campus in university housing? Off campus in private housing? At home with other family members? This helps discern whether the college is truly a residential college, a commuter school, etc.
5) What percent of classes are taught by graduate teaching assistants, or adjunct faculty? What percent are taught by persons with less than two years of teaching experience? What percent of student credit hours are taught by these classes of faculty? Are my children getting cheap, usually inexperienced part time faculty or more seasoned veterans in the classroom?
6) What are the grade distributions? Is there any attempt to impose rigorous performance standards?
7) Are there core courses as part of a general education requirement that all students must take? What are they? Are you required to learn about western civilization, the English language, our historical evolution, the nature of our civic institutions, or any science or math?
Why doesn't the Department of Education require provision of this type of information by colleges as a condition for the provision of loan funds or federal grants to applicants to a particular college or university? Why do they let the Educrats get away with hiding needed information from potential consumers and from policymakers?
Rankings Revisited
By Richard Vedder
INSIDE HIGHER ED mentions a study this morning appearing in a political science journal arguing that in Ph.D. programs in that discipline, some schools have a much better reputation placing students at top schools than their reputation in conventional rankings would suggest, while others do worse. It is suggested this is a topic that has applicability beyond political science.
I agree. Indeed, why not a rankings system for undergraduate education based solely on the career success of recent graduates? Why not induce schools to report the average earnings of graduates for five years after graduation? Why not ease legal restrictions to allow or compel Social Security or the IRS to give average, median and quartile income data on graduates, provided by those government agencies (the schools give the social security numbers of graduates by year, and the IRS/Social Security provides earnings data). For most persons, the "bottom line" of higher education is a good job, and for most everybody a good job is a well paying one. If I am spending a lot of money to go to school, I want a good return on my investment, and earnings data would be extremely useful in measuring the potential investment return (along with other information, such as the percent of students graduating within four years).
INSIDE HIGHER ED mentions a study this morning appearing in a political science journal arguing that in Ph.D. programs in that discipline, some schools have a much better reputation placing students at top schools than their reputation in conventional rankings would suggest, while others do worse. It is suggested this is a topic that has applicability beyond political science.
I agree. Indeed, why not a rankings system for undergraduate education based solely on the career success of recent graduates? Why not induce schools to report the average earnings of graduates for five years after graduation? Why not ease legal restrictions to allow or compel Social Security or the IRS to give average, median and quartile income data on graduates, provided by those government agencies (the schools give the social security numbers of graduates by year, and the IRS/Social Security provides earnings data). For most persons, the "bottom line" of higher education is a good job, and for most everybody a good job is a well paying one. If I am spending a lot of money to go to school, I want a good return on my investment, and earnings data would be extremely useful in measuring the potential investment return (along with other information, such as the percent of students graduating within four years).
Higher Education and Construction Industry Productivity
By Richard Vedder
In my capacity as a professor and economic historian, I occasionally review books, and therefore happened to read Broken Buildings, Busted Budgets, a book on the stagnation of productivity and performance in American construction. Interestingly, the author, Barry B. LePatner, tied some of the blame for declining productivity to higher education, and made some insightful observations about American colleges and universities.
LePatner starts off by arguing that construction engineering programs have been too theoretical and "contained...too little exposure to actual industrial conditions." He goes on to say "A reasonable reader may…wonder why architectural or engineering schools do not improve their performance...or...why new, better...schools do not arise and supplement the existing ones. The answer is far from simple but...U.S. higher education is also an inefficient sector, one characterized by high barriers to entry, significant market distortions due to high government involvement...and the use of sub-optimal ownership structures." I could not say it better myself. He goes on and makes an even more stellar observation: "Almost all U.S. colleges and universities are nonprofits or joint-stock corporations, the theoretically superior form, the professional partnership, is almost never used. Government subsidies and endowments make nonprofits schools fat and complacent, while concern for stockholder interests renders corporate schools perpetually under-gunned in the brainpower department."
Before turning to the major point, let me comment on the "theory vs. practice" complaint. It is commonplace throughout higher education. For example, colleges of education want to teach students a lot about education theory (mostly very bad) rather than emphasize hands on classroom experience with professional guidance (a good idea). My discipline of economics teaches much math-based theory at the expense of imparting to students a feel for the human implications that the existence of scarcity creates. I have heard the same complaint expressed in other disciplines as well, such as communications. Indeed, many professors show disdain for "trade schools" that impart practical knowledge applicable to real world jobs, arguing that if we teach students to think they will learn quickly on the job in a world where the technical knowledge needed for jobs is changing rapidly in any case.
Yet I think the theory emphasis largely reflects the fact that the faculty are isolated from the disciplines of markets and the realities of an unsubsidized real world economy, allowing them the luxury to ignore practical matters in favor of elegant theoretical abstractions that seem intellectually more challenging.
Moving on to the major point, LePatner hits the nail on the head on the economics of higher education, rare for a lawyer (which he is). What is particularly intriguing is the idea of the professional partnership as the ideal form of organization -- superior even to for-profit corporations. We have talked occasionally about professors marketing their services directly to consumers, assisted by firms which specialize in providing administrative and managerial services (renting office and lecture hall space, collecting fees, etc). Perhaps partnerships of professionals should provide services doing the teaching of, say, the present university hired Political Science Department to an administrative organization which will contract with other partnerships in other disciplines, with the administrative overseer calling the combined products a university. The university would not employ its own professors, but put out to bid the teaching of educational services to private providers (by the way, that is the way CCAP is run). Maybe we should also separate research from teaching to some extent by creating separate research institutes. The pathetic thing is that there is almost no serious thinking and discussion going on about these possibilities --because the incentives to do so are lacking. Ownership and organizational issues are ignored --contributing to the lack of innovation and the resistance to change which characterize American higher education.
In my capacity as a professor and economic historian, I occasionally review books, and therefore happened to read Broken Buildings, Busted Budgets, a book on the stagnation of productivity and performance in American construction. Interestingly, the author, Barry B. LePatner, tied some of the blame for declining productivity to higher education, and made some insightful observations about American colleges and universities.
LePatner starts off by arguing that construction engineering programs have been too theoretical and "contained...too little exposure to actual industrial conditions." He goes on to say "A reasonable reader may…wonder why architectural or engineering schools do not improve their performance...or...why new, better...schools do not arise and supplement the existing ones. The answer is far from simple but...U.S. higher education is also an inefficient sector, one characterized by high barriers to entry, significant market distortions due to high government involvement...and the use of sub-optimal ownership structures." I could not say it better myself. He goes on and makes an even more stellar observation: "Almost all U.S. colleges and universities are nonprofits or joint-stock corporations, the theoretically superior form, the professional partnership, is almost never used. Government subsidies and endowments make nonprofits schools fat and complacent, while concern for stockholder interests renders corporate schools perpetually under-gunned in the brainpower department."
Before turning to the major point, let me comment on the "theory vs. practice" complaint. It is commonplace throughout higher education. For example, colleges of education want to teach students a lot about education theory (mostly very bad) rather than emphasize hands on classroom experience with professional guidance (a good idea). My discipline of economics teaches much math-based theory at the expense of imparting to students a feel for the human implications that the existence of scarcity creates. I have heard the same complaint expressed in other disciplines as well, such as communications. Indeed, many professors show disdain for "trade schools" that impart practical knowledge applicable to real world jobs, arguing that if we teach students to think they will learn quickly on the job in a world where the technical knowledge needed for jobs is changing rapidly in any case.
Yet I think the theory emphasis largely reflects the fact that the faculty are isolated from the disciplines of markets and the realities of an unsubsidized real world economy, allowing them the luxury to ignore practical matters in favor of elegant theoretical abstractions that seem intellectually more challenging.
Moving on to the major point, LePatner hits the nail on the head on the economics of higher education, rare for a lawyer (which he is). What is particularly intriguing is the idea of the professional partnership as the ideal form of organization -- superior even to for-profit corporations. We have talked occasionally about professors marketing their services directly to consumers, assisted by firms which specialize in providing administrative and managerial services (renting office and lecture hall space, collecting fees, etc). Perhaps partnerships of professionals should provide services doing the teaching of, say, the present university hired Political Science Department to an administrative organization which will contract with other partnerships in other disciplines, with the administrative overseer calling the combined products a university. The university would not employ its own professors, but put out to bid the teaching of educational services to private providers (by the way, that is the way CCAP is run). Maybe we should also separate research from teaching to some extent by creating separate research institutes. The pathetic thing is that there is almost no serious thinking and discussion going on about these possibilities --because the incentives to do so are lacking. Ownership and organizational issues are ignored --contributing to the lack of innovation and the resistance to change which characterize American higher education.
Saturday, August 18, 2007
Colleges of Education
By Richard Vedder
I intimated the other day that I would like to criminalize colleges of higher education. Actually, that is too strong. In a perfect world, we would have all sorts of different forms of teacher training, with competitive K-12 schools fighting for the right to educate kids in a system that resembles the market process dominating most human endeavors. The preparation of teachers might enter into the marketing strategy used by schools to entice students to enroll (with funding dependent on student satisfaction). Studies would arise, I predict, showing that kids who are educated by teachers with lots of ed courses do no better, and often somewhat worse (particularly in the middle and high school levels) than teachers with a more standard academic preparation. The ed schools would decline in relative importance or reform themselves.
The fact is that on most campuses, the education school is considered to be a disaster, the campus embarrassment. Generally the students are less good, the standards are lower and the content is mush or worse. This is a national tragedy, and a consequence of government rules and regulations forcing teachers into this cesspool, which contributes to what might be called academic child molestation.
Most of the fellow Spellings Commission members I talked to agreed with me that the ed schools were and will be a weak spot, but few wanted to take on that issue. That was a mistake, since the weakness in colleges of education means poorer educated students of the next generation. We are doing a less than stellar job of meeting our greatest of all responsibilities as citizens and human beings, namely passing on the good of the past and the present to future generations.
What to do? There are many ways this problem can be addressed. Change teacher certification laws. Remove subsidies to colleges of education. Put a maximum on the number of education courses allowable for an accredited degree. Some approaches are better than others, but we need to do something if we care about our children and grandchildren, and put their interests above those of the special interest groups that have successfully blocked real reform.
I intimated the other day that I would like to criminalize colleges of higher education. Actually, that is too strong. In a perfect world, we would have all sorts of different forms of teacher training, with competitive K-12 schools fighting for the right to educate kids in a system that resembles the market process dominating most human endeavors. The preparation of teachers might enter into the marketing strategy used by schools to entice students to enroll (with funding dependent on student satisfaction). Studies would arise, I predict, showing that kids who are educated by teachers with lots of ed courses do no better, and often somewhat worse (particularly in the middle and high school levels) than teachers with a more standard academic preparation. The ed schools would decline in relative importance or reform themselves.
The fact is that on most campuses, the education school is considered to be a disaster, the campus embarrassment. Generally the students are less good, the standards are lower and the content is mush or worse. This is a national tragedy, and a consequence of government rules and regulations forcing teachers into this cesspool, which contributes to what might be called academic child molestation.
Most of the fellow Spellings Commission members I talked to agreed with me that the ed schools were and will be a weak spot, but few wanted to take on that issue. That was a mistake, since the weakness in colleges of education means poorer educated students of the next generation. We are doing a less than stellar job of meeting our greatest of all responsibilities as citizens and human beings, namely passing on the good of the past and the present to future generations.
What to do? There are many ways this problem can be addressed. Change teacher certification laws. Remove subsidies to colleges of education. Put a maximum on the number of education courses allowable for an accredited degree. Some approaches are better than others, but we need to do something if we care about our children and grandchildren, and put their interests above those of the special interest groups that have successfully blocked real reform.
Friday, August 17, 2007
Christmas Day in Higher Education
By Bryan O'Keefe
Well, today folks is Christmas Day for the higher education world – all of the colleges and universities will learn their new US News and World Report ranking and find out if they have been naughty or nice.
But as any astute reader of this blog knows, the rankings are more controversial than ever. A small but influential segment of the higher ed world is now refusing to cooperate with the magazine. Other education trade groups are looking at ways to devise their own rankings formulas.
Most colleges find themselves in a tremendous bind when it comes to the rankings. On the one hand, they publicly say that they don’t want the rankings to rule their world. They find problems with the methodology, they complain that only the elite schools get the best ranks, they say that the students and parents don’t really care about rankings, they protest that college is about much more than some silly list, and so on and so forth.
The dirty little secret though is that a lot of colleges and universities crave better rankings. Dropping on the USNWR list can endanger a college president’s job. They also worry that even if most students don’t give a hoot, the most attractive students certainly do pay attention and give weight to what the magazine publishes. And you better believe that when a school goes up in the rankings – or cracks the magic top 50 tier – that the school will broadcast this accomplishment from the highest mountain top. So, you have a situation akin to an alcoholic who is trying unsuccessfully to give up the bottle – he might swear it off, but just can’t stop going back.
So, how much stock should we really put into the rankings? From a theoretical perspective, there is nothing wrong with what USNWR does. Our own suspicion is that some of the colleges protesting do not want to be held accountable for what they are doing. They simply want parents and students to spend a small fortune on their education product for four years but then resist any demands that they actually quantify what in the world is going on during that time period. For better or for worse, USNWR provides an enormous public service in providing both parents and students with some sort of guidelines about how colleges are doing. Does it really matter if your school is ranked 31st or 41st? Probably not. But the difference between 31st and 111st is more likely to be real.
Our major beef with the USNWR rankings is not the idea, but the actual data that they use. They are largely measuring inputs, which would be akin to judging a car by the type of steel used in its production. USNWR defends itself by saying that this is the best available data and there is some truth to that. Never the less, maybe there is a chance that the accountability movement that is starting to sweep over higher ed will compel colleges and universities to provide even better data that can then be used to greatly improve the rankings.
For now however we are left with USNWR and a lot of college presidents and staff either cheering or crying, depending upon where they landed this morning. Christmas morning tends to make people happy even if they didn’t get all the presents they want – USNWR is a very cruel Santa Clause and really does leave lumps of coal in some colleges stockings. Given rising tuition and all of the other problems plaguing certain universities, this is probably the proper gift.
Well, today folks is Christmas Day for the higher education world – all of the colleges and universities will learn their new US News and World Report ranking and find out if they have been naughty or nice.
But as any astute reader of this blog knows, the rankings are more controversial than ever. A small but influential segment of the higher ed world is now refusing to cooperate with the magazine. Other education trade groups are looking at ways to devise their own rankings formulas.
Most colleges find themselves in a tremendous bind when it comes to the rankings. On the one hand, they publicly say that they don’t want the rankings to rule their world. They find problems with the methodology, they complain that only the elite schools get the best ranks, they say that the students and parents don’t really care about rankings, they protest that college is about much more than some silly list, and so on and so forth.
The dirty little secret though is that a lot of colleges and universities crave better rankings. Dropping on the USNWR list can endanger a college president’s job. They also worry that even if most students don’t give a hoot, the most attractive students certainly do pay attention and give weight to what the magazine publishes. And you better believe that when a school goes up in the rankings – or cracks the magic top 50 tier – that the school will broadcast this accomplishment from the highest mountain top. So, you have a situation akin to an alcoholic who is trying unsuccessfully to give up the bottle – he might swear it off, but just can’t stop going back.
So, how much stock should we really put into the rankings? From a theoretical perspective, there is nothing wrong with what USNWR does. Our own suspicion is that some of the colleges protesting do not want to be held accountable for what they are doing. They simply want parents and students to spend a small fortune on their education product for four years but then resist any demands that they actually quantify what in the world is going on during that time period. For better or for worse, USNWR provides an enormous public service in providing both parents and students with some sort of guidelines about how colleges are doing. Does it really matter if your school is ranked 31st or 41st? Probably not. But the difference between 31st and 111st is more likely to be real.
Our major beef with the USNWR rankings is not the idea, but the actual data that they use. They are largely measuring inputs, which would be akin to judging a car by the type of steel used in its production. USNWR defends itself by saying that this is the best available data and there is some truth to that. Never the less, maybe there is a chance that the accountability movement that is starting to sweep over higher ed will compel colleges and universities to provide even better data that can then be used to greatly improve the rankings.
For now however we are left with USNWR and a lot of college presidents and staff either cheering or crying, depending upon where they landed this morning. Christmas morning tends to make people happy even if they didn’t get all the presents they want – USNWR is a very cruel Santa Clause and really does leave lumps of coal in some colleges stockings. Given rising tuition and all of the other problems plaguing certain universities, this is probably the proper gift.
Colleges and the Minimum Wage
By Richard Vedder
Colleges face one moderately significant cost increase this coming academic year because of federal labor law. In particular, the minimum wage rose by over 13 percent to $5.85 and hour on July 24, and is scheduled to rise to $7.25 (an increase of over 40 percent from the original wage) in two years.
Universities use a lot of student labor, appropriately in my judgment. Those workers are relatively unskilled and often paid at or very close to the minimum wage. When the minimum wage undergoes a big hike, universities must do one of several things:
1) If the budget in student wages remains relatively fixed (often the case), then some employees must be let go, or hours reduced.
2) Alternatively, if wages are increased with no employment effects, the school needs more money to finance the higher labor costs; this often results in larger tuition increases than otherwise occur;
3) Sometimes, schools compromise and do a bit a both -- a little cutting back in student employment, along with a little larger tuition increase than otherwise would be the case.
In any case, the increase in the minimum wage poses burdens on universities that aggravate the problems of soaring university costs. The higher minimum wages to college students do little to alleviate poverty (most college students come from moderately affluent families), and like most economists, I prefer that we deal with social problems like poverty through means other than fiddling with markets. The 2008 and 2009 minimum wage hikes will add to the financial woes that American universities face.
Colleges face one moderately significant cost increase this coming academic year because of federal labor law. In particular, the minimum wage rose by over 13 percent to $5.85 and hour on July 24, and is scheduled to rise to $7.25 (an increase of over 40 percent from the original wage) in two years.
Universities use a lot of student labor, appropriately in my judgment. Those workers are relatively unskilled and often paid at or very close to the minimum wage. When the minimum wage undergoes a big hike, universities must do one of several things:
1) If the budget in student wages remains relatively fixed (often the case), then some employees must be let go, or hours reduced.
2) Alternatively, if wages are increased with no employment effects, the school needs more money to finance the higher labor costs; this often results in larger tuition increases than otherwise occur;
3) Sometimes, schools compromise and do a bit a both -- a little cutting back in student employment, along with a little larger tuition increase than otherwise would be the case.
In any case, the increase in the minimum wage poses burdens on universities that aggravate the problems of soaring university costs. The higher minimum wages to college students do little to alleviate poverty (most college students come from moderately affluent families), and like most economists, I prefer that we deal with social problems like poverty through means other than fiddling with markets. The 2008 and 2009 minimum wage hikes will add to the financial woes that American universities face.
Thursday, August 16, 2007
Caps on Overhead on Research Grants
By Richard Vedder
Of the many scams in higher education, one of the biggest relates to overhead on research grants. Typically, there are elaborate negotiations over what those overhead amounts should be, and often they are 50 percent or more. So if the direct costs of a research project are, say, $200,000, the overhead costs (to ostensibly cover building use and maintenance, administrative services, etc.) will often exceed $100,000, making the total grant over $300,000. I have long suspected that a lot of the research money actually is in the form of what economists call economic rent -- compensation that does not actually result in the provision of additional goods or services. A perfect example of economic rent payments occurred recently, when Ohio State paid retiring president Karen Holbrook a $250,000 going away bonus --a six digit amount larger than potentially payable under her contract. Our CCAP research shows a striking positive correlation between the growth of faculty salaries and the amount of research grants awarded. When the government drops money out of airplanes over campuses, or the equivalent, the people picking up the money spend some of it on themselves.
This all came into mind when I read that the House of Representatives was contemplating putting a 20 percent cap on overhead payments for Department of Defense research. The colleges, of course, are howling, claiming our national security will be imperiled and life as we know it is about ready to cease.
I have long advocated a national research overhead amount, and one at the lower end of the range of payments currently made. This would cut out wasteful administrative costs, game playing, etc., designed to raise overhead payments, and would not allow extravagant schools with big bureaucracies to pass along the cost of their wastefulness to the general taxpayer.
I don't know if 20 percent is the right cap (it strikes me as a tad on the low side, but only a tad), but some uniform amount is a good idea. This House of Representatives has been a disappointment, but in this bill is the seed of a good idea.
Of the many scams in higher education, one of the biggest relates to overhead on research grants. Typically, there are elaborate negotiations over what those overhead amounts should be, and often they are 50 percent or more. So if the direct costs of a research project are, say, $200,000, the overhead costs (to ostensibly cover building use and maintenance, administrative services, etc.) will often exceed $100,000, making the total grant over $300,000. I have long suspected that a lot of the research money actually is in the form of what economists call economic rent -- compensation that does not actually result in the provision of additional goods or services. A perfect example of economic rent payments occurred recently, when Ohio State paid retiring president Karen Holbrook a $250,000 going away bonus --a six digit amount larger than potentially payable under her contract. Our CCAP research shows a striking positive correlation between the growth of faculty salaries and the amount of research grants awarded. When the government drops money out of airplanes over campuses, or the equivalent, the people picking up the money spend some of it on themselves.
This all came into mind when I read that the House of Representatives was contemplating putting a 20 percent cap on overhead payments for Department of Defense research. The colleges, of course, are howling, claiming our national security will be imperiled and life as we know it is about ready to cease.
I have long advocated a national research overhead amount, and one at the lower end of the range of payments currently made. This would cut out wasteful administrative costs, game playing, etc., designed to raise overhead payments, and would not allow extravagant schools with big bureaucracies to pass along the cost of their wastefulness to the general taxpayer.
I don't know if 20 percent is the right cap (it strikes me as a tad on the low side, but only a tad), but some uniform amount is a good idea. This House of Representatives has been a disappointment, but in this bill is the seed of a good idea.
The American Disease Spreads
By Richard Vedder
As I previously reported, Europeans are trying to "keep up with the Americans" in higher ed. The London Daily Mail reported yesterday that the Conservative party is going to come out next week with a major proposal to revamp and revitalize higher ed, because U.S. universities are buying off all the top British researchers, hurting their economic growth. The proposal is to increase tax incentives for private contributions to schools --endowments are much smaller than in the U.S.
While I favor privatization of higher ed, and private vs. public funding, I fear the Tory proposal, if implemented, would simply contribute more to world wide inflation of costs and prices in the universities. This is not to say that private contributions are inferior to public ones --au contraire, I think on the whole private funds are better spent on average than public ones. But giving universities a favored place in society leads to inefficiencies and arrogance, neither of which is good. Moreover, the basic premise that more university money means higher economic growth is, at the minimum, a dubious proposition.
Reading the British and Irish press about the abysmal state of secondary school preparation for college (sound familiar), I am more convinced than ever that we should make it a felony for a secondary school to hire a graduate of a U.S. college of education. (Actually, I am slightly exaggerating my true position here). Let's abolish the ed colleges and insist that teachers be instructed in an academic discipline, with teacher training concentrated on supervised classroom instruction by an experienced and effective teacher.
As I previously reported, Europeans are trying to "keep up with the Americans" in higher ed. The London Daily Mail reported yesterday that the Conservative party is going to come out next week with a major proposal to revamp and revitalize higher ed, because U.S. universities are buying off all the top British researchers, hurting their economic growth. The proposal is to increase tax incentives for private contributions to schools --endowments are much smaller than in the U.S.
While I favor privatization of higher ed, and private vs. public funding, I fear the Tory proposal, if implemented, would simply contribute more to world wide inflation of costs and prices in the universities. This is not to say that private contributions are inferior to public ones --au contraire, I think on the whole private funds are better spent on average than public ones. But giving universities a favored place in society leads to inefficiencies and arrogance, neither of which is good. Moreover, the basic premise that more university money means higher economic growth is, at the minimum, a dubious proposition.
Reading the British and Irish press about the abysmal state of secondary school preparation for college (sound familiar), I am more convinced than ever that we should make it a felony for a secondary school to hire a graduate of a U.S. college of education. (Actually, I am slightly exaggerating my true position here). Let's abolish the ed colleges and insist that teachers be instructed in an academic discipline, with teacher training concentrated on supervised classroom instruction by an experienced and effective teacher.
Tuesday, August 14, 2007
Reinventing the University
By Richard Vedder
Two moderate Democrats, David Osborne and Ted Gaebler, wrote an interesting if somewhat naive book in 1992 called Reinventing Government. While they lauded an entrepreneurial spirit which they saw growing in government, (I think it’s overstated) they nevertheless made an excellent point. Government's role is to decide what needs to be done as a society, not necessarily to DO it. Often, the correct thing to do is contract out the actual policy implementation to someone else. They were talking mainly about such things as garbage pickup, highway maintenance, arguably the operation of prisons. In K-12 education, a number of companies made good money offering supplemental, after school enrichment services, or helping students prepare for exams like the SAT and ACT --in a sense, society, and in some cases governments, contracted this work out to competitive private enterprises like Kaplan or Sylvan Learning Centers.
Universities can learn from this lesson. They are already contracting out some food and maintenance services. But maybe, they should contract out all services, including learning. As Bob Zemsky told a group that I also spoke at a while back, maybe adjunct faculty should “corporatize” rather than unionize. They should form companies and sell their services to universities, rather than negotiate one-on-one with universities in an adversarial environment. There will be a company to teach foreign languages, one to teach calculus, etc. Indeed, maybe more than one --3 separate companies competing on the basis of price, quality, and student satisfaction for the right to teach kids elementary economics or psychology. Competition would evolve for the right to provide teaching services. Companies detested by students will make their feelings known and take their business to other companies providing services within the university -- or to other universities, assuming a world with limited barriers to transferring credit.
This would be moving back to mid 18th century ways of doing things. Adam Smith famously complained that the quality of education at Oxford started to decline when the professors stopped having students paying tuition fees to them directly, instead of the university. The university should facilitate and oversee the evolving learning experience of students, but the actual doing of the work probably should be contracted out to a greater extent than at present. This would allow competition and market forces to operate in new ways to revitalize higher education and make it more efficient. Are there limits to this approach? Of course. I am not sure how contracting out Ph.D. instruction would work, and would be slow in trying it, for example. But should we be trying this approach more than we do at the present? Again, of course.
Two moderate Democrats, David Osborne and Ted Gaebler, wrote an interesting if somewhat naive book in 1992 called Reinventing Government. While they lauded an entrepreneurial spirit which they saw growing in government, (I think it’s overstated) they nevertheless made an excellent point. Government's role is to decide what needs to be done as a society, not necessarily to DO it. Often, the correct thing to do is contract out the actual policy implementation to someone else. They were talking mainly about such things as garbage pickup, highway maintenance, arguably the operation of prisons. In K-12 education, a number of companies made good money offering supplemental, after school enrichment services, or helping students prepare for exams like the SAT and ACT --in a sense, society, and in some cases governments, contracted this work out to competitive private enterprises like Kaplan or Sylvan Learning Centers.
Universities can learn from this lesson. They are already contracting out some food and maintenance services. But maybe, they should contract out all services, including learning. As Bob Zemsky told a group that I also spoke at a while back, maybe adjunct faculty should “corporatize” rather than unionize. They should form companies and sell their services to universities, rather than negotiate one-on-one with universities in an adversarial environment. There will be a company to teach foreign languages, one to teach calculus, etc. Indeed, maybe more than one --3 separate companies competing on the basis of price, quality, and student satisfaction for the right to teach kids elementary economics or psychology. Competition would evolve for the right to provide teaching services. Companies detested by students will make their feelings known and take their business to other companies providing services within the university -- or to other universities, assuming a world with limited barriers to transferring credit.
This would be moving back to mid 18th century ways of doing things. Adam Smith famously complained that the quality of education at Oxford started to decline when the professors stopped having students paying tuition fees to them directly, instead of the university. The university should facilitate and oversee the evolving learning experience of students, but the actual doing of the work probably should be contracted out to a greater extent than at present. This would allow competition and market forces to operate in new ways to revitalize higher education and make it more efficient. Are there limits to this approach? Of course. I am not sure how contracting out Ph.D. instruction would work, and would be slow in trying it, for example. But should we be trying this approach more than we do at the present? Again, of course.
Monday, August 13, 2007
Harvard's Little Investment Loss ($350 million)
By Richard Vedder
I have been increasingly uneasy about the new wave of thinking amongst endowment managers of universities, who have increasingly been aggressively pursuing high risk but high return investments in hedge funds, leveraged real estate deals, etc. There is a tradeoff between risk and return, and I have always thought universities should be pretty conservative, sacrificing some capital gains for reduced volatility in the size of the investment portfolio. To be sure, bigness allows wealthy universities some options --they can make 10 risky investments among 100 less risky ones, and even if a few of the risky ones fizzle, but one or two come in big, they are ahead.
By way of background, we recently learned that Harvard just took a $350 million loss on a hedge fund investment. That is only 1.2 percent of the endowment, and it may mean that the rate of return on investments this year will be, say, 12 percent instead of 13.2 percent. But it is an early warning signal, and a suggestion that universities that invest more than, say, five percent of their money in highly speculative investments may have some big time explaining to do soon for their aggressive investment behavior.
My university, Ohio University, and Harvard have roughly the same number of students (mine has slightly more). Yet the investment loss of Harvard far exceeded the total size of Ohio University's endowment. After all, it amount to almost $20,000 per student, which means $1,000 in income if the University spends 5 percent of endowment funds. At many schools, that amount of money would make the difference between extremely austere budgets and relatively plentiful ones. At Harvard, it is a minor setback of near inconsequential importance. We have no idea what Harvard spends out of its endowment, for example, on the running of programs. It is time to end that and to demand transparency. Many wealthy Harvard alums lower their income taxes by making donations to Harvard, so the Feds are entitled to know --where is the money going?
I have been increasingly uneasy about the new wave of thinking amongst endowment managers of universities, who have increasingly been aggressively pursuing high risk but high return investments in hedge funds, leveraged real estate deals, etc. There is a tradeoff between risk and return, and I have always thought universities should be pretty conservative, sacrificing some capital gains for reduced volatility in the size of the investment portfolio. To be sure, bigness allows wealthy universities some options --they can make 10 risky investments among 100 less risky ones, and even if a few of the risky ones fizzle, but one or two come in big, they are ahead.
By way of background, we recently learned that Harvard just took a $350 million loss on a hedge fund investment. That is only 1.2 percent of the endowment, and it may mean that the rate of return on investments this year will be, say, 12 percent instead of 13.2 percent. But it is an early warning signal, and a suggestion that universities that invest more than, say, five percent of their money in highly speculative investments may have some big time explaining to do soon for their aggressive investment behavior.
My university, Ohio University, and Harvard have roughly the same number of students (mine has slightly more). Yet the investment loss of Harvard far exceeded the total size of Ohio University's endowment. After all, it amount to almost $20,000 per student, which means $1,000 in income if the University spends 5 percent of endowment funds. At many schools, that amount of money would make the difference between extremely austere budgets and relatively plentiful ones. At Harvard, it is a minor setback of near inconsequential importance. We have no idea what Harvard spends out of its endowment, for example, on the running of programs. It is time to end that and to demand transparency. Many wealthy Harvard alums lower their income taxes by making donations to Harvard, so the Feds are entitled to know --where is the money going?
Saturday, August 11, 2007
Intellectual Diversity Revisited
By Richard Vedder
CCAP is concerned mainly with issues of efficiency, affordability, accountability --pocketbook matters. But in assessing the value of the enterprise of American higher education, we have to look at the relationship between the outputs or outcomes to the inputs or costs. And a key part of the product or outcome of higher education has always been the challenging of students, of offering them diverse points of view, and helping them find their own sense of values of what is true and untrue, good and bad, beautiful and ugly. In turning children into adults, and illiterate into literates, we want to offer people a rich range of opinions and views of the world. I would hate to have a higher education dominated by Ward Churchills, but students should have some exposure to people who think the unconventional, who challenge orthodoxy, etc.
Thus I am not happy (although not surprised) with the new release of data that shows that academics are overwhelmingly supporting Democrats financially. To be sure, this has been a low period for Republicans generally, and in some ways they are less deserving of support than is typical. But the fact that 81 percent of donations at Harvard (the largest contributor to candidates of any university) went to Democrats is further evidence that there is a depressing sameness, a lack of diversity, in the academy's support of so-called liberals or progressives. Moreover, I doubt all of the 19 percent non-Democratic money went to Republicans --some no doubt went to socialists, Greens and others even more progressive than today's Democrats. My guess is that liberals got close to 10 times as much money at Harvard as conservatives.
Of course, people should give to whom they want. Yet I believe it is true that the establishment within universities is hostile --and often increasingly so --to persons who are conservative, libertarian, or even non-political. The effectiveness of higher education is reduced by this huge bias, as is, in the long run, its political support (and rightfully so, in my opinion).
The interesting question is: why does this exist? Has there always been a left-wing bias in American higher ed? We really don't know, and I suspect higher ed has always had a disproportionate number of lively minds that question the orthodox view --which, in principle, is a good thing. But I would bet the American academic of, say, 1850 or even 1900 was far less liberal on average relative to the population than today. There were the Thorstein Veblens (a progressive economist), but also lots of rock-ribbed Republican types as well.
I think the growing role of governments in funding higher ed, either directly through subsidies or indirectly via tax policy favoring private gifts, has made academics minions of governments, and strong supporters of public support. We academics are on a sort of sophisticated form of welfare, and like all welfare recipients, we clamor for more, like the kid in the musical Oliver who plaintively asks for more food. I think this governmental support has promoted mass inefficiency --but also an intolerance for the one type of diversity that is truly important, namely that of ideas.
CCAP is concerned mainly with issues of efficiency, affordability, accountability --pocketbook matters. But in assessing the value of the enterprise of American higher education, we have to look at the relationship between the outputs or outcomes to the inputs or costs. And a key part of the product or outcome of higher education has always been the challenging of students, of offering them diverse points of view, and helping them find their own sense of values of what is true and untrue, good and bad, beautiful and ugly. In turning children into adults, and illiterate into literates, we want to offer people a rich range of opinions and views of the world. I would hate to have a higher education dominated by Ward Churchills, but students should have some exposure to people who think the unconventional, who challenge orthodoxy, etc.
Thus I am not happy (although not surprised) with the new release of data that shows that academics are overwhelmingly supporting Democrats financially. To be sure, this has been a low period for Republicans generally, and in some ways they are less deserving of support than is typical. But the fact that 81 percent of donations at Harvard (the largest contributor to candidates of any university) went to Democrats is further evidence that there is a depressing sameness, a lack of diversity, in the academy's support of so-called liberals or progressives. Moreover, I doubt all of the 19 percent non-Democratic money went to Republicans --some no doubt went to socialists, Greens and others even more progressive than today's Democrats. My guess is that liberals got close to 10 times as much money at Harvard as conservatives.
Of course, people should give to whom they want. Yet I believe it is true that the establishment within universities is hostile --and often increasingly so --to persons who are conservative, libertarian, or even non-political. The effectiveness of higher education is reduced by this huge bias, as is, in the long run, its political support (and rightfully so, in my opinion).
The interesting question is: why does this exist? Has there always been a left-wing bias in American higher ed? We really don't know, and I suspect higher ed has always had a disproportionate number of lively minds that question the orthodox view --which, in principle, is a good thing. But I would bet the American academic of, say, 1850 or even 1900 was far less liberal on average relative to the population than today. There were the Thorstein Veblens (a progressive economist), but also lots of rock-ribbed Republican types as well.
I think the growing role of governments in funding higher ed, either directly through subsidies or indirectly via tax policy favoring private gifts, has made academics minions of governments, and strong supporters of public support. We academics are on a sort of sophisticated form of welfare, and like all welfare recipients, we clamor for more, like the kid in the musical Oliver who plaintively asks for more food. I think this governmental support has promoted mass inefficiency --but also an intolerance for the one type of diversity that is truly important, namely that of ideas.
Friday, August 10, 2007
Accountability: Coming to a College Near You?
By Bryan O’Keefe
As anybody who has read this blog in the past already knows, the lack of accountability in higher education is a major concern and could, in the long-term, threaten the quality that has defined American colleges and universities. Rich has said many times “How do we know if Harvard had a good year?” and the answer, of course, is that we have no idea. This is even more troubling since higher education has exploded in cost and a college degree is – rightly or wrongly – perceived as a necessity for many jobs in today’s workforce. As consumers, we usually don’t spend large amounts of money on items without at least having a tangential idea of the results. US News and World Reports has filled this void to some degree, but we have quibbled with them over whether they are actually measuring anything meaningful.
For the most part, colleges have resisted greater accountability. Many folks in higher education think they are above this sort of stuff and they especially cry bloody murder when you try to talk about higher education in any sort of business context. But there are finally some signs that the times might be changing.
David Wessel at the Wall Street Journal had an important column yesterday where he discusses an effort by the National Association of State Universities and Land-Grant Colleges (big research universities) and the American Association of State Colleges and Universities to bring some accountability to higher ed. The two groups are jointly developing a template which colleges can use to show certain data such as admission rates, graduation rates, costs, results from student surveys, and (this is the biggie) results of tests given to students to show how much they really learned in college.
A few caveats – it seems from Wessel’s article that all of this will be voluntary and left up to the colleges to self-report, which means that the data might not end up being objective. But we have to start somewhere and this is definitely a step in the right direction.
We will follow this development over the next couple of months and see if higher education really is embracing accountability.
As anybody who has read this blog in the past already knows, the lack of accountability in higher education is a major concern and could, in the long-term, threaten the quality that has defined American colleges and universities. Rich has said many times “How do we know if Harvard had a good year?” and the answer, of course, is that we have no idea. This is even more troubling since higher education has exploded in cost and a college degree is – rightly or wrongly – perceived as a necessity for many jobs in today’s workforce. As consumers, we usually don’t spend large amounts of money on items without at least having a tangential idea of the results. US News and World Reports has filled this void to some degree, but we have quibbled with them over whether they are actually measuring anything meaningful.
For the most part, colleges have resisted greater accountability. Many folks in higher education think they are above this sort of stuff and they especially cry bloody murder when you try to talk about higher education in any sort of business context. But there are finally some signs that the times might be changing.
David Wessel at the Wall Street Journal had an important column yesterday where he discusses an effort by the National Association of State Universities and Land-Grant Colleges (big research universities) and the American Association of State Colleges and Universities to bring some accountability to higher ed. The two groups are jointly developing a template which colleges can use to show certain data such as admission rates, graduation rates, costs, results from student surveys, and (this is the biggie) results of tests given to students to show how much they really learned in college.
A few caveats – it seems from Wessel’s article that all of this will be voluntary and left up to the colleges to self-report, which means that the data might not end up being objective. But we have to start somewhere and this is definitely a step in the right direction.
We will follow this development over the next couple of months and see if higher education really is embracing accountability.
Today America, Tomorrow the World!!!
By Richard Vedder
I am vacationing in Europe, and my sidekicks Bryan and Andy are carrying on very nicely in my absence. But I note some international similarities in discussions about universities in Britain, where I am now, as well as some differences. I ate dinner last night with David Shaw and my friend Lew Uhler (and our wives), and David was on pins and needles, not sure whether his son would be admitted to Cambridge this fall --less than two months from now. Decisions come much later in the U.K. Admission is also based strictly on merit, not name or family worth. I suspect that colleges are operating on more meritocratic principles in the U.K. than in the U.S. Oxbridge is still the path to success, but admission to the great schools depends very,very much on performance.
The headline in today's Irish Times is about doing something about college costs. I fear the Europeans are following the American path. First, a good thing: they are charging students more and more of college costs. Second, a not so good thing: they are making loans available in large amounts, giving colleges incentives to demand large fee increases financed from student loans. While I applaud the effort to push the cost of colleges onto students who derive the benefit, I believe that this likely will lead to a cost explosion and indifference to efficiency that is a hallmark of the American university.
Another thing emerged from my discussion with David, a former M.P. in the British Parliament. He is worried about the loss of a common core body of knowledge about our western heritage, about declining student knowledge about historical events, etc. It is interesting that we count Anne Neal among our mutual friends. One justification of public subsidies for higher education is that it provides knowledge that is sort of a glue that binds us together, making the whole (the nation, our civilization) greater than the sum of the parts (individual citizens). National unity and cohesiveness depends upon having shared experiences and knowledge -- which is what general education provides. Shaw is worried about that, just as Labour back benchers still are furious with Tony Blair for putting in American-like tuition charges at British universities.
I am vacationing in Europe, and my sidekicks Bryan and Andy are carrying on very nicely in my absence. But I note some international similarities in discussions about universities in Britain, where I am now, as well as some differences. I ate dinner last night with David Shaw and my friend Lew Uhler (and our wives), and David was on pins and needles, not sure whether his son would be admitted to Cambridge this fall --less than two months from now. Decisions come much later in the U.K. Admission is also based strictly on merit, not name or family worth. I suspect that colleges are operating on more meritocratic principles in the U.K. than in the U.S. Oxbridge is still the path to success, but admission to the great schools depends very,very much on performance.
The headline in today's Irish Times is about doing something about college costs. I fear the Europeans are following the American path. First, a good thing: they are charging students more and more of college costs. Second, a not so good thing: they are making loans available in large amounts, giving colleges incentives to demand large fee increases financed from student loans. While I applaud the effort to push the cost of colleges onto students who derive the benefit, I believe that this likely will lead to a cost explosion and indifference to efficiency that is a hallmark of the American university.
Another thing emerged from my discussion with David, a former M.P. in the British Parliament. He is worried about the loss of a common core body of knowledge about our western heritage, about declining student knowledge about historical events, etc. It is interesting that we count Anne Neal among our mutual friends. One justification of public subsidies for higher education is that it provides knowledge that is sort of a glue that binds us together, making the whole (the nation, our civilization) greater than the sum of the parts (individual citizens). National unity and cohesiveness depends upon having shared experiences and knowledge -- which is what general education provides. Shaw is worried about that, just as Labour back benchers still are furious with Tony Blair for putting in American-like tuition charges at British universities.
Thursday, August 09, 2007
Is NACUBO Legal? Part Deux
By Lynne Munson
Richard Vedder asked this question last Tuesday, suggesting that the National Association of College and University Business Officers' penchant for secrecy, among other things, should spur scrutiny. And I had the opportunity to raise the issue with the Democrat and Republican staff of the Senate Finance Committee last Friday.
Committee staffers had invited me to share my thoughts on higher education endowment hoarding, a problematic practice which is much higher on the committee's agenda than I'd realized. And that's quite something because, if you read between the lines of the Washington Post, these are the same folks who were behind EduCap's recent takedown (for good or ill??). My sense is that they mean business. My questions about NACUBO met with a bit of eye-rolling and an interest in my own lengthy struggle to wrest information from NACUBO.
That story begins months ago when I was conducting research for an article I recently published in Inside Higher Education.
It is important to understand--as most readers of this blog no doubt do already—that
NACUBO is basically the only source of information on higher education endowments. If you contact a college or university directly and ask almost any question about what the institution does with its endowment, most press officers react with horror and sometimes sputtering claims of ignorance. That's if your call gets returned at all.
The only folks who do get schools to divulge almost any information about their endowments is NACUBO, which circulates an annual survey of highly specific questions about endowment investment and spending practices. Last year over 700 schools responded. The survey results for individual schools were published in an annual report which is readable only if you can decode NACUBO's cipher-like presentation of the information. More on that in a moment...
Of course I didn't realize this when I originally called NACUBO requesting a copy of their report. I told their press person that I was working on an article about endowment payout and promised in all sincerity that their report would get top billing if they sent me a copy. They explained that it was not their policy to make the report available to the press. Dumbfounded I asked why, since they'd published a press release [often a tell-tale sign that you'd like press attention :)] and would no doubt sell more of their pricey reports if people knew they existed. They repeated that the report was simply unavailable unless I bought one for $290.
Gee, I told their press person, that seemed awful steep. But the report sounded like it would be so very helpful that I decided to ask a few more questions. I'd read in the press release on NACUBO's website that the survey found "a typical annual spending rate of approximately five percent of total endowment holdings." This was higher than my research indicated so I asked what information the report contained which backed up the 5% number. NACUBO's press person told me that they could not supply such info -- that I'd have to buy the report. After going around that circle a half dozen or so times they finally admitted there was no specific info in the report to back up the 5% number and that the line in the press release wasn't based on survey findings. Now I was becoming suspicious.
So I asked: How about NACUBO's claim that the report contains payout information on specific colleges and universities? It contains that doesn't it? Well, NACUBO admitted, it does and it does not. The largest section of the report lists the more than 700 responding institutions along with their payout rates since 1997. But the list includes no names. Each institution name is coded so the list amounts to 25 pages of senseless grids of numbers. And the only people who can decode it are the colleges and universities themselves.
So, despite the non-profit status NACUBO enjoys, they do not make available to the public (aka the consumers of higher education), or to Congress, or to anyone but their own members, information on what portion of their tax-free endowments their individual members are spending (or hoarding). The fact that only NACUBO members can exchange this information allows them the opportunity to collude behind closed doors and maximize benefits for themselves. Let me stress the word opportunity in that previous sentence because I'm not saying that this is happening. But the way NACUBO treats this information makes it entirely possible.
The bottom line is that NACUBO is allowing their members to share and utilize inside information that they are keeping secret from everyone else. They shouldn't be doing that. Or so I told the Senate.
Richard Vedder asked this question last Tuesday, suggesting that the National Association of College and University Business Officers' penchant for secrecy, among other things, should spur scrutiny. And I had the opportunity to raise the issue with the Democrat and Republican staff of the Senate Finance Committee last Friday.
Committee staffers had invited me to share my thoughts on higher education endowment hoarding, a problematic practice which is much higher on the committee's agenda than I'd realized. And that's quite something because, if you read between the lines of the Washington Post, these are the same folks who were behind EduCap's recent takedown (for good or ill??). My sense is that they mean business. My questions about NACUBO met with a bit of eye-rolling and an interest in my own lengthy struggle to wrest information from NACUBO.
That story begins months ago when I was conducting research for an article I recently published in Inside Higher Education.
It is important to understand--as most readers of this blog no doubt do already—that
NACUBO is basically the only source of information on higher education endowments. If you contact a college or university directly and ask almost any question about what the institution does with its endowment, most press officers react with horror and sometimes sputtering claims of ignorance. That's if your call gets returned at all.
The only folks who do get schools to divulge almost any information about their endowments is NACUBO, which circulates an annual survey of highly specific questions about endowment investment and spending practices. Last year over 700 schools responded. The survey results for individual schools were published in an annual report which is readable only if you can decode NACUBO's cipher-like presentation of the information. More on that in a moment...
Of course I didn't realize this when I originally called NACUBO requesting a copy of their report. I told their press person that I was working on an article about endowment payout and promised in all sincerity that their report would get top billing if they sent me a copy. They explained that it was not their policy to make the report available to the press. Dumbfounded I asked why, since they'd published a press release [often a tell-tale sign that you'd like press attention :)] and would no doubt sell more of their pricey reports if people knew they existed. They repeated that the report was simply unavailable unless I bought one for $290.
Gee, I told their press person, that seemed awful steep. But the report sounded like it would be so very helpful that I decided to ask a few more questions. I'd read in the press release on NACUBO's website that the survey found "a typical annual spending rate of approximately five percent of total endowment holdings." This was higher than my research indicated so I asked what information the report contained which backed up the 5% number. NACUBO's press person told me that they could not supply such info -- that I'd have to buy the report. After going around that circle a half dozen or so times they finally admitted there was no specific info in the report to back up the 5% number and that the line in the press release wasn't based on survey findings. Now I was becoming suspicious.
So I asked: How about NACUBO's claim that the report contains payout information on specific colleges and universities? It contains that doesn't it? Well, NACUBO admitted, it does and it does not. The largest section of the report lists the more than 700 responding institutions along with their payout rates since 1997. But the list includes no names. Each institution name is coded so the list amounts to 25 pages of senseless grids of numbers. And the only people who can decode it are the colleges and universities themselves.
So, despite the non-profit status NACUBO enjoys, they do not make available to the public (aka the consumers of higher education), or to Congress, or to anyone but their own members, information on what portion of their tax-free endowments their individual members are spending (or hoarding). The fact that only NACUBO members can exchange this information allows them the opportunity to collude behind closed doors and maximize benefits for themselves. Let me stress the word opportunity in that previous sentence because I'm not saying that this is happening. But the way NACUBO treats this information makes it entirely possible.
The bottom line is that NACUBO is allowing their members to share and utilize inside information that they are keeping secret from everyone else. They shouldn't be doing that. Or so I told the Senate.
Wednesday, August 08, 2007
Differential Pricing Grows in Popularity
By Richard Vedder
My new colleague, friend, and sidekick Andy Gillen pointed out a nice story in the New York Times about the growth in differential pricing of instruction within universities. More and more schools are charging different amounts for different schools or colleges within universities. The University of Wisconsin charges business students more; a slew of schools (e.g., University of Nebraska, Iowa State, Rutgers) ask more from engineering students, and some even charge students in undergraduate professional schools (e.g., journalism at Arizona State) a premium.
I have long advocated doing this. On the supply side, it probably costs more to educate engineers and business students, in part because of high salaries for professors, in part (especially in engineering) because of substantial equipment costs. Moreover, the payoff to students from degrees in these areas is, on average, higher than average, so higher tuition fees actually works to equalize the rate of return to students on their college investments (in relation to other, lower paying fields). It reduces university incentives to short change areas that are expensive to operate.
At the same time, however, I suspect a lot of this differential pricing is done with less than honorable intentions. Schools can raise their base tuition fee by, say, 5 percent, but create new incremental fees for engineers and business students, bringing the effective average tuition increase to, say, 7 percent. The school will brag "we held our tuition increase to five percent," ignoring the much larger increases for portions of the student body.
Private schools, by and large, appear to not be participating in this trend to the same extent, especially liberal arts colleges. That increases my suspicion that much of the is part of a political game of public schools to raise tuition fees more than it appears. The same thing is going on, I think, with room and board charges, which are rising more than the cost of food and housing in the general economy.
Will poorer students be deprived of the opportunities to go to high cost programs within institutions? In principle, no. Scholarship aid should vary with total costs. Students who go into high remunerative fields can also safely borrow more. The notion that higher education prices should be low because education is a public good takes another hit with differential pricing, I suspect. As I have indicated elsewhere, however, I think higher education is primarily a private investment good, as well as a consumer good, not something with massive positive externalities as the higher ed apologists and romantics would like you to believe. So, for me, on balance the differential tuition movement is on the whole a healthy trend.
My new colleague, friend, and sidekick Andy Gillen pointed out a nice story in the New York Times about the growth in differential pricing of instruction within universities. More and more schools are charging different amounts for different schools or colleges within universities. The University of Wisconsin charges business students more; a slew of schools (e.g., University of Nebraska, Iowa State, Rutgers) ask more from engineering students, and some even charge students in undergraduate professional schools (e.g., journalism at Arizona State) a premium.
I have long advocated doing this. On the supply side, it probably costs more to educate engineers and business students, in part because of high salaries for professors, in part (especially in engineering) because of substantial equipment costs. Moreover, the payoff to students from degrees in these areas is, on average, higher than average, so higher tuition fees actually works to equalize the rate of return to students on their college investments (in relation to other, lower paying fields). It reduces university incentives to short change areas that are expensive to operate.
At the same time, however, I suspect a lot of this differential pricing is done with less than honorable intentions. Schools can raise their base tuition fee by, say, 5 percent, but create new incremental fees for engineers and business students, bringing the effective average tuition increase to, say, 7 percent. The school will brag "we held our tuition increase to five percent," ignoring the much larger increases for portions of the student body.
Private schools, by and large, appear to not be participating in this trend to the same extent, especially liberal arts colleges. That increases my suspicion that much of the is part of a political game of public schools to raise tuition fees more than it appears. The same thing is going on, I think, with room and board charges, which are rising more than the cost of food and housing in the general economy.
Will poorer students be deprived of the opportunities to go to high cost programs within institutions? In principle, no. Scholarship aid should vary with total costs. Students who go into high remunerative fields can also safely borrow more. The notion that higher education prices should be low because education is a public good takes another hit with differential pricing, I suspect. As I have indicated elsewhere, however, I think higher education is primarily a private investment good, as well as a consumer good, not something with massive positive externalities as the higher ed apologists and romantics would like you to believe. So, for me, on balance the differential tuition movement is on the whole a healthy trend.
Tuesday, August 07, 2007
Tenure and academic freedom
One of the strongest arguments in support of tenure is that it encourages and defends academic freedom. But in a recent piece in the Chicago Sun Times, In Defense of Dangerous Ideas, Harvard's Steven Pinker (a professor in the Department of Psychology) argues that may not be the case. While the whole piece is worth reading, the last section in particular caught my eye.
The freedom to ask and attempt to answer questions that others may not approve of is at the heart of academic freedom. I have always taken it for granted that tenure would increase academic freedom, and assumed that the recent controversies over the issue, such as the comments of Summers and Churchill, were isolated events. But if Pinker's interpretation of Hunt, Kors and Silverglate is correct (I have not yet read them), then they were not exceptions to the rule of academic freedom, but indicative of a general tendency within the academy to "quash" the academic freedom of anyone they disagree with. If such a tendency exists, then tenure is not the guarantee of academic freedom that it is made out to be, which seriously undermines one of the strongest arguments in favor of tenure.
Though I am more sympathetic to the argument that important ideas be aired than to the argument that they should sometimes be suppressed, I think it is a debate we need to have. Whether we like it or not, science has a habit of turning up discomfiting thoughts, and the Internet has a habit of blowing their cover.
Tragically, there are few signs that the debates will happen in the place where we might most expect it: academia. Though academics owe the extraordinary perquisite of tenure to the ideal of encouraging free inquiry and the evaluation of unpopular ideas, all too often academics are the first to try to quash them. The most famous recent example is the outburst of fury and disinformation that resulted when Harvard president Lawrence Summers gave a measured analysis of the multiple causes of women's underrepresentation in science and math departments in elite universities and tentatively broached the possibility that discrimination and hidden barriers were not the only cause.
But intolerance of unpopular ideas among academics is an old story. Books like Morton Hunt's The New Know-Nothings and Alan Kors and Harvey Silverglate's The Shadow University have depressingly shown that universities cannot be counted on to defend the rights of their own heretics and that it's often the court system or the press that has to drag them into policies of tolerance.
The freedom to ask and attempt to answer questions that others may not approve of is at the heart of academic freedom. I have always taken it for granted that tenure would increase academic freedom, and assumed that the recent controversies over the issue, such as the comments of Summers and Churchill, were isolated events. But if Pinker's interpretation of Hunt, Kors and Silverglate is correct (I have not yet read them), then they were not exceptions to the rule of academic freedom, but indicative of a general tendency within the academy to "quash" the academic freedom of anyone they disagree with. If such a tendency exists, then tenure is not the guarantee of academic freedom that it is made out to be, which seriously undermines one of the strongest arguments in favor of tenure.
Friday, August 03, 2007
The Sloane Files: On Sitting Down to Read King Lear Again
By Wick Sloane
I’m wrapping up my second close encounter of the third kind with the Harvard College Wait List. One failed and the second going down fast.
I’ve spent a few weeks, since Rich Vedder’s request to weigh in here, asking myself how to tell this story and at what volume. To rant or not to rant?
…. that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them?
When in doubt, stick with the facts. Here goes.
Let’s dispense with my first encounter. This was an entitled, highest-honor, elite prep school, Latin prizewinner, classical diploma, varsity rower, community leader, Middle East Prize winner, with APs in hard sciences and classics. Harvard deferred her early decision application to regular admission in April. In April? Wait listed. In late June? Rejected. This one is my own daughter, that’s how I know. My question: Why the six months of water torture? Take her, don’t take her. Of course I hoped she’d be admitted. In the end, what I can’t understand is the six months. She started with a worthy record and kept racking up successes. The wait, I think, was mean of Harvard but a fair fight within the social and economic strata on both sides.
My current encounter is a formerly homeless mother from Manchester, N. H., who found her way to a 4.0 average at Bunker Hill Community College and a Jack Kent Cooke Scholarship. She lives with her daughter and works four jobs. She’s on the Harvard wait list. Read for yourself this story in the Boston Globe and have a look on ABC News. A couple of weeks ago, Harvard reiterated that there is still no room, though the student is welcome to stay on the wait list. Is the wait list ranked? Where does the student stand? No ranking. If openings occur, Harvard related to the student, the committee pulls out each person on the wait list “to see if there is anything new in the file.”
New in the file? She’s already an advocate for homeless and domestic-violence victims, advising state commissioners from her own experience. What else is there? Win Wimbledon?
I need to defuse any impending rant and offer some fairness. I have no idea what I’d do as a Harvard admissions officer, faced with so much talent. I have spent enough time in large organizations to realize that the admissions officers are the public face of institutional decisions. These people are the agents of the whole institution. They have my empathy.
Here’s the rub. This second student is applying as a transfer, not a freshman. She has housing with her daughter. Remember, Harvard said “no room.” If a college wants all freshmen to live on campus, and that’s fair enough, then there are a finite number of rooms and beds. A college can fill up in that context. But as a transfer? No way.
I’ve been CFO of a huge university. I understand the math and the costs and the space issues. I’ll assume that Harvard has a rational number of students on the transfer wait list, not thousands. A huge university such as Harvard, then, has room for a transfer not seeking university housing. Remember, the most recent reason for more waiting is room – not weak calculus skills. The student has not applied for an obscure discipline with few faculty.
What question can anyone ask but “What is this poor student doing on the waiting list to begin with?” My point is not that Harvard should or shouldn’t take her, though I have an opinion. Why the water torture? My daughter had squadrons of college counselors, teachers, and friends to make her case. My daughter was at school with someone doing the laundry, cooking the meals and washing the dishes. How is someone with a child and four jobs supposed to mount a lobbying campaign against a $28 billion institution? Is a wait-list decision even fair for a community college student?
Here’s what I know about the Harvard wait list. By know, I mean what I learned from friends whose children found their way off the wait list. My research includes multi-generational Harvard families, with their names on Harvard buildings. My friends were alumni or faculty or both and their children were applying to be freshman, not as transfers. Here’s what those smarter than I am (they went to Harvard) believe.
The wait list is an offer to make a deal. Lobbying – just not done for regular admission – is permitted for the wait list. A sort of, “Let’s see if you know anyone prominent who would be mad if we reject you.” Signals about potential to make donations are acceptable in wait-list situations. Adding accomplishments to the file doesn’t hurt but is less important than connections or money. The wait-list message seems to be, “Did we miss something that demonstrates you are one of us?” See this article in The Harvard Crimson. U.S. Senator Charles Grassley, R-Iowa, Ranking Member of the Senate Finance Committee does not think I am making this up. The successful outcome for a Harvard freshman wait-list applicant is admission for the following fall, after a year off.
Now, if we are talking about the already entitled, my daughter among them, this game is unsavory, but the players know the rules and were born into networks to help in such situations. Putting a single mother with four jobs into this esoteric maze crosses the line from unsavory to cruel. Note, again, my point is not that Harvard should take this student. Why add stress and ambiguity to an already-complex life?
That’s the story, the facts in a calm tone. This is enough for a blog. Feel free to stop reading and draw your own conclusions.
***********************************************************************************
The story here brings me to sitting down to read King Lear again. Between April and November of 1971, Williams College wait listed me, rejected me, and admitted me early decision. I know of no one else with that trifecta. In January 1982, Yale School of Management wait listed me. The next morning, I drove to New Haven, visited the admissions director and every member of the admissions committee. I kept lobbying. By May, I was accepted. Half a dozen lifelong friends were at that Yale School that day. They knew the faculty. They brought me where I needed to go. A dozen or so more were alumni, and they chimed in for me. Life is unfair.
I spent my year off before Williams at school in Oxford, not at Oxford. We spent months in King Lear. Shakespeare swallowed me and, to my good fortune, hasn’t let go. I understood the story of Lear clearly enough. Back then, I wrote off the actions in the plot – banishment, plotting, murder, even gouging out eyes – as dramatic devices, metaphors. No more.
I read the play again a few weeks ago. My surprise was how believable both the good and the evil were. I shuddered at how real the play, and the actions therein, were. The evil? I’ve seen it all now. Would Harvard let a homeless mother languish on the wait list for no particular reason? Shakespeare knew the answer, even when he was writing King Lear. On sitting down to read King Lear again, I felt what I didn’t know the first time.
That same year, we read Jude the Obscure, Thomas Hardy’s book about the stone mason who teaches himself Latin and Greek to fulfill his dreams of going to Oxford. He even carves the Oxford gargoyles. Oxford slams the door on Jude again and again and again. The first time, Hardy’s point made sense. The sledgehammer symbolism – Sarcophogus College – was over the top, I thought. I went to the library here in Cambridge, Massachusetts, where I live. Why not see what copies of Jude there are here by Harvard. Six. I took out the oldest and the newest. The newest, and I couldn’t make this up, is an edition from Oxford’s World Classics. I had to put Jude down this time. The situation was too painful to read, right here as this mother waited and waited for Harvard.
I reached for King Lear again, and found a line that I had once thought only clever. The Duke of Gloucester, the one who’s eyes were gouged out, is speaking.
Act IV, Scene 1
GLOUCESTER
He has some reason, else he could not beg.
I' the last night's storm I such a fellow saw;
Which made me think a man a worm: my son
Came then into my mind; and yet my mind
Was then scarce friends with him: I have heard
more since.
As flies to wanton boys, are we to the gods.
They kill us for their sport.
“As flies to wanton boys are we to the Gods, they kill us for their sport.”
Amen to that.
UPDATE: If you wish to email Mr. Sloane about this or anything else, you can reach him at wsloane@well.com .
I’m wrapping up my second close encounter of the third kind with the Harvard College Wait List. One failed and the second going down fast.
I’ve spent a few weeks, since Rich Vedder’s request to weigh in here, asking myself how to tell this story and at what volume. To rant or not to rant?
…. that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them?
When in doubt, stick with the facts. Here goes.
Let’s dispense with my first encounter. This was an entitled, highest-honor, elite prep school, Latin prizewinner, classical diploma, varsity rower, community leader, Middle East Prize winner, with APs in hard sciences and classics. Harvard deferred her early decision application to regular admission in April. In April? Wait listed. In late June? Rejected. This one is my own daughter, that’s how I know. My question: Why the six months of water torture? Take her, don’t take her. Of course I hoped she’d be admitted. In the end, what I can’t understand is the six months. She started with a worthy record and kept racking up successes. The wait, I think, was mean of Harvard but a fair fight within the social and economic strata on both sides.
My current encounter is a formerly homeless mother from Manchester, N. H., who found her way to a 4.0 average at Bunker Hill Community College and a Jack Kent Cooke Scholarship. She lives with her daughter and works four jobs. She’s on the Harvard wait list. Read for yourself this story in the Boston Globe and have a look on ABC News. A couple of weeks ago, Harvard reiterated that there is still no room, though the student is welcome to stay on the wait list. Is the wait list ranked? Where does the student stand? No ranking. If openings occur, Harvard related to the student, the committee pulls out each person on the wait list “to see if there is anything new in the file.”
New in the file? She’s already an advocate for homeless and domestic-violence victims, advising state commissioners from her own experience. What else is there? Win Wimbledon?
I need to defuse any impending rant and offer some fairness. I have no idea what I’d do as a Harvard admissions officer, faced with so much talent. I have spent enough time in large organizations to realize that the admissions officers are the public face of institutional decisions. These people are the agents of the whole institution. They have my empathy.
Here’s the rub. This second student is applying as a transfer, not a freshman. She has housing with her daughter. Remember, Harvard said “no room.” If a college wants all freshmen to live on campus, and that’s fair enough, then there are a finite number of rooms and beds. A college can fill up in that context. But as a transfer? No way.
I’ve been CFO of a huge university. I understand the math and the costs and the space issues. I’ll assume that Harvard has a rational number of students on the transfer wait list, not thousands. A huge university such as Harvard, then, has room for a transfer not seeking university housing. Remember, the most recent reason for more waiting is room – not weak calculus skills. The student has not applied for an obscure discipline with few faculty.
What question can anyone ask but “What is this poor student doing on the waiting list to begin with?” My point is not that Harvard should or shouldn’t take her, though I have an opinion. Why the water torture? My daughter had squadrons of college counselors, teachers, and friends to make her case. My daughter was at school with someone doing the laundry, cooking the meals and washing the dishes. How is someone with a child and four jobs supposed to mount a lobbying campaign against a $28 billion institution? Is a wait-list decision even fair for a community college student?
Here’s what I know about the Harvard wait list. By know, I mean what I learned from friends whose children found their way off the wait list. My research includes multi-generational Harvard families, with their names on Harvard buildings. My friends were alumni or faculty or both and their children were applying to be freshman, not as transfers. Here’s what those smarter than I am (they went to Harvard) believe.
The wait list is an offer to make a deal. Lobbying – just not done for regular admission – is permitted for the wait list. A sort of, “Let’s see if you know anyone prominent who would be mad if we reject you.” Signals about potential to make donations are acceptable in wait-list situations. Adding accomplishments to the file doesn’t hurt but is less important than connections or money. The wait-list message seems to be, “Did we miss something that demonstrates you are one of us?” See this article in The Harvard Crimson. U.S. Senator Charles Grassley, R-Iowa, Ranking Member of the Senate Finance Committee does not think I am making this up. The successful outcome for a Harvard freshman wait-list applicant is admission for the following fall, after a year off.
Now, if we are talking about the already entitled, my daughter among them, this game is unsavory, but the players know the rules and were born into networks to help in such situations. Putting a single mother with four jobs into this esoteric maze crosses the line from unsavory to cruel. Note, again, my point is not that Harvard should take this student. Why add stress and ambiguity to an already-complex life?
That’s the story, the facts in a calm tone. This is enough for a blog. Feel free to stop reading and draw your own conclusions.
***********************************************************************************
The story here brings me to sitting down to read King Lear again. Between April and November of 1971, Williams College wait listed me, rejected me, and admitted me early decision. I know of no one else with that trifecta. In January 1982, Yale School of Management wait listed me. The next morning, I drove to New Haven, visited the admissions director and every member of the admissions committee. I kept lobbying. By May, I was accepted. Half a dozen lifelong friends were at that Yale School that day. They knew the faculty. They brought me where I needed to go. A dozen or so more were alumni, and they chimed in for me. Life is unfair.
I spent my year off before Williams at school in Oxford, not at Oxford. We spent months in King Lear. Shakespeare swallowed me and, to my good fortune, hasn’t let go. I understood the story of Lear clearly enough. Back then, I wrote off the actions in the plot – banishment, plotting, murder, even gouging out eyes – as dramatic devices, metaphors. No more.
I read the play again a few weeks ago. My surprise was how believable both the good and the evil were. I shuddered at how real the play, and the actions therein, were. The evil? I’ve seen it all now. Would Harvard let a homeless mother languish on the wait list for no particular reason? Shakespeare knew the answer, even when he was writing King Lear. On sitting down to read King Lear again, I felt what I didn’t know the first time.
That same year, we read Jude the Obscure, Thomas Hardy’s book about the stone mason who teaches himself Latin and Greek to fulfill his dreams of going to Oxford. He even carves the Oxford gargoyles. Oxford slams the door on Jude again and again and again. The first time, Hardy’s point made sense. The sledgehammer symbolism – Sarcophogus College – was over the top, I thought. I went to the library here in Cambridge, Massachusetts, where I live. Why not see what copies of Jude there are here by Harvard. Six. I took out the oldest and the newest. The newest, and I couldn’t make this up, is an edition from Oxford’s World Classics. I had to put Jude down this time. The situation was too painful to read, right here as this mother waited and waited for Harvard.
I reached for King Lear again, and found a line that I had once thought only clever. The Duke of Gloucester, the one who’s eyes were gouged out, is speaking.
Act IV, Scene 1
GLOUCESTER
He has some reason, else he could not beg.
I' the last night's storm I such a fellow saw;
Which made me think a man a worm: my son
Came then into my mind; and yet my mind
Was then scarce friends with him: I have heard
more since.
As flies to wanton boys, are we to the gods.
They kill us for their sport.
“As flies to wanton boys are we to the Gods, they kill us for their sport.”
Amen to that.
UPDATE: If you wish to email Mr. Sloane about this or anything else, you can reach him at wsloane@well.com .
MyRichUncle: One Year Later
By Bryan O'Keefe
About a year ago, our friend Rick Hess at the American Enterprise Institute conducted a conference on student loans and tuition. It was a very interesting and informative event and Rick brought together a lot of important experts on the topic. What I remember standing out however was the second panel that day. The panel featured a writer from Governing Magazine – Alan Greenblatt – and, if I remember correctly, Mr. Greenblatt was a bit cynical about student financial aid offices and their relationships with student lenders. He was indirectly – or perhaps even directly – questioning their integrity and some of the other panelists jumped all over him, defended these offices and lenders, said everything was on the up and up, etc.
Well, a year later, we now know as a result of the Cuomo investigations that Mr. Greenblatt was right about his assessment and the others were largely wrong (kudos to him). But what I also remembered about that panel was the question and answer period and representatives from a student lender called MyRichUncle. (we will shorten their name and just refer to them as MRU for the rest of this blog). The MRU folks were questioning the relationships between financial aid officers and student lenders. It seemed to me at the time that MRU was upset at being shut out of the student loan industrial complex, which I thought wasn’t right, as long as they offered legal lending products. The marketplace should be open to all, not just the few who bribe.
MRU was in the news again yesterday, with a lengthy and largely positive piece in the Wall Street Journal. In fact, MRU has done what precious few private lenders have been able to do up until this point – generate positive media coverage for a student lender!
The MRU saga as the Journal retells it sounds like some Horatio Alger tale. Two Indian entrepreneurs under the age of 30 started the company. They have tried offering innovative products to grow their business. They were also the new kids on the block and most of the higher education establishment wouldn’t give them the time of day. So, MRU started running newspaper ads calling into question the relationships between lenders and financial aid offices. The financial aid offices initially tried to blackball them even more. But the ads caught the eye of law enforcement, investigations ensued, corruption was uncovered, and, now MRU is perfectly positioned to be the “ethical” player in what is otherwise a very dicey game. Congratulations to them.
This whole story also illustrates another principle that we talked about in yesterday’s blog. The student loan scandal has been terrible, no doubt. But we now have private sector entrepreneurs stepping into the fray and trying to offer untainted products. They realize the business potential and are using capitalism to fulfill a need, which is a good thing. Remembering back to our posts about EduCap, we hope that the same thing happens in the private student loan industry if EduCap’s woes overcome that lender.
About a year ago, our friend Rick Hess at the American Enterprise Institute conducted a conference on student loans and tuition. It was a very interesting and informative event and Rick brought together a lot of important experts on the topic. What I remember standing out however was the second panel that day. The panel featured a writer from Governing Magazine – Alan Greenblatt – and, if I remember correctly, Mr. Greenblatt was a bit cynical about student financial aid offices and their relationships with student lenders. He was indirectly – or perhaps even directly – questioning their integrity and some of the other panelists jumped all over him, defended these offices and lenders, said everything was on the up and up, etc.
Well, a year later, we now know as a result of the Cuomo investigations that Mr. Greenblatt was right about his assessment and the others were largely wrong (kudos to him). But what I also remembered about that panel was the question and answer period and representatives from a student lender called MyRichUncle. (we will shorten their name and just refer to them as MRU for the rest of this blog). The MRU folks were questioning the relationships between financial aid officers and student lenders. It seemed to me at the time that MRU was upset at being shut out of the student loan industrial complex, which I thought wasn’t right, as long as they offered legal lending products. The marketplace should be open to all, not just the few who bribe.
MRU was in the news again yesterday, with a lengthy and largely positive piece in the Wall Street Journal. In fact, MRU has done what precious few private lenders have been able to do up until this point – generate positive media coverage for a student lender!
The MRU saga as the Journal retells it sounds like some Horatio Alger tale. Two Indian entrepreneurs under the age of 30 started the company. They have tried offering innovative products to grow their business. They were also the new kids on the block and most of the higher education establishment wouldn’t give them the time of day. So, MRU started running newspaper ads calling into question the relationships between lenders and financial aid offices. The financial aid offices initially tried to blackball them even more. But the ads caught the eye of law enforcement, investigations ensued, corruption was uncovered, and, now MRU is perfectly positioned to be the “ethical” player in what is otherwise a very dicey game. Congratulations to them.
This whole story also illustrates another principle that we talked about in yesterday’s blog. The student loan scandal has been terrible, no doubt. But we now have private sector entrepreneurs stepping into the fray and trying to offer untainted products. They realize the business potential and are using capitalism to fulfill a need, which is a good thing. Remembering back to our posts about EduCap, we hope that the same thing happens in the private student loan industry if EduCap’s woes overcome that lender.
Coming Attractions
By Bryan O'Keefe
As CCAP continues to expand, we are going to experiment a bit with the blog and author. Over the next couple of weeks, we plan on having guest blogs from some of our outside contributors, beginning with Wick Sloane and Lynne Munson. We are confident that both Wick and Lynne will add to the dialogue and offer some thought-provoking pieces going forward.
As CCAP continues to expand, we are going to experiment a bit with the blog and author. Over the next couple of weeks, we plan on having guest blogs from some of our outside contributors, beginning with Wick Sloane and Lynne Munson. We are confident that both Wick and Lynne will add to the dialogue and offer some thought-provoking pieces going forward.
Thursday, August 02, 2007
EduCap -- Follow-Up
By Bryan O’Keefe
As a follow-up to our earlier post, I just spoke over the phone with George Pappas, senior vice president for strategic partnerships at EduCap and Loan to Learn.
We are, of course, not taking a stand one way or the other on EduCap’s legal and business issues, beyond what we said in our earlier blog. But I thought that in the interest of being fair and balanced we would allow EduCap to at least have its say.
While not addressing the specific charges, Mr. Pappas said that the company “continues to believe that it adheres to all guidelines and regulations.” He said that the layoffs that the Post reported were “part of a restructuring” and that the company continues to service and originates loans.
He also defended EduCap more generally. “We are proud of the fact that we have helped thousands of kids go to school,” Mr. Pappas said. He added that private loans are often necessary for students since government backed loans have not kept up with the soaring cost of tuition.
Stay tuned for more on this issue...
As a follow-up to our earlier post, I just spoke over the phone with George Pappas, senior vice president for strategic partnerships at EduCap and Loan to Learn.
We are, of course, not taking a stand one way or the other on EduCap’s legal and business issues, beyond what we said in our earlier blog. But I thought that in the interest of being fair and balanced we would allow EduCap to at least have its say.
While not addressing the specific charges, Mr. Pappas said that the company “continues to believe that it adheres to all guidelines and regulations.” He said that the layoffs that the Post reported were “part of a restructuring” and that the company continues to service and originates loans.
He also defended EduCap more generally. “We are proud of the fact that we have helped thousands of kids go to school,” Mr. Pappas said. He added that private loans are often necessary for students since government backed loans have not kept up with the soaring cost of tuition.
Stay tuned for more on this issue...
EduCap: RIP?
By Bryan O'Keefe
A couple of weeks ago, the Washington Post ran a front-page story on EduCap, a major private-student loan lender. The piece cast suspicion on EduCap, questioning its technical non-profit status, expounding upon luxury items that the company owned like private jets, and claiming that the whole thing was ripping off students.
At the time we wrote a blog about it, with Rich pointing out that he knows EduCap’s President, Catherine Reynolds, and that she even bought him a meal once upon a time (we restate that again here in the interest of full disclosure).
The Post has another story on the company today, this time reporting that about half of its employees have been laid off, more are soon to follow, and that the company might be “going dark.”
This is a minor earthquake in the private student loan lending industry. EduCap has always been a major player and in fact pioneered private student loan borrowing.
Of course, we have no idea if EduCap was behaving unethically. Some of the luxury items that the Post reported on certainly seemed to be out of line for a supposed charity. At the same time, Richard served with Catherine on the Spelling’s Commission, got along with her quite well, and never thought that she was doing anything inappropriate. It seems that the IRS and others who are now investigating this will sort it out in the days to come.
What is important to keep in mind is that even if the worst turns out to be true, this does not mean that the entire private student lending industry is corrupt or that private loans in theory are undesirable. In fact, we have said for a long time that for some students, private student loans should be the way to go. So many of the news stories about student loans seem to always paint private loans negatively and we are sure that EduCap’s troubles will only make this problem worse.
But the creative destruction of capitalism has led to many businesses entering and exiting industries while the industry itself stays in tact. We hope that whatever the fate of EduCap, it does not tarnish the concept of private loans for higher education.
A couple of weeks ago, the Washington Post ran a front-page story on EduCap, a major private-student loan lender. The piece cast suspicion on EduCap, questioning its technical non-profit status, expounding upon luxury items that the company owned like private jets, and claiming that the whole thing was ripping off students.
At the time we wrote a blog about it, with Rich pointing out that he knows EduCap’s President, Catherine Reynolds, and that she even bought him a meal once upon a time (we restate that again here in the interest of full disclosure).
The Post has another story on the company today, this time reporting that about half of its employees have been laid off, more are soon to follow, and that the company might be “going dark.”
This is a minor earthquake in the private student loan lending industry. EduCap has always been a major player and in fact pioneered private student loan borrowing.
Of course, we have no idea if EduCap was behaving unethically. Some of the luxury items that the Post reported on certainly seemed to be out of line for a supposed charity. At the same time, Richard served with Catherine on the Spelling’s Commission, got along with her quite well, and never thought that she was doing anything inappropriate. It seems that the IRS and others who are now investigating this will sort it out in the days to come.
What is important to keep in mind is that even if the worst turns out to be true, this does not mean that the entire private student lending industry is corrupt or that private loans in theory are undesirable. In fact, we have said for a long time that for some students, private student loans should be the way to go. So many of the news stories about student loans seem to always paint private loans negatively and we are sure that EduCap’s troubles will only make this problem worse.
But the creative destruction of capitalism has led to many businesses entering and exiting industries while the industry itself stays in tact. We hope that whatever the fate of EduCap, it does not tarnish the concept of private loans for higher education.
Wednesday, August 01, 2007
Is Accreditation Legal?
By Richard Vedder
Yesterday I opined that if colleges were subject to the same rules that private businesses were, organizations like NACUBO (the National Association of College and University Business Officers) might face serious problems from the Department of Justice under federal anti-trust laws. Higher education is a big club, and us university folks love to get together and compare notes --which in a purely competitive environment is frowned upon as an attempt to restrain competition.
Under aspect of the "club" dimension of higher education is accreditation. Where else in American life would you bring employees of your competitors on campus to tell you if you can continue in business? That, roughly, is what goes on with accreditation. Is accreditation a cartel or a quality control mechanism? Or, more accurately, is it a cartel pretending to be a quality control device? Is a regional accreditor like, for example, the North Central Association, more like the Consumers Union or like OPEC?
Today's INSIDE HIGHER ED speaks of the sale of Touro International University (the on-line entity of Touro College) to a private equity firm. It notes correctly this is continuing a trend of small liberal arts colleges selling, in some cases just on-line operations, to for-profits. The Bridgepoint Education purchase of a Francisan college in Iowa and making it into Ashford University is a case of point, as is Randy Best's purchase of small Catholic liberal arts college in Illinois. (Full disclosure: I have received income as a consultant from two of these operations in the past, although am not doing so now.)
Why are the for profits buying marginal small liberal arts colleges? They are mainly interested in buying accreditation. Because the barriers to entry imposed by accreditation are high, entrepreneurs will pay literally millions to leapfrog over most of this hurdle. Yet as our friend Judith Eaton, Mother Superior of the Accreditation Cartel (CHEA) acknowledges, sale of a university typically triggers new reviews, etc., of an institution. Several for profit entrepreneurs I know bitterly complain about the negative effects that accreditation has. The lack of a national accreditation agency raises costs --satisfying North Central does not necessarily satisfy accrediting bodies serving the south, northeast or west, for example. There is an anti for-profit bias detected by others. The notion that competitors (those who make up accrediting teams) can decide whether you can remain or enter the business is the antithesis of comepetive free market capitalism, and points to the need for reform.
For these reasons and more, the American Enterprise Institute, with whom I am affiliated, is planning a conference (in cooperation with CCAP) on accreditation at AEI's Washington headquarters on Septmeber 21. It should be a lively dialogue. Several outspoken advocates on different sides of this issue will speak, ranging from Judith Eaton to Charles Miller, chair of the Spellings Commission. Attendance is free --and includes a lunch (maybe there is such a thing as a free lunch afterall).
Yesterday I opined that if colleges were subject to the same rules that private businesses were, organizations like NACUBO (the National Association of College and University Business Officers) might face serious problems from the Department of Justice under federal anti-trust laws. Higher education is a big club, and us university folks love to get together and compare notes --which in a purely competitive environment is frowned upon as an attempt to restrain competition.
Under aspect of the "club" dimension of higher education is accreditation. Where else in American life would you bring employees of your competitors on campus to tell you if you can continue in business? That, roughly, is what goes on with accreditation. Is accreditation a cartel or a quality control mechanism? Or, more accurately, is it a cartel pretending to be a quality control device? Is a regional accreditor like, for example, the North Central Association, more like the Consumers Union or like OPEC?
Today's INSIDE HIGHER ED speaks of the sale of Touro International University (the on-line entity of Touro College) to a private equity firm. It notes correctly this is continuing a trend of small liberal arts colleges selling, in some cases just on-line operations, to for-profits. The Bridgepoint Education purchase of a Francisan college in Iowa and making it into Ashford University is a case of point, as is Randy Best's purchase of small Catholic liberal arts college in Illinois. (Full disclosure: I have received income as a consultant from two of these operations in the past, although am not doing so now.)
Why are the for profits buying marginal small liberal arts colleges? They are mainly interested in buying accreditation. Because the barriers to entry imposed by accreditation are high, entrepreneurs will pay literally millions to leapfrog over most of this hurdle. Yet as our friend Judith Eaton, Mother Superior of the Accreditation Cartel (CHEA) acknowledges, sale of a university typically triggers new reviews, etc., of an institution. Several for profit entrepreneurs I know bitterly complain about the negative effects that accreditation has. The lack of a national accreditation agency raises costs --satisfying North Central does not necessarily satisfy accrediting bodies serving the south, northeast or west, for example. There is an anti for-profit bias detected by others. The notion that competitors (those who make up accrediting teams) can decide whether you can remain or enter the business is the antithesis of comepetive free market capitalism, and points to the need for reform.
For these reasons and more, the American Enterprise Institute, with whom I am affiliated, is planning a conference (in cooperation with CCAP) on accreditation at AEI's Washington headquarters on Septmeber 21. It should be a lively dialogue. Several outspoken advocates on different sides of this issue will speak, ranging from Judith Eaton to Charles Miller, chair of the Spellings Commission. Attendance is free --and includes a lunch (maybe there is such a thing as a free lunch afterall).
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