By Richard Vedder
Equities in 2008 averaged share prices down around 40 percent, one of the worst drops in U.S. history. Yet the for profit higher ed sector seems to be holding up remarkably well. DeVry, an old traditional company, has it stock price now roughly double what it was five years ago. Apollo, the industry leader (U. of Phoenix) is also doing well, showing record sales and earnings.I have seen some positive financial data on Kaplan Higher Education that is truly breathtaking, and that company is the financial savior of a parent company better known for its newspaper (the Washington Post) and magazine (Newsweek).
Now there has been revealed data on one of the rising new stars, Bridgepoint Education, a company whose corporate board I have spoken too on multiple occasions. It is going public, and new SEC filings tell a story of extraordinary growth and profitability. In 20005, revenues were $8 million and losses were even greater. In 2006, revenues claimed to beyond $28 million and losses fell significantly. By 2007, sales had tripled again, and the firm made a modest profit. It looks to me as if sales this year will exceed $200 million, with profits equal to around one-tenth that amount. Rapid growth and taking advantages of large economies of scale, Bridgepoint has first rate leadership (Andrew Clark looks like a graduate student, but is a superb motivator and leader and former Apollo executive).
The Bridgepoint strategy seems to be a winning one. Buy up accredited existing not-for-profit institutions. Use these institutions as a vehicle for vast expansion, especially into on-line education (although Bridgepoint still has students residing on the campus of a former Catholic school renamed "Ashford University.") By buying accreditation, these institutions save time and hassle dealing with the cartels controlling entry into the field (accrediting organizations), although this strategy requires millions in start-up money.
Other initiatives, including privately held companies of Texas entrepreneur Randy Best, are also showing rapid growth. The huge advantages in efficiency that the for profits have are letting them rapidly expand market share and force conventional providers to start to act in a more entrepreneurial fashion, and become more lean and mean. This is a welcome development. The heck with US News & World Report rankings --these companies are making real money, and precisely because they are providing a service much wanted by the general public.
To readers of CCAP blogs and our friends, we wish you the happiest of New Years!!
Wednesday, December 31, 2008
Wednesday, December 24, 2008
Learning from Jesus
By Richard Vedder
Jesus Christ never went to college, never earned tenure, never even had a formal teaching position, never published ---yet was one of the greatest teachers that ever lived. He inspired thousands directly, and millions, even billions, indirectly. His was a teaching mission, trying to instruct people how to more meaningfully live their lives. At the time of the celebration of His birthday, we might reflect on the differences between his approach to learning and that in the modern university setting.
Jesus used powerful, but simple messages to make a point. His extraordinary charisma, clarity of presentation, etc., made him a popular preacher, but the true success of the religion that grew up around him came from the spread of his ideas. It was teaching about Jesus' teachings that was done so successfully. Part of the success was organizational/managerial. The creation of a church organization was critical.
The Roman Catholic Church, and later Protestant churches, for the most part operated in a curious mix of centralized authority and decentralized means of carrying out the mission. Looking at the Catholic Church, the teachings are incredibly centralized, with much of the weekly message to the "students" being the same the world over, readings from a universally used book (the Bible), and a standardized ritual. Yet the message is distributed at a very local level, with priests and ministers using their own discretion in dispensing advice in their weekly sermon. That is not too different from the model of the large for profit universities, where the curriculum and lessons are standardized nationally, but where individual instructors in many communities dispense the lessons with a considerable amount of individual discretion.
Relative to the modern university, the focus has stayed mostly on a single mission --keeping the adherents faithful and reaching out to new adherents. A secondary mission --serving the poor, for example, exists, but usually is performed by separate organizational entities --the Salvation Army and Catholic Charities being examples. The central function of the main church is kept simple. Organization is kept fairly simple as well. Interestingly, Catholic K-12 schools operate with vastly smaller bureaucracies than government schools, and there are many small Catholic (and probably those of other Christian denominations) colleges that are relatively low cost and single mindedly devoted to offering a Christian education at an affordable price.
Too many of today's colleges and universities have lost focus -- they try to do too many things --run entertainment enterprises, have conference centers competing for the convention trade, run food and lodging operations, TRY to spur economic development (almost always unsuccessfully), engage in commercial technology transfer, etc., etc. Churches usually have no third party funding because of the separation of church and state, among other things. Where third party funding becomes important, even churches lack the vitality they do where survival depends on the support of the faithful. Thus the Lutheran Church in Sweden, supported by the state, spends a lot of money in relation to the Christian message it sends, and the country has been effectively non-religious if not anti-religious. By contrast, some schools that are almost entirely tuition-driven are very devoted to a narrow mission ---- satisfying the customers.
The massive spread of the European welfare state is associated with a sharp decline in religiosity. Who needs Jesus when we have the State to provide? Similarly, I wonder if the intrusion of the State into higher education has in many cases had a similar impact --lowering the quality of the outcomes but raising their costs.
Jesus Christ never went to college, never earned tenure, never even had a formal teaching position, never published ---yet was one of the greatest teachers that ever lived. He inspired thousands directly, and millions, even billions, indirectly. His was a teaching mission, trying to instruct people how to more meaningfully live their lives. At the time of the celebration of His birthday, we might reflect on the differences between his approach to learning and that in the modern university setting.
Jesus used powerful, but simple messages to make a point. His extraordinary charisma, clarity of presentation, etc., made him a popular preacher, but the true success of the religion that grew up around him came from the spread of his ideas. It was teaching about Jesus' teachings that was done so successfully. Part of the success was organizational/managerial. The creation of a church organization was critical.
The Roman Catholic Church, and later Protestant churches, for the most part operated in a curious mix of centralized authority and decentralized means of carrying out the mission. Looking at the Catholic Church, the teachings are incredibly centralized, with much of the weekly message to the "students" being the same the world over, readings from a universally used book (the Bible), and a standardized ritual. Yet the message is distributed at a very local level, with priests and ministers using their own discretion in dispensing advice in their weekly sermon. That is not too different from the model of the large for profit universities, where the curriculum and lessons are standardized nationally, but where individual instructors in many communities dispense the lessons with a considerable amount of individual discretion.
Relative to the modern university, the focus has stayed mostly on a single mission --keeping the adherents faithful and reaching out to new adherents. A secondary mission --serving the poor, for example, exists, but usually is performed by separate organizational entities --the Salvation Army and Catholic Charities being examples. The central function of the main church is kept simple. Organization is kept fairly simple as well. Interestingly, Catholic K-12 schools operate with vastly smaller bureaucracies than government schools, and there are many small Catholic (and probably those of other Christian denominations) colleges that are relatively low cost and single mindedly devoted to offering a Christian education at an affordable price.
Too many of today's colleges and universities have lost focus -- they try to do too many things --run entertainment enterprises, have conference centers competing for the convention trade, run food and lodging operations, TRY to spur economic development (almost always unsuccessfully), engage in commercial technology transfer, etc., etc. Churches usually have no third party funding because of the separation of church and state, among other things. Where third party funding becomes important, even churches lack the vitality they do where survival depends on the support of the faithful. Thus the Lutheran Church in Sweden, supported by the state, spends a lot of money in relation to the Christian message it sends, and the country has been effectively non-religious if not anti-religious. By contrast, some schools that are almost entirely tuition-driven are very devoted to a narrow mission ---- satisfying the customers.
The massive spread of the European welfare state is associated with a sharp decline in religiosity. Who needs Jesus when we have the State to provide? Similarly, I wonder if the intrusion of the State into higher education has in many cases had a similar impact --lowering the quality of the outcomes but raising their costs.
Tuesday, December 23, 2008
Necessity Is the Mother of Invention
By Richard Vedder
My new mantra is that economic downturn provides us the "necessity" to be inventive --find new ways to do what we are doing with fewer resources.
I read today in INSIDE HIGHER ED that the University of South Carolina is about to receive a $6 million annual increase in athletic television revenues, and is going to "tax" the athletic department for one-sixth of the incremental money to fund various university scholarship type programs. I have predicted that as revenues get squeezed, the lavish funding of athletic department would come in for more fire, and these programs would in a few cases be expected to actually provide some funds to general university operations, and in other cases, be forced to operate on a reduced subsidy. The South Carolina action is a early sign that this is beginning to happen. My own university, Ohio University, massively subsidizes athletics and a militantly anti-academic administration has so far opposed any reduction in those subsidies even as other programs are cut. I suspect that policy will have to change --imagine a football program with only one weight and conditioning coach!! Horrors of horrors!! Before long someone may want to only allow 60 football scholarships for a sport where only 11 persons play at one time. Maybe it is time to restore some sanity to intercollegiate athletics --or to divest those operations from the universities and give them professional status as minor leagues preparatory to the Big Leagues of the NFL and NBA.
Another problem that is arising is over the dubious financing schemes followed by universities in modern times. In the last decade or two, they have largely abandoned conservative, staid, boring, moderately low return investing for more go-go investing --meaning taking more risks. As the economy tanks, victims are becoming more commonplace in the academy. Yeshiva and Tuft universities got burned by the Bernie Madoff Ponzi scheme. Whereas before these schools might have bought Procter & Gamble and Coca Cola stock, now they turn to a guy who says "let me invest your money --I will deliver big returns."
Moody's says that a majority of American colleges have variable interest debt obligations. If my hunch is right and we enter an era of accelerated inflation prompted by a monetizing of the massive new federal debt, interest rates will soar and some schools will get clobbered with much higher debt service charges, all avoidable if they had engaged in fixed interest financing. By the way, as a general proposition I think colleges should use very little debt financing.
The colleges are, of course, seeking federal bail-out money to avoid doing things that they should have been doing decades ago to reverse declining productivity. University presidents want corporate type salaries --but don't want to do what corporate leaders have to do regularly --make thoroughly unpopular decisions like slashing staff, closing plants, and ending product lines.
My new mantra is that economic downturn provides us the "necessity" to be inventive --find new ways to do what we are doing with fewer resources.
I read today in INSIDE HIGHER ED that the University of South Carolina is about to receive a $6 million annual increase in athletic television revenues, and is going to "tax" the athletic department for one-sixth of the incremental money to fund various university scholarship type programs. I have predicted that as revenues get squeezed, the lavish funding of athletic department would come in for more fire, and these programs would in a few cases be expected to actually provide some funds to general university operations, and in other cases, be forced to operate on a reduced subsidy. The South Carolina action is a early sign that this is beginning to happen. My own university, Ohio University, massively subsidizes athletics and a militantly anti-academic administration has so far opposed any reduction in those subsidies even as other programs are cut. I suspect that policy will have to change --imagine a football program with only one weight and conditioning coach!! Horrors of horrors!! Before long someone may want to only allow 60 football scholarships for a sport where only 11 persons play at one time. Maybe it is time to restore some sanity to intercollegiate athletics --or to divest those operations from the universities and give them professional status as minor leagues preparatory to the Big Leagues of the NFL and NBA.
Another problem that is arising is over the dubious financing schemes followed by universities in modern times. In the last decade or two, they have largely abandoned conservative, staid, boring, moderately low return investing for more go-go investing --meaning taking more risks. As the economy tanks, victims are becoming more commonplace in the academy. Yeshiva and Tuft universities got burned by the Bernie Madoff Ponzi scheme. Whereas before these schools might have bought Procter & Gamble and Coca Cola stock, now they turn to a guy who says "let me invest your money --I will deliver big returns."
Moody's says that a majority of American colleges have variable interest debt obligations. If my hunch is right and we enter an era of accelerated inflation prompted by a monetizing of the massive new federal debt, interest rates will soar and some schools will get clobbered with much higher debt service charges, all avoidable if they had engaged in fixed interest financing. By the way, as a general proposition I think colleges should use very little debt financing.
The colleges are, of course, seeking federal bail-out money to avoid doing things that they should have been doing decades ago to reverse declining productivity. University presidents want corporate type salaries --but don't want to do what corporate leaders have to do regularly --make thoroughly unpopular decisions like slashing staff, closing plants, and ending product lines.
Higher Education and Equality
By Richard Vedder
Three arguments are used to justify public subsidies of higher education. First, it is argued that higher education promotes civic understanding and contributes to national cohesiveness and the advancement of our civilization --call it the civic purpose of universities. Second, higher education allegedly has positive economic spillover effects that lead to higher rates of economic growth --the economic purpose. Third, allegedly higher education serves to promote equality of opportunity and results, consistent with egalitarian ideals and the American Dream --call this the equality purpose.
This blog concerns the equality purpose. Postsecondary Education Opportunity's November issue updates time series data on the relationship between family income and educational attainment. It shows that the probability of gaining a baccalaureate degree is very high for those who come from affluent backgrounds (top quartile of the income distribution), but very low for those with below average incomes. Degree attainment in 2007 is estimated at 75.9 percent for those in the top quartile of the income distribution, compared with 9.6 percent for those in the bottom quartile. Moreover, the relative disparity between income groups has actually widened somewhat over time, even as total educational attainment has risen.
In short, higher education may work to worsen, not narrow, economic inequality. The kids of the rich get their ticket to future affluence (a degree), while the kids of the poor for the most part do not get that ticket. The solution to liberal reformers is to increase funding for higher education to increase access for lower income students. Yet that is precisely what we have done in modern times. From 1960 to the present, real per student spending on higher education has doubled, and enrollments have nearly tripled on a population-adjusted basis. We went from having no Pell Grants or federal student loans to having these things on a massive level --and higher education became no more egalitarian --indeed arguably less. Colleges themselves talk piously about helping the poor, but very often impose admission standards met mainly by kids whose parents are relatively affluent.
To me, none of this is particularly surprising, and big increases in higher education funding will do little if anything to deal with this problem. Affluent people like to invest in many things, but first amongst them is investment in their children --they invest to insure that the family position in the economy will not markedly deterioate and might even improve. Affluent people on average have kids who attend better schools, who take more demanding courses,who have more after-school enrichment opportunities, and who are, frankly, higher in cognitive skills (IQ). Kids from affluent families who begin college usually finish, while kids from poor college who begin college usually do not finish, at least within six years.
Moreover, to try to expand the pool of college graduates might backfire, as anyone who has read Charles Murray would know. Many, many persons are not suited for the intellectual atmosphere of a true solid college or university. The piece of paper that represents a degree is less about learning than about intelligence, perserverance, and discipline.
Daniel Bennett (who is now blissfully happy visiting his girl friend in Hong Kong) and I have been exploring the relationship between college participation and economic equality. The findings to date are still tentative, but we cannot find much support for the idea that public funding of colleges promotes economic equality. This is not necessarily bad, for it is a value judgment what is an optimal degree of equality. More equality sometimes comes at a high cost in terms of economic growth and overall affluence. Nonetheless, beware of those who want to spend billions on colleges in the name of economic equality and justice.
Three arguments are used to justify public subsidies of higher education. First, it is argued that higher education promotes civic understanding and contributes to national cohesiveness and the advancement of our civilization --call it the civic purpose of universities. Second, higher education allegedly has positive economic spillover effects that lead to higher rates of economic growth --the economic purpose. Third, allegedly higher education serves to promote equality of opportunity and results, consistent with egalitarian ideals and the American Dream --call this the equality purpose.
This blog concerns the equality purpose. Postsecondary Education Opportunity's November issue updates time series data on the relationship between family income and educational attainment. It shows that the probability of gaining a baccalaureate degree is very high for those who come from affluent backgrounds (top quartile of the income distribution), but very low for those with below average incomes. Degree attainment in 2007 is estimated at 75.9 percent for those in the top quartile of the income distribution, compared with 9.6 percent for those in the bottom quartile. Moreover, the relative disparity between income groups has actually widened somewhat over time, even as total educational attainment has risen.
In short, higher education may work to worsen, not narrow, economic inequality. The kids of the rich get their ticket to future affluence (a degree), while the kids of the poor for the most part do not get that ticket. The solution to liberal reformers is to increase funding for higher education to increase access for lower income students. Yet that is precisely what we have done in modern times. From 1960 to the present, real per student spending on higher education has doubled, and enrollments have nearly tripled on a population-adjusted basis. We went from having no Pell Grants or federal student loans to having these things on a massive level --and higher education became no more egalitarian --indeed arguably less. Colleges themselves talk piously about helping the poor, but very often impose admission standards met mainly by kids whose parents are relatively affluent.
To me, none of this is particularly surprising, and big increases in higher education funding will do little if anything to deal with this problem. Affluent people like to invest in many things, but first amongst them is investment in their children --they invest to insure that the family position in the economy will not markedly deterioate and might even improve. Affluent people on average have kids who attend better schools, who take more demanding courses,who have more after-school enrichment opportunities, and who are, frankly, higher in cognitive skills (IQ). Kids from affluent families who begin college usually finish, while kids from poor college who begin college usually do not finish, at least within six years.
Moreover, to try to expand the pool of college graduates might backfire, as anyone who has read Charles Murray would know. Many, many persons are not suited for the intellectual atmosphere of a true solid college or university. The piece of paper that represents a degree is less about learning than about intelligence, perserverance, and discipline.
Daniel Bennett (who is now blissfully happy visiting his girl friend in Hong Kong) and I have been exploring the relationship between college participation and economic equality. The findings to date are still tentative, but we cannot find much support for the idea that public funding of colleges promotes economic equality. This is not necessarily bad, for it is a value judgment what is an optimal degree of equality. More equality sometimes comes at a high cost in terms of economic growth and overall affluence. Nonetheless, beware of those who want to spend billions on colleges in the name of economic equality and justice.
Monday, December 22, 2008
University President Salary Increases: Pay for Performance?
By Richard Vedder
One of my Whiz Kids extraordinare, Jonathan Robe, and I have been trying to explain variations in the salaries of university presidents, and changes in those salaries over time. It is a fact that university leader pay has risen sharply in recent years, faster than the pay of rank-and-file university workers, the public at large, and the inflation rate.
The one question we were especially interested in was whether changes in compensation over time has been related to signs of improvement in the involved universities. As a first pass at this, we regressed salary changes against changes in US News & World Report rankings. The hypothesis was that schools moving up in the rankings would give their presidents bigger raises, to reward them for the improvement in the national perception of the institution.
Alas, we found no statistically significant relationship. Salary growth seemed to be not correlated with ranking changes. We may continue to explore this --did presidents who got big raises also preside over big increases in endowments? Time will tell what we find, but early indicators are that salary increases may be almost randomly distributed, a matter of the whim of governing boards and their personalities more than real changes in institutions themselves. To be sure, we have been highly critical of the US News rankings ourselves, and the findings prove little, but they make us wonder --why are some president salaries escalating a lot, while others grow at a more reasonable pace?
My hunch is that some presidents do a superb PR job on their boards, leading them to believe the president walks on water (or the equivalent), which then leads to huge salary increases. Other presidents have a more standoffish or politely civil relationship with their boards, and I would hypothesize that those presidents get smaller increases. In any case, in an economy that is tanking, large salary increases for university presidents become hard to justify on any grounds.
One of my Whiz Kids extraordinare, Jonathan Robe, and I have been trying to explain variations in the salaries of university presidents, and changes in those salaries over time. It is a fact that university leader pay has risen sharply in recent years, faster than the pay of rank-and-file university workers, the public at large, and the inflation rate.
The one question we were especially interested in was whether changes in compensation over time has been related to signs of improvement in the involved universities. As a first pass at this, we regressed salary changes against changes in US News & World Report rankings. The hypothesis was that schools moving up in the rankings would give their presidents bigger raises, to reward them for the improvement in the national perception of the institution.
Alas, we found no statistically significant relationship. Salary growth seemed to be not correlated with ranking changes. We may continue to explore this --did presidents who got big raises also preside over big increases in endowments? Time will tell what we find, but early indicators are that salary increases may be almost randomly distributed, a matter of the whim of governing boards and their personalities more than real changes in institutions themselves. To be sure, we have been highly critical of the US News rankings ourselves, and the findings prove little, but they make us wonder --why are some president salaries escalating a lot, while others grow at a more reasonable pace?
My hunch is that some presidents do a superb PR job on their boards, leading them to believe the president walks on water (or the equivalent), which then leads to huge salary increases. Other presidents have a more standoffish or politely civil relationship with their boards, and I would hypothesize that those presidents get smaller increases. In any case, in an economy that is tanking, large salary increases for university presidents become hard to justify on any grounds.
A "Real Degree"
by Andrew Gillen
There was a sentence in Implementing the Bologna process, the VoxEu paper that I highlighted in the previous post that caught my eye.
I know that this is a huge issue for higher ed in the US as well. While I think that here the bachelors degree, as opposed to the masters, is still considered "real" enough, too many students go to college or get an MBA or go to law school because they think that doing so will result in a "real degree" that will automatically translate into happiness and wealth.
You end up with students building up mountains of debt, like the students in these stories, or with a degree that is not as highly valued as they were led to believe, as illustrated in this Fedex commercial about MBA graduates, or working at jobs they don't like, such as the lawyer in this story:
There was a sentence in Implementing the Bologna process, the VoxEu paper that I highlighted in the previous post that caught my eye.
...the belief, among academics and parents, that the master's level is the “real degree”... [may help] explain the apparent reluctance of graduates to enter the labour market after concluding their first cycle of studies.
I know that this is a huge issue for higher ed in the US as well. While I think that here the bachelors degree, as opposed to the masters, is still considered "real" enough, too many students go to college or get an MBA or go to law school because they think that doing so will result in a "real degree" that will automatically translate into happiness and wealth.
You end up with students building up mountains of debt, like the students in these stories, or with a degree that is not as highly valued as they were led to believe, as illustrated in this Fedex commercial about MBA graduates, or working at jobs they don't like, such as the lawyer in this story:
Reality, she quickly learned, was different. Ms. Kersh recalled a two-week stretch in which she and a team of associates were holed up in a conference room with 50 boxes of documents. Every day, for 12 hours, they fastened Post-it notes to legal briefs.
“You look around at the other associates, trying to remind ourselves, why did we go to law school?”...
Many young associates, she added, spent their lunch hours making lavish purchases on NeimanMarcus.com, just to remind themselves that what they did counted for something.
VoxEu: Implementing the Bologna process
by Andrew Gillen
VoxEu has a new post by Fernando Alexandre, Ana Rute Cardoso, Miguel Portela, and Carla Sá titled Implementing the Bologna process.
The abstract:
The main advantages of moving to shorter degree programs:
The disadvantages:
Their findings:
VoxEu has a new post by Fernando Alexandre, Ana Rute Cardoso, Miguel Portela, and Carla Sá titled Implementing the Bologna process.
The abstract:
Shortening the first cycle in higher education studies is one of the most controversial aspects of the Bologna reforms. Recent research suggests students are voting-with-their-feet in support of this reform as study programs adopting the Bologna principles have seen a rise in demand.
The main advantages of moving to shorter degree programs:
First, a two-tier system reduces the cost of wrong choices made by students. Secondly, a two-tier system promotes a more flexible progression into postgraduate studies by allowing students to enter the labor market earlier and to find out what competencies they should develop when they eventually go back to university to obtain a master's degree. Thirdly, students can complete their studies earlier.
The disadvantages:
...new curricula are compressed versions of longer programs, and that there will not be enough time for assimilation, reflection, and a critical approach to learning, which will undermine the quality of the degree. Under these circumstances, the employability of the new graduates might be reduced...
Their findings:
Study programs that have adopted the Bologna principles have benefited from an increase in demand, which is indicative of students’ support for the shorter first degree. Nevertheless, their receptiveness to the curricula changes varied across fields of study and with program size.
Friday, December 19, 2008
University R&D
by Andrew Gillen
There seems to be a lot of incorrect assumptions floating around about the role of universities in R&D, so I thought I would highlight the actual numbers on the matter from the National Science Foundation.
In 2006, 353.6 billion was spent on R&D (all figures in 2007 dollars), of which universities and colleges accounted for only 14% (49.3 billion).
But about two-thirds of non university R&D consists of development, whereas three-quarters of university R&D is basic research. This means that universities actually conduct around 57% of all basic research.
And most of the money for university R&D, 63%, comes from the federal government. Only 9 billion, or about 19% of total university R&D comes from the universities themselves.
There seems to be a lot of incorrect assumptions floating around about the role of universities in R&D, so I thought I would highlight the actual numbers on the matter from the National Science Foundation.
In 2006, 353.6 billion was spent on R&D (all figures in 2007 dollars), of which universities and colleges accounted for only 14% (49.3 billion).
But about two-thirds of non university R&D consists of development, whereas three-quarters of university R&D is basic research. This means that universities actually conduct around 57% of all basic research.
And most of the money for university R&D, 63%, comes from the federal government. Only 9 billion, or about 19% of total university R&D comes from the universities themselves.
Thursday, December 18, 2008
Stimulus for Us, Too: The Higher Education Investment Act
By Richard Vedder
I have been increasingly disenchanted and even alarmed by the spending spree that the Obama people are planning on unleashing in the name of stimulus. And, as expected, every rent-seeking group in the country is trying to get its hands on some of the money, which will be financed by massive U.S. government borrowing and, I fear, the equivalent of the printing of money (the monetizing of the debt). The "stimulus package" is a bad idea to begin with, as any one who has studied such infrastructure stimulus packages in the past, ranging from the Works Progress Administration (created in 1935) through the Japanese deficit-financed infrastructure splurge of the 1990s that wreaked havoc on that great country.
But a bad idea is getting worse, thanks to our friends in the higher education community. They see a crying need for new higher education infrastructure --say $40 or $45 billion worth. The Establishment (via the Carnegie Corporation of New York, run by former Brown University president Vartan Gregorian) has purchased a two page ad in the New York Times requesting far more money than the automakers asked for.
Many of the big names in higher education are on the list of signers: Charlie Reed from the Cal State System and Mark Yudof from the University of California; Brit Kirwan from Maryland, Joe White from Illinois, Graham Spanier from Penn State, John Casteen from the University of Virginia. Not to mention big trade association types, the Mandarins of DuPont Circle, like Molly Broad from the American Council of Education and Peter McPherson of NASULGC.
The first thing that can be said about college "infrastructure" is that it is scandalously poorly utilized. Whereas a typical office building at, say, IBM or Procter & Gamble is probably utilized heavily 9 hours a day for 250 days a year, the typical university office building is utilized far less, and most classroom buildings likely have far less than 50 percent space utilization by any measure (with classrooms virtually empty on Fridays, evenings, summers, etc). The exception: the for profit schools, which rent facilities, using them intensively day and night (they know that capital is not costless).
The second thing that can be said about college "infrastructure" is that increases in building square footage per student raises the fixed costs of college attendance. What is built must be maintained. Today's "stimulus" is tomorrow's cost enhancement. The third thing that can be said is that colleges have squandered billions in recent years building luxury facilities instead of utilitarian structures. One of my university's newer classroom buildings has a huge atrium, another a "Rotunda", which is essentially a large empty room with perhaps a 35 foot ceiling that is used for parties. Princeton has a dorm with a per bed cost comparable to that at a new Donald Trump tropical resort. This is not to mention all the stadium sky boxes and other amenities added to allow drunk alums to watch in comfort as college kids throw balls.
I will make a prediction. The Misery Index --the combination of the inflation rate and unemployment rate in 2009 and 2010 will exceed that of any two year period in the Administration of either Bill Clinton or Junior Bush. The economic growth of the nation will remain sluggish. Real stock market values at the end of 2011 will be lower than they were a decade earlier. And a lot of the spending done in the name of stimulus, truth, beauty, equality, global warming, etc. will be money down the drain. To borrow two trillion dollars and then use some of it to finance some of the most inefficient segments of American society is economic lunacy. Perhaps the Obama people are smart enough to just say no to the rent seeking Mandarins of DuPont Circle and their friends throughout the nation.
University presidents should be concentrating their efforts on rationalizing their institutions in the face of financial stringency -- reducing staff, consolidating programs, selling off non-strategic assets, etc., the things corporate executives do in recessions. And they should spend less time acting like pimps in academic houses of prostitution.
I have been increasingly disenchanted and even alarmed by the spending spree that the Obama people are planning on unleashing in the name of stimulus. And, as expected, every rent-seeking group in the country is trying to get its hands on some of the money, which will be financed by massive U.S. government borrowing and, I fear, the equivalent of the printing of money (the monetizing of the debt). The "stimulus package" is a bad idea to begin with, as any one who has studied such infrastructure stimulus packages in the past, ranging from the Works Progress Administration (created in 1935) through the Japanese deficit-financed infrastructure splurge of the 1990s that wreaked havoc on that great country.
But a bad idea is getting worse, thanks to our friends in the higher education community. They see a crying need for new higher education infrastructure --say $40 or $45 billion worth. The Establishment (via the Carnegie Corporation of New York, run by former Brown University president Vartan Gregorian) has purchased a two page ad in the New York Times requesting far more money than the automakers asked for.
Many of the big names in higher education are on the list of signers: Charlie Reed from the Cal State System and Mark Yudof from the University of California; Brit Kirwan from Maryland, Joe White from Illinois, Graham Spanier from Penn State, John Casteen from the University of Virginia. Not to mention big trade association types, the Mandarins of DuPont Circle, like Molly Broad from the American Council of Education and Peter McPherson of NASULGC.
The first thing that can be said about college "infrastructure" is that it is scandalously poorly utilized. Whereas a typical office building at, say, IBM or Procter & Gamble is probably utilized heavily 9 hours a day for 250 days a year, the typical university office building is utilized far less, and most classroom buildings likely have far less than 50 percent space utilization by any measure (with classrooms virtually empty on Fridays, evenings, summers, etc). The exception: the for profit schools, which rent facilities, using them intensively day and night (they know that capital is not costless).
The second thing that can be said about college "infrastructure" is that increases in building square footage per student raises the fixed costs of college attendance. What is built must be maintained. Today's "stimulus" is tomorrow's cost enhancement. The third thing that can be said is that colleges have squandered billions in recent years building luxury facilities instead of utilitarian structures. One of my university's newer classroom buildings has a huge atrium, another a "Rotunda", which is essentially a large empty room with perhaps a 35 foot ceiling that is used for parties. Princeton has a dorm with a per bed cost comparable to that at a new Donald Trump tropical resort. This is not to mention all the stadium sky boxes and other amenities added to allow drunk alums to watch in comfort as college kids throw balls.
I will make a prediction. The Misery Index --the combination of the inflation rate and unemployment rate in 2009 and 2010 will exceed that of any two year period in the Administration of either Bill Clinton or Junior Bush. The economic growth of the nation will remain sluggish. Real stock market values at the end of 2011 will be lower than they were a decade earlier. And a lot of the spending done in the name of stimulus, truth, beauty, equality, global warming, etc. will be money down the drain. To borrow two trillion dollars and then use some of it to finance some of the most inefficient segments of American society is economic lunacy. Perhaps the Obama people are smart enough to just say no to the rent seeking Mandarins of DuPont Circle and their friends throughout the nation.
University presidents should be concentrating their efforts on rationalizing their institutions in the face of financial stringency -- reducing staff, consolidating programs, selling off non-strategic assets, etc., the things corporate executives do in recessions. And they should spend less time acting like pimps in academic houses of prostitution.
Hail to the Victors!!!
By Richard Vedder
I burst out singing the first line of the University of Michigan fight song this morning after my friend Mike LaFaive of the Mackinac Center in Midland, Michigan sent me a news story from the Ann Arbor Daily News. A committee of the state legislature has put the privatization of the U of M on a list of possible ways the state can save money.
The State of Michigan is in deep trouble. No state is suffering more in the current downturn than Michigan. Top iconic companies are teetering on bankruptcy. The biggest city, Detroit, is a desolate, horrible place. Yet Michigan has one of the premier American universities in Ann Arbor. I have a lot of affection for the place, as my father is a graduate of the school and grew up nearby. I enjoyed immensely my friend Jim Duderstadt's memoir of his years as president. I have visited the school and wallowed in its traditions, speaking at the venerable Michigan Union on one occasion.
The University of Michigan gets only about one tenth of its budget from the state. Eliminating state status would probably be a net wash financially for the college, because the school could increase out of state enrollments more (they are constrained somewhat politically from doing so now) and the out-of-state tuition is triple the in-state rate. As Mike points out, they could take privatization even one step farther — turn over housing, food operations, etc., to private operators. If done correctly, taxpayers could save a bundle, the University would gain some freedom from the political morass that is Michigan politics, resources would stay about the same, and a win-win situation would provide a little light in an otherwise grim situation in the Wolverine State.
In his book, Prof. Duderstadt pointed out the Board of Trustees at Michigan is selected in a totally dysfunctional manner, via elections. A privatization move would allow it to move to an alternative form of governance.
What about the fact that now many Michigan residents get a great education at the U of M, at a modest cost? That need not change, as Mike LaFaive notes. Moreover, if the state were truly worried about access, they could require, as a condition of privatization, that the University accept up to, say, 10,000 undergraduates annually, each of whom will receive state scholarships for up to, say, $15,000 of their tuition and averaging $10,000. The state would still be aiding a large number of the best and brightest who attend Ann Arbor, would assure that the institution maintained a strong "Michigan" character, and would save almost 70 percent of the current institutional appropriation (spending $100 million vs. $327 million a year). This might be a way around the political problem of cutting the state knot, while still providing a good deal of financial relief.
I burst out singing the first line of the University of Michigan fight song this morning after my friend Mike LaFaive of the Mackinac Center in Midland, Michigan sent me a news story from the Ann Arbor Daily News. A committee of the state legislature has put the privatization of the U of M on a list of possible ways the state can save money.
The State of Michigan is in deep trouble. No state is suffering more in the current downturn than Michigan. Top iconic companies are teetering on bankruptcy. The biggest city, Detroit, is a desolate, horrible place. Yet Michigan has one of the premier American universities in Ann Arbor. I have a lot of affection for the place, as my father is a graduate of the school and grew up nearby. I enjoyed immensely my friend Jim Duderstadt's memoir of his years as president. I have visited the school and wallowed in its traditions, speaking at the venerable Michigan Union on one occasion.
The University of Michigan gets only about one tenth of its budget from the state. Eliminating state status would probably be a net wash financially for the college, because the school could increase out of state enrollments more (they are constrained somewhat politically from doing so now) and the out-of-state tuition is triple the in-state rate. As Mike points out, they could take privatization even one step farther — turn over housing, food operations, etc., to private operators. If done correctly, taxpayers could save a bundle, the University would gain some freedom from the political morass that is Michigan politics, resources would stay about the same, and a win-win situation would provide a little light in an otherwise grim situation in the Wolverine State.
In his book, Prof. Duderstadt pointed out the Board of Trustees at Michigan is selected in a totally dysfunctional manner, via elections. A privatization move would allow it to move to an alternative form of governance.
What about the fact that now many Michigan residents get a great education at the U of M, at a modest cost? That need not change, as Mike LaFaive notes. Moreover, if the state were truly worried about access, they could require, as a condition of privatization, that the University accept up to, say, 10,000 undergraduates annually, each of whom will receive state scholarships for up to, say, $15,000 of their tuition and averaging $10,000. The state would still be aiding a large number of the best and brightest who attend Ann Arbor, would assure that the institution maintained a strong "Michigan" character, and would save almost 70 percent of the current institutional appropriation (spending $100 million vs. $327 million a year). This might be a way around the political problem of cutting the state knot, while still providing a good deal of financial relief.
Wednesday, December 17, 2008
Where’s all the money going?
by Andrew Gillen
Yesterday afternoon, I heard someone say something along the lines of “today, students pay about a third of the total cost of educating them.” Given that this seems to be a reoccurring statement, I’d like to demolish the idea that “the total cost of educating,” based on current university practices, is a good benchmark to use. Just because students pay X, while schools spend 3X per student does not mean the students are getting a great deal, especially if X is close to Y, the cost of educating a student in a more rational system.
What should it cost to educate a student/ What is Y? The following table indicates the cost per student per class for instruction, assuming that you pay professors $100,000 a year.*
The yellow boxes indicate what I think are the most typical combinations of classes and students per class. Let’s say that professors teach six classes per year, and that the class size is 30. If a student takes 10 classes a year (15 hours a semester, more than the 12 hours that is typically considered full time), the amount spent to pay the professors for that student for the year is $5,560. If class sizes are 20, the amount spent is $8,330. Even if the class size drops to 15, the amount spent is only $11,110.
In other words, given current light teaching loads (typically six classes per year), fairly generous compensation of $100,000 per nine month year for professors, and a generous estimate of 20 students per class, the instructional costs per student per year should be around $8,330.
Compare this $8,330 to the current fund expenditures reported by the Digest of Education Statistics, which were $32,613 in 2000-2001 for 4-year public schools, and $37,768 in 1995-1996 for 4-year private schools. While there are certainly other legitimate costs for a university than paying the professors that teach, this would indicate that schools are spending around three dollars outside the classroom for every dollar they spend in it.
Where is all the money going?
At a 4-year school, realistic “instructional costs”** for educating a full time student (10 courses a year) are in the range of $3,130 (assuming professors teach 8 classes of 40 students a year) to $16,670 (assuming professors teach 4 classes of 15 students a year). And this is assuming all classes are taught by professors making $100,000 a year, not low paid adjuncts or graduate assistants. The actual price to most students falls in that range as well. The fact that schools spend multiples of these amounts is indicative of endemic wastefulness.
To sum up, saying that students are only paying X while it costs 3X to educate them, and trying to draw anything meaningful out of that is ridiculous when 3X bears no relation to the actual costs of providing instruction. In fact, the amount that students pay, X, is close to Y, the amount that it should cost to educate them in a more rational world. That’s a shame given the massive subsides that are given to try and make the price for students lower than the costs of educating them (to make X smaller than Y).
* The average salary for “full-time instructional faculty and staff” was $73,940 in 2003-2004, so a figure of $100,000 is fairly accurate once benefits are taken into account.
** "Instructional costs" include quite a bit of research. Light teaching loads inflate these figures by classifying non-sponsored research costs as instructional costs. For instance, for a professor without a research grant and with a common 3-3 teaching load (6 courses a year), the entire salary is thought of as an instructional expense, even though they only spend 9 hours a week in the classroom.
Yesterday afternoon, I heard someone say something along the lines of “today, students pay about a third of the total cost of educating them.” Given that this seems to be a reoccurring statement, I’d like to demolish the idea that “the total cost of educating,” based on current university practices, is a good benchmark to use. Just because students pay X, while schools spend 3X per student does not mean the students are getting a great deal, especially if X is close to Y, the cost of educating a student in a more rational system.
What should it cost to educate a student/ What is Y? The following table indicates the cost per student per class for instruction, assuming that you pay professors $100,000 a year.*
The yellow boxes indicate what I think are the most typical combinations of classes and students per class. Let’s say that professors teach six classes per year, and that the class size is 30. If a student takes 10 classes a year (15 hours a semester, more than the 12 hours that is typically considered full time), the amount spent to pay the professors for that student for the year is $5,560. If class sizes are 20, the amount spent is $8,330. Even if the class size drops to 15, the amount spent is only $11,110.
In other words, given current light teaching loads (typically six classes per year), fairly generous compensation of $100,000 per nine month year for professors, and a generous estimate of 20 students per class, the instructional costs per student per year should be around $8,330.
Compare this $8,330 to the current fund expenditures reported by the Digest of Education Statistics, which were $32,613 in 2000-2001 for 4-year public schools, and $37,768 in 1995-1996 for 4-year private schools. While there are certainly other legitimate costs for a university than paying the professors that teach, this would indicate that schools are spending around three dollars outside the classroom for every dollar they spend in it.
Where is all the money going?
At a 4-year school, realistic “instructional costs”** for educating a full time student (10 courses a year) are in the range of $3,130 (assuming professors teach 8 classes of 40 students a year) to $16,670 (assuming professors teach 4 classes of 15 students a year). And this is assuming all classes are taught by professors making $100,000 a year, not low paid adjuncts or graduate assistants. The actual price to most students falls in that range as well. The fact that schools spend multiples of these amounts is indicative of endemic wastefulness.
To sum up, saying that students are only paying X while it costs 3X to educate them, and trying to draw anything meaningful out of that is ridiculous when 3X bears no relation to the actual costs of providing instruction. In fact, the amount that students pay, X, is close to Y, the amount that it should cost to educate them in a more rational world. That’s a shame given the massive subsides that are given to try and make the price for students lower than the costs of educating them (to make X smaller than Y).
* The average salary for “full-time instructional faculty and staff” was $73,940 in 2003-2004, so a figure of $100,000 is fairly accurate once benefits are taken into account.
** "Instructional costs" include quite a bit of research. Light teaching loads inflate these figures by classifying non-sponsored research costs as instructional costs. For instance, for a professor without a research grant and with a common 3-3 teaching load (6 courses a year), the entire salary is thought of as an instructional expense, even though they only spend 9 hours a week in the classroom.
Links 12/17/08
by Andrew Gillen
Yale's president announced that their endowment is down 25%. View a copy of his letter here.
While I still haven't heard about the losses of Yeshiva University in the Ponzi scheme, I have come across some humorous proposals for alternative punishment for Bernard Madoff, the man behind the scheme.
James Pethokoukis has nominated him to run another ponzi scheme, Social Security. (HT: Justin Fox)
And Tyrone, Tyler Cowen's alterego, has this to say:
Yale's president announced that their endowment is down 25%. View a copy of his letter here.
While I still haven't heard about the losses of Yeshiva University in the Ponzi scheme, I have come across some humorous proposals for alternative punishment for Bernard Madoff, the man behind the scheme.
James Pethokoukis has nominated him to run another ponzi scheme, Social Security. (HT: Justin Fox)
And Tyrone, Tyler Cowen's alterego, has this to say:
What about that guy who set up the phony investment company? Can the Treasury make a new one of those, only bigger? He took money away from people and gave it to charities and the needy and the arts and higher education. That sounds like stimulus so why are we sending him to jail? Wasn't he ahead of the curve?
Tuesday, December 16, 2008
New Education Secretary Expected To Be Announced
by Daniel Bennett
It is reported this morning that President-elect Obama is expected to name Arne Duncan as the new secretary of education today. According to a transition team member,
Duncan spent six years working at Ariel Education Initiative, which tried to create educational opportunities for inner-city students on Chicago's South Side.
It is reported this morning that President-elect Obama is expected to name Arne Duncan as the new secretary of education today. According to a transition team member,
Duncan has been Chicago's top school official for seven years, has overseen the closure of struggling schools, advocated merit pay for better teachers, and adopted a program to use private money to reward children for better grades. He has straddled two competing factions of the education community: the teachers unions, who push for more funding and smaller classes, and a movement that favors accountability and free-market-style incentives and looks to hold schools and teachers more accountable for student performance.
Duncan spent six years working at Ariel Education Initiative, which tried to create educational opportunities for inner-city students on Chicago's South Side.
Monday, December 15, 2008
Reassessing College Assessment I: the US News Rankings
By Richard Vedder, Luke Myers and Jonathan Robe
It is widely acknowledged that one of the cost drivers making colleges less affordable is the "academic arms race" resulting from a quest for higher college rankings, especially from US News & World Report (hereafter, USNWR) We have often claimed that the USNWR rankings are enhanced by spending more money and restricting access (by turning more students down), both of which tend to raise the cost of going to college. Additionally, rankings are influenced by evaluations of senior college administrators who often have not been on some of the campuses they evaluate, at least in recent times.
But is that correct? We have been engaged in a lengthy study of that topic, using multivariate statistical techniques like regression analysis to look at the relationship between USNWR rankings and various attributes of many different schools.
By and large, there is a statistically significant positive relationship between spending per student and USNWR rankings. Spend more, improve your rankings. If you are charged as a university president by the trustees "raise us to the next level in the college rankings," your first task is to raise a ton of money and use it to buy good students, lower the ratio of students to faculty, etc., things that are components in the rankings. You might also raise some more money by raising tuition fees by a good deal.
We at CCAP have developed for Forbes.com an alternative ranking that emphasizes performance and consumer satisfaction measures to a dramatically greater extent than does USNWR. Our statistical results also show a spending-ranking relationship. While we do not consider that a "good" ranking necessarily must be completely neutral with respect to spending (where spending does not matter), the current USNWR emphasis on that variable does contribute materially to the academic arms race. And in an ideal world the success of an institution would be measured on how much in the way of outcomes are delivered by schools for every dollar of resources committed. To date, that has been an illusive goal, in large part because of the intransigence of universities in providing good value added measures of performance.
Needed, of course, are even more indicators of the success of universities. It would be helpful if they had measures of the value added to their students while in college --improvements in critical thinking skills, knowledge of important aspects of the development of our civilization, etc.
One thing that most aspiring college students are interested in is the post-graduate success of students --do they get good jobs? Are employers happy with them? I am hopeful that the Boeing Company develops and publishes some sort of ranking of colleges based on the job performance evaluations of its employees, and that the U.S. Chamber pick up on it and encourage other employers to do the same. That would be a huge step forward and reduce the impact that the USNWR rankings have on the academic arms race.
It is widely acknowledged that one of the cost drivers making colleges less affordable is the "academic arms race" resulting from a quest for higher college rankings, especially from US News & World Report (hereafter, USNWR) We have often claimed that the USNWR rankings are enhanced by spending more money and restricting access (by turning more students down), both of which tend to raise the cost of going to college. Additionally, rankings are influenced by evaluations of senior college administrators who often have not been on some of the campuses they evaluate, at least in recent times.
But is that correct? We have been engaged in a lengthy study of that topic, using multivariate statistical techniques like regression analysis to look at the relationship between USNWR rankings and various attributes of many different schools.
By and large, there is a statistically significant positive relationship between spending per student and USNWR rankings. Spend more, improve your rankings. If you are charged as a university president by the trustees "raise us to the next level in the college rankings," your first task is to raise a ton of money and use it to buy good students, lower the ratio of students to faculty, etc., things that are components in the rankings. You might also raise some more money by raising tuition fees by a good deal.
We at CCAP have developed for Forbes.com an alternative ranking that emphasizes performance and consumer satisfaction measures to a dramatically greater extent than does USNWR. Our statistical results also show a spending-ranking relationship. While we do not consider that a "good" ranking necessarily must be completely neutral with respect to spending (where spending does not matter), the current USNWR emphasis on that variable does contribute materially to the academic arms race. And in an ideal world the success of an institution would be measured on how much in the way of outcomes are delivered by schools for every dollar of resources committed. To date, that has been an illusive goal, in large part because of the intransigence of universities in providing good value added measures of performance.
Needed, of course, are even more indicators of the success of universities. It would be helpful if they had measures of the value added to their students while in college --improvements in critical thinking skills, knowledge of important aspects of the development of our civilization, etc.
One thing that most aspiring college students are interested in is the post-graduate success of students --do they get good jobs? Are employers happy with them? I am hopeful that the Boeing Company develops and publishes some sort of ranking of colleges based on the job performance evaluations of its employees, and that the U.S. Chamber pick up on it and encourage other employers to do the same. That would be a huge step forward and reduce the impact that the USNWR rankings have on the academic arms race.
Links
by Andrew Gillen & Daniel Bennett
It looks as though at least one school, Yeshiva University, was caught in the ponzi scheme run by Bernard Madoff that is estimated to have stolen 50 billion. Its losses have not yet been determined.
Separately, Claudia Goldin, co-author of The Race Between Education and Technology, which was recently reviewed by our own Richard Vedder, states that she would like to see some of the stimulus money spent on "more and greater Pell Grants." We are on board with increasing the role of Pell grants, as well as her preference for giving funds to the students, rather than to the institutions.
The Higher Education Opportunity Act, passed earlier this year, increases the maximum size of the Pell Grant from $4,731 in 2008-09, to $6,000 in 2009-10, with an annual increase of $400 each school year, through 2014-15.
It looks as though at least one school, Yeshiva University, was caught in the ponzi scheme run by Bernard Madoff that is estimated to have stolen 50 billion. Its losses have not yet been determined.
Separately, Claudia Goldin, co-author of The Race Between Education and Technology, which was recently reviewed by our own Richard Vedder, states that she would like to see some of the stimulus money spent on "more and greater Pell Grants." We are on board with increasing the role of Pell grants, as well as her preference for giving funds to the students, rather than to the institutions.
The Higher Education Opportunity Act, passed earlier this year, increases the maximum size of the Pell Grant from $4,731 in 2008-09, to $6,000 in 2009-10, with an annual increase of $400 each school year, through 2014-15.
Friday, December 12, 2008
Upcoming Event: Tuesday, December 16
Higher Education Opportunity Act and the Future of Higher Education
What's It All Mean?
That’s the question ACTA will pose regarding the Higher Education Act, the incoming Obama Administration and the new Congress to a panel of higher ed experts during a moderated discussion made possible by the Lumina Foundation.
Hosted by the American Council of Trustees and Alumni in conjunction with the Lumina Foundation for Education
LOCATION:
Tuesday, December 16, 2008
Charles Sumner School Museum and Archives
1201 17th Street, NW, Washington, DC
RSVP:
202-507-4622 or
NMamis@goacta.org
Discussants Include:
SCHEDULE OF EVENTS
What's It All Mean?
That’s the question ACTA will pose regarding the Higher Education Act, the incoming Obama Administration and the new Congress to a panel of higher ed experts during a moderated discussion made possible by the Lumina Foundation.
Hosted by the American Council of Trustees and Alumni in conjunction with the Lumina Foundation for Education
LOCATION:
Tuesday, December 16, 2008
Charles Sumner School Museum and Archives
1201 17th Street, NW, Washington, DC
RSVP:
202-507-4622 or
NMamis@goacta.org
Discussants Include:
Richard Vedder, distinguished professor of economics, Ohio University; director, Center for College Affordability and Productivity
Doug Lederman, moderator, co-founder, Inside Higher Ed
Kevin Carey, research and policy manager, Education Sector
Sarah Flanagan, vice president for government relations and policy, NAICU
A. Lee Fritschler, professor of public policy, George Mason University; former president, Dickinson College
Anne D. Neal, President, American Council of Trustees and Alumni
Mark Pelesh, executive vice president, Corinthian Colleges Association
Erin Renner, senior higher education policy advisor to Senator Kennedy
SCHEDULE OF EVENTS
1.00 pm Welcome: Anne D. Neal
1.15 pm Part 1: The Higher Education Opportunity Act—Perspectives and Prognostications
2.15 pm Coffee Break
2.30 pm Part 2: Higher Education and the Public Trust—What Will the Future Bring?
3.25 pm Closing Remarks: Anne D. Neal
3.30 pm Adjournment
The Goldin and Katz Thesis
By Richard Vedder
Claudia Goldin and Lawrence Katz are both senior faculty at America's most prestigious university, and their new book The Race Between Education and Technology has received rave support from some eminent economists and other educational leaders. According to Goldin and Katz, America's non-elitist educational system propelled the nation to both higher economic growth and, until around 1970 or so, higher degrees of income equality. The slowdown in the growth in educational attainment since then, however, has led to both a growth slowdown and a move away from greater equity.
I have written a very long review of this book for the Claremont Review of Books. Suffice it to say here I think the book is fundamentally flawed. The book strings together a series of dubious assumptions with some serious errors of omission to suggest that our underspending on education is lowering equity and growth. The CCAP evidence, which is less inferential and more direct, is that the correlation between spending on higher education and economic growth is, at best, neutral, and, more likely, negative. Moreover, Daniel Bennett of our staff is finding that the assumption that increasing educational attainment will promote income equality is also probably faulty, although that research is still continuing.
Without going into too much detail, Goldin and Katz seem to assume that all persons are created equal in some very literal sense, and that interpersonal differences in human endowments are of trivial importance. I think Charles Murray and the late Richard Hernstein have certainly very appropriately called that view into question. Education is a screening device. To be sure, some gains in productivity can occur from attending college, but to assume that all the income differential between high school and college graduates is due to education itself is clearly incorrect. And as a reviewer on Amazon notes, the term "high school dropout" in 1900 probably connotes quite different levels of knowledge, learning, wisdom, etc., than it does today.
The authors spend four pages talking about the role that electricity played in the early twentieth century in promoting high school attendance, but virtually nothing on such issues as education as a screening device. Accordingly, I view this book as a biased, one-sided view of the role of education in the American economy.
Claudia Goldin and Lawrence Katz are both senior faculty at America's most prestigious university, and their new book The Race Between Education and Technology has received rave support from some eminent economists and other educational leaders. According to Goldin and Katz, America's non-elitist educational system propelled the nation to both higher economic growth and, until around 1970 or so, higher degrees of income equality. The slowdown in the growth in educational attainment since then, however, has led to both a growth slowdown and a move away from greater equity.
I have written a very long review of this book for the Claremont Review of Books. Suffice it to say here I think the book is fundamentally flawed. The book strings together a series of dubious assumptions with some serious errors of omission to suggest that our underspending on education is lowering equity and growth. The CCAP evidence, which is less inferential and more direct, is that the correlation between spending on higher education and economic growth is, at best, neutral, and, more likely, negative. Moreover, Daniel Bennett of our staff is finding that the assumption that increasing educational attainment will promote income equality is also probably faulty, although that research is still continuing.
Without going into too much detail, Goldin and Katz seem to assume that all persons are created equal in some very literal sense, and that interpersonal differences in human endowments are of trivial importance. I think Charles Murray and the late Richard Hernstein have certainly very appropriately called that view into question. Education is a screening device. To be sure, some gains in productivity can occur from attending college, but to assume that all the income differential between high school and college graduates is due to education itself is clearly incorrect. And as a reviewer on Amazon notes, the term "high school dropout" in 1900 probably connotes quite different levels of knowledge, learning, wisdom, etc., than it does today.
The authors spend four pages talking about the role that electricity played in the early twentieth century in promoting high school attendance, but virtually nothing on such issues as education as a screening device. Accordingly, I view this book as a biased, one-sided view of the role of education in the American economy.
Thursday, December 11, 2008
Robertson vs. Princeton
By Richard Vedder
The settlement of the lawsuit brought by the Robertson family against Princeton University in one respect is a bit disappointing. It would have been nice to have a definitive court ruling on the matter. Yet settling the case was obviously in the best interests of both parties.
For readers unfamiliar with the issue, a bequest by the Robertson family to Princeton grew over time to the better part of a billion dollars. The family felt that Princeton was not using the funds (or most of the funds) for the purpose for which the donor intended. While Princeton did not admit any wrongdoing, the fact that it is paying out the better part of $100 million to the Robertsons is a sign that they were not completely confident in the outcome of the case --or that the negative publicity about the case was seriously hurting Princeton in its relations with alums.
This case has one good outcome. Universities better pay attention to how they use gifts. Donor intent matters. The Robertson family has done a public service by bringing this issue to the forefront. Donors need to be very, very careful in how they make gifts if they want them to serve a specific purpose.
The settlement of the lawsuit brought by the Robertson family against Princeton University in one respect is a bit disappointing. It would have been nice to have a definitive court ruling on the matter. Yet settling the case was obviously in the best interests of both parties.
For readers unfamiliar with the issue, a bequest by the Robertson family to Princeton grew over time to the better part of a billion dollars. The family felt that Princeton was not using the funds (or most of the funds) for the purpose for which the donor intended. While Princeton did not admit any wrongdoing, the fact that it is paying out the better part of $100 million to the Robertsons is a sign that they were not completely confident in the outcome of the case --or that the negative publicity about the case was seriously hurting Princeton in its relations with alums.
This case has one good outcome. Universities better pay attention to how they use gifts. Donor intent matters. The Robertson family has done a public service by bringing this issue to the forefront. Donors need to be very, very careful in how they make gifts if they want them to serve a specific purpose.
Wednesday, December 10, 2008
Recent Links
by Andrew Gillen
Both the Chronicle of Higher Education and Inside Higher Ed report that it looks like fewer people are considering graduate school, based on the number of people taking the GRE.
Meanwhile, the Chronicle and the Quick and the Ed both point out that some of my predictions in A Tuition Bubble? are coming true.
Lastly, Greg Mankiw points us to this picture. The third term in the numerator probably explains why I mentioned the second set of links.
Both the Chronicle of Higher Education and Inside Higher Ed report that it looks like fewer people are considering graduate school, based on the number of people taking the GRE.
Meanwhile, the Chronicle and the Quick and the Ed both point out that some of my predictions in A Tuition Bubble? are coming true.
Lastly, Greg Mankiw points us to this picture. The third term in the numerator probably explains why I mentioned the second set of links.
Entrepreneurship in the University Library
by Daniel Bennett
A story in the Chronicle this morning casts a ray of light on future of higher education. Johns Hopkins University is displaying a rare sign of innovation by renting out its extensive library and services, to colleges without the financial means (or necessity) to assemble a large collection of literary works.
One such college making use of the service is Excelsior College, a distance-learning institution with some 33,000 spread across the country. Excelsior pays Johns Hopkins an annual service fee, based on enrollment, for access to its online materials and library service. In 2008, the fee amounted to $1 million, which is most likely, a substantial savings over building, staffing and maintaining its own library, as well as the cost of newspaper, magazine, journal subscriptions and books. With students scattered across the country, a bricks & mortar library wouldn't be a sensible policy.
George Timmons, the dean of online education at Excelsior, states:
A story in the Chronicle this morning casts a ray of light on future of higher education. Johns Hopkins University is displaying a rare sign of innovation by renting out its extensive library and services, to colleges without the financial means (or necessity) to assemble a large collection of literary works.
One such college making use of the service is Excelsior College, a distance-learning institution with some 33,000 spread across the country. Excelsior pays Johns Hopkins an annual service fee, based on enrollment, for access to its online materials and library service. In 2008, the fee amounted to $1 million, which is most likely, a substantial savings over building, staffing and maintaining its own library, as well as the cost of newspaper, magazine, journal subscriptions and books. With students scattered across the country, a bricks & mortar library wouldn't be a sensible policy.
George Timmons, the dean of online education at Excelsior, states:
The relationship, part of Johns Hopkins’ Entrepreneurial Library Program, has found favor with both students and accrediting agencies. It’s a student-friendly, student-centered environment.Excelsior is accredited by the Commission on Higher Education of the Middle States Association of Colleges and Schools, which is a sign that the accreditation agencies, which require a college to have a library of a certain size, support this sort of arrangement. This appears to be a positive sign for higher education. Maintaining a library is expensive and is certainly a driver of cost for colleges, especially those who are unable to take advantage of economies of scale due to small student populations. This also presents an opportunity for an additional revenue stream for large universities with extensive library services.
Monday, December 08, 2008
Chart of the Week: 12/8/08
by Amr Taha
The above chart shows the annual percentage salary increase of college presidents, instructors and all working Americans. Over the previous three years, the average salary of college presidential salaries has risen much more quickly than that of college instructors and all American workers.
Sources:
http://www.census.gov/hhes/www/income/histinc/p01AR.html
http://chronicle.com/stats/990/
http://nces.ed.gov/programs/digest/2007menu_tables.asp
View past charts of the week here.
Amr Taha is an adjunct instructor of economics at Ohio University and a research assistant for CCAP. He holds a master's degree in applied economics from Ohio University and a bachelor's degree in economics from American University in Cairo.
The above chart shows the annual percentage salary increase of college presidents, instructors and all working Americans. Over the previous three years, the average salary of college presidential salaries has risen much more quickly than that of college instructors and all American workers.
Sources:
http://www.census.gov/hhes/www/income/histinc/p01AR.html
http://chronicle.com/stats/990/
http://nces.ed.gov/programs/digest/2007menu_tables.asp
View past charts of the week here.
Amr Taha is an adjunct instructor of economics at Ohio University and a research assistant for CCAP. He holds a master's degree in applied economics from Ohio University and a bachelor's degree in economics from American University in Cairo.
Friday, December 05, 2008
A Useful Reminder II
by Andrew Gillen
I guess I needed something to make me feel better after seeing today's terrible employment numbers, and luckily, Daniel Hamermesh delivers.
Just another reminder that things could be worse.
I guess I needed something to make me feel better after seeing today's terrible employment numbers, and luckily, Daniel Hamermesh delivers.
The amount of fees that an Italian university can charge to students is linked to the amount of support the university receives from the national government.
Sounds sensible, right? After all, public universities in the U.S. typically try to make up lost state revenue by increasing student fees to maintain budget stability. In Italy, though, the linkage is positive: when the national government cuts back support, the universities must also cut their fees. In a time of budget cutbacks, like right now, this creates a double whammy on university finances (and the opposite in good times).
What a crazy system...
Just another reminder that things could be worse.
Thursday, December 04, 2008
Why Do Graduates of Some Colleges Earn More Than Others?
by Daniel Bennett
Awhile back, Payscale.com published a report that included salary data for more than 300 colleges. I developed a model to examine the variation in starting salary among colleges, controlling for a set of institutional variables, including school type and size, geographic location, demographics, financial need of students, admission and graduation rates, endowment size (adjusted for enrollment), net tuition and fees, and athletic team success.
The institutional characteristics that are statistically significant and associated with higher average starting salaries include:
The fun part is next – comparing the graduate’s actual starting salaries versus that predicted by the model. There were 298 colleges used in the model. The actual starting salary was greater than that predicted by the model for 145 of the schools, versus 153 schools whose actual starting salaries were less than that predicted. The two schools whose actual salaries were closest to that predicted are the University of North Dakota and Princeton University, both within +/- $10. The 25 schools whose graduate’s earned the most over their predicted salary were:
Awhile back, Payscale.com published a report that included salary data for more than 300 colleges. I developed a model to examine the variation in starting salary among colleges, controlling for a set of institutional variables, including school type and size, geographic location, demographics, financial need of students, admission and graduation rates, endowment size (adjusted for enrollment), net tuition and fees, and athletic team success.
The institutional characteristics that are statistically significant and associated with higher average starting salaries include:
Having attended a medium or large college (in terms of enrollment), as opposed to a small one, with the premium being highest for graduates of large schools.The institutional characteristics that are statistically significant and associated with lower average starting salaries include:
Having a large percentage of African American and Asian students enrolled, with the Asian affect more than twice that of the African American one.
Having a large endowment, adjusted for enrollment
Having a higher net price to attend
Having a successful athletics program, as measured by director’s cup score
Being a public schoolIt should be noted that the results of this statistical model are correlation, and should not be considered as causative.
Being located in the southeast or the midwest, with graduates of schools in the southeast earning the lowest starting salaries
Having a large percentage of females enrolled
Being less selective, measured by the percent of applicants admitted
The fun part is next – comparing the graduate’s actual starting salaries versus that predicted by the model. There were 298 colleges used in the model. The actual starting salary was greater than that predicted by the model for 145 of the schools, versus 153 schools whose actual starting salaries were less than that predicted. The two schools whose actual salaries were closest to that predicted are the University of North Dakota and Princeton University, both within +/- $10. The 25 schools whose graduate’s earned the most over their predicted salary were:
Wednesday, December 03, 2008
The Best Aren't the Best Forever
by Andrew Gillen
Felix Salmon clarifies some of the real reasons university endowments are dumping private equity stakes:
Leverage is fantastic on the way up since it multiplies gains, but downright brutal on the way down, since it multiplies those too.
The common 2 and 20 fee structure (2% of assets and 20% of gains above some benchmark), is not very attractive at the moment either. After all, who wants to pay 2% for the privilege of watching their portfolio shrink?
These funds were the cream of the crop of the financial world. When things were going well, their past performance eased worries, allowing them to increase leverage, which increased performance... But that all came to a screeching halt when the market stopped going up.
Hmmm...Perhaps it's just because a reporter called yesterday about the Tuition Bubble paper I wrote a few months ago, which compared the housing bubble to what I called a tuition bubble, but I see some similarities here. Replace leverage with prestige, and equity funds with the top schools in the country, and you've got a very similar situation. These schools rely heavily on their prestige (leverage) to succeed. Their performance appears to justify their high tuition (2 and 20 fees). As long as nothing damages their prestige, they are in a virtuous cycle of prestige leading to more money leading to more prestige...
Q: Is there anything that could damage the prestige of these institutions?
A: Value added assessment of the education they provide. While some of the top schools are doing a good job, I have little trouble imagining some are resting on their laurels.
Even at our best schools, we do not currently have value added assessment, as this quote from William R. Fitzsimmons, dean of admissions at Harvard shows:
Given that value added analysis could upset the virtuous cycle, it should come as no surprise that top schools energetically resist it. As Kevin Carey notes, "When the conventional wisdom says you're the best, you have no interest in proving otherwise." Their best interests "lie in using whatever means necessary to prevent the release of any information that would upset the status quo." A proposal a few years back that would have moved us one step closer to value added failed when
Value added assessments will not be blocked forever. And on the wonderful day when it comes, schools that perform poorly will shut down because no students will want to attend a school that doesn't provide value. Schools would be well advised to make sure they will perform well on this measure by ensuring they are providing value for their students, which means shifting away from the sorting/screening and entertainment functions that seem so dominant today, and towards a system that focuses more on educating and guiding students.
Luckily, as these universities ditch high fee funds relying on leverage, they are getting a glimpse of what lies in their future if they cease to earn their prestige, and rely on their illustrious past to carry them forward.
Felix Salmon clarifies some of the real reasons university endowments are dumping private equity stakes:
The problem with private equity funds is not that they're illiquid, or that they're long-term: endowments can cope with both of those quite easily. Rather, it's that they're highly levered, which means that they can go to zero quite easily. And once they've hit zero, they don't ever recover.
Leverage is fantastic on the way up since it multiplies gains, but downright brutal on the way down, since it multiplies those too.
The common 2 and 20 fee structure (2% of assets and 20% of gains above some benchmark), is not very attractive at the moment either. After all, who wants to pay 2% for the privilege of watching their portfolio shrink?
These funds were the cream of the crop of the financial world. When things were going well, their past performance eased worries, allowing them to increase leverage, which increased performance... But that all came to a screeching halt when the market stopped going up.
Hmmm...Perhaps it's just because a reporter called yesterday about the Tuition Bubble paper I wrote a few months ago, which compared the housing bubble to what I called a tuition bubble, but I see some similarities here. Replace leverage with prestige, and equity funds with the top schools in the country, and you've got a very similar situation. These schools rely heavily on their prestige (leverage) to succeed. Their performance appears to justify their high tuition (2 and 20 fees). As long as nothing damages their prestige, they are in a virtuous cycle of prestige leading to more money leading to more prestige...
Q: Is there anything that could damage the prestige of these institutions?
A: Value added assessment of the education they provide. While some of the top schools are doing a good job, I have little trouble imagining some are resting on their laurels.
Even at our best schools, we do not currently have value added assessment, as this quote from William R. Fitzsimmons, dean of admissions at Harvard shows:
At Harvard we get terrific students, and we turn out terrific students later on. Is that due to Harvard or is that due to the students to begin with? Who knows?
Given that value added analysis could upset the virtuous cycle, it should come as no surprise that top schools energetically resist it. As Kevin Carey notes, "When the conventional wisdom says you're the best, you have no interest in proving otherwise." Their best interests "lie in using whatever means necessary to prevent the release of any information that would upset the status quo." A proposal a few years back that would have moved us one step closer to value added failed when
lobbyists for private colleges put on a full-court press to block the proposal, pressing Congress to prohibit its creation and publicly denouncing it as "Orwellian" and "an assault on Americans' privacy and security in the shadow of the Fourth of July."
Value added assessments will not be blocked forever. And on the wonderful day when it comes, schools that perform poorly will shut down because no students will want to attend a school that doesn't provide value. Schools would be well advised to make sure they will perform well on this measure by ensuring they are providing value for their students, which means shifting away from the sorting/screening and entertainment functions that seem so dominant today, and towards a system that focuses more on educating and guiding students.
Luckily, as these universities ditch high fee funds relying on leverage, they are getting a glimpse of what lies in their future if they cease to earn their prestige, and rely on their illustrious past to carry them forward.
Chart of the Week: 12/03/08
This chart shows that the average cost to attend college (2008 dollars) in one's home state has risen while the student to faculty ratio has remained relatively constant. This indicates that instruction is not a driver of ever higher costs, or alternatively, that additional funds are not going towards instruction.
View past charts of the week here.
Land Grab Update
by Andrew Gillen
Awhile back, I commented on the efforts of Columbia to convince the state of New York to use eminent domain to obtain additional land for a planned expansion. More details continue to trickle out, including this (keep in mind that in New York, land must be classified as blighted before eminent domain can be invoked):
This is not how expansions should be done, and if even half the details in the stories (this one and the earlier one) are correct, then Columbia should be ashamed.
Awhile back, I commented on the efforts of Columbia to convince the state of New York to use eminent domain to obtain additional land for a planned expansion. More details continue to trickle out, including this (keep in mind that in New York, land must be classified as blighted before eminent domain can be invoked):
The state of New York hired a firm that works for Columbia to carry out the blight study. The firm used personnel who were working for Columbia on the project, and Columbia reviewed this work as it progressed. You will perhaps not be surprised to learn that AKRF's report declared the Manhattanville neighborhood was blighted--the precise result Columbia desired.
What's even more damning is that Columbia actually paid for the blight study...
This is not how expansions should be done, and if even half the details in the stories (this one and the earlier one) are correct, then Columbia should be ashamed.
Tuesday, December 02, 2008
The Financial Laws of Gravity Hit Universities
By Richard Vedder
With rare exception, what goes up must come down. That is not always true in finance --invest and reinvest your money in conservative investments (e.g., bank CD's or inflation proof government bonds) and you will likely see slow, steady growth in your holdings. If you buy equities, you will see more volatile returns, higher on average over the long run, but with the possibility of significant and major short-term losses.
Endowments used to take reduction in volatility and preservation of capital extremely carefully, investing in blue chip stocks, bonds, and, occasionally, modestly in real estate. No hedge funds. No private equity funds. No derivatives.
In the past decade or so, universities, always thinking they are wiser and smarter than mere mortals among the Great Unwashed, have gone in big for risky investments --especially the larger endowments. Thus for years Harvard and Yale were the envy of the higher education world. Rates of return often hit 5 to 10 percent points higher than the average of all investors.
Now the chickens are coming home to roost. Bloomberg reports (yesterday) that private equity firms are facing a huge problem with sell off of university endowment investments. As Steve Kaplan, a finance professor at the University of Chicago put it, "Many endowments overcommitted to private equity." I expect some large endowments will show huge losses for the current quarter. Harvard invests upwards of 15 percent of its endowment in private equity funds, which have had valuations out of line in an upward direction with underlying equity holdings. A double whammy is occurring --a loss in the premium associated with private equity investments along with a sharp decline in underlying equity holdings. The little schools with their money in indexed funds, cash, and bonds are probably going to outperform the giants with the multi-million dollar investment managers.
Question: will donors be forgiving if rates or return for endowments fall far below those for safer investments? Stay tuned.
With rare exception, what goes up must come down. That is not always true in finance --invest and reinvest your money in conservative investments (e.g., bank CD's or inflation proof government bonds) and you will likely see slow, steady growth in your holdings. If you buy equities, you will see more volatile returns, higher on average over the long run, but with the possibility of significant and major short-term losses.
Endowments used to take reduction in volatility and preservation of capital extremely carefully, investing in blue chip stocks, bonds, and, occasionally, modestly in real estate. No hedge funds. No private equity funds. No derivatives.
In the past decade or so, universities, always thinking they are wiser and smarter than mere mortals among the Great Unwashed, have gone in big for risky investments --especially the larger endowments. Thus for years Harvard and Yale were the envy of the higher education world. Rates of return often hit 5 to 10 percent points higher than the average of all investors.
Now the chickens are coming home to roost. Bloomberg reports (yesterday) that private equity firms are facing a huge problem with sell off of university endowment investments. As Steve Kaplan, a finance professor at the University of Chicago put it, "Many endowments overcommitted to private equity." I expect some large endowments will show huge losses for the current quarter. Harvard invests upwards of 15 percent of its endowment in private equity funds, which have had valuations out of line in an upward direction with underlying equity holdings. A double whammy is occurring --a loss in the premium associated with private equity investments along with a sharp decline in underlying equity holdings. The little schools with their money in indexed funds, cash, and bonds are probably going to outperform the giants with the multi-million dollar investment managers.
Question: will donors be forgiving if rates or return for endowments fall far below those for safer investments? Stay tuned.
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