By Richard Vedder
My indefatigable Whiz Kid (and soon to be full-time CCAP colleague) Jim Coleman shared with me an interesting article from Wednesday's Chronicle. A survey of chief financial officers of universities revealed the obvious (they think tuition fees will rise faster than inflation). But it is interesting why they think costs are rising so much.
A major cost driver is the increasing cost of delivering amenities to students to stay ahead of the competition. I have talked many times about the fact that every school these days seems to have a "climbing wall." Most have very, very nice recreational centers. Many are building fancy student union buildings. Dormitories are being remodeled and rebuilt --with fewer, bigger rooms, better facilities, etc. Instead of competing on price, they are competing on amenities --making the schools more upscale in terms of the living experience, if not the education. My university has a building, ostensibly a lecture hall, with a huge $5 million party room that has virtually no true academic purpose. I call all of this the "country-clubization" of American universities.
As a society becomes more affluent, it is natural to expect some improvement in the way students live. When I attended an elite private school decades ago, dorm rooms had no telephones (much less televisions), air conditioning was not universal, you had to go down the hall to a communal bathroom affording no privacy, etc. Classroom buildings are somewhat nicer, better ventilated, nicer lighting, etc. than the buildings of the past. Just as housing for families has improved over the years, you would expect some improvement in housing for our progeny attending college. However, one senses this wave of the amenities arms race is getting out of hand --largely because it is subsidized by public funds. Kids borrow more cheap federally provided or guaranteed money to pay the higher tuition required to pay for the amenities. Donors get tax breaks to build fancy new football stadiums or rec centers. The taxpayers are subsidizing not education, but upscale consumption.
Why don't colleges compete instead on price? The elite schools do not price services at the equilibrium price --more kids want in than the schools want to admit, meaning that they are already lowering price below the revenue maximizing amount. The bottom line for schools is prestige as measured by US News and World Report. So increasing the number of student applicants is critical to improving rankings --even if there are plenty of students demanding the school already. With third party payers forking up much of the funds, the country-clubization of colleges is one way to try to gain an advantage over rival schools. What are colleges producing? Increased knowledge --which the schools don't want to measure --is one thing. But a good social life is another. As my friend Jim Duderstadt puts it, the socialization dimensions of higher education are a big part of the rise in costs. I do not object to that in principle, but I do think it is terribly unwise and wrong to use taxpayer dollars to subsidize it.
Wednesday, April 30, 2008
Thinking Outside the Box on Student Loans
By Richard Vedder
Lenders are shy about lending to students all of a sudden. One reason, of course, is that the government, in its wisdom, decided to reduce maximum fees paid to private lenders for loan processing. A second reason is that artificially low interest rates engineered by the Fed led to a housing boom, and, subsequently, to a housing bust, foreclosures, and weakened financial institutions. It also led to a flight from insanity to extreme caution among lenders --who now are aware that lending to 20 year olds with dubious job prospects is a risky business. So, of course, the Feds want to do some more stupid things, like subsidize lenders to induce them to lend, promote greater Federal entry into the student loan business, etc. It is a monumental case of government failure all around.
It is time to think creatively and do something bold (but not like in Germany, where Chancellor Angela Merkel is rumored to be hitting the nightclubs late at night wearing very revealing outfits --Germany's new Weapon of Mass Distraction.) As my sidekick Bryan points out, students are using web sites to find innovative ways to finance their education --borrowing from non-traditional lenders, getting help from persons sympathetic to needy kids, and, finding entrepreneurs willing to buy "a piece of the action " --investing in persons with enormous potential.
That gets to my next point. I wish some of my affluent friends with an interest in higher education --Charles Miller, Jeff Sandefer, Randy Best, maybe even Catherine Reynolds --would start a "human venture capital fund" that would invest in EQUITY interests in students, modeled in part after an overly maligned 17th century idea: indentured servitude. (In return for passage to America, workers received very low subsistence wages for a period of up to seven years).
Jim goes to the Human Capital Venture Fund (HCVF) and says "look at me --I have good grades, I am a campus leader, I have great evaluations on my internships, etc. But I need $30,000 to finish school." The HCVF says, "we will give you $30,000, if, in return, you give us 10 percent of your income after federal income taxes and a $25,000 subsistence allowance, for a period of 10 years after graduation." It is close to selling common stock in oneself.
Alternatives abound. Those preferring lending to equity investments might say, "I will lend you $30,000, with you agreeing to paying $2,400 a year (8 percent) in interest payments, plus 10 percent of your after-tax, after-interest payment income over $25,000 a year until such time as the loan is paid off, with a 30 year maximum.
There are hybrid approaches --sort of like convertible debentures or preferred stock.
There can be an upper limit to the gains to lender imposed --the lender gets repaid for financing of the education over 10 years, subject to a maximum payment equal to 3 times the amount lent (or some such provision).
I have offered these options before. My guess is that we are evolving towards such a market system --just as financial markets evolved with all sorts of new methods of lending and providing equity in the last generation --securitization, derivatives, hedge funds, etc. --so will the market for student loans. The government should relax, get out of the loan business, and let markets work.
Lenders are shy about lending to students all of a sudden. One reason, of course, is that the government, in its wisdom, decided to reduce maximum fees paid to private lenders for loan processing. A second reason is that artificially low interest rates engineered by the Fed led to a housing boom, and, subsequently, to a housing bust, foreclosures, and weakened financial institutions. It also led to a flight from insanity to extreme caution among lenders --who now are aware that lending to 20 year olds with dubious job prospects is a risky business. So, of course, the Feds want to do some more stupid things, like subsidize lenders to induce them to lend, promote greater Federal entry into the student loan business, etc. It is a monumental case of government failure all around.
It is time to think creatively and do something bold (but not like in Germany, where Chancellor Angela Merkel is rumored to be hitting the nightclubs late at night wearing very revealing outfits --Germany's new Weapon of Mass Distraction.) As my sidekick Bryan points out, students are using web sites to find innovative ways to finance their education --borrowing from non-traditional lenders, getting help from persons sympathetic to needy kids, and, finding entrepreneurs willing to buy "a piece of the action " --investing in persons with enormous potential.
That gets to my next point. I wish some of my affluent friends with an interest in higher education --Charles Miller, Jeff Sandefer, Randy Best, maybe even Catherine Reynolds --would start a "human venture capital fund" that would invest in EQUITY interests in students, modeled in part after an overly maligned 17th century idea: indentured servitude. (In return for passage to America, workers received very low subsistence wages for a period of up to seven years).
Jim goes to the Human Capital Venture Fund (HCVF) and says "look at me --I have good grades, I am a campus leader, I have great evaluations on my internships, etc. But I need $30,000 to finish school." The HCVF says, "we will give you $30,000, if, in return, you give us 10 percent of your income after federal income taxes and a $25,000 subsistence allowance, for a period of 10 years after graduation." It is close to selling common stock in oneself.
Alternatives abound. Those preferring lending to equity investments might say, "I will lend you $30,000, with you agreeing to paying $2,400 a year (8 percent) in interest payments, plus 10 percent of your after-tax, after-interest payment income over $25,000 a year until such time as the loan is paid off, with a 30 year maximum.
There are hybrid approaches --sort of like convertible debentures or preferred stock.
There can be an upper limit to the gains to lender imposed --the lender gets repaid for financing of the education over 10 years, subject to a maximum payment equal to 3 times the amount lent (or some such provision).
I have offered these options before. My guess is that we are evolving towards such a market system --just as financial markets evolved with all sorts of new methods of lending and providing equity in the last generation --securitization, derivatives, hedge funds, etc. --so will the market for student loans. The government should relax, get out of the loan business, and let markets work.
Monday, April 28, 2008
Put the ABA Out of the Accreditation Business
By Richard Vedder
I have already today written once about accreditation, and thought I would be done speaking about it for a while. However, I finally got around to reading today's Wall Street Journal this evening, and I am furious at the behavior of the American Bar Association and believe it should be removed as an accreditor of law schools by the U.S. Department of Education for its racist behavior that works to lower, not raise, the confidence that prospective students and employers have in the law schools that it accredits.
Gail Heriot in her story details how George Mason Law School almost lost its accreditation because it was not aggressive enough in showing PREFERENCES in admitting blacks. The school wanted to aggressively recruit minorities, but not show them preference. The American Bar Association said they MUST show preference to blacks, even if that meant lowering academic standards. Under duress, the proportion of admitted blacks grew sharply, but the ABA kept harassing the school.
I have no evidence whatsoever, but I would not be surprised that the attack on GMU Law School is based largely on that school's somewhat conservative reputation. Harass those who do not share the world view of the accreditors. But even if that is not so, forcing a school to follow a race-oriented admissions policy is just downright wrong.
Moreover, as the Thernstroms (Stephen and Abigail) have shown, preferential treatment of African-Americans leads to higher dropout rates, lower bar exam passage rates among blacks, etc. If blacks attended the schools most appropriate for their academic promise and achievement like whites and Asians do, THEY would be collectively better off.
Solution? Vickie Schray and Sara Martinez Tucker at the U.S. Department of Education should call together the appropriate people to begin the process of stripping the ABA of its accrediting authority --or at least set up an alternative organization that can accredit law schools. I would call on people like Andy Morriss at the University of Illinois and Bill Henderson at Indiana University, who have developed much better ways of rating law schools than used by US News & World Report, to lead the effort to organize a new accrediting organization --sooner than later. Many law schools are seething over ABA high-handed behavior, I understand. It is time that this racist bullying stop, for the good of involved students, for the good of legal education, and to restore American values of treating everyone the same, regardless of race, gender, religion, national origin, sexual preferences, etc.
I have already today written once about accreditation, and thought I would be done speaking about it for a while. However, I finally got around to reading today's Wall Street Journal this evening, and I am furious at the behavior of the American Bar Association and believe it should be removed as an accreditor of law schools by the U.S. Department of Education for its racist behavior that works to lower, not raise, the confidence that prospective students and employers have in the law schools that it accredits.
Gail Heriot in her story details how George Mason Law School almost lost its accreditation because it was not aggressive enough in showing PREFERENCES in admitting blacks. The school wanted to aggressively recruit minorities, but not show them preference. The American Bar Association said they MUST show preference to blacks, even if that meant lowering academic standards. Under duress, the proportion of admitted blacks grew sharply, but the ABA kept harassing the school.
I have no evidence whatsoever, but I would not be surprised that the attack on GMU Law School is based largely on that school's somewhat conservative reputation. Harass those who do not share the world view of the accreditors. But even if that is not so, forcing a school to follow a race-oriented admissions policy is just downright wrong.
Moreover, as the Thernstroms (Stephen and Abigail) have shown, preferential treatment of African-Americans leads to higher dropout rates, lower bar exam passage rates among blacks, etc. If blacks attended the schools most appropriate for their academic promise and achievement like whites and Asians do, THEY would be collectively better off.
Solution? Vickie Schray and Sara Martinez Tucker at the U.S. Department of Education should call together the appropriate people to begin the process of stripping the ABA of its accrediting authority --or at least set up an alternative organization that can accredit law schools. I would call on people like Andy Morriss at the University of Illinois and Bill Henderson at Indiana University, who have developed much better ways of rating law schools than used by US News & World Report, to lead the effort to organize a new accrediting organization --sooner than later. Many law schools are seething over ABA high-handed behavior, I understand. It is time that this racist bullying stop, for the good of involved students, for the good of legal education, and to restore American values of treating everyone the same, regardless of race, gender, religion, national origin, sexual preferences, etc.
Where Are the Accrediting Agencies When We Need Them?
By Richard Vedder
Diploma mills are operations that give diplomas or certificates to persons for work not performed. We have accrediting agencies that keep them from becoming consequential in size and importance.
But when universities that tie diplomas to performance violate that standard and develop attributes of diploma mills, do the accrediting agencies do anything? Are the universities only accountable to themselves?
I am reminded this in the case of West Virginia University, which gave retroactively a diploma to the daughter of the governor. Apparently, the student had done some work earlier --but did not get a degree. Now, with a governor who has influence over WVU's funding in power, the degree was granted. A scandal has ensued, and the Provost is gone. Why not the President, I would ask. But more importantly, what is WVU's regional accreditor going to do? Put the school on probation? Appoint a special task force to monitor the school's awarding of degrees? My prediction: they will do little or nothing.
As a friend said to me recently, "Can you name a single instance where an established university of consequence lost accreditation because of lax academic standards?" What happens when major irregularities occur? Nothing, as far as I can tell.
A few other examples. A small two year college near where I live recently admitted giving diplomas to some businessmen/volunteers who participated in some workshops and training programs at the school. One of the volunteers thought it was outrageous to be given a diploma certifying that he had completed a core curriculum when, in fact, he had not. What has happened? Nothing. The Ohio Board of Regents allegedly is investigating, but again, nothing probably will happen. It was revealed that the president of Southern Illinois University plagiarized significantly in his dissertation --what happened to him? Nothing. Did the North Central Association do anything? If so, I have not heard of it.
Contrast this to the NCAA. If there are violations of established standards, the investigation is real, and the punishment is likewise often severe and painful. In higher education we seem to be saying, "On important matters, like intercollegiate sports, we have rigorous standards and enforce a strong code a ethical behavior. On lesser matters, such as the awarding of degrees and the certification of levels of knowledge or skills, we kind of let things slide."
All of this reduces public confidence in universities, and rightfully so.
Diploma mills are operations that give diplomas or certificates to persons for work not performed. We have accrediting agencies that keep them from becoming consequential in size and importance.
But when universities that tie diplomas to performance violate that standard and develop attributes of diploma mills, do the accrediting agencies do anything? Are the universities only accountable to themselves?
I am reminded this in the case of West Virginia University, which gave retroactively a diploma to the daughter of the governor. Apparently, the student had done some work earlier --but did not get a degree. Now, with a governor who has influence over WVU's funding in power, the degree was granted. A scandal has ensued, and the Provost is gone. Why not the President, I would ask. But more importantly, what is WVU's regional accreditor going to do? Put the school on probation? Appoint a special task force to monitor the school's awarding of degrees? My prediction: they will do little or nothing.
As a friend said to me recently, "Can you name a single instance where an established university of consequence lost accreditation because of lax academic standards?" What happens when major irregularities occur? Nothing, as far as I can tell.
A few other examples. A small two year college near where I live recently admitted giving diplomas to some businessmen/volunteers who participated in some workshops and training programs at the school. One of the volunteers thought it was outrageous to be given a diploma certifying that he had completed a core curriculum when, in fact, he had not. What has happened? Nothing. The Ohio Board of Regents allegedly is investigating, but again, nothing probably will happen. It was revealed that the president of Southern Illinois University plagiarized significantly in his dissertation --what happened to him? Nothing. Did the North Central Association do anything? If so, I have not heard of it.
Contrast this to the NCAA. If there are violations of established standards, the investigation is real, and the punishment is likewise often severe and painful. In higher education we seem to be saying, "On important matters, like intercollegiate sports, we have rigorous standards and enforce a strong code a ethical behavior. On lesser matters, such as the awarding of degrees and the certification of levels of knowledge or skills, we kind of let things slide."
All of this reduces public confidence in universities, and rightfully so.
Jim Duderstadt on Higher Education Leadership
By Richard Vedder
One of the joys of serving on a national commission is meeting lots of first-rate persons --people of intelligence, energy, creativity, and integrity. One of my favorites from my days on the Spellings Commission was Jim Duderstadt, emeritus president of the University of Michigan and one of the brightest minds around today.
Some time ago, Jim sent me a copy of his book The View from the Helm, which I am finally getting around to thoroughly read. It is a gem of a book, full of bon mots, wisdom, and humor. Every aspiring University president should read it --not to mention every university trustee, chairs of education committees of state legislative groups, members of state governing boards, etc.
I was particularly interested in Jim's views on presidential compensation. As a long-time faculty member, I have been worried that my negative feelings towards the explosion of salaries of college presidents reflect typical faculty resentment rather than something more substantive. I find, however, that Jim agrees with me:
"...the recent inflation in presidential compensation, with salaries no longer simply at the top of the faculty but now beginning to approach those of even football coaches...is driving a wedge not only between the faculty and the administration but between the public and higher education."
Jim goes on to say that "rewarding a university president like a corporate CEO threatens to open up a psychological gap between the faculty and the administration (where the faculty no longer views the president...as 'one of us'), thereby decoupling the president from the academic core of the university and undercutting his or her effectiveness as leading the institution." Jim went on to quote similar sentiments from the iconic Derek Bok, twice Harvard prez.
I quite agree with these views. I ask the question: is it necessary to pay presidents two or three times as much as the highest paid faculty member? I think the answer is no. I think faculty members are overwhelmingly liberal politically, brimming with resentment over inequalities. I think that this type of behavior is an invitation at lesser quality institutions for faculty unionization --a disaster of the highest order in terms of forging a university learning community based on trust, collegiality and consensus.
My attitudes on this, however, strengthened enormously Friday while I was in Washington, D.C., interacting with legislators and staff from two organizations --the National Council of State Legislators (NCSL) and the American Legislative Exchange Council (ALEC). In talking with persons associated with both groups the question arose about rising compensation levels, especially at the highest levels. The public is growing weary of providing economic rent to universities that seem, to them, to be contemptuous of the rising concerns over tuition fees. One asked me if it was possible to do a study on higher education compensation levels-- not a bad idea. Public university presidents complain that state appropriations are a shrinking portion of their budgets --how true. But try to do without them. Barry Goldwater once said "extremism in the defense of liberty is no vice." While that may be debatable, I think "moderation in the compensation of university presidents is a virtue" is unquestionably valid.
One of the joys of serving on a national commission is meeting lots of first-rate persons --people of intelligence, energy, creativity, and integrity. One of my favorites from my days on the Spellings Commission was Jim Duderstadt, emeritus president of the University of Michigan and one of the brightest minds around today.
Some time ago, Jim sent me a copy of his book The View from the Helm, which I am finally getting around to thoroughly read. It is a gem of a book, full of bon mots, wisdom, and humor. Every aspiring University president should read it --not to mention every university trustee, chairs of education committees of state legislative groups, members of state governing boards, etc.
I was particularly interested in Jim's views on presidential compensation. As a long-time faculty member, I have been worried that my negative feelings towards the explosion of salaries of college presidents reflect typical faculty resentment rather than something more substantive. I find, however, that Jim agrees with me:
"...the recent inflation in presidential compensation, with salaries no longer simply at the top of the faculty but now beginning to approach those of even football coaches...is driving a wedge not only between the faculty and the administration but between the public and higher education."
Jim goes on to say that "rewarding a university president like a corporate CEO threatens to open up a psychological gap between the faculty and the administration (where the faculty no longer views the president...as 'one of us'), thereby decoupling the president from the academic core of the university and undercutting his or her effectiveness as leading the institution." Jim went on to quote similar sentiments from the iconic Derek Bok, twice Harvard prez.
I quite agree with these views. I ask the question: is it necessary to pay presidents two or three times as much as the highest paid faculty member? I think the answer is no. I think faculty members are overwhelmingly liberal politically, brimming with resentment over inequalities. I think that this type of behavior is an invitation at lesser quality institutions for faculty unionization --a disaster of the highest order in terms of forging a university learning community based on trust, collegiality and consensus.
My attitudes on this, however, strengthened enormously Friday while I was in Washington, D.C., interacting with legislators and staff from two organizations --the National Council of State Legislators (NCSL) and the American Legislative Exchange Council (ALEC). In talking with persons associated with both groups the question arose about rising compensation levels, especially at the highest levels. The public is growing weary of providing economic rent to universities that seem, to them, to be contemptuous of the rising concerns over tuition fees. One asked me if it was possible to do a study on higher education compensation levels-- not a bad idea. Public university presidents complain that state appropriations are a shrinking portion of their budgets --how true. But try to do without them. Barry Goldwater once said "extremism in the defense of liberty is no vice." While that may be debatable, I think "moderation in the compensation of university presidents is a virtue" is unquestionably valid.
Sunday, April 27, 2008
Pell Grants: Extensions and Corrections
By Richard Vedder
An earlier blog I wrote about Pell Grants ("Academic Child Molesters...") brought about two strongly worded comments, one a private communication written with impeccable academic civility by a distinguished leader in American higher education, and the second a nasty, brutish attack on me written by an executive officer of Duke University (while I have a thick skin and wasn’t too bothered personally, I was appalled that a school as distinguished as Duke would have a senior official behave publicly in such a non-gentlemanly, non-collegiate manner). The writers said that I was just dead wrong in some statements I made about institutional ability to use Pell Grants. My sources of information were high level officials in the U.S. Department of Education, so I was, to put it mildly, somewhat confused. So I shared the comments with the Department, received their reaction, and now feel confident in replying.
There is no question I overstated the ability of universities to use Pell Grant funds, as well as the legal ability of schools to move Pell Grant funds around or keep them on hand for a significant period of time. If a person goes from an expensive school to a cheaper school, she will NOT lose a Pell Grant, but the amount of the grant could well be lower, according to the most recent Department communication. I misstated things, although the basic thrust of the remarks captured a reality --federal aid is greater, other things equal, for students attending expensive schools. Similarly, schools do not maintain formal escrow accounts with huge quantities of funds, at least that is what departmental regulations say.
At the same time, apparently the enforcement of the rules is far from perfect; there are abuses and they are not always punished. I misspoke, but the practical extent to which I was wrong is apparently somewhat debatable, if the Department that enforces the program is to be believed (and I have no reason to suspect that it should not).
On the major, dominant, crucial point, I think I am still right. Pell Grants are administered by schools that also administer large amounts of institutional aid (this is not so true, however, of the community colleges or some of the poorer four year state schools). Institutions can easily get into the habit of viewing all student aid running through their operation as fungible, and can alter downward institutional support that otherwise would be given to Pell Grant recipients in order to meet ITS (the school's aid objectives, not those of the federal government). The net amount of incremental student assistance occasioned by the receipt of a Pell Grant may well be significantly less than the stated, nominal amount of the grant.
Indeed, the more prestigious and costly colleges over the past decade have reduced the proportion of assistance given on the basis of need, favoring aid to middle class students with high academic potential. I suspect some of them have taken the view, "let the federal government fund poor students; we will use our money to fund good students who can help improve our national rankings." The relative decline in the importance of lower income students at some of these institutions is usually attributable to the fact that Pell Grant support grew less than college tuition fees, but I think there is the additional factor of colleges using Pell funds to substitute for institutional aid as schools downplay equity concerns relative to national rankings (there are some signs that may be changing, to be sure).
Nothing I have read or heard makes me believe that we should not be moving to have Pell Grant money go to the students directly --or at least be given to schools only after students register for classes and enroll. There is a plethora of ways that funds can move into college accounts within 24 hours of students formally registering for classes. You can give Pell recipients credit cards usable only at universities for tuition and fees, for example. I think the funding should become more clearly student centered and controlled. Nonetheless, I apologize for overstating the ability of schools to administer Pell funds as they wish.
An earlier blog I wrote about Pell Grants ("Academic Child Molesters...") brought about two strongly worded comments, one a private communication written with impeccable academic civility by a distinguished leader in American higher education, and the second a nasty, brutish attack on me written by an executive officer of Duke University (while I have a thick skin and wasn’t too bothered personally, I was appalled that a school as distinguished as Duke would have a senior official behave publicly in such a non-gentlemanly, non-collegiate manner). The writers said that I was just dead wrong in some statements I made about institutional ability to use Pell Grants. My sources of information were high level officials in the U.S. Department of Education, so I was, to put it mildly, somewhat confused. So I shared the comments with the Department, received their reaction, and now feel confident in replying.
There is no question I overstated the ability of universities to use Pell Grant funds, as well as the legal ability of schools to move Pell Grant funds around or keep them on hand for a significant period of time. If a person goes from an expensive school to a cheaper school, she will NOT lose a Pell Grant, but the amount of the grant could well be lower, according to the most recent Department communication. I misstated things, although the basic thrust of the remarks captured a reality --federal aid is greater, other things equal, for students attending expensive schools. Similarly, schools do not maintain formal escrow accounts with huge quantities of funds, at least that is what departmental regulations say.
At the same time, apparently the enforcement of the rules is far from perfect; there are abuses and they are not always punished. I misspoke, but the practical extent to which I was wrong is apparently somewhat debatable, if the Department that enforces the program is to be believed (and I have no reason to suspect that it should not).
On the major, dominant, crucial point, I think I am still right. Pell Grants are administered by schools that also administer large amounts of institutional aid (this is not so true, however, of the community colleges or some of the poorer four year state schools). Institutions can easily get into the habit of viewing all student aid running through their operation as fungible, and can alter downward institutional support that otherwise would be given to Pell Grant recipients in order to meet ITS (the school's aid objectives, not those of the federal government). The net amount of incremental student assistance occasioned by the receipt of a Pell Grant may well be significantly less than the stated, nominal amount of the grant.
Indeed, the more prestigious and costly colleges over the past decade have reduced the proportion of assistance given on the basis of need, favoring aid to middle class students with high academic potential. I suspect some of them have taken the view, "let the federal government fund poor students; we will use our money to fund good students who can help improve our national rankings." The relative decline in the importance of lower income students at some of these institutions is usually attributable to the fact that Pell Grant support grew less than college tuition fees, but I think there is the additional factor of colleges using Pell funds to substitute for institutional aid as schools downplay equity concerns relative to national rankings (there are some signs that may be changing, to be sure).
Nothing I have read or heard makes me believe that we should not be moving to have Pell Grant money go to the students directly --or at least be given to schools only after students register for classes and enroll. There is a plethora of ways that funds can move into college accounts within 24 hours of students formally registering for classes. You can give Pell recipients credit cards usable only at universities for tuition and fees, for example. I think the funding should become more clearly student centered and controlled. Nonetheless, I apologize for overstating the ability of schools to administer Pell funds as they wish.
Thursday, April 24, 2008
Government Failure in Student Loans
By Richard Vedder
Congress is frantically trying to pass legislation subsidizing student lenders, in order to avoid insufficient funds being available for college students this fall. As I indicated earlier, the denial of credit to some students is not an altogether bad thing, and in the market economy credit is generally allocated efficiently between alternative uses, with some would be borrowers unable to get credit at the market interest rate. But Congress wants no students turned away this election year.
As the Wall Street Journal so accurately editorialized today, the student loan crisis is not a case of market failure --of the forces of demand and supply failing to meet human needs. Rather it is a classic case of government failure. As I said before, the two big culprits are the Fed, the nation's central bank and a quasi-governmental institution, and Congress itself. Three points here:
1) The Fed has provided huge funds to fuel credit market expansion since 9/11, pushing interest rates for most of the period below the appropriate rate consistent with human behavior, leading to the housing boom, overlending in housing, and the housing bust.
2) Congress did the same thing with respect to student loans, making large sums available to students with dubious prospects of repaying the loans, and making those loans available at very, very low interest rates.
3) George Miller and Ted Kennedy, aided by both Democrat and Republican co-conspirators, tried to fund a Pell Grant expansion by mandating dramatically lower fees for servicing government subsidized but privately provided loans. This contributed to an exodus from student lending by many providers. The concern about rising student defaults associated with the rush to credit quality occasioned by lender reaction to the housing/mortgage debacle has aggravated this tendency.
Sure, private lenders were over exuberant in their lending. Credit quality fell, in part aggravated by new financial instruments led lowered incentives for banks to insist on high credit quality. The private sector made mistakes --but the environment that led to these mistakes is a product of governmental interference in a market that would be best left to private lenders. We have too many marginal students going to college, dropping out, and facing big debts. The federal government is largely to blame for that phenomenon. Their latest "cure" for the problem they created is worse than the disease itself.
Congress is frantically trying to pass legislation subsidizing student lenders, in order to avoid insufficient funds being available for college students this fall. As I indicated earlier, the denial of credit to some students is not an altogether bad thing, and in the market economy credit is generally allocated efficiently between alternative uses, with some would be borrowers unable to get credit at the market interest rate. But Congress wants no students turned away this election year.
As the Wall Street Journal so accurately editorialized today, the student loan crisis is not a case of market failure --of the forces of demand and supply failing to meet human needs. Rather it is a classic case of government failure. As I said before, the two big culprits are the Fed, the nation's central bank and a quasi-governmental institution, and Congress itself. Three points here:
1) The Fed has provided huge funds to fuel credit market expansion since 9/11, pushing interest rates for most of the period below the appropriate rate consistent with human behavior, leading to the housing boom, overlending in housing, and the housing bust.
2) Congress did the same thing with respect to student loans, making large sums available to students with dubious prospects of repaying the loans, and making those loans available at very, very low interest rates.
3) George Miller and Ted Kennedy, aided by both Democrat and Republican co-conspirators, tried to fund a Pell Grant expansion by mandating dramatically lower fees for servicing government subsidized but privately provided loans. This contributed to an exodus from student lending by many providers. The concern about rising student defaults associated with the rush to credit quality occasioned by lender reaction to the housing/mortgage debacle has aggravated this tendency.
Sure, private lenders were over exuberant in their lending. Credit quality fell, in part aggravated by new financial instruments led lowered incentives for banks to insist on high credit quality. The private sector made mistakes --but the environment that led to these mistakes is a product of governmental interference in a market that would be best left to private lenders. We have too many marginal students going to college, dropping out, and facing big debts. The federal government is largely to blame for that phenomenon. Their latest "cure" for the problem they created is worse than the disease itself.
Wednesday, April 23, 2008
A Tuition Bubble? Lessons from the Housing Bubble
By Andrew Gillen
Our new study, A Tuition Bubble? Lessons from the Housing Bubble has just been completed. There have been quite a few new developments since we sent this off to get printed.
Pete Davis provides a concise summary of what's going on:
The report goes into detail on points 1 and 2. As for point 3, the New York Times reports that 43 lenders have left the government loan programs, and that the Department of Education is preparing to step in to provide capital.
These developments fit right into the analysis, though I never would have thought that things would progress so quickly
Our new study, A Tuition Bubble? Lessons from the Housing Bubble has just been completed. There have been quite a few new developments since we sent this off to get printed.
Pete Davis provides a concise summary of what's going on:
First, the mortgage crisis has driven investors away from securitized assets, including student loans. That has driven up the cost of financing student loans beyond the interest income and fees from those loans.
Second, last year, the law on student loans was changed, effectively cutting the federal subsidy in half.
Third, a pitched battle has been fought mostly between Republicans and Democrats over who should make student loans. When President Clinton came to office in early 1993, he was able to establish direct lending from the taxpayers to students, but just about every student loan bill until last year's pared back direct lending in favor of private lending.
The report goes into detail on points 1 and 2. As for point 3, the New York Times reports that 43 lenders have left the government loan programs, and that the Department of Education is preparing to step in to provide capital.
These developments fit right into the analysis, though I never would have thought that things would progress so quickly
Monday, April 21, 2008
Student Loans In the News
By Andrew Gillen
It's not very often that education issues get so much attention in the news, but spurred by the student loan mess and the looming enrollment decisions, there have been a number of pieces of interest lately:
The Wealth Trajectory: Rewards for the Few (NYT) N. GREGORY MANKIW
The (Yes) Low Cost of Higher Ed (NYT) DAVID LEONHARDT
Bank of America to Direct Student Loans to Federal Program (WSJ) ROBERT TOMSHO AND COREY BOLES
Citi Unit Curbs Student Loans (WSJ) KEVIN KINGSBURY
The New Math of College Financing (WSJ) ANNE MARIE CHAKER
There have also been a number of interesting blogs:
Why Is College Tuition Subsidized, While K-12 Is Not? Stephen J. Dubner
Student Loans May Be Impacted by the Mortgage Crisis Pete Davis, HT: Brad DeLong
Costs and Benefits in Education Felix Salmon (Note his conclusion.)
I'll be discussing the Davis piece in detail later this week when we officially release A Tuition Bubble? Lessons from the Housing Bubble, available online here.
It's not very often that education issues get so much attention in the news, but spurred by the student loan mess and the looming enrollment decisions, there have been a number of pieces of interest lately:
The Wealth Trajectory: Rewards for the Few (NYT) N. GREGORY MANKIW
The (Yes) Low Cost of Higher Ed (NYT) DAVID LEONHARDT
Bank of America to Direct Student Loans to Federal Program (WSJ) ROBERT TOMSHO AND COREY BOLES
Citi Unit Curbs Student Loans (WSJ) KEVIN KINGSBURY
The New Math of College Financing (WSJ) ANNE MARIE CHAKER
There have also been a number of interesting blogs:
Why Is College Tuition Subsidized, While K-12 Is Not? Stephen J. Dubner
Student Loans May Be Impacted by the Mortgage Crisis Pete Davis, HT: Brad DeLong
Costs and Benefits in Education Felix Salmon (Note his conclusion.)
I'll be discussing the Davis piece in detail later this week when we officially release A Tuition Bubble? Lessons from the Housing Bubble, available online here.
Kevin Carey's Newest Study
By Richard Vedder
Kevin Carey, of the Education Sector, is one of the better researchers and commentators on higher education in America. He works for a Democratic leaning think tank, and both of his party's leading candidates for president would do well to listen to Kevin for good advice. Now Kevin has come out with a new study that decries a very large gap in the graduation rate between blacks and whites --perhaps 20 points is typical at a high quality (e.g., Big Ten) public university (the difference between 50 and 70 percent getting their degrees in six years).
It is useful that Kevin published the study, but where the problem begins is with the critical questions: What caused this differential? What can be done to eliminate it? Kevin dismisses the notion that affirmative action-induced differential academic preparation and promise of entering students is the culprit. He notes, for example, that Florida State does not have a big differential --it found a way to equalize graduation rates whereas, for example, Michigan State did not.
I am skeptical of Kevin's skepticism. First, of course, I think of the meticulously researched study by Stephen and Abigail Thernstrom, showing huge gaps in the predicted success rate of students by race, and arguing that by pushing blacks to attend schools more difficult than they can realistically succeed in, students are set up to fail.
We have done some work at CCAP on the determinants of variations in graduation rates. We note that there is a strong correlation between average entering SAT/ACT scores and graduation rates, and that the average SAT score of entering blacks is markedly lower than the average for whites. That alone makes me doubt that affirmative action policies are blameless in explaining the differential. My guess is in a race-blind admission process, fewer blacks would be admitted to most schools -- but racial differences in graduation rates would be modest or non-existent. Carey is probably correct, however, in suggesting colleges work far harder to admit blacks than to keep them and graduate them.
All of this begs for further study.
Kevin Carey, of the Education Sector, is one of the better researchers and commentators on higher education in America. He works for a Democratic leaning think tank, and both of his party's leading candidates for president would do well to listen to Kevin for good advice. Now Kevin has come out with a new study that decries a very large gap in the graduation rate between blacks and whites --perhaps 20 points is typical at a high quality (e.g., Big Ten) public university (the difference between 50 and 70 percent getting their degrees in six years).
It is useful that Kevin published the study, but where the problem begins is with the critical questions: What caused this differential? What can be done to eliminate it? Kevin dismisses the notion that affirmative action-induced differential academic preparation and promise of entering students is the culprit. He notes, for example, that Florida State does not have a big differential --it found a way to equalize graduation rates whereas, for example, Michigan State did not.
I am skeptical of Kevin's skepticism. First, of course, I think of the meticulously researched study by Stephen and Abigail Thernstrom, showing huge gaps in the predicted success rate of students by race, and arguing that by pushing blacks to attend schools more difficult than they can realistically succeed in, students are set up to fail.
We have done some work at CCAP on the determinants of variations in graduation rates. We note that there is a strong correlation between average entering SAT/ACT scores and graduation rates, and that the average SAT score of entering blacks is markedly lower than the average for whites. That alone makes me doubt that affirmative action policies are blameless in explaining the differential. My guess is in a race-blind admission process, fewer blacks would be admitted to most schools -- but racial differences in graduation rates would be modest or non-existent. Carey is probably correct, however, in suggesting colleges work far harder to admit blacks than to keep them and graduate them.
All of this begs for further study.
Sunday, April 20, 2008
Will The Real Private University Please Stand Up?
By Richard Vedder and James Coleman
We often draw a distinction between public and private universities and colleges. Public schools ostensibly are ones that are heavily dependent on government funds for support, and are under some control by some governmental entity, usually state government. Private universities, or so the myth goes, are mainly dependent on private funds and derive little of their support from government agencies.
The reality is quite different. With respect to the federal government, by far the most subsidized institutions are the so-called private colleges and universities. This is shown in the table below, which lists federal revenues received per student at the 15 most generously subsidized institutions.
INSTITUTION AND FEDERAL GRANTS PER STUDENT
1. California Institute of Technology --$289,154
2. Massachusetts Institute of Technology-$257,953
3. Johns Hopkins University ---$173,429
4. Stanford University--$125,196
5. U.S.Military Academy--$114,455
6. Case Western Reserve U. --$91,003
7. Columbia U. --$85,881
8. U.S. Naval Academy --$83,378
9. Yale University --$78,272
10. Washington U.St.Louis --$72.242
11. U. of Chicago --$71,350
12. Duke University --$67,515
13. Harvard University --$64,402
14. Yeshiva University --$59,577
15. U. of Rochester --$56,894
13 of 15 schools are so-called "Private" institutions, the sole exceptions being two of the service academies. Not a single "state" university is on the list (the top one, the University of Washington, ranks 22nd). Two of the schools of the above list are so rich their endowment spending would exceed $100,000 per student if they followed the five per cent rule required of private foundations.
The federal government is widening the gap between the rich and poor schools by the way it allocates funds. To be sure, the totals for a few schools are distorted because they run national laboratories (e.g., the Jet Propulsion Laboratory) for the federal government under contract. And most of these schools are receiving large sums for medical research. This may be well spent money --although how one can say that definitively, we don't know.
Each of these schools collects hefty overhead fees --usually around one-half the amount of direct research support. My guess is that Harvard gets at least $20,000 per student in overhead support, while Slippery Rock State College gets far less than $1,000. Which school is more "private"? Is Harvard really vastly more deserving of administrative (overhead) support than Slippery Rock? Interesting questions, deserving good answers.
Another question: if we separated research programs from the instructional activities by creating separate research institutes, would it help or hinder society in its quest for both disseminating and creating knowledge?
Richard Vedder directs the Center for College Affordability and Productivity, while James Coleman is an undergraduate at Ohio University and a CCAP student associate.
We often draw a distinction between public and private universities and colleges. Public schools ostensibly are ones that are heavily dependent on government funds for support, and are under some control by some governmental entity, usually state government. Private universities, or so the myth goes, are mainly dependent on private funds and derive little of their support from government agencies.
The reality is quite different. With respect to the federal government, by far the most subsidized institutions are the so-called private colleges and universities. This is shown in the table below, which lists federal revenues received per student at the 15 most generously subsidized institutions.
INSTITUTION AND FEDERAL GRANTS PER STUDENT
1. California Institute of Technology --$289,154
2. Massachusetts Institute of Technology-$257,953
3. Johns Hopkins University ---$173,429
4. Stanford University--$125,196
5. U.S.Military Academy--$114,455
6. Case Western Reserve U. --$91,003
7. Columbia U. --$85,881
8. U.S. Naval Academy --$83,378
9. Yale University --$78,272
10. Washington U.St.Louis --$72.242
11. U. of Chicago --$71,350
12. Duke University --$67,515
13. Harvard University --$64,402
14. Yeshiva University --$59,577
15. U. of Rochester --$56,894
13 of 15 schools are so-called "Private" institutions, the sole exceptions being two of the service academies. Not a single "state" university is on the list (the top one, the University of Washington, ranks 22nd). Two of the schools of the above list are so rich their endowment spending would exceed $100,000 per student if they followed the five per cent rule required of private foundations.
The federal government is widening the gap between the rich and poor schools by the way it allocates funds. To be sure, the totals for a few schools are distorted because they run national laboratories (e.g., the Jet Propulsion Laboratory) for the federal government under contract. And most of these schools are receiving large sums for medical research. This may be well spent money --although how one can say that definitively, we don't know.
Each of these schools collects hefty overhead fees --usually around one-half the amount of direct research support. My guess is that Harvard gets at least $20,000 per student in overhead support, while Slippery Rock State College gets far less than $1,000. Which school is more "private"? Is Harvard really vastly more deserving of administrative (overhead) support than Slippery Rock? Interesting questions, deserving good answers.
Another question: if we separated research programs from the instructional activities by creating separate research institutes, would it help or hinder society in its quest for both disseminating and creating knowledge?
Richard Vedder directs the Center for College Affordability and Productivity, while James Coleman is an undergraduate at Ohio University and a CCAP student associate.
Friday, April 18, 2008
Professor Benedict Says It All
By Richard Vedder
It may be that the most profoundly intellectual of the world's greatest leaders is a religious person, Pope Benedict. A former professor, he has a keen and perceptive view of the academy and its role in our society, if his remarks during his American papal visit are any indication.
The Pope has spent a lifetime thinking and speaking on the relationship between truth, faith, and reason --concepts he does not think are necessarily incompatible with one another. He believes in constrained academic freedom. From faith we can identify certain core truths, but in our pursuit of truth we need to explore every avenue, express unconventional thoughts, and analyze evidence rigorously, objectively and honestly --but in a manner consistent with the core truths derived from faith.
He said truth is a broader, more encompassing concept than "knowledge." The acquistion of knowledge may lead to truths. Truth leads us to the good life, the full life. "The profound responsibility to lead the young to truth is nothing less than an act of love." How true, how important, and how often forgotten.
I have always thought of university teaching as a "helping profession," not too dissimilar to occupations that cure the sick (physicians) or help the troubled (the ministry and priesthood). Good teachers are ones who have a passion for their students becoming better, more wise, more mature --and more aware of the truth. A good professor loves his students in a very Christian way.
Too often the mechanics of higher education, the institutional relationships, and the perverse incentives often present lead us to lose sight of the fact that we have a noble, almost sacred mission: imparting the values of a Judeo-Christian civilization that is the greatest the world has ever known to the next generation --our youth. An elderly and wise retired professor, Pope Benedict, understands this, and his visit to America is a welcome event.
It may be that the most profoundly intellectual of the world's greatest leaders is a religious person, Pope Benedict. A former professor, he has a keen and perceptive view of the academy and its role in our society, if his remarks during his American papal visit are any indication.
The Pope has spent a lifetime thinking and speaking on the relationship between truth, faith, and reason --concepts he does not think are necessarily incompatible with one another. He believes in constrained academic freedom. From faith we can identify certain core truths, but in our pursuit of truth we need to explore every avenue, express unconventional thoughts, and analyze evidence rigorously, objectively and honestly --but in a manner consistent with the core truths derived from faith.
He said truth is a broader, more encompassing concept than "knowledge." The acquistion of knowledge may lead to truths. Truth leads us to the good life, the full life. "The profound responsibility to lead the young to truth is nothing less than an act of love." How true, how important, and how often forgotten.
I have always thought of university teaching as a "helping profession," not too dissimilar to occupations that cure the sick (physicians) or help the troubled (the ministry and priesthood). Good teachers are ones who have a passion for their students becoming better, more wise, more mature --and more aware of the truth. A good professor loves his students in a very Christian way.
Too often the mechanics of higher education, the institutional relationships, and the perverse incentives often present lead us to lose sight of the fact that we have a noble, almost sacred mission: imparting the values of a Judeo-Christian civilization that is the greatest the world has ever known to the next generation --our youth. An elderly and wise retired professor, Pope Benedict, understands this, and his visit to America is a welcome event.
Thursday, April 17, 2008
The Student Loan Mess Revisited
By Richard Vedder
An old joke says that whenever we see light at the end of the tunnel, the government goes and adds more tunnel. I was reminded of that joke yesterday when I read two stories regarding student loans.
First, the Project on Student Debt issued a study in which it claimed that one million college students (I think a bit of an exaggerated number) go to community colleges that do NOT participate in the federal student loan program. These colleges tend to be in poor areas in the South, and have high concentrations of minority students. This horrible injustice is denying access to higher education to many deserving students, or so I read.
Here is a different perspective. The colleges not in the loan program are afraid to join it, for fear that the default rate on student loans will be so high --above 25 percent --that it will make students at the schools ineligible for Pell Grants. Translation: people at those schools tend to not pay back their loans, leaving the taxpayers with the bill. As a believer in the rule of law, I think people who fail to meet legally binding agreements should face adverse consequences, and institutions where contract violations are routine should similarly suffer.
Beyond that, however, why are default rates high? Almost certainly, because those borrowing money are unsuccessful in getting their education and/or jobs that would allow loan repayment. We are sending many unqualified people to college, setting them up to fail. Those in power now want to make that problem bigger by loosening the rules. High default rates are a signal that we have over allocated resources to an activity --the return on human capital investment is low or negative. In the private sector, people go out of business when that happens. In higher education, people complain that they need more subsidies to keep the uneconomic practice alive.
This brings me to the second, related point --the antics of the Gang of 535, aka the U.S. Congress. It is rushing through legislation that will bail out lenders and guarantee money to students wishing to borrow this fall. Markets are saying: "some of these kids are questionable risks. The potential of default is high, and we wish not to lend to them --it is too risky." Markets are not always right, but on average they are more right than politicians. Markets are saying "we are overinvested in higher education." Congress is saying --the hell with human behavior, the hell with the fact that resources are scarce and need to be rationed --this is an election year, and we will take any move, however irresponsible, to appear to give kids whatever loan money they want --and enable colleges to continue on their high spending, inefficient ways. Shame.
The most disgusting part of the drama was the appearance of that downtrodden lender, Sallie Mae, begging Congress to let the Federal Financing Bank (aka the U.S. Government) loan money to it at below market interest rates so it can make highly profitable loans to individual students. Sallie Mae will drop a few million in campaign contributions (indirectly and legally, of course) on the Gang of 535, and will probably get what they want. Sometimes I wonder if Churchill was right when he said democracy was the worst form of government --except for all others.
Teddy Kennedy is the worst, of course. He is urging students to borrow directly from the feds --let us socialize the process even further. There is nothing worse than the intellectually challenged, guilt-ridden son of a plutocratic capitalist taking the helm of a committee (Senate Education) that ostensibly is charged with the responsibility of protecting and nurturing our youth.
An old joke says that whenever we see light at the end of the tunnel, the government goes and adds more tunnel. I was reminded of that joke yesterday when I read two stories regarding student loans.
First, the Project on Student Debt issued a study in which it claimed that one million college students (I think a bit of an exaggerated number) go to community colleges that do NOT participate in the federal student loan program. These colleges tend to be in poor areas in the South, and have high concentrations of minority students. This horrible injustice is denying access to higher education to many deserving students, or so I read.
Here is a different perspective. The colleges not in the loan program are afraid to join it, for fear that the default rate on student loans will be so high --above 25 percent --that it will make students at the schools ineligible for Pell Grants. Translation: people at those schools tend to not pay back their loans, leaving the taxpayers with the bill. As a believer in the rule of law, I think people who fail to meet legally binding agreements should face adverse consequences, and institutions where contract violations are routine should similarly suffer.
Beyond that, however, why are default rates high? Almost certainly, because those borrowing money are unsuccessful in getting their education and/or jobs that would allow loan repayment. We are sending many unqualified people to college, setting them up to fail. Those in power now want to make that problem bigger by loosening the rules. High default rates are a signal that we have over allocated resources to an activity --the return on human capital investment is low or negative. In the private sector, people go out of business when that happens. In higher education, people complain that they need more subsidies to keep the uneconomic practice alive.
This brings me to the second, related point --the antics of the Gang of 535, aka the U.S. Congress. It is rushing through legislation that will bail out lenders and guarantee money to students wishing to borrow this fall. Markets are saying: "some of these kids are questionable risks. The potential of default is high, and we wish not to lend to them --it is too risky." Markets are not always right, but on average they are more right than politicians. Markets are saying "we are overinvested in higher education." Congress is saying --the hell with human behavior, the hell with the fact that resources are scarce and need to be rationed --this is an election year, and we will take any move, however irresponsible, to appear to give kids whatever loan money they want --and enable colleges to continue on their high spending, inefficient ways. Shame.
The most disgusting part of the drama was the appearance of that downtrodden lender, Sallie Mae, begging Congress to let the Federal Financing Bank (aka the U.S. Government) loan money to it at below market interest rates so it can make highly profitable loans to individual students. Sallie Mae will drop a few million in campaign contributions (indirectly and legally, of course) on the Gang of 535, and will probably get what they want. Sometimes I wonder if Churchill was right when he said democracy was the worst form of government --except for all others.
Teddy Kennedy is the worst, of course. He is urging students to borrow directly from the feds --let us socialize the process even further. There is nothing worse than the intellectually challenged, guilt-ridden son of a plutocratic capitalist taking the helm of a committee (Senate Education) that ostensibly is charged with the responsibility of protecting and nurturing our youth.
Tuesday, April 15, 2008
Moving to an Accreditation Gold Standard
By Richard Vedder
Gold has long been a favored commodity for defining currencies and the value of money. Everyone understands that gold is valuable, and an ounce of gold in Zimbabwe is worth the same as an ounce of gold in The Netherlands or Japan. It works as a basis for currency because everyone understands its value. In the U.S., we have a monopoly provider of paper currency, the Federal Reserve, because if we had multiple providers we would have costs associated with assessing the relative value of one currency compared with another --a technical difficulty that existed in the U.S. before the Civil War with respect to both paper currency and metallic coins (we used both gold and silver as a basis for defining the dollar). Europe has had a dramatic fall in transactions costs as the Euro has replaced a dozen or so former national currencies. Our forefathers wisely forbade the states from going into the currency business.
That’s enough economics and economic history. All of this, however, came back to me as I read the INSIDE HIGHER ED account of the meeting of the North Central Association, America's largest regional accreditor. Under pressure from the Spellings Commission and Secretary Spellings herself, everyone is talking about "outcomes based assessment", "accountability based accreditation" "value added" and other popular new phrases. In and of itself, that is good. We are rethinking how we evaluate higher education.
But so far there is no move to a common standard numeraire, achieving in education what we achieved in monetary affairs in the U.S. with the Constitution of 1787 and in Europe with the Maastricht Treaty and the establishment of the Euro. If Harvard comes up with one method of measuring "value added", Yale a second way, Slippery Rock State College a third, and the University of Puget Sound a fourth, it is not clear what we have accomplished. We have apples and oranges -- and grapes and bananas.
One of the major functions of assessment is to facilitate knowledge and competition. We need a common assessment method that allows consumers, donors, and policy makers to evaluate the differences between alternative institutions. Suppose students at Harvard on average show a 7 point gain on the ABC Test of Knowledge, Wisdom and Critical Thinking, while students at Slippery Rock gain 4 points on the same test --we are comparing apples to apples.
Just as France was reluctant to abandon the franc, Germany had some sorrow when the mark went bye- bye, and the Brits absolutely refused to abandon the pound, so Harvard wants to do things its way, which is different than the Yale or Slippery Rock way. France finally decided that the economic gains from reduced transactions costs (no need to change currencies every time you cross a border) outweighed the loss of national pride associated with relegating the franc to the dustbin of history. It is time for colleges to make the same calculation, aided by their trade associations.
The colleges need to be pushed into to finding commonality in assessment. A compromise might be to develop two or three assessment approaches and allow colleges to choose amongst them. Colleges sacrifice their autonomy all the time in the name of efficiency --common admissions tests (the SAT and ACT, not to mention the GRE, GMAT, LSAT, etc.) and common application forms are good examples. Moving to a very small number (I prefer one) of assessment approaches would be a major step forward in the reform of American higher education.
Gold has long been a favored commodity for defining currencies and the value of money. Everyone understands that gold is valuable, and an ounce of gold in Zimbabwe is worth the same as an ounce of gold in The Netherlands or Japan. It works as a basis for currency because everyone understands its value. In the U.S., we have a monopoly provider of paper currency, the Federal Reserve, because if we had multiple providers we would have costs associated with assessing the relative value of one currency compared with another --a technical difficulty that existed in the U.S. before the Civil War with respect to both paper currency and metallic coins (we used both gold and silver as a basis for defining the dollar). Europe has had a dramatic fall in transactions costs as the Euro has replaced a dozen or so former national currencies. Our forefathers wisely forbade the states from going into the currency business.
That’s enough economics and economic history. All of this, however, came back to me as I read the INSIDE HIGHER ED account of the meeting of the North Central Association, America's largest regional accreditor. Under pressure from the Spellings Commission and Secretary Spellings herself, everyone is talking about "outcomes based assessment", "accountability based accreditation" "value added" and other popular new phrases. In and of itself, that is good. We are rethinking how we evaluate higher education.
But so far there is no move to a common standard numeraire, achieving in education what we achieved in monetary affairs in the U.S. with the Constitution of 1787 and in Europe with the Maastricht Treaty and the establishment of the Euro. If Harvard comes up with one method of measuring "value added", Yale a second way, Slippery Rock State College a third, and the University of Puget Sound a fourth, it is not clear what we have accomplished. We have apples and oranges -- and grapes and bananas.
One of the major functions of assessment is to facilitate knowledge and competition. We need a common assessment method that allows consumers, donors, and policy makers to evaluate the differences between alternative institutions. Suppose students at Harvard on average show a 7 point gain on the ABC Test of Knowledge, Wisdom and Critical Thinking, while students at Slippery Rock gain 4 points on the same test --we are comparing apples to apples.
Just as France was reluctant to abandon the franc, Germany had some sorrow when the mark went bye- bye, and the Brits absolutely refused to abandon the pound, so Harvard wants to do things its way, which is different than the Yale or Slippery Rock way. France finally decided that the economic gains from reduced transactions costs (no need to change currencies every time you cross a border) outweighed the loss of national pride associated with relegating the franc to the dustbin of history. It is time for colleges to make the same calculation, aided by their trade associations.
The colleges need to be pushed into to finding commonality in assessment. A compromise might be to develop two or three assessment approaches and allow colleges to choose amongst them. Colleges sacrifice their autonomy all the time in the name of efficiency --common admissions tests (the SAT and ACT, not to mention the GRE, GMAT, LSAT, etc.) and common application forms are good examples. Moving to a very small number (I prefer one) of assessment approaches would be a major step forward in the reform of American higher education.
The Teaching-Research Trade-Off
By Richard Vedder
A very fine teacher from my undergraduate days once told me that "research enhances teaching, and makes it better." I have long believed that, and think I am a better teacher because of the writings and publications I have done over the years. Indeed, I think the most compelling argument for the research university that combines teaching and research functions under one roof is that there are synergies between the two functions --senior researchers train students in research techniques, and insights from the research can make the classroom teaching more interesting.
Yet these synergies have limits, and overemphasis on research at the expense of teaching can hurt students. One problem that arises is when universities lower teaching loads for tenure track faculty and increase the proportion of teaching done by inexperienced graduate students intent on becoming research professors themselves --students who these days often have difficulty communicating well in English.
There is an inverted U shape curve that can be drawn, where teaching effectiveness is plotted on the vertical axis and research activity on the horizontal one. Up to a point, research activity improves student learning, but at some point it reduces it. At some point, there truly is a trade-off between the two functions. The positive spillover effects of research with respect to teaching exist, but they are finite in magnitude.
All of this has come back into my mind recently. My Whiz Kids at CCAP have examined carefully student evaluations of professors on the ratemyprofessors.com web site. On average, kids going to liberal arts colleges rate their professors higher than ones at research universities --even controlling for perceived course difficulty. There is a teaching-research trade-off. At the research universities, there is some cross-subsidization of graduate teaching and research with funds ostensibly devoted to instruction.
Incidentally, showing a trade-off exists between the two functions does not tell us what optimal policy is. One has to weigh the deterioration in undergraduate learning that occurs when research emphasis increases against the gains to advanced students who help with the research as well as the gains to society from the insights that the research produces. But here, too, diminishing returns exist. The marginal contribution to knowledge of three-quarters or more of the papers written in my own field of economics are close to zero. At the margin, having fewer papers written will not set back the creation of intellectual capital much, but if accompanied by renewed interest in advising and instructing undergraduates, it could have net positive good.
Shortly, CCAP is probably going to release, via a nationally prominent magazine, a somewhat more student-centered, outcomes-based, ranking of colleges and universities. In general, it will show somewhat higher rankings for some relatively less-research oriented schools than is the case with the gold standard of rankings, those of US News & World Reports. Stay tuned.
A very fine teacher from my undergraduate days once told me that "research enhances teaching, and makes it better." I have long believed that, and think I am a better teacher because of the writings and publications I have done over the years. Indeed, I think the most compelling argument for the research university that combines teaching and research functions under one roof is that there are synergies between the two functions --senior researchers train students in research techniques, and insights from the research can make the classroom teaching more interesting.
Yet these synergies have limits, and overemphasis on research at the expense of teaching can hurt students. One problem that arises is when universities lower teaching loads for tenure track faculty and increase the proportion of teaching done by inexperienced graduate students intent on becoming research professors themselves --students who these days often have difficulty communicating well in English.
There is an inverted U shape curve that can be drawn, where teaching effectiveness is plotted on the vertical axis and research activity on the horizontal one. Up to a point, research activity improves student learning, but at some point it reduces it. At some point, there truly is a trade-off between the two functions. The positive spillover effects of research with respect to teaching exist, but they are finite in magnitude.
All of this has come back into my mind recently. My Whiz Kids at CCAP have examined carefully student evaluations of professors on the ratemyprofessors.com web site. On average, kids going to liberal arts colleges rate their professors higher than ones at research universities --even controlling for perceived course difficulty. There is a teaching-research trade-off. At the research universities, there is some cross-subsidization of graduate teaching and research with funds ostensibly devoted to instruction.
Incidentally, showing a trade-off exists between the two functions does not tell us what optimal policy is. One has to weigh the deterioration in undergraduate learning that occurs when research emphasis increases against the gains to advanced students who help with the research as well as the gains to society from the insights that the research produces. But here, too, diminishing returns exist. The marginal contribution to knowledge of three-quarters or more of the papers written in my own field of economics are close to zero. At the margin, having fewer papers written will not set back the creation of intellectual capital much, but if accompanied by renewed interest in advising and instructing undergraduates, it could have net positive good.
Shortly, CCAP is probably going to release, via a nationally prominent magazine, a somewhat more student-centered, outcomes-based, ranking of colleges and universities. In general, it will show somewhat higher rankings for some relatively less-research oriented schools than is the case with the gold standard of rankings, those of US News & World Reports. Stay tuned.
Wednesday, April 09, 2008
Vedder on Lou Dobbs Show Tonight at 7 EDT
By Richard Vedder
I am going to be interviewed on the student loan problem on Lou Dobbs tonight at 7:00 p.m.Tune in CNN to see it.
Although it won't come through in a 90 second sound bite, my view is that if there is a student loan problem, it is a result of government policy failure. The general crisis in the financial services industry reflected excessively expansionary Federal Reserve monetary policies, the resultant explosion in housing prices, and a deterioration in credit quality. As Andy Gillen has noted, the student loan "bubble" likewise reflects excessively lower interest rates, soaring prices (of college), and the resultant decline in student ability to repay loans, particularly as interest rates inch up (and attempts to hold interest rates down by the Fed will only aggravate and possibly slightly postpone the problem). Little of this will get on the air, but it might be interesting to see this segment this evening.
I am going to be interviewed on the student loan problem on Lou Dobbs tonight at 7:00 p.m.Tune in CNN to see it.
Although it won't come through in a 90 second sound bite, my view is that if there is a student loan problem, it is a result of government policy failure. The general crisis in the financial services industry reflected excessively expansionary Federal Reserve monetary policies, the resultant explosion in housing prices, and a deterioration in credit quality. As Andy Gillen has noted, the student loan "bubble" likewise reflects excessively lower interest rates, soaring prices (of college), and the resultant decline in student ability to repay loans, particularly as interest rates inch up (and attempts to hold interest rates down by the Fed will only aggravate and possibly slightly postpone the problem). Little of this will get on the air, but it might be interesting to see this segment this evening.
Dudervestky Lives!!!
By Richard Vedder
Three of the more intelligent, thoughtful, and engaging members of the Spellings Commission were James Duderstadt (president emeritus of the University of Michigan), Chuck Vest (president emeritus of MIT), and Bob Zemsky (professor at Penn). I consider all of them friends. They generally defended the Higher Education Establishment, sometimes irritating me, but they did so in a civil and thoughtful way. While very much friends of higher education, they were intellectually honest enough to admit that the Mandarins of DuPont Circle are not infallible.
All three have had good post-Commission careers. Jim Duderstadt has written a great book, and has become increasingly critical of the growing divide between the haves and have nots --the Harvards of the world with almost infinite resources, as opposed to the Michigans and other good public flagship universities with fewer dollars. The publics are losing their best students and faculty to the Harvards, reducing the diversity of excellence in our nation. Much of this is funded by federal dollars or promoted by federal tax policies. I think Jim has a good point and others should listen to him.
Chuck Vest has taken over the National Academy of Engineering. He no doubt will use his position to promote engineering research and education, but also is a realist who has a grounding not only in elite private schools but in the less rarefied America of his childhood (he is from West Virginia, the nation's second poorest state). Chuck gave a marvelous commencement talk at my university a couple of years ago, and is a first class gentleman.
Bob Zemsky is lively as always. He sparkles with interesting ideas. His critique of the Spellings Commission experience has raised a few eyebrows amongst fellow commissioners, but it is a useful critique. His idea that faculty who feel alienated and dispossessed should consider incorporating rather than unionizing is a great idea. In today's Chronicle, he is at it again. We have poured billions into new technology on campuses, have all sorts of new distance learning approaches but the faculty remain resistant to participating and using it. Rather than pouring more billions into the effort, Zemsky says let us get the faculty involved and supportive of the process. He is right on target there. Nothing important in the academic realm of universities happens without the support and involvement of the faculty.
Three men, over two centuries of accumulated experience on this earth, wise and innovative. They personify what is strong and, perhaps, what is weak, about American higher education. On the "weak" side, they tend to defend the establishment too much, tend to want to avoid trying to force revolutionary change, and are instinctively conservative and cautious. That got them ahead within academia by being cautious -- since it is a sector where radical change is scorned, and gradualism is the rule of the day. But this is not an approach that effectively deals with the fundamental problem of a system that is becoming overly costly and inefficient.
Three of the more intelligent, thoughtful, and engaging members of the Spellings Commission were James Duderstadt (president emeritus of the University of Michigan), Chuck Vest (president emeritus of MIT), and Bob Zemsky (professor at Penn). I consider all of them friends. They generally defended the Higher Education Establishment, sometimes irritating me, but they did so in a civil and thoughtful way. While very much friends of higher education, they were intellectually honest enough to admit that the Mandarins of DuPont Circle are not infallible.
All three have had good post-Commission careers. Jim Duderstadt has written a great book, and has become increasingly critical of the growing divide between the haves and have nots --the Harvards of the world with almost infinite resources, as opposed to the Michigans and other good public flagship universities with fewer dollars. The publics are losing their best students and faculty to the Harvards, reducing the diversity of excellence in our nation. Much of this is funded by federal dollars or promoted by federal tax policies. I think Jim has a good point and others should listen to him.
Chuck Vest has taken over the National Academy of Engineering. He no doubt will use his position to promote engineering research and education, but also is a realist who has a grounding not only in elite private schools but in the less rarefied America of his childhood (he is from West Virginia, the nation's second poorest state). Chuck gave a marvelous commencement talk at my university a couple of years ago, and is a first class gentleman.
Bob Zemsky is lively as always. He sparkles with interesting ideas. His critique of the Spellings Commission experience has raised a few eyebrows amongst fellow commissioners, but it is a useful critique. His idea that faculty who feel alienated and dispossessed should consider incorporating rather than unionizing is a great idea. In today's Chronicle, he is at it again. We have poured billions into new technology on campuses, have all sorts of new distance learning approaches but the faculty remain resistant to participating and using it. Rather than pouring more billions into the effort, Zemsky says let us get the faculty involved and supportive of the process. He is right on target there. Nothing important in the academic realm of universities happens without the support and involvement of the faculty.
Three men, over two centuries of accumulated experience on this earth, wise and innovative. They personify what is strong and, perhaps, what is weak, about American higher education. On the "weak" side, they tend to defend the establishment too much, tend to want to avoid trying to force revolutionary change, and are instinctively conservative and cautious. That got them ahead within academia by being cautious -- since it is a sector where radical change is scorned, and gradualism is the rule of the day. But this is not an approach that effectively deals with the fundamental problem of a system that is becoming overly costly and inefficient.
The Revival of the Spanish Inquisition
By Richard Vedder
The hallmark of the modern age is the replacement of rational inquiry and the freedom of expression for dogmatism and oppression of unpopular ideas. The Age of Enlightenment was both a cause and consequence of the Industrial Revolution, early globalization, the Renaissance, and the Protestant Reformation. Modern universities took on their present form as a consequence of the Enlightenment, the appeal to knowledge, and the appreciation of intellectual dialogue and diversity. The modern research university built on the German model would have never occurred without the revolution in ideas and scientific inquiry that accompanied the Renaissance and the Age of Enlightenment.
Today, I am seeing increasing signs of the end of the Enlightenment, of a reversion to an earlier, dogmatic and autocratic approach, as symbolized in the Spanish Inquisition, which was responsible for killing many Jews and Protestants who deviated from the orthodox Catholic faith in Spain in the late 15th through 18th centuries.
This all came back to mind when I read this morning's INSIDE HIGHER ED. A little item observed that a student's complaint had led Houghton Mifflin to censor a textbook written by two very distinguished scholars, James Q. Wilson and John Dilulio. Their American National Government is a major textbook. In it, they apparently deviate from the orthodox view that global warming unquestionably exists, is the result of human action, and poses serious dangers to our planet. Mifflin apparently has now censored the book. The College Board, run by a former liberal politician, is thinking of removing it from the recommended textbooks for the AP exam. Just as Ferdinand and Isabella demanded orthodoxy and created the Inquisition, so Al Gore and his friends in the Higher Education Establishment demand orthodoxy and are using the College Board as their instrument to enforce it.
This is an absolute outrage. Take Jim Wilson. He has written at least 16 books, was a senior professor at Harvard (then UCLA and Pepperdine), and is Chairman of the Council of Academic Advisors at a think tank with which I am associated, the American Enterprise Institute. He is a giant name amongst scholars of American government. John Dululio has a similar sterling reputation. Many other sterling scientists and other scholars have raised serious doubts about the orthodox views relating to global warming --including professors at first-rate American universities (the University of Virginia comes immediately to mind). I have read serious books on the subject that have me convinced that the global warming hysteria is just that --hysteria. Global warming exists, probably, but the reasons for it and consequences of it are likely (and certainly possibly) far different than Al Gore would have you believe. But this is beside the point. The College Board should not be enforcing a particular political ideology.
I have not read the Wilson and Diluilio text. If I were writing about the topic to an audience of students, I would mention both the orthodox and dissenting views on the subject. I bet you that they did. But in any case, this attempt to censor and strike down ideas with which one disagrees is very reminiscent of the bad old days of the Spanish Inquisition, a period when the average life expectancy was around 30 and life was short, ugly and brute.
The hallmark of the modern age is the replacement of rational inquiry and the freedom of expression for dogmatism and oppression of unpopular ideas. The Age of Enlightenment was both a cause and consequence of the Industrial Revolution, early globalization, the Renaissance, and the Protestant Reformation. Modern universities took on their present form as a consequence of the Enlightenment, the appeal to knowledge, and the appreciation of intellectual dialogue and diversity. The modern research university built on the German model would have never occurred without the revolution in ideas and scientific inquiry that accompanied the Renaissance and the Age of Enlightenment.
Today, I am seeing increasing signs of the end of the Enlightenment, of a reversion to an earlier, dogmatic and autocratic approach, as symbolized in the Spanish Inquisition, which was responsible for killing many Jews and Protestants who deviated from the orthodox Catholic faith in Spain in the late 15th through 18th centuries.
This all came back to mind when I read this morning's INSIDE HIGHER ED. A little item observed that a student's complaint had led Houghton Mifflin to censor a textbook written by two very distinguished scholars, James Q. Wilson and John Dilulio. Their American National Government is a major textbook. In it, they apparently deviate from the orthodox view that global warming unquestionably exists, is the result of human action, and poses serious dangers to our planet. Mifflin apparently has now censored the book. The College Board, run by a former liberal politician, is thinking of removing it from the recommended textbooks for the AP exam. Just as Ferdinand and Isabella demanded orthodoxy and created the Inquisition, so Al Gore and his friends in the Higher Education Establishment demand orthodoxy and are using the College Board as their instrument to enforce it.
This is an absolute outrage. Take Jim Wilson. He has written at least 16 books, was a senior professor at Harvard (then UCLA and Pepperdine), and is Chairman of the Council of Academic Advisors at a think tank with which I am associated, the American Enterprise Institute. He is a giant name amongst scholars of American government. John Dululio has a similar sterling reputation. Many other sterling scientists and other scholars have raised serious doubts about the orthodox views relating to global warming --including professors at first-rate American universities (the University of Virginia comes immediately to mind). I have read serious books on the subject that have me convinced that the global warming hysteria is just that --hysteria. Global warming exists, probably, but the reasons for it and consequences of it are likely (and certainly possibly) far different than Al Gore would have you believe. But this is beside the point. The College Board should not be enforcing a particular political ideology.
I have not read the Wilson and Diluilio text. If I were writing about the topic to an audience of students, I would mention both the orthodox and dissenting views on the subject. I bet you that they did. But in any case, this attempt to censor and strike down ideas with which one disagrees is very reminiscent of the bad old days of the Spanish Inquisition, a period when the average life expectancy was around 30 and life was short, ugly and brute.
Monday, April 07, 2008
Three Cheers For Charles Miller
By Richard Vedder
The Establishment is upset. Charles Miller, Spellings Commission Chair, wrote a letter to Gaston Caperton, President of the College Board (and former liberal Democratic politician), blasting the erroneous propaganda that the College Board puts out that says college graduates earn a million dollars more, in present value terms, than high school ones.
Sandy Baum of the College Board acknowledges that the million dollar figure is an overstatement, and that she (author of the relevant report) does not really claim that figure is true. Then why is that figure in the report? Why put out a figure that is knowingly an overstatement? Let me be perfectly clear, as Richard Nixon would say: I am 100 percent on Charles Miller's side in this debate.
In a previous blog, Thomas Ruchti and I argued that the income premium associated with a college degree is overstated by the College Board --perhaps by a factor of four. Huge numbers of entering students do not graduate from college. A large proportion of those who do graduate take five or more years. The cost of college is more than the College Board uses in its calculations.
Sandy argues, with considerable validity, that academic studies consistently show that higher education has a high rate of investment return to individuals going to college. Those studies, however, sometimes assume entering students complete a degree, and tend to downplay or ignore the attrition problem. But even if the rate of return on higher education is high to individual students, it is not necessarily high to society as a whole. Most of the Higher Ed Establishment argues that their sector exudes positive economic externalities --spillover effects. The evidence that I have seen and trust suggests that negative spill-over effects are larger than positive ones, which suggests the social rate or return on higher education may be low even if the private rate of return is acceptable or high. More specifically, enhanced state appropriations for higher education do not bring higher economic growth --and indeed may well lead to lower expansion in incomes.
As a practical matter, one can predict whether an 18 year old kid will succeed in college with a fairly high level of reliability. Kids in the top one-fourth of their high school graduation class and a composite SAT (forgetting the near worthless writing component) score of 1300 and an ACT composite of 28 are very likely to make it through college, and for them, college is usually a good private investment. Kids who were below average students in high school with a 900 SAT composite and a 17 ACT score likely are not going to succeed in college. That suggests the average rate of return on college for them on average is very low, maybe even negative. At the margin, these are a large proportion of the kids that politicians are talking about when they call for more access, higher enrollments, and greater equity. Investing heavily in these students is not a paying proposition on average, Sandy Baum, Gaston Caperton and all the other establishment types notwithstanding.
Lost in all the discussion is the economist's critically important concept of opportunity costs. When a person goes to college --she not only uses resources provided by society, but she fails to produce goods and services that she would have if she were not enrolled. Those opportunity costs rise relative to the long run earnings benefits when a student simply does not graduate. The College Establishment, isolated from the Real World, simply does not see the opportunity costs of attending college, or they choose to trivialize them.
The Establishment is upset. Charles Miller, Spellings Commission Chair, wrote a letter to Gaston Caperton, President of the College Board (and former liberal Democratic politician), blasting the erroneous propaganda that the College Board puts out that says college graduates earn a million dollars more, in present value terms, than high school ones.
Sandy Baum of the College Board acknowledges that the million dollar figure is an overstatement, and that she (author of the relevant report) does not really claim that figure is true. Then why is that figure in the report? Why put out a figure that is knowingly an overstatement? Let me be perfectly clear, as Richard Nixon would say: I am 100 percent on Charles Miller's side in this debate.
In a previous blog, Thomas Ruchti and I argued that the income premium associated with a college degree is overstated by the College Board --perhaps by a factor of four. Huge numbers of entering students do not graduate from college. A large proportion of those who do graduate take five or more years. The cost of college is more than the College Board uses in its calculations.
Sandy argues, with considerable validity, that academic studies consistently show that higher education has a high rate of investment return to individuals going to college. Those studies, however, sometimes assume entering students complete a degree, and tend to downplay or ignore the attrition problem. But even if the rate of return on higher education is high to individual students, it is not necessarily high to society as a whole. Most of the Higher Ed Establishment argues that their sector exudes positive economic externalities --spillover effects. The evidence that I have seen and trust suggests that negative spill-over effects are larger than positive ones, which suggests the social rate or return on higher education may be low even if the private rate of return is acceptable or high. More specifically, enhanced state appropriations for higher education do not bring higher economic growth --and indeed may well lead to lower expansion in incomes.
As a practical matter, one can predict whether an 18 year old kid will succeed in college with a fairly high level of reliability. Kids in the top one-fourth of their high school graduation class and a composite SAT (forgetting the near worthless writing component) score of 1300 and an ACT composite of 28 are very likely to make it through college, and for them, college is usually a good private investment. Kids who were below average students in high school with a 900 SAT composite and a 17 ACT score likely are not going to succeed in college. That suggests the average rate of return on college for them on average is very low, maybe even negative. At the margin, these are a large proportion of the kids that politicians are talking about when they call for more access, higher enrollments, and greater equity. Investing heavily in these students is not a paying proposition on average, Sandy Baum, Gaston Caperton and all the other establishment types notwithstanding.
Lost in all the discussion is the economist's critically important concept of opportunity costs. When a person goes to college --she not only uses resources provided by society, but she fails to produce goods and services that she would have if she were not enrolled. Those opportunity costs rise relative to the long run earnings benefits when a student simply does not graduate. The College Establishment, isolated from the Real World, simply does not see the opportunity costs of attending college, or they choose to trivialize them.
Buckeye Blunders II
By Richard Vedder
A few days ago, I wrote that the proposed new Master Plan for Ohio was a disaster. I wrote that, however, based on scanty information on what was in the plan. I thought to myself, "Perhaps I was too hasty. I need to read more about what the Board of Regents in Ohio is proposing to do."
I have done so. My initial comments stand --indeed, if anything, the more I read the madder I get. The Columbus Dispatch headlined yesterday, "State to create report cards for colleges." There are 20 benchmarks for these report cards. Most of them have nothing to do with learning. For example, the State is saying, "we prefer you to take adult learners rather than teenagers, blacks and Hispanics instead of whites." In short, the obligatory institutional racism popular among the left (the Ohio Board of Regent chancellor is a liberal Democrat ex-Congressman) is included. Predictably, higher marks come the more the state spends. The plan considers the state as succeeding to meet its goals if it increases its spending relative to the national average, if it lowers the cost to the student of going to college, and if endowments go up. Never mind the fact that there is abundant evidence that the marginal rate of return on state spending on higher education is low and possibly negative. Summing up the plan, if colleges are politically correct and spend a lot, Ohio is perceived to be doing well. The state wants to more than double the number of over 25 learners in less than a decade, while increasing enrollments in the traditional age groups by nearly 30 percent at a time the population pool is falling noticeably.
With a few exceptions, the plan is about increasing spending rather than increasing the quality of learning. It is about increasing numbers when much of the evidence supports the view that we may be over investing in higher education in some regards, particularly given high attrition rates. To be sure, there are a few good dimensions to the plan. It promotes more college students going to four year schools from community colleges, and it also favors more college study during high school. For some reason, it promotes internships, and wants to increase math and science majors relative to psychology and communications ones (because it is the "in" thing to do).
Again, a government goes off on a bold new plan --without a scintilla of evidence that this will improve incomes or the quality of life for the populace, and without any regards for who and how they will pay for the plan. The Buckeye State, declining relatively for decades, will see that decline continue, and arguably accelerate, if this plan is adopted. The Brain Dead political opposition in the legislature (Republicans) are mute on all of this. It is a shame.
A few days ago, I wrote that the proposed new Master Plan for Ohio was a disaster. I wrote that, however, based on scanty information on what was in the plan. I thought to myself, "Perhaps I was too hasty. I need to read more about what the Board of Regents in Ohio is proposing to do."
I have done so. My initial comments stand --indeed, if anything, the more I read the madder I get. The Columbus Dispatch headlined yesterday, "State to create report cards for colleges." There are 20 benchmarks for these report cards. Most of them have nothing to do with learning. For example, the State is saying, "we prefer you to take adult learners rather than teenagers, blacks and Hispanics instead of whites." In short, the obligatory institutional racism popular among the left (the Ohio Board of Regent chancellor is a liberal Democrat ex-Congressman) is included. Predictably, higher marks come the more the state spends. The plan considers the state as succeeding to meet its goals if it increases its spending relative to the national average, if it lowers the cost to the student of going to college, and if endowments go up. Never mind the fact that there is abundant evidence that the marginal rate of return on state spending on higher education is low and possibly negative. Summing up the plan, if colleges are politically correct and spend a lot, Ohio is perceived to be doing well. The state wants to more than double the number of over 25 learners in less than a decade, while increasing enrollments in the traditional age groups by nearly 30 percent at a time the population pool is falling noticeably.
With a few exceptions, the plan is about increasing spending rather than increasing the quality of learning. It is about increasing numbers when much of the evidence supports the view that we may be over investing in higher education in some regards, particularly given high attrition rates. To be sure, there are a few good dimensions to the plan. It promotes more college students going to four year schools from community colleges, and it also favors more college study during high school. For some reason, it promotes internships, and wants to increase math and science majors relative to psychology and communications ones (because it is the "in" thing to do).
Again, a government goes off on a bold new plan --without a scintilla of evidence that this will improve incomes or the quality of life for the populace, and without any regards for who and how they will pay for the plan. The Buckeye State, declining relatively for decades, will see that decline continue, and arguably accelerate, if this plan is adopted. The Brain Dead political opposition in the legislature (Republicans) are mute on all of this. It is a shame.
Friday, April 04, 2008
The Lumina Foundation's Productivity Initiative
By Richard Vedder
I am playing with fire with this blog, but my trademark is to "tell it as it is." I am asking the Lumina Foundation for Education for money (soon), so commenting on projects that it is funding is probably imprudent. But Abraham Lincoln, George Washington, General George Patton Joan of Arc and thousands of other great humans were often imprudent; indeed, imprudent frankness is a mark of American exceptionalism.
Lumina has a great idea, and is putting its money where its mouth is. Lumina is concerned about college affordability, and has decided a major focus in making college more affordable is to examine productivity. Increasing productivity should lower the pressures to raise prices that students pay, and increases the effectiveness of legislative appropriations. It is a win-win situation when productivity rises for both consumers and producers like.
While chatting with a couple of the good folks at Lumina in Indianapolis yesterday, they casually gave me a draft copy of a "report of the Delta Cost Project," The Growing Imbalance. The senior author, Jane Wellman, is soliciting comments from economists and other observers of the higher education scene.The authors have done a lot of useful things using IPEDS (Integrated Postsecondary Education Data System) data over a long time frame. They have put together a good data base, which we at CCAP hope to use in the future. Kudos are in order for that.
They note several things I have observed for years: the share of university budgets going to instruction is falling, for example, and private school spending is rising faster than public institutional spending at the four year level. All of this is good.
But they ignore the root causes of spending increases (third party payments, the not-for-profit nature of the system), say little about the huge differences between the for-profit and not-for-profit sectors in terms of costs, etc., and they say some maddening things about productivity that would probably seem nonsensical to any economist worth his or her salt.
Here is my favorite quote (p. 40): "Except for the private research sector, the share of spending going to instruction has merely kept pace with inflation, and has actually been reduced at public two year institutions. This suggests that labor force productivity is increasing in higher education..."
First of all, you can say NOTHING substantial about productivity based merely on spending data. Productivity relates outcomes to inputs (spending). Since we have absolutely no good information on "value added" output of universities (which the authors elsewhere acknowledge), any statements about productivity rising are totally conjectural, a dubious thing to do in a study purporting to report facts.
Second, even if outcomes per student were remaining constant (an assumption), constancy in real costs of providing services is certainly no proof of rising productivity. Indeed, it might be interpreted as a sign that the real inputs into higher education are remaining constant per unit of output. Constancy in productivity is hardly success in a society in which productivity is rising roughly 2 per cent a year over the long run. Moreover, while costs per unit of instruction are falling in real terms at two year schools, they are rising at the four year private research universities, which absorb more resources. However, since we are uncertain what is happening over time to outcomes per student, and since universities produce many "products" (new inventions, student learning, football entertainment, etc.), it is tricky business even "guessimating" university productivity.
Moreover, if in fact the "share...going for instruction" is falling, that means a larger share (of the whole budget "pie") is going for non-instructional expenses. How could that clearly be productivity-enhancing, particularly if the instructional component is the core academic mission? If instead of "share' the authors mean the absolute amount going for instruction, the picture is somewhat different, but even here it is impossible to conclude based on any available data that productivity is rising in higher education.
None of the authors are professional economists with a Ph.D. (Indeed, one appears to be a public relations specialist). However, Jane Wellman has been doing studies for a variety of pro-higher education for years. If the Delta Project is going to do a big productivity project, it should involve people with premier reputations for work on educational productivity --persons like Carolyn M. Hoxby of Harvard or Eric Hanushek of Stanford. I understand they are calling on economists for comments, and that is good. I think they (the Delta Project) should not in the conclusions section of a report make unsupported claims about productivity trends based on limited data. If the Delta Project (and, perhaps, its financial supporters) wants people to take its work seriously, it needs to be very, very careful in the claims it makes, given the inherent difficulty of assessing productivity change in higher education.
I am playing with fire with this blog, but my trademark is to "tell it as it is." I am asking the Lumina Foundation for Education for money (soon), so commenting on projects that it is funding is probably imprudent. But Abraham Lincoln, George Washington, General George Patton Joan of Arc and thousands of other great humans were often imprudent; indeed, imprudent frankness is a mark of American exceptionalism.
Lumina has a great idea, and is putting its money where its mouth is. Lumina is concerned about college affordability, and has decided a major focus in making college more affordable is to examine productivity. Increasing productivity should lower the pressures to raise prices that students pay, and increases the effectiveness of legislative appropriations. It is a win-win situation when productivity rises for both consumers and producers like.
While chatting with a couple of the good folks at Lumina in Indianapolis yesterday, they casually gave me a draft copy of a "report of the Delta Cost Project," The Growing Imbalance. The senior author, Jane Wellman, is soliciting comments from economists and other observers of the higher education scene.The authors have done a lot of useful things using IPEDS (Integrated Postsecondary Education Data System) data over a long time frame. They have put together a good data base, which we at CCAP hope to use in the future. Kudos are in order for that.
They note several things I have observed for years: the share of university budgets going to instruction is falling, for example, and private school spending is rising faster than public institutional spending at the four year level. All of this is good.
But they ignore the root causes of spending increases (third party payments, the not-for-profit nature of the system), say little about the huge differences between the for-profit and not-for-profit sectors in terms of costs, etc., and they say some maddening things about productivity that would probably seem nonsensical to any economist worth his or her salt.
Here is my favorite quote (p. 40): "Except for the private research sector, the share of spending going to instruction has merely kept pace with inflation, and has actually been reduced at public two year institutions. This suggests that labor force productivity is increasing in higher education..."
First of all, you can say NOTHING substantial about productivity based merely on spending data. Productivity relates outcomes to inputs (spending). Since we have absolutely no good information on "value added" output of universities (which the authors elsewhere acknowledge), any statements about productivity rising are totally conjectural, a dubious thing to do in a study purporting to report facts.
Second, even if outcomes per student were remaining constant (an assumption), constancy in real costs of providing services is certainly no proof of rising productivity. Indeed, it might be interpreted as a sign that the real inputs into higher education are remaining constant per unit of output. Constancy in productivity is hardly success in a society in which productivity is rising roughly 2 per cent a year over the long run. Moreover, while costs per unit of instruction are falling in real terms at two year schools, they are rising at the four year private research universities, which absorb more resources. However, since we are uncertain what is happening over time to outcomes per student, and since universities produce many "products" (new inventions, student learning, football entertainment, etc.), it is tricky business even "guessimating" university productivity.
Moreover, if in fact the "share...going for instruction" is falling, that means a larger share (of the whole budget "pie") is going for non-instructional expenses. How could that clearly be productivity-enhancing, particularly if the instructional component is the core academic mission? If instead of "share' the authors mean the absolute amount going for instruction, the picture is somewhat different, but even here it is impossible to conclude based on any available data that productivity is rising in higher education.
None of the authors are professional economists with a Ph.D. (Indeed, one appears to be a public relations specialist). However, Jane Wellman has been doing studies for a variety of pro-higher education for years. If the Delta Project is going to do a big productivity project, it should involve people with premier reputations for work on educational productivity --persons like Carolyn M. Hoxby of Harvard or Eric Hanushek of Stanford. I understand they are calling on economists for comments, and that is good. I think they (the Delta Project) should not in the conclusions section of a report make unsupported claims about productivity trends based on limited data. If the Delta Project (and, perhaps, its financial supporters) wants people to take its work seriously, it needs to be very, very careful in the claims it makes, given the inherent difficulty of assessing productivity change in higher education.
Buckeye Blunders
By Richard Vedder
A year ago, when new Ohio Governor Ted Strickland appointed a new Chancellor of the Board of Regents, most observers were hopeful some constructive change was about to occur. He talked about a "University System of Ohio" with seamless transfer of credits from one institution to another. He talked about accountability and transparency. He said a lot of the right things. He even claimed he wanted to meet with me, but then delayed and eventually canceled an appointment (rather rudely and unprofessionally, I might add).
Now a huge new master plan is out. I haven't read it, but have seen newspaper accounts. It is a disaster --unmitigated, total, complete. He wants to lower tuition costs to entice more kids to college. He wants to greatly expand enrollments in a state with a shrinking 18-22 year old population base. He specifically and clearly sets as a goal to increase spending to well above the national average.
In short, he emphasizes getting more inputs (money, and, for that matter, kids in college) and setting a mindless goal of educating more persons. This is in spite of the fact that:
* nearly half of existing college students don't graduate in a timely manner;
* there is a negative correlation between higher education spending and economic growth (something abundantly absent in Ohio to begin with)
* the correlation between appropriations and higher education attainment is not statistically significantly positive.
To compound things, the governor wants to promote a debt-financed plan of public works, university research, etc., to get Ohio going again, an old, tired idea that has failed everywhere it is tried. Ohio's Brain Dead and me-too Republican Party that controls the legislature seems eager to go along --there is no political competition in the state (the GOP House Speaker is an attractive young man, but lacking an IQ to match his looks).
Doesn't anyone read the evidence? What ever happened to the Age of Enlightenment? Special interests trump reason, ignorance defeats knowledge, and taxpayers and citizens lose. Significantly, Fingerhut does not propose what taxes to raise to finance this boondoggle (Ohio taxes are already amongst the nation's highest, one reason for its lackluster performance). Unfortunately, the Ohio blunder is replicated all over the country, while fundamental reform languishes despite nice sounding rhetoric to the contrary.
A year ago, when new Ohio Governor Ted Strickland appointed a new Chancellor of the Board of Regents, most observers were hopeful some constructive change was about to occur. He talked about a "University System of Ohio" with seamless transfer of credits from one institution to another. He talked about accountability and transparency. He said a lot of the right things. He even claimed he wanted to meet with me, but then delayed and eventually canceled an appointment (rather rudely and unprofessionally, I might add).
Now a huge new master plan is out. I haven't read it, but have seen newspaper accounts. It is a disaster --unmitigated, total, complete. He wants to lower tuition costs to entice more kids to college. He wants to greatly expand enrollments in a state with a shrinking 18-22 year old population base. He specifically and clearly sets as a goal to increase spending to well above the national average.
In short, he emphasizes getting more inputs (money, and, for that matter, kids in college) and setting a mindless goal of educating more persons. This is in spite of the fact that:
* nearly half of existing college students don't graduate in a timely manner;
* there is a negative correlation between higher education spending and economic growth (something abundantly absent in Ohio to begin with)
* the correlation between appropriations and higher education attainment is not statistically significantly positive.
To compound things, the governor wants to promote a debt-financed plan of public works, university research, etc., to get Ohio going again, an old, tired idea that has failed everywhere it is tried. Ohio's Brain Dead and me-too Republican Party that controls the legislature seems eager to go along --there is no political competition in the state (the GOP House Speaker is an attractive young man, but lacking an IQ to match his looks).
Doesn't anyone read the evidence? What ever happened to the Age of Enlightenment? Special interests trump reason, ignorance defeats knowledge, and taxpayers and citizens lose. Significantly, Fingerhut does not propose what taxes to raise to finance this boondoggle (Ohio taxes are already amongst the nation's highest, one reason for its lackluster performance). Unfortunately, the Ohio blunder is replicated all over the country, while fundamental reform languishes despite nice sounding rhetoric to the contrary.
Tuesday, April 01, 2008
Academic Child Molesters of DuPont Circle
By Richard Vedder
I had a pleasant chat yesterday with two friends from Spellings Commissions days, Sara Martinez Tucker, the Under Secretary of Education, and Charles Miller, former chair of the Spellings Commission. Sara told me and showed me some things, however, that infuriated me. Let me list a few factoids that Sara presented to Charles and me that got me mad. Some of them were not new, but Sara renewed my indignation.
1. If a student applies to Duke and to North Carolina State, it is entirely possible that she will be eligible for a Pell Grant if she goes to Duke, but not if she goes to NC State. The more expensive a school a student applies to, other things equal, the more money the school receives. Federal aid empowers elitist schools to charge more. Why do we give more money for kids to go to Harvard than Montgomery Community College? (One might ask, “Why do we give federal grants at all?” I will save that one for another day.)
2) Pell Grant money actually goes into an escrow account with almost no accountability --certainly none to the Department of Education. If Susie is accepted at Duke, Duke says "Susie is coming and is Pell eligible, so give us the money. The Department of Education does --but if Susie does not go to Duke, there is no refunding of the money. While the escrow monies must be used for Pell Grants, the schools have wide discretion as to when the money is spent, how it is invested, etc.
3). Because colleges know exactly what the Feds and others are giving Susie (indeed, the school gives it to her on behalf of these other donors), the school tailors its own institutional aid to fit the school's, not Susie's, needs. For example, suppose Susie gets a Pell of $3000 but the school doesn't much want Susie to attend. They give her no institutional aid. Maybe they would have given her $3000 if they did not know about and administer the Pell Grant. The school negates the Pell Grant award with its own decisions, contrary to the intent of the law. The notion that increases in Pell Grants go to students is questionable in some regards --Pell money goes up, either institutional aid goes down --or tuition goes up. The school captures the money, not the student.
4). Although most schools have some sort of calculators that allow applicants to have some idea about financial aid, they rarely have an exact idea what the school will cost --until the student is accepted, months after applying. It is like a car dealer telling a customer, "we will not tell you the price until you tell us whether you are going to buy it or not."
5) Funds given to students to help pay for college have tripled in the last 15 years, roughly. Yet enrollment and college attainment growth have slowed down dramatically from the historic growth observed in past decades. We are falling between other nations rapidly in this regards.
6) Aid plus estimated parental contribution is more likely NOT to cover tuition costs today for low income students than in the early 1990's. It took 33 percent of family income to cover cost of attendance for a low income family in 1993, 36 percent in 2004. The real burden of college is rising. Yet there is not evidence that quality is improving, because the colleges resist finding out what they add to the value of a student's human and ethical capital during the college years.
The root cause of the problem is the soaring cost of attendance at colleges, but that is aided and abetted by money going to the schools instead of to the students. The turning money over to the students to choose their own school makes a lot of sense, and in this high tech world the administration of such a system is a piece of cake.
Where does DuPont Circle come in? The Mandarins of the Higher Education Establishment work there, and they fight tooth and nail any attempt to reform or rationalize the system. As a consequence, adults (college employees) are getting richer in the name of "helping college students." It is economic pick-pocketing, or, to be more colorful, molestation. My guess is that an Andrew Cuomo type investigation of school escrow accounts might reveal some interesting abuses --power and money corrupt, and absolute power and money corrupt absolutely.
I had a pleasant chat yesterday with two friends from Spellings Commissions days, Sara Martinez Tucker, the Under Secretary of Education, and Charles Miller, former chair of the Spellings Commission. Sara told me and showed me some things, however, that infuriated me. Let me list a few factoids that Sara presented to Charles and me that got me mad. Some of them were not new, but Sara renewed my indignation.
1. If a student applies to Duke and to North Carolina State, it is entirely possible that she will be eligible for a Pell Grant if she goes to Duke, but not if she goes to NC State. The more expensive a school a student applies to, other things equal, the more money the school receives. Federal aid empowers elitist schools to charge more. Why do we give more money for kids to go to Harvard than Montgomery Community College? (One might ask, “Why do we give federal grants at all?” I will save that one for another day.)
2) Pell Grant money actually goes into an escrow account with almost no accountability --certainly none to the Department of Education. If Susie is accepted at Duke, Duke says "Susie is coming and is Pell eligible, so give us the money. The Department of Education does --but if Susie does not go to Duke, there is no refunding of the money. While the escrow monies must be used for Pell Grants, the schools have wide discretion as to when the money is spent, how it is invested, etc.
3). Because colleges know exactly what the Feds and others are giving Susie (indeed, the school gives it to her on behalf of these other donors), the school tailors its own institutional aid to fit the school's, not Susie's, needs. For example, suppose Susie gets a Pell of $3000 but the school doesn't much want Susie to attend. They give her no institutional aid. Maybe they would have given her $3000 if they did not know about and administer the Pell Grant. The school negates the Pell Grant award with its own decisions, contrary to the intent of the law. The notion that increases in Pell Grants go to students is questionable in some regards --Pell money goes up, either institutional aid goes down --or tuition goes up. The school captures the money, not the student.
4). Although most schools have some sort of calculators that allow applicants to have some idea about financial aid, they rarely have an exact idea what the school will cost --until the student is accepted, months after applying. It is like a car dealer telling a customer, "we will not tell you the price until you tell us whether you are going to buy it or not."
5) Funds given to students to help pay for college have tripled in the last 15 years, roughly. Yet enrollment and college attainment growth have slowed down dramatically from the historic growth observed in past decades. We are falling between other nations rapidly in this regards.
6) Aid plus estimated parental contribution is more likely NOT to cover tuition costs today for low income students than in the early 1990's. It took 33 percent of family income to cover cost of attendance for a low income family in 1993, 36 percent in 2004. The real burden of college is rising. Yet there is not evidence that quality is improving, because the colleges resist finding out what they add to the value of a student's human and ethical capital during the college years.
The root cause of the problem is the soaring cost of attendance at colleges, but that is aided and abetted by money going to the schools instead of to the students. The turning money over to the students to choose their own school makes a lot of sense, and in this high tech world the administration of such a system is a piece of cake.
Where does DuPont Circle come in? The Mandarins of the Higher Education Establishment work there, and they fight tooth and nail any attempt to reform or rationalize the system. As a consequence, adults (college employees) are getting richer in the name of "helping college students." It is economic pick-pocketing, or, to be more colorful, molestation. My guess is that an Andrew Cuomo type investigation of school escrow accounts might reveal some interesting abuses --power and money corrupt, and absolute power and money corrupt absolutely.
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