By Richard Vedder
We all have been aware that universities have been giving large salary increases to senior administrators at the same time they have been crying that they are poor to legislators, taxpayers, parents of students, and alumni. The Columbus Dispatch has done a detailed investigation of top administrator salaries at one of America's largest public universities, Ohio State, and the results are shocking.
Gordon Gee became prez at Ohio State for the second time last year, and in ONE year he has DOUBLED salaries for the top administrators that make up his cabinet --from
$2.9 million to $5.8 million. The number of these senior administrators grew from nine to fourteen, implying that average administrative pay rose from a bit over $300,000 a year to over $400,000 --about a 30 percent increase in a single year.
Moreover, that is not the whole story. A system of bonuses exists for most of the senior employees, often 30 percent of base salary. The bonuses depend on certain performance objectives being met. Additionally, deferred compensation worth six digits is added on for most of the administrators. As a consequence, at least three administrators potentially will make over $1 million this year --and that does not count Gee himself, the football coach (who makes at least double that), and the basketball coach. Five years ago, no one made a million dollars a year in public higher education --now it appears that six persons make more than that at ONE institution!!
As the school grabs more federal grants, larger state appropriations, and raises tuition substantially, it has used some of the incremental funds to finance huge salary increases for the elite who run the institution, while swelling the bureaucracy. For example, there was one very well paid governmental relations person in the cabinet --now there are two, both with base pay of over $300,000. One, who is filling a new position, is a current legislator who now makes well under $100,000 a year. I bet she would have loved to take the job at a salary of $150,000 a year. One of the lobbyists is on the bonus plan, which seems to suggest that he gets a kickback the more money the legislature gives to the university, opening up a moral cesspool of untold dimensions.
All of this is going on in the midst of a poor economy (particularly in Ohio), with the governor forcing some budget cuts. Some schools are laying off staff, but the rent-seeking greed financed by third parties continues, and, indeed accelerates. Let the public be damned.
Higher education is facing a day of reckoning, and actions like those taken at OSU will hasten the day.
Monday, September 29, 2008
Thursday, September 25, 2008
Colleges and the Financial Crisis of 2008
By Richard Vedder
First, let me state at the outset that I think government tinkering in financial markets is bad, and that the current financial mess is about two-thirds the consequence of government mistakes. First, the Federal Reserve pursued an excessively loose monetary policy in the 2002-07 period. Interest rates were pushed well below their "natural" rate (to use a term coined by Swedish economist Knut Wicksell roughly a century ago), which tends to lead to what Austrian economists call "malinvestment" --over spending on capital goods. One byproduct of that was a run-up in housing prices. Second, following from this, bankers made many imprudent and overly large loans at low interest rates to persons with very dubious credit histories. These persons were forced into foreclosure by the fall in real estate prices and inadequate cash flows. Third, government regulators did nothing to stop the lending foolishness. In a sense, calling on the government to solve the resulting problem is a bit like putting Charlie Manson in charge of Children Protective Services, or making Lorena Bobbitt the Surgeon General.
At the same time, however, a crisis born out of boneheaded decisions by the central bank and others has turned now into a crisis of confidence, which can be devastating in a fractional reserve system where even sound banks only keep 10 cents or so of each dollar in deposit liabilities in the form of cash or near-cash liquid assets. If asset values held by banks fall 10 percent or more, there will be thousands of banks thrown into bankruptcy. The impact of that on the economy would be sizable.
Accordingly, a bailout makes some perverse sense. At the minimum, Congress should use this crisis to fix some clear wrongs, for example removing the special role that Fannie Mae and Freddie Mac have (because of bribes of Congressmen by those companies in the form of "campaign contributions", that is not going to happen). And Congress must be sure that any solution allows those making stupid decisions pay a high financial cost (actually, I would extend that to the Federal Reserve Board too, but that is politically infeasible). The moral hazard problem here is absolutely huge.
Last week, the system came close to a meltdown. The LIBOR spiked 300 basis points on September 16 as potential bank borrowers found no bank lenders because of plunging confidence. The money interest rate on T bills briefly turned negative --an unprecedented happening. Two major money market funds "broke the buck", meaning they did not have an ability to pay holders of their assets at par. People are very, very edgy.
What does all this mean for colleges? Here are four real possiblities:
1) The bailout crimps federal budgets, so dreamed/planned increases in federal assistance become unlikely --for example the College Board's proposed reform of student financial aid which has a multi-billion dollar price tag on it;
2) Endowment returns are more likely to fall than rise, although there will be exceptions (e.g., bond rich funds). The sharp decline in Harvard's 2008 rate of return is the beginning of a series of similar reports from others, suggesting the days of endowment-funded spending increase by rich schools may be over, actually lessening the academic arms race as other schools try to stay competitive;
3)Private student lending will largely dry up except under full federal guarantee, and maybe even that will not induce private lenders to make loans;
4)If this all induces a further downturn in the economy, state appropriations for universities will be reduced.
The day of reckoning to the economy as a whole from monetary-fiscal recklessness is coming home to roost on college campuses across the land. The Ivory Tower is not immune to happenings in the Real World.
First, let me state at the outset that I think government tinkering in financial markets is bad, and that the current financial mess is about two-thirds the consequence of government mistakes. First, the Federal Reserve pursued an excessively loose monetary policy in the 2002-07 period. Interest rates were pushed well below their "natural" rate (to use a term coined by Swedish economist Knut Wicksell roughly a century ago), which tends to lead to what Austrian economists call "malinvestment" --over spending on capital goods. One byproduct of that was a run-up in housing prices. Second, following from this, bankers made many imprudent and overly large loans at low interest rates to persons with very dubious credit histories. These persons were forced into foreclosure by the fall in real estate prices and inadequate cash flows. Third, government regulators did nothing to stop the lending foolishness. In a sense, calling on the government to solve the resulting problem is a bit like putting Charlie Manson in charge of Children Protective Services, or making Lorena Bobbitt the Surgeon General.
At the same time, however, a crisis born out of boneheaded decisions by the central bank and others has turned now into a crisis of confidence, which can be devastating in a fractional reserve system where even sound banks only keep 10 cents or so of each dollar in deposit liabilities in the form of cash or near-cash liquid assets. If asset values held by banks fall 10 percent or more, there will be thousands of banks thrown into bankruptcy. The impact of that on the economy would be sizable.
Accordingly, a bailout makes some perverse sense. At the minimum, Congress should use this crisis to fix some clear wrongs, for example removing the special role that Fannie Mae and Freddie Mac have (because of bribes of Congressmen by those companies in the form of "campaign contributions", that is not going to happen). And Congress must be sure that any solution allows those making stupid decisions pay a high financial cost (actually, I would extend that to the Federal Reserve Board too, but that is politically infeasible). The moral hazard problem here is absolutely huge.
Last week, the system came close to a meltdown. The LIBOR spiked 300 basis points on September 16 as potential bank borrowers found no bank lenders because of plunging confidence. The money interest rate on T bills briefly turned negative --an unprecedented happening. Two major money market funds "broke the buck", meaning they did not have an ability to pay holders of their assets at par. People are very, very edgy.
What does all this mean for colleges? Here are four real possiblities:
1) The bailout crimps federal budgets, so dreamed/planned increases in federal assistance become unlikely --for example the College Board's proposed reform of student financial aid which has a multi-billion dollar price tag on it;
2) Endowment returns are more likely to fall than rise, although there will be exceptions (e.g., bond rich funds). The sharp decline in Harvard's 2008 rate of return is the beginning of a series of similar reports from others, suggesting the days of endowment-funded spending increase by rich schools may be over, actually lessening the academic arms race as other schools try to stay competitive;
3)Private student lending will largely dry up except under full federal guarantee, and maybe even that will not induce private lenders to make loans;
4)If this all induces a further downturn in the economy, state appropriations for universities will be reduced.
The day of reckoning to the economy as a whole from monetary-fiscal recklessness is coming home to roost on college campuses across the land. The Ivory Tower is not immune to happenings in the Real World.
Wednesday, September 24, 2008
Noteworthy Links
by Andrew Gillen
Vox EU has a couple more interesting education pieces.
Paying universities to lower their standards looks at recent reforms in Italy:
They find that
How do policies influence the investment in higher education? examines investments and graduation in OECD countries. Be sure to check out the big swings in figure 2, which shows estimates of the rate of return to education by country.
Greg Mankiw quotes the student paper
And last but not least, Alexander Russo highlights how a principal at one school sounded the alarm about possible cheating at another school based on the
It might be nice if some colleges started doing the same thing, not necessarily to catch cheating, but rather to highlight effective schools so that they could be copied by the ineffective ones. From what I recall in Rupert Wilkinson's Aiding Students, Buying Students, college admissions offices already have internal lists of good and bad high schools. It would sure be nice to aggregate those lists, and compare them to curriculum, funding, socioeconomic status, etc. among the schools to see what is most effective.
Vox EU has a couple more interesting education pieces.
Paying universities to lower their standards looks at recent reforms in Italy:
In general, the reforms have given universities more autonomy and more powerful incentives. These incentives have often been implemented through “input funding” contingent on the number of students and “output funding” based on the number of diplomas granted
They find that
by funding universities according to the number of students that pass their exams, the Italian government is favouring those universities that add less value.
How do policies influence the investment in higher education? examines investments and graduation in OECD countries. Be sure to check out the big swings in figure 2, which shows estimates of the rate of return to education by country.
Greg Mankiw quotes the student paper
The best predictor of college success is not the SAT, but rather tests that examine knowledge of a standardized curriculum, such as SAT subject tests, said [Harvard's Dean of Admissions William] Fitzsimmons.
And last but not least, Alexander Russo highlights how a principal at one school sounded the alarm about possible cheating at another school based on the
abilities of the kids who transferred into his school
It might be nice if some colleges started doing the same thing, not necessarily to catch cheating, but rather to highlight effective schools so that they could be copied by the ineffective ones. From what I recall in Rupert Wilkinson's Aiding Students, Buying Students, college admissions offices already have internal lists of good and bad high schools. It would sure be nice to aggregate those lists, and compare them to curriculum, funding, socioeconomic status, etc. among the schools to see what is most effective.
Tuesday, September 23, 2008
Transparency in the Cost of Intercollegiate Athletics
By Robert Villwock
The Coalition on Intercollegiate Athletics, an alliance of 55 Division IA faculty senates whose mission is to provide a national faculty voice on intercollegiate sports issues, commented that the Athletic Departments' Budgets should be more transparent and more aligned with the mission, goals, and values of the institution. The organization also outlined four other recommendations in regards to fiscal responsibility of University Athletic Departments.
After spending a considerable amount of time on the Equity in Athletics Disclosure Act, a Department of Education sponsored website that is supposed to provide transparency of costs in intercollegiate athletics, I agree with the COIA.
Each institution's revenues and expenses for athletics can be found on the website, put in an aggregated lump sum amount. Out of 118 schools analyzed, 44 schools had revenues equal expenses while the rest of them showed having revenues in excess of expenses. Not one university reported having expenses greater than revenues.
The University of Houston apparently made $1 in excess of expenses last year, according to the site.
It would appear to me that the figures reported are more along the lines of the budget of each school instead of the true revenues and expenses for each school.
Does this data include the upkeep of facilities? Does it include the price of scholarships? Do the revenues include the TV rights that schools receive for football and basketball? I would say probably not (The site does not get specific about where the revenues and expenses come from) and I fear that many of the costs are not realized by enough people in the higher ed community.
Also, if every institution in the NCAA Football Bowl Subdivision (118 schools) had revenues at least as high as expenses then why are sports being cut at many schools across the country?
I wonder what the actual costs are in intercollegiate athletics, costs like upkeep of a 100,000 seat football stadium or a 25,000 seat basketball arena. It would be nice to know since our tax dollars go to public universities who fund these facilities.
Until more transparent revenues and expenses are disclosed by public institutions regarding athletics, it will be a difficult and highly subjective task to compare the costs and benefits of intercollegiate athletics.
The Coalition on Intercollegiate Athletics, an alliance of 55 Division IA faculty senates whose mission is to provide a national faculty voice on intercollegiate sports issues, commented that the Athletic Departments' Budgets should be more transparent and more aligned with the mission, goals, and values of the institution. The organization also outlined four other recommendations in regards to fiscal responsibility of University Athletic Departments.
After spending a considerable amount of time on the Equity in Athletics Disclosure Act, a Department of Education sponsored website that is supposed to provide transparency of costs in intercollegiate athletics, I agree with the COIA.
Each institution's revenues and expenses for athletics can be found on the website, put in an aggregated lump sum amount. Out of 118 schools analyzed, 44 schools had revenues equal expenses while the rest of them showed having revenues in excess of expenses. Not one university reported having expenses greater than revenues.
The University of Houston apparently made $1 in excess of expenses last year, according to the site.
It would appear to me that the figures reported are more along the lines of the budget of each school instead of the true revenues and expenses for each school.
Does this data include the upkeep of facilities? Does it include the price of scholarships? Do the revenues include the TV rights that schools receive for football and basketball? I would say probably not (The site does not get specific about where the revenues and expenses come from) and I fear that many of the costs are not realized by enough people in the higher ed community.
Also, if every institution in the NCAA Football Bowl Subdivision (118 schools) had revenues at least as high as expenses then why are sports being cut at many schools across the country?
I wonder what the actual costs are in intercollegiate athletics, costs like upkeep of a 100,000 seat football stadium or a 25,000 seat basketball arena. It would be nice to know since our tax dollars go to public universities who fund these facilities.
Until more transparent revenues and expenses are disclosed by public institutions regarding athletics, it will be a difficult and highly subjective task to compare the costs and benefits of intercollegiate athletics.
Monday, September 22, 2008
Grandpa Can't Watch the Kids Because he's Working on his Resume
by Daniel Bennett
The recent turmoil in the financial markets is having a profound effect on many members of the generation nearing, or so they thought, retirement. I keep reading and hearing stories about workers who had planned to retire in the next few years who may be forced to stay in the labor force longer than expected because of the decrease in the value of their retirement funds. Many other retirees are considering re-joining the workforce, as they realize that their financial situations aren't quite what they expected. I guess this means that parents can't count on discounted grandparent childcare much longer!
This is an unfortunate set of circumstances for those who have worked their entire adulthood away and now have to continue doing so. You may wonder what this has to do with higher education, and rest assured, I'm getting to that. With a growing number of college graduates every year, the job prospects may be dimmer. Many companies have partially based their hiring of new (and less expensive) workers on the expected retirement of many of the 'seasoned' employees. With the economy in its current shape, it seems that many employees will postpone their retirement, leaving less resources for the training of new hires, many of them college graduates, and with many already retired workers making pleas for their old jobs, this will toughen the competition for positions.
Yes, this may mean that fresh grad Johnny Too Cool may be competing with Grandpa Wilbur for the same job at the XYZ Company. My advice to future and current college students is to do one of the following:
1) Quickly switch your major if you are currently a finance major. In case you haven't noticed, you have zero experience and the job pool has increased substantially with displaced financial employees, desperate for a job.
2) Seriously consider engaging in one of the STEM (science, technology, engineering, mathematics) areas. Economic and job growth in the future is going to be in these fields in the US and the rest of the world.
3) Re-evaluate your key competencies and consider whether learning a trade would be a better route to that high paying salary you are seeking. Top plumbers, mechanics, carpenters, etc. bring home six figure incomes.
4) Start preparing for grad school or take a year to study abroad and wait the current economic crisis out. I say this haphazardly, as you should not attend grad school to put off the real world.
The recent turmoil in the financial markets is having a profound effect on many members of the generation nearing, or so they thought, retirement. I keep reading and hearing stories about workers who had planned to retire in the next few years who may be forced to stay in the labor force longer than expected because of the decrease in the value of their retirement funds. Many other retirees are considering re-joining the workforce, as they realize that their financial situations aren't quite what they expected. I guess this means that parents can't count on discounted grandparent childcare much longer!
This is an unfortunate set of circumstances for those who have worked their entire adulthood away and now have to continue doing so. You may wonder what this has to do with higher education, and rest assured, I'm getting to that. With a growing number of college graduates every year, the job prospects may be dimmer. Many companies have partially based their hiring of new (and less expensive) workers on the expected retirement of many of the 'seasoned' employees. With the economy in its current shape, it seems that many employees will postpone their retirement, leaving less resources for the training of new hires, many of them college graduates, and with many already retired workers making pleas for their old jobs, this will toughen the competition for positions.
Yes, this may mean that fresh grad Johnny Too Cool may be competing with Grandpa Wilbur for the same job at the XYZ Company. My advice to future and current college students is to do one of the following:
1) Quickly switch your major if you are currently a finance major. In case you haven't noticed, you have zero experience and the job pool has increased substantially with displaced financial employees, desperate for a job.
2) Seriously consider engaging in one of the STEM (science, technology, engineering, mathematics) areas. Economic and job growth in the future is going to be in these fields in the US and the rest of the world.
3) Re-evaluate your key competencies and consider whether learning a trade would be a better route to that high paying salary you are seeking. Top plumbers, mechanics, carpenters, etc. bring home six figure incomes.
4) Start preparing for grad school or take a year to study abroad and wait the current economic crisis out. I say this haphazardly, as you should not attend grad school to put off the real world.
Sunday, September 21, 2008
Baseless Criticism of Steven Yamarik's Research
by Andrew Gillen
My previous post highlighting the work of Steven Yamarik, who has recently noted that there do not appear to be positive economic externalities to education, is under attack. I was decidedly underwhelmed with these responses, both by the same individual, and was therefore going to ignore them, but based on the fact that both Mark Thoma and Arnold Kling link to them, I feel a rebuttal is in order.
The author of the responses is clearly in disagreement with the research findings of Yamarik, but does nothing other than to say that he is in disagreement. For instance, in the first response, he states
For a set of people, the private costs of getting educated are less than the private benefits, so they will attain an education without a subsidy. The subsidy is only needed when the private costs of education are higher than the private benefits, but lower than the social benefits. In such a case, the market by itself will fail to produce the optimal level of education. This failure is the economic rationale for a subsidy, and Yamarik notes that it is an invalid rationale based on the evidence that there is little external return to education.
The second response, is a little better (it doesn't include tangent attacks on the measurement of GDP or a certain political party), but not much:
Now, it is quite possible that Yamarik's and the other cited research have "severe flaws with the models, econometric techniques, and assumptions." (I have not yet reviewed the work in detail, so I can't say.) If there are flaws, find them and point them out. But you can't just assume that there are flaws whenever you see a result you don't like.
My previous post highlighting the work of Steven Yamarik, who has recently noted that there do not appear to be positive economic externalities to education, is under attack. I was decidedly underwhelmed with these responses, both by the same individual, and was therefore going to ignore them, but based on the fact that both Mark Thoma and Arnold Kling link to them, I feel a rebuttal is in order.
The author of the responses is clearly in disagreement with the research findings of Yamarik, but does nothing other than to say that he is in disagreement. For instance, in the first response, he states
Think about how ridiculous this conclusion [Yamarik's finding that these is little evidence of economic externalities to education] sounds – and is. You need only make the most minor and realistic assumptions...
In other words, if you just assume that there are positive externalities, it's easy to to show that there are... positive externalities. He continues
I benefit from others getting more educated in a big material way.To illustrate, he asks us to imagine a world in which no one is educated compared to a world in which everyone is educated. But the issue is not the either or categories of no one being educated vs. everyone being educated. In fact, such a binary choice completely misses the point. The point of taxing or subsidizing things with externalities is to get the optimal level of the activity, in this case education. Very rarely is the optimal level of activity all or nothing. The choice is not "do we educate everyone or no one" but rather "how many should be educated." The answer to latter, more appropriate question, depends on the marginal costs and benefits (both private and social) of education.
For a set of people, the private costs of getting educated are less than the private benefits, so they will attain an education without a subsidy. The subsidy is only needed when the private costs of education are higher than the private benefits, but lower than the social benefits. In such a case, the market by itself will fail to produce the optimal level of education. This failure is the economic rationale for a subsidy, and Yamarik notes that it is an invalid rationale based on the evidence that there is little external return to education.
The second response, is a little better (it doesn't include tangent attacks on the measurement of GDP or a certain political party), but not much:
there still are however enormous positive pecuniary externalities to education. The Vox EU article and studies it cites miss much and I have little doubt there are severe flaws with the models, econometric techniques, and assumptions behind them.In other words, I don't like their result, so I'm going to assume that they're wrong without actually figuring out why.
Now, it is quite possible that Yamarik's and the other cited research have "severe flaws with the models, econometric techniques, and assumptions." (I have not yet reviewed the work in detail, so I can't say.) If there are flaws, find them and point them out. But you can't just assume that there are flaws whenever you see a result you don't like.
Economic Externalities to Education?
by Andrew Gillen
Writing on the Vox EU site, Steven Yamarik, examines one of the main justifications for public funding of higher education, namely, that education results in positive spillovers or externalities. The basic idea is that educated people are not only more productive, but that they teach those around them to be more productive too.
If there are significant externalities, than the social return on education should be higher than the private return. The evidence shows that this is not the case.
Read the whole thing here.
Writing on the Vox EU site, Steven Yamarik, examines one of the main justifications for public funding of higher education, namely, that education results in positive spillovers or externalities. The basic idea is that educated people are not only more productive, but that they teach those around them to be more productive too.
If there are significant externalities, than the social return on education should be higher than the private return. The evidence shows that this is not the case.
The closeness of the estimates of the social return to the private return suggests that US schooling generates little to no external return.Thus,
If there are reasons to subsidise education, they don't include economic externalities.It should be noted (and Yamarik devotes to whole conclusion to this point), that there are other reasons to subsidize education. But it is nonetheless an important point that those reasons do not appear to include positive economic externalities.
Read the whole thing here.
Friday, September 19, 2008
The Quick and the Ed Strikes Again
by Andrew Gillen
The Quick and the Ed, calls BS on trying to blame the jump in student loan defaults on the hurricanes:
Amen on both counts.
The Quick and the Ed, calls BS on trying to blame the jump in student loan defaults on the hurricanes:
Total defaults increased a lot faster than the ones in hurricane-ravaged statesHe closes with a sensible call to report default rates that actually track the proportion of defaults over the lifetime of the loan, rather than the 2 or 3 year default rates that are currently used.
Amen on both counts.
Thursday, September 18, 2008
The College Board Federal Student Aid Report
By Richard Vedder
I have only seen the new report of the Rethinking Student Aid Study group headed by Michael McPherson of the Spencer Foundation and Sandy Baum of the College Board for a short time, and attended a phone/video conference on the reports release that concluded literally minutes ago. So the remarks below must be preliminary.
First, the Spencer, Lumina and Mellon foundations should be commended for bringing together some serious people to rethink the issue of federal student aid. The Spellings Commission largely punted on taking on the issue, and this report is a step towards an intelligent discussion. Let me also say that there are quite a number of ideas in the report that make a great deal of sense, that would be improvements of a significant sort over current practices.
That said, if I were Czar and I had a choice of adopting the College Board report or not, I would probably say "no" to it, for several reasons. First, the underlying premise is that more Americans need to attend and graduate from college. I increasingly believe that is NOT the case. Vast numbers of college educated Americans are taking jobs with minimal skill requirements, and many jobs have little need for individuals with high academic achievement -tens of thousands of mail carriers have college degrees, for example, as well as over 15,000 hairdressers have advanced academic or professional degrees. And I buy into Charles Murray's argument that limited academic abilities mean that we already have many students attending college who cannot easily succeed for reasons unrelated to college finances.
Beyond this, the College Board group, not surprisingly, has issued a report that urges us to INCREASE total federal student financial aid spending in order to increase college access and completion. The exact amount of the increase is somewhat elusive, and depends on how certain blanks in the report are filled in, but it looks to me like many billions of dollars a year. I think higher education is primarily a private good with private benefits, and that equity and efficiency both suggest that for most Americans, higher education should be financed privately. On balance, this study rejects that philosophy and advocates increasing federal support for higher education.
Still, there is a number of good ideas in the report. Example: get rid of the FAFSA form and determine Pell Grant eligiblity by simply looking at family adjusted gross income and family size. Families can find with certainty the grant money they are eligible for by going to a table. Why not, however, go even further ---and have the IRS itself rewards scholarships in the form of vouchers to students themselves, giving them a sense of empowerment and reducing somewhat the leverage and power of financial aid offices that too often have been ethically challenged in recent years?
The proposal calls for some consolidation of aid programs, but retaining the current general student tuition tax credit, mainly on the grounds that it is politically impossible to eliminate it (in a general reform of the tax system, I think elimination of the credit IS politically feasible). Consolidation is a good idea. The proposal calls for changing loan repayment formulas a bit, in a good way. Again, however, why not go even further and turn some loan programs into equity programs, with payments tied to income and total repayment variable dependent on financial success?
The College Board group wants to make billions in block grants to schools contingent on their success rate in getting low income students through to graduation. The first problem: the Law of Unintended Consequences. If you incentivize schools to graduate more students, they may simply lower graduation standards to do so, requiring even less intellectual efforts than the pathetically low amounts now required. We will be encouraging schools to lower academic standards (better, probably, would be to incentivize students to perform better by giving them a bonus for early graduation, high grades, etc.)
There is much more in the report. There is a somewhat weird government savings programs for low income families --with NO financial contribution expected of the families. College savings is low for everyone --rich and poor alike, because at the current time there are enormous disincentives to savings (which could be eliminated if all wealth and savings related information were denied to college financial aid offices).
My guess is that this study will get buried, at least temporarily, in the turmoil arising over the crisis in financial markets and the presidential campaign. But the issue is important, and rethinking the student federal financial aid program is desirable.
I have only seen the new report of the Rethinking Student Aid Study group headed by Michael McPherson of the Spencer Foundation and Sandy Baum of the College Board for a short time, and attended a phone/video conference on the reports release that concluded literally minutes ago. So the remarks below must be preliminary.
First, the Spencer, Lumina and Mellon foundations should be commended for bringing together some serious people to rethink the issue of federal student aid. The Spellings Commission largely punted on taking on the issue, and this report is a step towards an intelligent discussion. Let me also say that there are quite a number of ideas in the report that make a great deal of sense, that would be improvements of a significant sort over current practices.
That said, if I were Czar and I had a choice of adopting the College Board report or not, I would probably say "no" to it, for several reasons. First, the underlying premise is that more Americans need to attend and graduate from college. I increasingly believe that is NOT the case. Vast numbers of college educated Americans are taking jobs with minimal skill requirements, and many jobs have little need for individuals with high academic achievement -tens of thousands of mail carriers have college degrees, for example, as well as over 15,000 hairdressers have advanced academic or professional degrees. And I buy into Charles Murray's argument that limited academic abilities mean that we already have many students attending college who cannot easily succeed for reasons unrelated to college finances.
Beyond this, the College Board group, not surprisingly, has issued a report that urges us to INCREASE total federal student financial aid spending in order to increase college access and completion. The exact amount of the increase is somewhat elusive, and depends on how certain blanks in the report are filled in, but it looks to me like many billions of dollars a year. I think higher education is primarily a private good with private benefits, and that equity and efficiency both suggest that for most Americans, higher education should be financed privately. On balance, this study rejects that philosophy and advocates increasing federal support for higher education.
Still, there is a number of good ideas in the report. Example: get rid of the FAFSA form and determine Pell Grant eligiblity by simply looking at family adjusted gross income and family size. Families can find with certainty the grant money they are eligible for by going to a table. Why not, however, go even further ---and have the IRS itself rewards scholarships in the form of vouchers to students themselves, giving them a sense of empowerment and reducing somewhat the leverage and power of financial aid offices that too often have been ethically challenged in recent years?
The proposal calls for some consolidation of aid programs, but retaining the current general student tuition tax credit, mainly on the grounds that it is politically impossible to eliminate it (in a general reform of the tax system, I think elimination of the credit IS politically feasible). Consolidation is a good idea. The proposal calls for changing loan repayment formulas a bit, in a good way. Again, however, why not go even further and turn some loan programs into equity programs, with payments tied to income and total repayment variable dependent on financial success?
The College Board group wants to make billions in block grants to schools contingent on their success rate in getting low income students through to graduation. The first problem: the Law of Unintended Consequences. If you incentivize schools to graduate more students, they may simply lower graduation standards to do so, requiring even less intellectual efforts than the pathetically low amounts now required. We will be encouraging schools to lower academic standards (better, probably, would be to incentivize students to perform better by giving them a bonus for early graduation, high grades, etc.)
There is much more in the report. There is a somewhat weird government savings programs for low income families --with NO financial contribution expected of the families. College savings is low for everyone --rich and poor alike, because at the current time there are enormous disincentives to savings (which could be eliminated if all wealth and savings related information were denied to college financial aid offices).
My guess is that this study will get buried, at least temporarily, in the turmoil arising over the crisis in financial markets and the presidential campaign. But the issue is important, and rethinking the student federal financial aid program is desirable.
Student Loan Scandal for the Ages
by Daniel Bennett
Student loan companies, such as Nelnet, have been taking advantage of a loophole in a federal program, originating in 1980 during a time of high inflation and hence, high interest rates, that allows them to recycle accounts and continue to collect student loan subsidies at 9.5 percent interest. What a remarkable return, especially considering many of those same subsidized loans were most likely capped at 6.8 percent. In essence, the government is paying a 2.7 percent premium on a subsidy program, which is more than it pays to lenders of short-term treasury notes. How can I get a piece of that action?
Terry Heimes, President of Nelnet, realized several years ago that this was a loophole in the legislation and, I assume, an unethical business act. He did what any presumptuous capitalist seeking extraordinary compensation would do by continuing the practice of recycling account numbers and collecting overly-generous 9.5 percent subsidies at the expense of the taxpayer, under an archaic law that the government dropped the ball in altering.
Despite being aware that Nelnet was exploiting federal funds, it is not completely culpable. So who is to blame you may ask? Nelnet and other lenders repeatedly inquired with the Department of Education in 2002 as to whether the act was legal, to no avail. More than a year after Nelnet's request for a ruling on the issue, the DOE responded with a letter that quoted the three paragraph law, leaving it open to interpretation and failing to make a proper recommendation. This prompted the student lending community to continue with its fallacious act.
The DOE bureaucrats were apparently timid to put their neck on the line and risk their already excessively tenured positions. It was not until 2007 that the DOE even realized that the lending companies were making illegal subsidy claims, after the Inspector General's audit was released. Come on now, how much forewarning does one need...apparently 4 years before anyone decides to turn over the leaf and observe the maggots that lie beneath.
Representative Petri of Wisconsin spearheaded the part of the Higher Education Act in July that requires the Justice Department to review any approved settlement that costs the taxpayer more than $1 million, legislation aimed to debunk the student lending agencies. In other words, if a company claims subsidy payments at 9.5%, then they must pass an audit by the Justice Department, a procedure estimated to cost the company around $100,000, according to Phillip Van Horn, president of the Wyoming Student Loan Corporation. Mr. Van Horn professed that the cost of the audit would outweigh the benefits that the additional revenues at the 9.5% subsidy would provide, which may be the case or it may be an indirect admission of false play.
The real tragedy of this malicious activity is two-fold:
1) The Government took action to prevent this from happening in the future with the audit requirement, but it also turned an eye to the hundreds of millions of dollars already falsely collected by the lenders. There was recognition of wrong-doing, but no attempt to impose fines or recollect the money from the violators. High-five!
2) There is now less money to lend to college students, (we often forget about them) who rely on these loans to finance their education, because it evaporated into the pockets of the companies that knowingly took advantage of the situation.
Student loan companies, such as Nelnet, have been taking advantage of a loophole in a federal program, originating in 1980 during a time of high inflation and hence, high interest rates, that allows them to recycle accounts and continue to collect student loan subsidies at 9.5 percent interest. What a remarkable return, especially considering many of those same subsidized loans were most likely capped at 6.8 percent. In essence, the government is paying a 2.7 percent premium on a subsidy program, which is more than it pays to lenders of short-term treasury notes. How can I get a piece of that action?
Terry Heimes, President of Nelnet, realized several years ago that this was a loophole in the legislation and, I assume, an unethical business act. He did what any presumptuous capitalist seeking extraordinary compensation would do by continuing the practice of recycling account numbers and collecting overly-generous 9.5 percent subsidies at the expense of the taxpayer, under an archaic law that the government dropped the ball in altering.
Despite being aware that Nelnet was exploiting federal funds, it is not completely culpable. So who is to blame you may ask? Nelnet and other lenders repeatedly inquired with the Department of Education in 2002 as to whether the act was legal, to no avail. More than a year after Nelnet's request for a ruling on the issue, the DOE responded with a letter that quoted the three paragraph law, leaving it open to interpretation and failing to make a proper recommendation. This prompted the student lending community to continue with its fallacious act.
The DOE bureaucrats were apparently timid to put their neck on the line and risk their already excessively tenured positions. It was not until 2007 that the DOE even realized that the lending companies were making illegal subsidy claims, after the Inspector General's audit was released. Come on now, how much forewarning does one need...apparently 4 years before anyone decides to turn over the leaf and observe the maggots that lie beneath.
Representative Petri of Wisconsin spearheaded the part of the Higher Education Act in July that requires the Justice Department to review any approved settlement that costs the taxpayer more than $1 million, legislation aimed to debunk the student lending agencies. In other words, if a company claims subsidy payments at 9.5%, then they must pass an audit by the Justice Department, a procedure estimated to cost the company around $100,000, according to Phillip Van Horn, president of the Wyoming Student Loan Corporation. Mr. Van Horn professed that the cost of the audit would outweigh the benefits that the additional revenues at the 9.5% subsidy would provide, which may be the case or it may be an indirect admission of false play.
The real tragedy of this malicious activity is two-fold:
1) The Government took action to prevent this from happening in the future with the audit requirement, but it also turned an eye to the hundreds of millions of dollars already falsely collected by the lenders. There was recognition of wrong-doing, but no attempt to impose fines or recollect the money from the violators. High-five!
2) There is now less money to lend to college students, (we often forget about them) who rely on these loans to finance their education, because it evaporated into the pockets of the companies that knowingly took advantage of the situation.
Tuesday, September 16, 2008
Links
by Andrew Gillen
The Wall Street Journal had a couple of op-eds recently that are worth pointing out. The first, An Education in Bailouts, documents how Congress is continuing to make a mess in the student loan market. It picks up where this one left off.
The second, Dartmouth's Hostile Environment, is also a continuation of an ongoing story, this one about the professor who is trying to sue her students for having the audacity of actually thinking critically and not accepting everything she said as absolute truth. The most surprising part? She apparently got a new job at Northwestern. I certainly hope they aren't planning on having her teach.
The Wall Street Journal had a couple of op-eds recently that are worth pointing out. The first, An Education in Bailouts, documents how Congress is continuing to make a mess in the student loan market. It picks up where this one left off.
The second, Dartmouth's Hostile Environment, is also a continuation of an ongoing story, this one about the professor who is trying to sue her students for having the audacity of actually thinking critically and not accepting everything she said as absolute truth. The most surprising part? She apparently got a new job at Northwestern. I certainly hope they aren't planning on having her teach.
Mission Impossible: Burt Weisbrod on Universities
By Richard Vedder
My sidekick Andy Gillen reminds me by his latest blog that I have not written much on Burton Weisbrod's new book with Jeff Balloou and Evelyn Asch, Mission and Money: Understanding the University. This is a nice addition to the literature on the economics of higher education written by one of America's leading thinkers about the behavior of non-profit organizations.
The basic premise is simple --arguably TOO simple. Universities essentially are about two things --defining and carrying out their mission, and finding the money to fund it. The two go together. A mission is impossible without money. Scarcity of money limits the scope and nature of missions. A paucity of good missions or mediocrity in performing those missions can even impact on the ability to raise money. The two are linked. Sometimes, the universities will do things to raise money to finance their missions that, in the long run, damage their reputuations and hurt their ability to perform the mission (e.g., when the university plugs commercial products).
A majority of the book is about money --funding universities, rather than the missions themselves. There are lengthy discussions of tuition policies, endowment management, the quest for donations, commercial use of scientific research, intercollegiate athletics, etc. Not much discussion exists about the trade-offs between undergraduate and graduate instruction, the arguments for performing non-commercially relevant research (e.g., in the humanities), on the measurement of mission accomplishment, etc.
The book does not explore the big trends concerning many Americans: the reasons for the rapid increase in higher education costs, the role that third party payments play, the economics of the student loan issue, etc. The authors make too much of the similarity between profits and non-profit institutions, and not enough of the powerful role profit incentives play in leading to different outcomes in the two types of institutions. There is no discussion of the use of cost-benefit techniques to evaluate mission success.
Even within the fairly narrow "money and mission" framework, vastly more space is devoted to intercollegiate athletics, which rarely is more than 5 percent of either money or mission at a university, than to tuition policy, which is quantitatively a far more important financing device. The importance of fixed supply at selective admission schools, and of the trade-off of lost tuition revenue from pricing tuition below equilibrium levels against the loss of prestige and the denial of access to lower income students is not discussed, despite its importance. An inordinate amount of discussion revolves around patent issues, which are of trivial import to most of higher education.
Despite these and a few other flaws, the book is on the whole good. It gives some good information on issues that every university president must face. The information on contracts for football coaches, for example, is interesting and offers some insights into real institutional priorities as opposed to professed pieties (e.g., it is pretty clear that winning football games is infinitely more important than graduating football players). In short, the book has a number of interesting insights that make it a good read for serious students of universities and the way they work.
My sidekick Andy Gillen reminds me by his latest blog that I have not written much on Burton Weisbrod's new book with Jeff Balloou and Evelyn Asch, Mission and Money: Understanding the University. This is a nice addition to the literature on the economics of higher education written by one of America's leading thinkers about the behavior of non-profit organizations.
The basic premise is simple --arguably TOO simple. Universities essentially are about two things --defining and carrying out their mission, and finding the money to fund it. The two go together. A mission is impossible without money. Scarcity of money limits the scope and nature of missions. A paucity of good missions or mediocrity in performing those missions can even impact on the ability to raise money. The two are linked. Sometimes, the universities will do things to raise money to finance their missions that, in the long run, damage their reputuations and hurt their ability to perform the mission (e.g., when the university plugs commercial products).
A majority of the book is about money --funding universities, rather than the missions themselves. There are lengthy discussions of tuition policies, endowment management, the quest for donations, commercial use of scientific research, intercollegiate athletics, etc. Not much discussion exists about the trade-offs between undergraduate and graduate instruction, the arguments for performing non-commercially relevant research (e.g., in the humanities), on the measurement of mission accomplishment, etc.
The book does not explore the big trends concerning many Americans: the reasons for the rapid increase in higher education costs, the role that third party payments play, the economics of the student loan issue, etc. The authors make too much of the similarity between profits and non-profit institutions, and not enough of the powerful role profit incentives play in leading to different outcomes in the two types of institutions. There is no discussion of the use of cost-benefit techniques to evaluate mission success.
Even within the fairly narrow "money and mission" framework, vastly more space is devoted to intercollegiate athletics, which rarely is more than 5 percent of either money or mission at a university, than to tuition policy, which is quantitatively a far more important financing device. The importance of fixed supply at selective admission schools, and of the trade-off of lost tuition revenue from pricing tuition below equilibrium levels against the loss of prestige and the denial of access to lower income students is not discussed, despite its importance. An inordinate amount of discussion revolves around patent issues, which are of trivial import to most of higher education.
Despite these and a few other flaws, the book is on the whole good. It gives some good information on issues that every university president must face. The information on contracts for football coaches, for example, is interesting and offers some insights into real institutional priorities as opposed to professed pieties (e.g., it is pretty clear that winning football games is infinitely more important than graduating football players). In short, the book has a number of interesting insights that make it a good read for serious students of universities and the way they work.
Why I Changed My Mind on the Endowment Issue
by Andrew Gillen
Until a few days ago, if someone had asked me what my views were on the endowment issue, I would have said that I supported a 5% spending rule for schools with above a certain amount of money per student in their endowment.
I no longer believe that. Here is why.
My original support for the spending rule was not based on any sort of belief that 5% is the correct amount to spend, but rather on the fact that other organizations that receive tax deductable contributions were required to spend 5% of their “endowment.” The appropriateness of the tax deductibility and the 5% rule are separate issues that can be questioned, but given that others were forced to play by these rules, I saw no reason why universities shouldn’t as well. Essentially, I wanted the government to treat every organization the same, and I saw the exemption of universities from the 5% rule as a violation of this principle.
My views changed as a result of a public lecture and a roundtable discussion on the book Mission and Money: Understanding the University (you can order the book here) that I attended last week. One point that is repeatedly addressed in the book is that universities have variety of revenue sources, and that these revenues are fungible. There was also a comment, from the President of Northwestern University, along the lines of: I wouldn’t even need an accountant to help rearrange figures so as to satisfy a 5% spending rule. Combined these two points convinced me that an endowment spending rule would be ineffective.
To clarify, consider these two examples. First, consider normal businesses that pay taxes on their profits. The government can tax the profits of businesses fairly easily because the goal of the business is to make profits. To achieve their goal, they must maximize precisely what the government taxes. Second, consider non-profits that are subject to the 5% spending rule. These are predominantly organizations where the main source of revenue is tax deductable contributions. To ensure that the money goes towards the purpose, the government insists that 5% of it is actually spent every year. This is an effective rule (whether it is a good rule is another question) because contributions are the sole, or at least a dominant source of revenue for these organizations.
Thus, government decrees will be effective if they are aimed at the goal of the organization (taxes on profits) or if the only source of revenue for the organization is the one that is to be regulated (typical non-profits subject to the 5% rule because their "endowments" are funded by tax deductable contributions).
Neither of these conditions is satisfied by a 5% spending rule for universities. The goal of universities is not to accumulate endowments (though some of them are quite good at it), and the proportion of their revenue that actually comes from endowments is typically quite small. Because most of their money comes from other sources, and because money is fungible, universities will find it very easy to “satisfy” a 5% spending rule without actually changing anything.
So a minimum payout rule would be ineffective, meaning that it would have no benefits. It would however, impose costs, primarily in the form of compliance costs (accountants and lawyers filling out forms). Whenever something would provide no benefits, but would have positive costs, it should not be done. Thus, the 5% spending rule should not be imposed on universities.
Until a few days ago, if someone had asked me what my views were on the endowment issue, I would have said that I supported a 5% spending rule for schools with above a certain amount of money per student in their endowment.
I no longer believe that. Here is why.
My original support for the spending rule was not based on any sort of belief that 5% is the correct amount to spend, but rather on the fact that other organizations that receive tax deductable contributions were required to spend 5% of their “endowment.” The appropriateness of the tax deductibility and the 5% rule are separate issues that can be questioned, but given that others were forced to play by these rules, I saw no reason why universities shouldn’t as well. Essentially, I wanted the government to treat every organization the same, and I saw the exemption of universities from the 5% rule as a violation of this principle.
My views changed as a result of a public lecture and a roundtable discussion on the book Mission and Money: Understanding the University (you can order the book here) that I attended last week. One point that is repeatedly addressed in the book is that universities have variety of revenue sources, and that these revenues are fungible. There was also a comment, from the President of Northwestern University, along the lines of: I wouldn’t even need an accountant to help rearrange figures so as to satisfy a 5% spending rule. Combined these two points convinced me that an endowment spending rule would be ineffective.
To clarify, consider these two examples. First, consider normal businesses that pay taxes on their profits. The government can tax the profits of businesses fairly easily because the goal of the business is to make profits. To achieve their goal, they must maximize precisely what the government taxes. Second, consider non-profits that are subject to the 5% spending rule. These are predominantly organizations where the main source of revenue is tax deductable contributions. To ensure that the money goes towards the purpose, the government insists that 5% of it is actually spent every year. This is an effective rule (whether it is a good rule is another question) because contributions are the sole, or at least a dominant source of revenue for these organizations.
Thus, government decrees will be effective if they are aimed at the goal of the organization (taxes on profits) or if the only source of revenue for the organization is the one that is to be regulated (typical non-profits subject to the 5% rule because their "endowments" are funded by tax deductable contributions).
Neither of these conditions is satisfied by a 5% spending rule for universities. The goal of universities is not to accumulate endowments (though some of them are quite good at it), and the proportion of their revenue that actually comes from endowments is typically quite small. Because most of their money comes from other sources, and because money is fungible, universities will find it very easy to “satisfy” a 5% spending rule without actually changing anything.
So a minimum payout rule would be ineffective, meaning that it would have no benefits. It would however, impose costs, primarily in the form of compliance costs (accountants and lawyers filling out forms). Whenever something would provide no benefits, but would have positive costs, it should not be done. Thus, the 5% spending rule should not be imposed on universities.
Three Cheers for Rick Stephens and Boeing!! Art Rothkopf: Listen!!!
By Richard Vedder
While attending the higher education summit hosted by Education Secretary Margaret spellings earlier this summer in Chicago, I urged Rick Stephens of Boeing to publicly develop the elaborate job evaluation information he had gathered on the 150,000 Boeing employees in his role as the chief personnel officer of that great corporation. Specifically, I was thinking of actual rankings of schools. Jim Coleman forwarded me today's Chronicle piece stating Boeing is doing exactly that.
Rick was a fellow Spellings Commission member, and Boeing has information on job performance by college of graduation. While I have not seen the data, it would seem the sample would be large enough to make some meaningful judgements. If one looks only at employees hired over the past decade in the U.S. you probably still have a sample of tens of thousands. If Boeing draws from 500 universities, the average university would have perhaps 50 or more graduates who are in that group, and I think probably 200-300 of those schools would have a sample of at least 10. That is enough to do a decent evaluation. Which colleges prepare students for the real world the best?
To be sure, the Beoing rankings will not be perfect. Boeing is a science/technology oriented company, and probably does not hire large numbers of humanities, education, and fine arts majors. There is more to life than vocational success. Some schools may be good at providing jobs but are exceedingly costly to attend, or have low graduation rates. Uni-dimensional rankings are probably therefore not optimal. Still, this is a HUGE step forward.
CCAP partnered with forbes.com to enter the rankings business because we felt that the reputational/input based model of US News was not ideal. We wanted to have a vocational success component to our rankings and do --with Who's Who entries. But we think that component can be strengthened, and moves like Boeing's are very, very good.
I also told Art Rothkopf, the senior vice president at the U.S. Chamber of Commerce concerned with education, that the Chamber should promote an expansion of what Rick was doing.Specifically, the business community itself should do an expanded, multi-compnay version of what Rick has done --encompasses hundreds of thousands of student graduates in all disciplines. Art (a fine fellow and another former Spellings Commission member): this is the opportunity for the Chamber to do something really useful to help companies, and parents, make more informed college choices. I will state publicly that we at CCAP would be glad to work with either Rick and/or Art or others in this regard.
While attending the higher education summit hosted by Education Secretary Margaret spellings earlier this summer in Chicago, I urged Rick Stephens of Boeing to publicly develop the elaborate job evaluation information he had gathered on the 150,000 Boeing employees in his role as the chief personnel officer of that great corporation. Specifically, I was thinking of actual rankings of schools. Jim Coleman forwarded me today's Chronicle piece stating Boeing is doing exactly that.
Rick was a fellow Spellings Commission member, and Boeing has information on job performance by college of graduation. While I have not seen the data, it would seem the sample would be large enough to make some meaningful judgements. If one looks only at employees hired over the past decade in the U.S. you probably still have a sample of tens of thousands. If Boeing draws from 500 universities, the average university would have perhaps 50 or more graduates who are in that group, and I think probably 200-300 of those schools would have a sample of at least 10. That is enough to do a decent evaluation. Which colleges prepare students for the real world the best?
To be sure, the Beoing rankings will not be perfect. Boeing is a science/technology oriented company, and probably does not hire large numbers of humanities, education, and fine arts majors. There is more to life than vocational success. Some schools may be good at providing jobs but are exceedingly costly to attend, or have low graduation rates. Uni-dimensional rankings are probably therefore not optimal. Still, this is a HUGE step forward.
CCAP partnered with forbes.com to enter the rankings business because we felt that the reputational/input based model of US News was not ideal. We wanted to have a vocational success component to our rankings and do --with Who's Who entries. But we think that component can be strengthened, and moves like Boeing's are very, very good.
I also told Art Rothkopf, the senior vice president at the U.S. Chamber of Commerce concerned with education, that the Chamber should promote an expansion of what Rick was doing.Specifically, the business community itself should do an expanded, multi-compnay version of what Rick has done --encompasses hundreds of thousands of student graduates in all disciplines. Art (a fine fellow and another former Spellings Commission member): this is the opportunity for the Chamber to do something really useful to help companies, and parents, make more informed college choices. I will state publicly that we at CCAP would be glad to work with either Rick and/or Art or others in this regard.
Saturday, September 13, 2008
Conservatives and Liberals Unite!! An Idea All Should Endorse
By Richard Vedder
Henry Butler invited my sidekick Andy and me to a Searle Center seminar at the Northwestern Law School on Burt Weisbrod et al's fine new book, Mission and Money. More about the book and the seminar later. I found one semi-revolutionary idea was pleasing to both conservatives and liberals in attendance --a progressive federal voucher in lieu of ALL current federal forms of financial aid.
The idea is this. Pool all the federal student aid funds including loan subsidies together, and you have tens of billions in outlays. I would include tax credits in the calculation. Let us say the sum is $50 billion, about one-third of which is current Pell Grant outlays. Make the Pell Grant an explicit scholarship (the word voucher is verboten on political grounds, I guess) payable to the student, with the amount totally independent of the school chosen by the student (obviously, the money is usable only at an accredited school).
Give more of these awards than currently receive Pell Grants, maybe 8-10 million, with a peak award of, say, $5,000 or even more. Give no awards, however, to upper income students, who should be paying for their own education. Scale the remainder of the awards by adjusted gross income, maybe with some allowance for family size and number of kids in college --period. Awards could run between say $1000 and $6000. End the FAFSA form --use an income tax form checkoff allowing the administrator of the student awards access to IRS and, possibly, Social Security records. Give no money to richer kids. Put some performance standards in --the awards are good only for four years, for example. A bonus is given for being in the top one-fourth of your class (don't use a grade point average --that encourages grade inflation).
Sitting next to me at this seminar was Jim Rosenbaum, a Northwestern sociologist who, almost by definition, must be liberal politically. He loved the idea --it fits in well with liberal egalitarian concerns --target help for the poor, more than at present. Conservatives like it too --it is a voucher, supporting students and free choice more than institutions. It encourages competition and making higher education more of a market environment. It gets rid of massive administrative costs associated with the scandal ridden student loan programs. It awards excellence and punishes schools that allow students to linger around for many years. It is an idea Barack McCain or John Obama could support.
Why won't it happen soon? The private loan providers will be up in arms. The private colleges won't like kids getting as much in financial aid at public schools as at their own. In short, higher education and the financial industry will fight it. A good president will play hardball, and threaten withholding federal research funds, earmarks and other dollars if true financial aid reform does not happen. It is time to fight for the student and against the special interests.
Now, lest you think I am softening, I am outlining what I believe to be a political doable strategy that is better than what we are doing. If I had my way, we would encourage more kids to go to vocational/trade schools --and use their scholarship there --instead of conventional four year universities. I would allow vouchers to be used for intensive study courses such as Kaplan and Princeton Review offer to prepare for tests for law or business school, but in this case to prepare for examinations to earn a certificate to be, say, a master auto mechanic or computer programming specialist. And, perhaps we should rethink what the optimal length of postsecondary training is --why four years (now increasingly five or six)? Why not three? Or 3.4 years for Johnny the Brain, 4.6 for Susie the Social Butterfly, and 0.6 for Tom the Truck Driver wannabe?
Henry Butler invited my sidekick Andy and me to a Searle Center seminar at the Northwestern Law School on Burt Weisbrod et al's fine new book, Mission and Money. More about the book and the seminar later. I found one semi-revolutionary idea was pleasing to both conservatives and liberals in attendance --a progressive federal voucher in lieu of ALL current federal forms of financial aid.
The idea is this. Pool all the federal student aid funds including loan subsidies together, and you have tens of billions in outlays. I would include tax credits in the calculation. Let us say the sum is $50 billion, about one-third of which is current Pell Grant outlays. Make the Pell Grant an explicit scholarship (the word voucher is verboten on political grounds, I guess) payable to the student, with the amount totally independent of the school chosen by the student (obviously, the money is usable only at an accredited school).
Give more of these awards than currently receive Pell Grants, maybe 8-10 million, with a peak award of, say, $5,000 or even more. Give no awards, however, to upper income students, who should be paying for their own education. Scale the remainder of the awards by adjusted gross income, maybe with some allowance for family size and number of kids in college --period. Awards could run between say $1000 and $6000. End the FAFSA form --use an income tax form checkoff allowing the administrator of the student awards access to IRS and, possibly, Social Security records. Give no money to richer kids. Put some performance standards in --the awards are good only for four years, for example. A bonus is given for being in the top one-fourth of your class (don't use a grade point average --that encourages grade inflation).
Sitting next to me at this seminar was Jim Rosenbaum, a Northwestern sociologist who, almost by definition, must be liberal politically. He loved the idea --it fits in well with liberal egalitarian concerns --target help for the poor, more than at present. Conservatives like it too --it is a voucher, supporting students and free choice more than institutions. It encourages competition and making higher education more of a market environment. It gets rid of massive administrative costs associated with the scandal ridden student loan programs. It awards excellence and punishes schools that allow students to linger around for many years. It is an idea Barack McCain or John Obama could support.
Why won't it happen soon? The private loan providers will be up in arms. The private colleges won't like kids getting as much in financial aid at public schools as at their own. In short, higher education and the financial industry will fight it. A good president will play hardball, and threaten withholding federal research funds, earmarks and other dollars if true financial aid reform does not happen. It is time to fight for the student and against the special interests.
Now, lest you think I am softening, I am outlining what I believe to be a political doable strategy that is better than what we are doing. If I had my way, we would encourage more kids to go to vocational/trade schools --and use their scholarship there --instead of conventional four year universities. I would allow vouchers to be used for intensive study courses such as Kaplan and Princeton Review offer to prepare for tests for law or business school, but in this case to prepare for examinations to earn a certificate to be, say, a master auto mechanic or computer programming specialist. And, perhaps we should rethink what the optimal length of postsecondary training is --why four years (now increasingly five or six)? Why not three? Or 3.4 years for Johnny the Brain, 4.6 for Susie the Social Butterfly, and 0.6 for Tom the Truck Driver wannabe?
Thursday, September 11, 2008
University Research(ers) on Drugs
by Daniel Bennett
The Wall Street Journal published an article today that deals a serious blow to the credibility of university health-research. The National Institute of Health (NIH) has provided more than $23 billion to educational institutions for health-related research. The purpose of this publicly-supported research is to provide an impartial evaluation on the potential benefits and dangers of new medical advances, including drugs.
The problem is that some of the top university researchers are also on the payroll of the drug companies. Karen Wagner, of the University of Texas, has been consulting for GlaxoSmithKline, the maker of anti-depressant Paxil, since 2000. She has served as a public spokeswomen for the drug. Ironically, the University of Texas received a NIH grant in 2000, in part, to study the effects of Paxil on teenagers who take the drug to treat anxiety, in which Wagner was actively engaged. During the same year, Dr. Wagner also received $53,000 for services rendered to Glaxo.
One doesn't have to major in corporate ethics or read the Sarbanes-Oxley Act to realize that this is, at the minimum, a potential conflict of interest. Apparently, Dr. Wagner didn't read Darleen Drunyun's memoirs from prison to realize that her actions were presumptuous. Hats go off to Senator Charles Grassley, who is lobbying for proper disclosure of university ties to industry, and suggests tougher action against offenders. This is a step in the right direction towards making universities more transparent and accountable.
The Wall Street Journal published an article today that deals a serious blow to the credibility of university health-research. The National Institute of Health (NIH) has provided more than $23 billion to educational institutions for health-related research. The purpose of this publicly-supported research is to provide an impartial evaluation on the potential benefits and dangers of new medical advances, including drugs.
The problem is that some of the top university researchers are also on the payroll of the drug companies. Karen Wagner, of the University of Texas, has been consulting for GlaxoSmithKline, the maker of anti-depressant Paxil, since 2000. She has served as a public spokeswomen for the drug. Ironically, the University of Texas received a NIH grant in 2000, in part, to study the effects of Paxil on teenagers who take the drug to treat anxiety, in which Wagner was actively engaged. During the same year, Dr. Wagner also received $53,000 for services rendered to Glaxo.
One doesn't have to major in corporate ethics or read the Sarbanes-Oxley Act to realize that this is, at the minimum, a potential conflict of interest. Apparently, Dr. Wagner didn't read Darleen Drunyun's memoirs from prison to realize that her actions were presumptuous. Hats go off to Senator Charles Grassley, who is lobbying for proper disclosure of university ties to industry, and suggests tougher action against offenders. This is a step in the right direction towards making universities more transparent and accountable.
What are the Costs and Benefits of College Sports?
By Robert Villwock and Matthew Denhart
August is over and students across the country are making their way back into classrooms and the familiar smells of fall have begun, signifying the beginning of football season. Every weekend from now through January will be filled with exciting matchups on the field, starting this weekend with a big game in the state of Ohio as ‘The’ Ohio State University takes on Southern California. The game has several implications for both schools.
•The national championship hopes for both schools are on the line
•Future recruits will undoubtedly watch the game and make their college decision based somewhat on the result
•Stars from both sides will play as hard as possible to not only win the game, but impress NFL scouts as well
With all of the attention being put on college football, fellow CCAP research assistant Matthew Denhart and I wonder what are the costs and benefits of NCAA sports?
Sure Ohio State and USC stand to gain millions of dollars from this weekend’s matchup, but what about smaller division 1 schools whose teams don’t generate enough fans to cover the costs of putting a team on the field?
How heavily are big sports like football and basketball subsidizing the rest of the sports teams at a specific university?
Matt and I are in the beginning stages of a study that will encompass benefits and costs of collegiate athletics. The study will look at Division 1 Public Universities because they receive money from taxpayers and therefore it is important that they properly allocate those funds. Some other questions we hope to answer can be found below.
How many universities and small colleges’ athletics departments are operating at a loss and why do they continue offering sports? What are the externalities, both positive and negative, of having a sports team and what would (theoretically, of course) a company that wasn’t heavily subsidized by the government do in regards to keeping sports teams?
Also, other questions arise that we hope to answer. Do collegiate ‘student-athletes’ deserve to be paid for all of the public relations and money they bring into their respective universities? Also, what happens when incentives of big time college coaches are misaligned with the educational mission statement of the university?
The irony of the project is that Matt and I are both big college sports fans. We realize that college sports are here to stay and we are happy about that. Having said that, it is our responsibility as taxpayers to make sure that contributions to higher education are being used in the most effective and efficient way.
August is over and students across the country are making their way back into classrooms and the familiar smells of fall have begun, signifying the beginning of football season. Every weekend from now through January will be filled with exciting matchups on the field, starting this weekend with a big game in the state of Ohio as ‘The’ Ohio State University takes on Southern California. The game has several implications for both schools.
•The national championship hopes for both schools are on the line
•Future recruits will undoubtedly watch the game and make their college decision based somewhat on the result
•Stars from both sides will play as hard as possible to not only win the game, but impress NFL scouts as well
With all of the attention being put on college football, fellow CCAP research assistant Matthew Denhart and I wonder what are the costs and benefits of NCAA sports?
Sure Ohio State and USC stand to gain millions of dollars from this weekend’s matchup, but what about smaller division 1 schools whose teams don’t generate enough fans to cover the costs of putting a team on the field?
How heavily are big sports like football and basketball subsidizing the rest of the sports teams at a specific university?
Matt and I are in the beginning stages of a study that will encompass benefits and costs of collegiate athletics. The study will look at Division 1 Public Universities because they receive money from taxpayers and therefore it is important that they properly allocate those funds. Some other questions we hope to answer can be found below.
How many universities and small colleges’ athletics departments are operating at a loss and why do they continue offering sports? What are the externalities, both positive and negative, of having a sports team and what would (theoretically, of course) a company that wasn’t heavily subsidized by the government do in regards to keeping sports teams?
Also, other questions arise that we hope to answer. Do collegiate ‘student-athletes’ deserve to be paid for all of the public relations and money they bring into their respective universities? Also, what happens when incentives of big time college coaches are misaligned with the educational mission statement of the university?
The irony of the project is that Matt and I are both big college sports fans. We realize that college sports are here to stay and we are happy about that. Having said that, it is our responsibility as taxpayers to make sure that contributions to higher education are being used in the most effective and efficient way.
Wednesday, September 10, 2008
Vance Fried Podcast
Vance Fried, author of the recent CCAP study The $7,376 "Ivies": Vaule-Designed Models of Undergraduate Education, Recently participated in a podcast on The Chronicle. To learn more about about his model check out the podcast here or read the full CCAP study here.
Correction: I Forgot About the Colleges of Education
By Richard Vedder
Yesterday I wrote that the biggest scandal or scam in higher education was the 6-8-10 years people take to get the Ph.D. It is a costly degree, based on a dubious premise (that research expertise for all senior faculty is vital) and is getting more costly in terms of time spent in school over time.
But I forgot about the colleges of education. I am ashamed of myself. They are the biggest abominations of all. Teachers who take courses in colleges of education do no better at teaching on average than those who have no coursework in education. The Teach America kids with no education courses on average are splendid teachers. I have three children (one a daughter-in-law) who are public school teachers and all are truly outstanding in their fields --and none of them had one day of courses from a college of education before starting teaching. Colleges of education teach pablum, serve up intellectual junk food. Even worse --they foster an anti-intellectual environment that is truly disastrous, putting more emphasis on improving student self esteem than student learning. Our kids think they are good in math, while Koreans on average think they are poor --but Koreans beat the butts off Americans in international math tests. And the colleges of education are partly responsible for it.
At most universities, the college of education is viewed as an intellectual backwater on campus, home to the dullest students, the least productive faculty. Yet our governments FORCE students into these intellectual backwaters in order to become certified to teach. Why? Because of special interest pleading by teacher unions, state departments of education, colleges of education, etc. They have been able to maintain control over teaching supply, keeping tens if not hundreds of thousands of able persons with good qualifications, particularly in the STEM disciplines, from entering this honorable profession. This is imperiling our nation, lowering the intellectual capital of our youth. And universities put up with this --why? Why don't the presidents of 200 top universities "just say no" to colleges of education, cooperation with state departments of education, etc.
At my university, the college of education's grading policies are an embarrassment. B grades are relatively uncommon, and Cs are nearly unheard of. There are no standards, no attempts at excellence.
One solution: make it a felony for a superintendent to knowingly hire a graduate of a college of education to teach. Actually, that is a bit harsh, but the idea is in the right direction. We need to get fired up on this issue as a nation. As a first step, legislatures should stop giving subsidies for undergraduate students in education schools, and the Feds should stop giving Pell Grants and student loans to subsidize this academic form of child molestation.
Yesterday I wrote that the biggest scandal or scam in higher education was the 6-8-10 years people take to get the Ph.D. It is a costly degree, based on a dubious premise (that research expertise for all senior faculty is vital) and is getting more costly in terms of time spent in school over time.
But I forgot about the colleges of education. I am ashamed of myself. They are the biggest abominations of all. Teachers who take courses in colleges of education do no better at teaching on average than those who have no coursework in education. The Teach America kids with no education courses on average are splendid teachers. I have three children (one a daughter-in-law) who are public school teachers and all are truly outstanding in their fields --and none of them had one day of courses from a college of education before starting teaching. Colleges of education teach pablum, serve up intellectual junk food. Even worse --they foster an anti-intellectual environment that is truly disastrous, putting more emphasis on improving student self esteem than student learning. Our kids think they are good in math, while Koreans on average think they are poor --but Koreans beat the butts off Americans in international math tests. And the colleges of education are partly responsible for it.
At most universities, the college of education is viewed as an intellectual backwater on campus, home to the dullest students, the least productive faculty. Yet our governments FORCE students into these intellectual backwaters in order to become certified to teach. Why? Because of special interest pleading by teacher unions, state departments of education, colleges of education, etc. They have been able to maintain control over teaching supply, keeping tens if not hundreds of thousands of able persons with good qualifications, particularly in the STEM disciplines, from entering this honorable profession. This is imperiling our nation, lowering the intellectual capital of our youth. And universities put up with this --why? Why don't the presidents of 200 top universities "just say no" to colleges of education, cooperation with state departments of education, etc.
At my university, the college of education's grading policies are an embarrassment. B grades are relatively uncommon, and Cs are nearly unheard of. There are no standards, no attempts at excellence.
One solution: make it a felony for a superintendent to knowingly hire a graduate of a college of education to teach. Actually, that is a bit harsh, but the idea is in the right direction. We need to get fired up on this issue as a nation. As a first step, legislatures should stop giving subsidies for undergraduate students in education schools, and the Feds should stop giving Pell Grants and student loans to subsidize this academic form of child molestation.
The Good, the Bad, and the Ugly in American Higher Education
By Richard Vedder
THE GOOD
50 years ago almost to the day, I fell in love with American higher education. In early September 1958 I began my undergraduate education at a fine American university, Northwestern (the sixth highest ranked university by Forbes/CCAP). For 50 years, I have loved it. Universities impart understanding, wisdom, and learning. They help turn children into adults. They advance the frontiers of the greatest civilization our planet has ever seen. They save lives and make other lives more meaningful. Universities are where kids learn, fall in love, make lifetime friends, learn from stupid mistakes, develop lifelong intellectual interests, and prepare themselves vocationally for life. And American universities are among the best in the world, THE BEST on average by several criteria.
THE BAD
Rolls Royce makes wonderful cars, and I would love to own one, but the opportunity cost of owning one is too high --I have enough money for a nice house, but not enough for a nice house and a super nice car. Most of American higher education wants to be the Rolls Royce of the field, and accordingly lavishes increasing amount of resources into their product. But, unlike Rolls Royce, it is not clear the product today, as expensive as it is, is much better than in, say, 1958 when I began college. To be sure, the changing quality over time is simply unmeasurable, since colleges have no bottom line, no measures of what they add to the human experience. Improvements have come in the quality of student housing and food, in the recreational facilities available --in short, into the country club dimensions of student life. But have they come about in the quality of the learning? I am dubious.
The reasons for the rise in costs relative to the quantity and probably quality of the products offered are many, too many to be discussed much here. The non-profit nature of most providers and the prevalence of third party payments are huge factors. The massive government student loan program, for example, has enabled colleges to raise costs a lot --and much of the increase in university spending has gone for dubious things like vast new administrative bureaucracies, massive public relations offices, fancy buildings that lie fallow (to use an expression I use a lot when I teach medieval economic history) much of the year, and expensive affirmative action programs that violate the basic meritocratic nature of American society.
THE UGLY
American colleges are largely unaccountable to anyone. The Boards of Trustees at many schools are gutless puppets to the administration of the school, their servants rather than bosses. Faculty members are excessively arrogant and unaccountable, as are university administrators. As a consequence, often things are done not in the public interest --including huge salaries and perks for university leaders, kickbacks to financial aid officers who get too cozy to private loan companies, athletic programs that violate basic ethical precepts to increase revenues and victories, etc. Universities are increasingly out of touch with the mainstream in American life, politically, culturally, and socially. Giving colleges huge amounts of institutional autonomy can lead to abuses, and the abuses are mounting.
A day of reckoning is coming to higher education. The Spellings Commission was the opening salvo in a more critical, and I think healthy, examination of the business and outcomes of higher education.
THE GOOD
50 years ago almost to the day, I fell in love with American higher education. In early September 1958 I began my undergraduate education at a fine American university, Northwestern (the sixth highest ranked university by Forbes/CCAP). For 50 years, I have loved it. Universities impart understanding, wisdom, and learning. They help turn children into adults. They advance the frontiers of the greatest civilization our planet has ever seen. They save lives and make other lives more meaningful. Universities are where kids learn, fall in love, make lifetime friends, learn from stupid mistakes, develop lifelong intellectual interests, and prepare themselves vocationally for life. And American universities are among the best in the world, THE BEST on average by several criteria.
THE BAD
Rolls Royce makes wonderful cars, and I would love to own one, but the opportunity cost of owning one is too high --I have enough money for a nice house, but not enough for a nice house and a super nice car. Most of American higher education wants to be the Rolls Royce of the field, and accordingly lavishes increasing amount of resources into their product. But, unlike Rolls Royce, it is not clear the product today, as expensive as it is, is much better than in, say, 1958 when I began college. To be sure, the changing quality over time is simply unmeasurable, since colleges have no bottom line, no measures of what they add to the human experience. Improvements have come in the quality of student housing and food, in the recreational facilities available --in short, into the country club dimensions of student life. But have they come about in the quality of the learning? I am dubious.
The reasons for the rise in costs relative to the quantity and probably quality of the products offered are many, too many to be discussed much here. The non-profit nature of most providers and the prevalence of third party payments are huge factors. The massive government student loan program, for example, has enabled colleges to raise costs a lot --and much of the increase in university spending has gone for dubious things like vast new administrative bureaucracies, massive public relations offices, fancy buildings that lie fallow (to use an expression I use a lot when I teach medieval economic history) much of the year, and expensive affirmative action programs that violate the basic meritocratic nature of American society.
THE UGLY
American colleges are largely unaccountable to anyone. The Boards of Trustees at many schools are gutless puppets to the administration of the school, their servants rather than bosses. Faculty members are excessively arrogant and unaccountable, as are university administrators. As a consequence, often things are done not in the public interest --including huge salaries and perks for university leaders, kickbacks to financial aid officers who get too cozy to private loan companies, athletic programs that violate basic ethical precepts to increase revenues and victories, etc. Universities are increasingly out of touch with the mainstream in American life, politically, culturally, and socially. Giving colleges huge amounts of institutional autonomy can lead to abuses, and the abuses are mounting.
A day of reckoning is coming to higher education. The Spellings Commission was the opening salvo in a more critical, and I think healthy, examination of the business and outcomes of higher education.
Tuesday, September 09, 2008
The Best Scam in Higher Education Continues
By Richard Vedder
This is my annual (maybe biannual, I am not sure) complaint about the greatest outrage in a sector that has a lot of dubious practices and inefficiencies. I am not talking about intercollegiate athletics (lots of ethical and financial problems), the true cost of much faculty research (tens of thousands annually per article produced, most of which are of dubious value), or the soaring salaries of university presidents. Rather, it is the absolutely outrageous time of completion record regarding PhDs in this country.
The PhD is a damnably expensive degree to produce. Schools that neglect undergraduate students, allowing them to be taught by poorly paid and untrained graduate students who can barely speak English, nonetheless think nothing of running graduate seminars with 10 students taught by $125,000 professors. It is bad enough that this is happening. What is worse is that the colleges force, encourage or allow those graduate students to hang around for years and years before giving them a degree.
The Graduate School organization has released another study. Below are the 8 year completion rates for several groups:
GROUP 8 YEAR COMPLETION RATE
Males 58%
Females 55%
International Students 64%
Whites 53%
African-Americans 48%
Latinos 46%
Asian Americans 49%
Other data show that well over 40 percent of students do not have the degree after 10 years --a very high dropout rate similar to the undergraduate rate of attrition (but a much, much larger waste of resources per student). Well under one-fourth of students get their PhD within five years, and even if you exclude the dropouts, the typical PhD student takes 6 or 7 years. To be sure, many PhD students are married and need to work at least part-time. But a lot of the long time span is simply because it is exceedingly profitable for some schools to have students linger around. State schools often get big subsidies for graduate students. All schools use them as cheap teaching labor. Professors exploit them to further their own research interests (although in many cases it is legitimate exploitation, as the professors credit the graduate students for their contributions).
Incentives need to change. States who hand out subsidies on the basis of enrollment should cut off subsidies to PhD students after four years--period. I managed to earn a PhD in three years, doing a little teaching along the way. Two years of course work, one year of largely research and writing, and a fourth year to allow time to do some teaching and research for others along the way--that is enough. We are keeping extremely productive resources out of the labor market at enormous expense by keeping them around for long periods. Federal research grants should be reduced for those schools that have a poor PhD completion rate--defined, I would argue, as 4 years, certainly not more than 5.
Needless to say, the same principles should apply for undergraduate completion as well. The best way to effect change is to subsidize students, not institutions--and only for a limited amount of time. We now cut off welfare benefits after a specific time period, a reform that dramatically lowered the percent of the population on public assistance--and, importantly, the poverty rate as well. We should do for higher education what we did for welfare--cut the subsidies after a reasonable period of time.
This is my annual (maybe biannual, I am not sure) complaint about the greatest outrage in a sector that has a lot of dubious practices and inefficiencies. I am not talking about intercollegiate athletics (lots of ethical and financial problems), the true cost of much faculty research (tens of thousands annually per article produced, most of which are of dubious value), or the soaring salaries of university presidents. Rather, it is the absolutely outrageous time of completion record regarding PhDs in this country.
The PhD is a damnably expensive degree to produce. Schools that neglect undergraduate students, allowing them to be taught by poorly paid and untrained graduate students who can barely speak English, nonetheless think nothing of running graduate seminars with 10 students taught by $125,000 professors. It is bad enough that this is happening. What is worse is that the colleges force, encourage or allow those graduate students to hang around for years and years before giving them a degree.
The Graduate School organization has released another study. Below are the 8 year completion rates for several groups:
GROUP 8 YEAR COMPLETION RATE
Males 58%
Females 55%
International Students 64%
Whites 53%
African-Americans 48%
Latinos 46%
Asian Americans 49%
Other data show that well over 40 percent of students do not have the degree after 10 years --a very high dropout rate similar to the undergraduate rate of attrition (but a much, much larger waste of resources per student). Well under one-fourth of students get their PhD within five years, and even if you exclude the dropouts, the typical PhD student takes 6 or 7 years. To be sure, many PhD students are married and need to work at least part-time. But a lot of the long time span is simply because it is exceedingly profitable for some schools to have students linger around. State schools often get big subsidies for graduate students. All schools use them as cheap teaching labor. Professors exploit them to further their own research interests (although in many cases it is legitimate exploitation, as the professors credit the graduate students for their contributions).
Incentives need to change. States who hand out subsidies on the basis of enrollment should cut off subsidies to PhD students after four years--period. I managed to earn a PhD in three years, doing a little teaching along the way. Two years of course work, one year of largely research and writing, and a fourth year to allow time to do some teaching and research for others along the way--that is enough. We are keeping extremely productive resources out of the labor market at enormous expense by keeping them around for long periods. Federal research grants should be reduced for those schools that have a poor PhD completion rate--defined, I would argue, as 4 years, certainly not more than 5.
Needless to say, the same principles should apply for undergraduate completion as well. The best way to effect change is to subsidize students, not institutions--and only for a limited amount of time. We now cut off welfare benefits after a specific time period, a reform that dramatically lowered the percent of the population on public assistance--and, importantly, the poverty rate as well. We should do for higher education what we did for welfare--cut the subsidies after a reasonable period of time.
Monday, September 08, 2008
Where Does Vocationally Relevant Learning Occur?
By Richard Vedder
If one believes that markets work and the marginal productivity theory of wages is valid, as I do, then it can be shown that a very large portion of learning in America happens on the job. As I begin my 44th year of teaching at Ohio University in less than one hour, I believe what I teach is useful from the standpoint of making my students more aware of the civilization in which they live, and I believe I give them knowledge and appreciation of the economic accomplishments of the Industrial Revolution and after. But do I teach anything that increases my students' productivity in the work place? I doubt it.
Walking around the neighborhood yesterday, I encountered one neighbor who flies Airbus jets for American Airlines. Chatting with him, he said he expected he would have to go back to school --a company school-- to learn how to fly the successor airplane, not yet chosen. His continued livelihood depends on private non-college schooling. And most learning actually occurs on the job itself. Compare the earnings of those with an 8th grade education between the ages of 18 and 24 with the earnings of those with the same education aged 55 to 64. The older group typically earns much, much more --picking up skills, experience and maturity with the passage of time. Neither group has much education, but the older group does far, far better economically.
The same patterns hold for more educated Americans. Those with a B.A. degree aged, say, 55 to 59, make buckets more than those aged, say, 25-29 --despite the fact that the younger group moves faster, can do more physically demanding tasks, has better computer skills, etc. There is an awful lot of on-the-job training that goes on in America.
I think this tends to support Charles Murray's point, made earlier by me in Going Broke By Degree, that many Americans simply do not need a college education in order to become productive in the labor force. The degree gets them a good start --and good pay -- because the degree tells employers that the individual is reasonably intelligent and probably fairly disciplined and motivated. But it is not the college education, it is the cognitive skills and the learning through experience that are the most important determinants of worker productivity.
This is a topic we plan to research more in the weeks and months ahead.
If one believes that markets work and the marginal productivity theory of wages is valid, as I do, then it can be shown that a very large portion of learning in America happens on the job. As I begin my 44th year of teaching at Ohio University in less than one hour, I believe what I teach is useful from the standpoint of making my students more aware of the civilization in which they live, and I believe I give them knowledge and appreciation of the economic accomplishments of the Industrial Revolution and after. But do I teach anything that increases my students' productivity in the work place? I doubt it.
Walking around the neighborhood yesterday, I encountered one neighbor who flies Airbus jets for American Airlines. Chatting with him, he said he expected he would have to go back to school --a company school-- to learn how to fly the successor airplane, not yet chosen. His continued livelihood depends on private non-college schooling. And most learning actually occurs on the job itself. Compare the earnings of those with an 8th grade education between the ages of 18 and 24 with the earnings of those with the same education aged 55 to 64. The older group typically earns much, much more --picking up skills, experience and maturity with the passage of time. Neither group has much education, but the older group does far, far better economically.
The same patterns hold for more educated Americans. Those with a B.A. degree aged, say, 55 to 59, make buckets more than those aged, say, 25-29 --despite the fact that the younger group moves faster, can do more physically demanding tasks, has better computer skills, etc. There is an awful lot of on-the-job training that goes on in America.
I think this tends to support Charles Murray's point, made earlier by me in Going Broke By Degree, that many Americans simply do not need a college education in order to become productive in the labor force. The degree gets them a good start --and good pay -- because the degree tells employers that the individual is reasonably intelligent and probably fairly disciplined and motivated. But it is not the college education, it is the cognitive skills and the learning through experience that are the most important determinants of worker productivity.
This is a topic we plan to research more in the weeks and months ahead.
Friday, September 05, 2008
Well Said
by Andrew Gillen
The University of Nebraska at Omaha is bragging that it's student athletes actually learn something. To no one's surprise, evidence of actual learning is somewhat controversial. Luckily, Keven Carey, writing at Inside Higher Ed, puts the issue in perspective:
I feel a little like James Carville in Old School when asked to respond to Will Ferrell's argument in a debate:
The University of Nebraska at Omaha is bragging that it's student athletes actually learn something. To no one's surprise, evidence of actual learning is somewhat controversial. Luckily, Keven Carey, writing at Inside Higher Ed, puts the issue in perspective:
Apparently, it’s perfectly OK to boast about your performance on a measure that’s highly correlated with, and partially based on, how well your students did on a standardized test they took when they were juniors in high school. But a test of how much they learned after enrolling? Gamesmanship!
I feel a little like James Carville in Old School when asked to respond to Will Ferrell's argument in a debate:
We... have no response. That was perfect.
2 Things I Didn't Know Yesterday
by Andrew Gillen
The first thing I didn't know yesterday was that it is sometimes possible for individuals to have the officers that direct university endowments mange their investments as well. Felix Salmon points out (here but the background is here and here)- with the help of Anne Tergesen- various schemes by which they do this. He concludes:
The second thing concerns something that's been bothering me for awhile now - the mini-controversy that is associated with the Consumer Price Index (CPI), which is widely used to adjust dollar figures from different years for inflation so as to allow direct comparisons. Years ago, the Bureau of Labor Statistics changed the method by which it is calculated, and conspiracy theorists have been arguing ever since that the changes were a way to mislead the public. What does this have to do with higher ed? A lot. If the CPI is wrong about inflation, then statements such as "tuition has doubled over the past X years after adjusting for inflation" wouldn't be valid. Thankfully, the BLS has responded to these claims. As James Hamilton notes, this thoroughly debunks the conspiracy theorists.
Bottom line: You can continue to use the CPI to adjust for inflation.
The first thing I didn't know yesterday was that it is sometimes possible for individuals to have the officers that direct university endowments mange their investments as well. Felix Salmon points out (here but the background is here and here)- with the help of Anne Tergesen- various schemes by which they do this. He concludes:
there's a good reason for these options being largely underneath the radar screen: they're all basically ways of piggy-backing on the university's tax-exempt status. If they become too popular, there's always a risk that the IRS will start cracking down on them.
The second thing concerns something that's been bothering me for awhile now - the mini-controversy that is associated with the Consumer Price Index (CPI), which is widely used to adjust dollar figures from different years for inflation so as to allow direct comparisons. Years ago, the Bureau of Labor Statistics changed the method by which it is calculated, and conspiracy theorists have been arguing ever since that the changes were a way to mislead the public. What does this have to do with higher ed? A lot. If the CPI is wrong about inflation, then statements such as "tuition has doubled over the past X years after adjusting for inflation" wouldn't be valid. Thankfully, the BLS has responded to these claims. As James Hamilton notes, this thoroughly debunks the conspiracy theorists.
Bottom line: You can continue to use the CPI to adjust for inflation.
Thursday, September 04, 2008
Student Employment
by Daniel Bennett
A recent article on Purdue student Glen Bradford tells of how he has relied on stock market investments to help finance his tuition. Bradford has developed an investment strategy to help finance his engineering education that even Jim Cramer would bouya. While Bradford has been lucky enough to gain a decade of experience in the stock market and has been successful thus far, stock picking is certainly not a viable option to help pay the tuition for most college students.
The reality is that most students rely on a combination of their parent's hard earned money, financial aid, and the measly wages of student employment. CCAP has begun to investigate student employment and I would like to report some of the preliminary results.
Among full-time students, 10.5% are employed on a full-time basis during the school year. That is, they work 40 hours per week while attending college full-time.
Another nearly 33% of full-time students work a part-time job during the school year. This indicates that over 43% of full-time college students are employed during the school year. These figures increase during the summer months (June, July, August), when the percentages increase to nearly 25% employed full-time and over 36% employed part-time. During the summer, nearly 61% of full-time college students are working.
As the recent recipient of a Master's degree, I can certainly speak to the value of gaining work experience while still in school. Working part-time jobs during the school year, and full-time ones during the summer, helped out tremendously with reducing the amount of funds that I had to borrow to pay for college. Not to mention the fact that working in the real world helps to build character, perspective and knowledge of life outside of the classroom.
Knowing that such a large number of students are working to help support the financial burden of college provoked me to find out how much they are earning. A rough measure of student employment earnings can be estimated by using wage and salary earnings of the 16 to 24 year old age group, as reported by the Bureau of Labor Statistics for 2007. Part-time employees in this age group earned a median salary of $158 per week. Full-time employees in this group earned a median salary of $428.50. (note - the figures were reported individually for men and women, so I calculated a weighted average for the entire population). If these employees work 50 weeks per year, then part-timers would earn $7,900 and full-timers $21,425 annually. These salaries are certainly not large enough to pay for a college education, especially once room and board are included, but they can help to reduce the financial burden.
One big cost of working that doesn't show up in these figures is the sacrifice of valuable study time, which will potentially hurt worker's GPA. With students struggling through school by working and incurring huge amounts of debt simply to pay for an education, one would question if there are other ways to help these determined and hard-working students to achieve their goal of obtaining a college degree.
One intriguing possibility is offered by German firm Career Concepts AG. It invites applications from students for financing of any amount. After graduation, the student pays back the loan as a fixed percentage of his income for a period of 60-84 months, depending on the amount of the loan and post-graduation employment. While this approach will definitely have critics, it is a viable alternative that a portion of American students would find attractive.
A recent article on Purdue student Glen Bradford tells of how he has relied on stock market investments to help finance his tuition. Bradford has developed an investment strategy to help finance his engineering education that even Jim Cramer would bouya. While Bradford has been lucky enough to gain a decade of experience in the stock market and has been successful thus far, stock picking is certainly not a viable option to help pay the tuition for most college students.
The reality is that most students rely on a combination of their parent's hard earned money, financial aid, and the measly wages of student employment. CCAP has begun to investigate student employment and I would like to report some of the preliminary results.
Among full-time students, 10.5% are employed on a full-time basis during the school year. That is, they work 40 hours per week while attending college full-time.
Another nearly 33% of full-time students work a part-time job during the school year. This indicates that over 43% of full-time college students are employed during the school year. These figures increase during the summer months (June, July, August), when the percentages increase to nearly 25% employed full-time and over 36% employed part-time. During the summer, nearly 61% of full-time college students are working. As the recent recipient of a Master's degree, I can certainly speak to the value of gaining work experience while still in school. Working part-time jobs during the school year, and full-time ones during the summer, helped out tremendously with reducing the amount of funds that I had to borrow to pay for college. Not to mention the fact that working in the real world helps to build character, perspective and knowledge of life outside of the classroom.
Knowing that such a large number of students are working to help support the financial burden of college provoked me to find out how much they are earning. A rough measure of student employment earnings can be estimated by using wage and salary earnings of the 16 to 24 year old age group, as reported by the Bureau of Labor Statistics for 2007. Part-time employees in this age group earned a median salary of $158 per week. Full-time employees in this group earned a median salary of $428.50. (note - the figures were reported individually for men and women, so I calculated a weighted average for the entire population). If these employees work 50 weeks per year, then part-timers would earn $7,900 and full-timers $21,425 annually. These salaries are certainly not large enough to pay for a college education, especially once room and board are included, but they can help to reduce the financial burden.
One big cost of working that doesn't show up in these figures is the sacrifice of valuable study time, which will potentially hurt worker's GPA. With students struggling through school by working and incurring huge amounts of debt simply to pay for an education, one would question if there are other ways to help these determined and hard-working students to achieve their goal of obtaining a college degree.
One intriguing possibility is offered by German firm Career Concepts AG. It invites applications from students for financing of any amount. After graduation, the student pays back the loan as a fixed percentage of his income for a period of 60-84 months, depending on the amount of the loan and post-graduation employment. While this approach will definitely have critics, it is a viable alternative that a portion of American students would find attractive.
Wednesday, September 03, 2008
Land Grabs and Accreditation
by Andrew Gillen
I read in the WSJ today that Columbia is planning an expansion. Good for them. However, if this piece is correct, they are going about it in a most disagreeable way, getting the state of New York to use eminent domain to take the land and turn it over to them.
Didn't anyone tell them that now is a bad time to be in real estate? Although, perhaps that are just getting a jump on the next bubble. If so, then they deserve to make this list next time, which by the way, is one of the funniest things I've read in a long time (HT to Paul Kedrosky's Infectious Greed). While grading those that helped create the real estate bubble, Nick Gogerty has this to say about the rating Agencies:
Is there another group that has "a government monopoly on truth" as it relates to educational value in higher ed? I would say that the accreditation system sounds an awful lot like the rating agency system, with both having private groups sanctioned with government monopolies to certify things in their area. Some of the alternatives to this type of system aren't too attractive, (eg something like the FDA) so it is possible that the system we currently have is the least bad option; however, given the similarities, and due to recent experience with rating agencies, our confidence in the accreditation system should be lower today than it was in 2005.
I read in the WSJ today that Columbia is planning an expansion. Good for them. However, if this piece is correct, they are going about it in a most disagreeable way, getting the state of New York to use eminent domain to take the land and turn it over to them.
Didn't anyone tell them that now is a bad time to be in real estate? Although, perhaps that are just getting a jump on the next bubble. If so, then they deserve to make this list next time, which by the way, is one of the funniest things I've read in a long time (HT to Paul Kedrosky's Infectious Greed). While grading those that helped create the real estate bubble, Nick Gogerty has this to say about the rating Agencies:
Ratings Agencies. Moody’s, S&P and to a lesser degree Fitch did pretty well, I mean these guys have a government monopoly as NRSROs from the SEC on what is and is not qualified as investment grade. You guys have a government monopoly on truth as it relates to value, how cool is that? ... The ratings agencies have admitted that their models may have been broken. What!?!, You guys were running this stuff through a model? That is crazy, it just slows up the whole process. You were paid to be a “AAA” rubber stamp and here you go and delay the game and muck up the works using a broken model. We could have gotten a heck of a lot more mortgage backed paper out the door and offshore, if you guys hadn’t been busy mathturbating with the models. Next time keep it simple, take the money, rubber stamp the paper, keep your mouth shut and move on. It will be like the good old days with municipal bonds.
Is there another group that has "a government monopoly on truth" as it relates to educational value in higher ed? I would say that the accreditation system sounds an awful lot like the rating agency system, with both having private groups sanctioned with government monopolies to certify things in their area. Some of the alternatives to this type of system aren't too attractive, (eg something like the FDA) so it is possible that the system we currently have is the least bad option; however, given the similarities, and due to recent experience with rating agencies, our confidence in the accreditation system should be lower today than it was in 2005.
Tuesday, September 02, 2008
Grade Inflation Follow-up
For those of you with access to the Chronicle of Higher Education, here is an interesting article concerning grade inflation.
Monday, September 01, 2008
Making College More Affordable: Lumina''s Help
By Richard Vedder
When I started CCAP a couple of years ago, with critical financial support from the Searle Freedom Trust and others, I thought we would be largely reporting on the causes and nature of the college cost explosion rather than being more actively involved in trying to slow it down. While the research/reporting dimension of our job is important, we are increasingly trying to help in a more pro-active way to reduce college costs.
One modest way, of course, is through our entry into the college rankings business. The market leader, US NEWS, has produced a ranking scheme that encourages high amounts of spending --this we have verified empirically. We wanted to devise a rankings scheme that, first of all, dealt with the concerns of students and parents (is the instruction any good, do graduates get good jobs, will the student incur big debt, etc.), and secondly, if possible, be expenditure-neutral, meaning that spending more money per student does not increase the probability of a higher ranking. Our FORBES rankings achieves that goal. We hope to refine and improve the rankings over time, and steadily gain market share, an objective I think the folks at Forbes enthusiastically share. To the extent rankings matter in determining prestige, student college selection, etc., this is a worthwhile objective. We want to contribute our bit to academic disarmament, to reducing the intensity of the academic arms race, albeit perhaps only modestly.
Now we have received a magnificent grant from the Lumina Foundation, the single group that has done the most to promote research into higher education with a goal of improving its quality and make it more affordable and accessible. Our Lumina grant will allow us to do some things that previously were beyond our reach financially. For example, we hope to put together a primer on reducing college costs, outlining practical ways colleges can make themselves do more with less --and become more affordable.
We hope to gain new insights on the most interesting development in American higher education --the for profit sector. We will have the resources to sit down and talk with entrepreneurs in the field, and see what motivates them and why they think the profit motive leads to lower, not higher, costs per student after adjusting for quality.
And what are the barriers to innovation posed by regulation, especially the quasi-self regulation of accrediting agencies? We are going to do some in depth investigation into the world of accreditation, and see if the barriers to entry that some for profit entrepreneurs tell me exist are truly sizable, and if they are justified on any qualitative grounds. Lumina has provided us the means of looking at these questions over the next couple of years, and we take this challenge seriously. A big thanks to Lumina for its confidence in us.
When I started CCAP a couple of years ago, with critical financial support from the Searle Freedom Trust and others, I thought we would be largely reporting on the causes and nature of the college cost explosion rather than being more actively involved in trying to slow it down. While the research/reporting dimension of our job is important, we are increasingly trying to help in a more pro-active way to reduce college costs.
One modest way, of course, is through our entry into the college rankings business. The market leader, US NEWS, has produced a ranking scheme that encourages high amounts of spending --this we have verified empirically. We wanted to devise a rankings scheme that, first of all, dealt with the concerns of students and parents (is the instruction any good, do graduates get good jobs, will the student incur big debt, etc.), and secondly, if possible, be expenditure-neutral, meaning that spending more money per student does not increase the probability of a higher ranking. Our FORBES rankings achieves that goal. We hope to refine and improve the rankings over time, and steadily gain market share, an objective I think the folks at Forbes enthusiastically share. To the extent rankings matter in determining prestige, student college selection, etc., this is a worthwhile objective. We want to contribute our bit to academic disarmament, to reducing the intensity of the academic arms race, albeit perhaps only modestly.
Now we have received a magnificent grant from the Lumina Foundation, the single group that has done the most to promote research into higher education with a goal of improving its quality and make it more affordable and accessible. Our Lumina grant will allow us to do some things that previously were beyond our reach financially. For example, we hope to put together a primer on reducing college costs, outlining practical ways colleges can make themselves do more with less --and become more affordable.
We hope to gain new insights on the most interesting development in American higher education --the for profit sector. We will have the resources to sit down and talk with entrepreneurs in the field, and see what motivates them and why they think the profit motive leads to lower, not higher, costs per student after adjusting for quality.
And what are the barriers to innovation posed by regulation, especially the quasi-self regulation of accrediting agencies? We are going to do some in depth investigation into the world of accreditation, and see if the barriers to entry that some for profit entrepreneurs tell me exist are truly sizable, and if they are justified on any qualitative grounds. Lumina has provided us the means of looking at these questions over the next couple of years, and we take this challenge seriously. A big thanks to Lumina for its confidence in us.
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