CCAP in Cooperation with the John William Pope Center for Higher Education Policy is pleased to announce the release of a new study: Griggs v. Duke Power: Implications for College Credentialing.
This study explores how the 1971 Supreme Court Case may have enormously boosted the number of students attending college as well as increased the earning differential between high school and college graduates. The study concludes that the Griggs case may be partly to blame for rising college costs and that the court’s ruling has inadvertently made it harder for disadvantaged socio-economic groups to secure well paying jobs.
View the study here.
Friday, October 31, 2008
Out with the Old, In with the New
by Daniel Bennett
In the spirit of the election frenzy, it is worth discussing a shift in paradigm that is highly possible in the coming years. And no, I am not referring to a new administration in the White House. Instead, let's focus on the reality that the college pricing model is being threatened by the state of the economy, which is not necessarily a bad thing. The Chronicle discussed the issue, stating that the traditional model of college pricing is based on an unstable foundation of government support and ascending tuition.
I wrote earlier this month on the declining state support of higher education , which is the economic reality for at least the near and medium-term. The higher ed community can no long rely on steady public expenditures to support its inefficient operation. The intermediate response of hiking up tuition is crippling many families financially, and forcing many students to reconsider lower-priced options, such as community colleges and online programs. Enrollment at state public schools should also see a boost, as students who may have otherwise attended private institutions opt for less costly alternatives.
However, schools can't continue to subsidize tuition of the needy with increases in tuition for those that are able to afford full sticker price. Tuition levels have increased substantially more than the CPI over the past several decades. Higher education is a difficult market to analyze due to the scarce availability of cost and revenue data, but I would suspect that the market equilibrium price (when supply equals demand) has been overshot and is due for a recession. The evidence that supports this claim, includes:
Dr. Vedder outlines 12 reasons for rising tuition prices in his Over-Invested and Over-Priced report. Universities can build on these, and other cost-saving measures, to begin to bring tuition back to reality. Otherwise, the tuition bubble is bound to pop at any time. The current economic situation is the ideal time to implement such a shift in paradigm towards reducing costs and maximizing the use of resources. Out with the old and in with the new!
In the spirit of the election frenzy, it is worth discussing a shift in paradigm that is highly possible in the coming years. And no, I am not referring to a new administration in the White House. Instead, let's focus on the reality that the college pricing model is being threatened by the state of the economy, which is not necessarily a bad thing. The Chronicle discussed the issue, stating that the traditional model of college pricing is based on an unstable foundation of government support and ascending tuition.
I wrote earlier this month on the declining state support of higher education , which is the economic reality for at least the near and medium-term. The higher ed community can no long rely on steady public expenditures to support its inefficient operation. The intermediate response of hiking up tuition is crippling many families financially, and forcing many students to reconsider lower-priced options, such as community colleges and online programs. Enrollment at state public schools should also see a boost, as students who may have otherwise attended private institutions opt for less costly alternatives.
However, schools can't continue to subsidize tuition of the needy with increases in tuition for those that are able to afford full sticker price. Tuition levels have increased substantially more than the CPI over the past several decades. Higher education is a difficult market to analyze due to the scarce availability of cost and revenue data, but I would suspect that the market equilibrium price (when supply equals demand) has been overshot and is due for a recession. The evidence that supports this claim, includes:
(1) Growing public discontent over high tuitionThe first two indicators are somewhat endogenous factors, as consumers concerned over the high price seek alternatives, a signal that the tuition ceiling is near. The declining government support of higher education is attributable to the scarcity of resources, as the resources allocated to higher education compete with the need for public support of health care, infrastructure, primary education and other public needs. There has been some evidence that universities are tightening their budgets, but this may prove to only be a short-term fantasy evoked by the slow economic climate, The the market conditions ought to preclude a shift in administrative focus from institutional growth and lavish spending, to increased control over costs and efficiency. Colleges need to become more affordable to students and productive with their resources.
(2) Expected increased enrollment at community and online colleges
(3) Declining government support for higher education
(4) Tightening control of spending on growth projects by universities
Dr. Vedder outlines 12 reasons for rising tuition prices in his Over-Invested and Over-Priced report. Universities can build on these, and other cost-saving measures, to begin to bring tuition back to reality. Otherwise, the tuition bubble is bound to pop at any time. The current economic situation is the ideal time to implement such a shift in paradigm towards reducing costs and maximizing the use of resources. Out with the old and in with the new!
Thursday, October 30, 2008
Colleges' Perverse Incentives
by Luke Myers
Imagine if the Standard & Poor's stock rating was heavily based on how much companies spent on capital, labor and technology, with no attention to earnings per share or debt to equity. Their ratings would, with good reason, be ridiculed or perhaps simply ignored. Investors know that the money spent by a firm tells little, if anything, about the quality of returns.
Yet the most prominent source for ratings in the higher education industry does exactly this: 50% of a college’s ranking in U.S. News and World Report (USNWR) is determined solely on input factors. This means that simply spending more money will increase a school’s score. A demonstrable increase in educational quality as a result of this spending is not necessary to move up in the ranks.
However, we do not ignore USNWR. In fact, studies have shown that a change in rank has real, statistically significant effects on the admissions outcomes of schools. One found that less favorable rankings one year is followed by an increase in the school’s admittance rate, a decrease in the yield rate and a lower average SAT score for the next year’s incoming class.(1) These effects combined with the fact that high achieving students find rankings very important in helping them determine where to matriculate(2) suggest that colleges experience a tangible difficulty in recruiting higher quality students when their rankings become less favorable.
Thus, colleges and universities are provided disincentives to operate efficiently. A school that produces the same educational quality at a lower price than another school is punished in the USNWR rankings. All else equal, the more efficient (and presumably cheaper) institution, providing the same level of quality, would be ranked lower. Considering the tangible effects that result from a drop in rank, how many colleges are going to put efficiency-improving, cost-cutting measures at the top of their to-do list?
Some higher education administrators may see this as another argument for the abolition of ranking systems. Rankings are not going to disappear, though. They satisfy a demand for information about institutions in which parents and students are making one of the largest investments of their lives. As tuition continues to rise, this demand will only grow. However, a properly structured ranking system —one based on the quality of outputs —can put an end to the “academic arms race” that promotes profligate spending that does not improve education. Such a ranking system would reward universities that provided a high quality education at an efficient price.
The Center for College Affordability and Productivity partnered with Forbes.com this past summer to produce an outcomes-based ranking system. While it was a step in the right direction, the effort was handicapped by one problem: it is difficult to find data on the outcomes of higher education institutions that are reliable, reported by a third-party and publicly available.
The ability for a third-party to reliably measure outcomes exists. The National Survey of Student Engagement (NSSE) measures students’ exposure to activities and teaching practices that lead to improved learning. Given to freshmen and seniors, it measures academic challenge, active learning and student-faculty interaction, among other things. The Collegiate Learning Assessment (CLA) is a test designed to test students’ critical thinking, analytical and communication skills. Again, it is given to both freshmen and seniors, allowing for the observation of an institution’s “value added” in education. Furthermore, CLA scores are highly correlated with ACT scores and can, therefore, be predicted using a model based on incoming students’ scores on the latter test, allowing for the determination of those institutions that under- or outperform their predicted outcomes.(3)
With such data available, college rankings could be greatly improved. They would be more informative for those students investing in a higher education and they would reward colleges for the efficient provision of educational quality rather than for spending more of other people’s money. Unfortunately, the condition on which most schools participate in both the NSSE and CLA is that the results are not made public.
This has to change. If colleges and universities are going to continue to ask for more money from their students in the form of rising tuition costs, those students should be given the information about the effects of an institution’s spending habits. Not all spending is inappropriate, and increased spending might result in better educational outcomes. But the outcome of the money spent should be what is rewarded, not the spending of money itself. The tools for such measurements exist, but only a few colleges release the data. Imagine investing in a company that refused to release information on its earnings; there is a reason such practices were made illegal in the stock market.
Luke Myers is a research assistant for the Center for College Affordability and Productivity and a senior at Ohio University.
1. Monks, James and Ronald G. Ehrenberg. “The Impact of U.S. News & World Report College Rankings on Admissions Outcomes and Pricing Policies at Selective Private Institutions.” Cambridge, MA: National Bureau of Economic Research. Working Paper 7227, July 1999.
2. McDonough et al. “College Rankings: Democratized Knowledge for Whom?” Research in Higher Education, Vol. 39, No. 5, 1998.
3. Carey, Kevin. "College Rankings Reformed: The Case for a New Order in Higher Education," Education Sector Reports, September 2006.
Imagine if the Standard & Poor's stock rating was heavily based on how much companies spent on capital, labor and technology, with no attention to earnings per share or debt to equity. Their ratings would, with good reason, be ridiculed or perhaps simply ignored. Investors know that the money spent by a firm tells little, if anything, about the quality of returns.
Yet the most prominent source for ratings in the higher education industry does exactly this: 50% of a college’s ranking in U.S. News and World Report (USNWR) is determined solely on input factors. This means that simply spending more money will increase a school’s score. A demonstrable increase in educational quality as a result of this spending is not necessary to move up in the ranks.
However, we do not ignore USNWR. In fact, studies have shown that a change in rank has real, statistically significant effects on the admissions outcomes of schools. One found that less favorable rankings one year is followed by an increase in the school’s admittance rate, a decrease in the yield rate and a lower average SAT score for the next year’s incoming class.(1) These effects combined with the fact that high achieving students find rankings very important in helping them determine where to matriculate(2) suggest that colleges experience a tangible difficulty in recruiting higher quality students when their rankings become less favorable.
Thus, colleges and universities are provided disincentives to operate efficiently. A school that produces the same educational quality at a lower price than another school is punished in the USNWR rankings. All else equal, the more efficient (and presumably cheaper) institution, providing the same level of quality, would be ranked lower. Considering the tangible effects that result from a drop in rank, how many colleges are going to put efficiency-improving, cost-cutting measures at the top of their to-do list?
Some higher education administrators may see this as another argument for the abolition of ranking systems. Rankings are not going to disappear, though. They satisfy a demand for information about institutions in which parents and students are making one of the largest investments of their lives. As tuition continues to rise, this demand will only grow. However, a properly structured ranking system —one based on the quality of outputs —can put an end to the “academic arms race” that promotes profligate spending that does not improve education. Such a ranking system would reward universities that provided a high quality education at an efficient price.
The Center for College Affordability and Productivity partnered with Forbes.com this past summer to produce an outcomes-based ranking system. While it was a step in the right direction, the effort was handicapped by one problem: it is difficult to find data on the outcomes of higher education institutions that are reliable, reported by a third-party and publicly available.
The ability for a third-party to reliably measure outcomes exists. The National Survey of Student Engagement (NSSE) measures students’ exposure to activities and teaching practices that lead to improved learning. Given to freshmen and seniors, it measures academic challenge, active learning and student-faculty interaction, among other things. The Collegiate Learning Assessment (CLA) is a test designed to test students’ critical thinking, analytical and communication skills. Again, it is given to both freshmen and seniors, allowing for the observation of an institution’s “value added” in education. Furthermore, CLA scores are highly correlated with ACT scores and can, therefore, be predicted using a model based on incoming students’ scores on the latter test, allowing for the determination of those institutions that under- or outperform their predicted outcomes.(3)
With such data available, college rankings could be greatly improved. They would be more informative for those students investing in a higher education and they would reward colleges for the efficient provision of educational quality rather than for spending more of other people’s money. Unfortunately, the condition on which most schools participate in both the NSSE and CLA is that the results are not made public.
This has to change. If colleges and universities are going to continue to ask for more money from their students in the form of rising tuition costs, those students should be given the information about the effects of an institution’s spending habits. Not all spending is inappropriate, and increased spending might result in better educational outcomes. But the outcome of the money spent should be what is rewarded, not the spending of money itself. The tools for such measurements exist, but only a few colleges release the data. Imagine investing in a company that refused to release information on its earnings; there is a reason such practices were made illegal in the stock market.
Luke Myers is a research assistant for the Center for College Affordability and Productivity and a senior at Ohio University.
1. Monks, James and Ronald G. Ehrenberg. “The Impact of U.S. News & World Report College Rankings on Admissions Outcomes and Pricing Policies at Selective Private Institutions.” Cambridge, MA: National Bureau of Economic Research. Working Paper 7227, July 1999.
2. McDonough et al. “College Rankings: Democratized Knowledge for Whom?” Research in Higher Education, Vol. 39, No. 5, 1998.
3. Carey, Kevin. "College Rankings Reformed: The Case for a New Order in Higher Education," Education Sector Reports, September 2006.
Wednesday, October 29, 2008
A Commendable Act by GWU
by Daniel Bennett
Inside Higher Ed reports on the so-called "elite dilemna" that is occurring at George Washington University, one of the most expensive private institutions in the country, with published anunal tuition and fees in excess of $40k. The dilemna involves the declining number of national merit scholars and honors students enrolling at the GWU. Some proponents for increased merit-aid argue that the univeristy needs to increase its efforts to attract more "elite" students to campus in order to boost the prestige of the university. One implication of such an action would be an increase in the average college entrance (ACT/SAT) score, which would improve the university's ranking.
Instead, GWU is focused on directing financial aid toward continuing students that may be struggling to keep up with high tuition charges. The retention effort is valid, as the prospect of current students transferring to lower-priced institutions is real. The potential negative effects of rising attrition are nontrivial, including a decreased income stream from tuition due to lower graduation & retention rates, which would decrease the prestige with a likely drop in the rankings game. Another long-term effect is a potential decline in alumni giving, not only from fewer graduates of the school, but also large student debt burdens that inhibit a graduate's ability to donate to his alma mater.
GWU's strategy to lower its average student debt is commendable for several reasons.
Inside Higher Ed reports on the so-called "elite dilemna" that is occurring at George Washington University, one of the most expensive private institutions in the country, with published anunal tuition and fees in excess of $40k. The dilemna involves the declining number of national merit scholars and honors students enrolling at the GWU. Some proponents for increased merit-aid argue that the univeristy needs to increase its efforts to attract more "elite" students to campus in order to boost the prestige of the university. One implication of such an action would be an increase in the average college entrance (ACT/SAT) score, which would improve the university's ranking.
Instead, GWU is focused on directing financial aid toward continuing students that may be struggling to keep up with high tuition charges. The retention effort is valid, as the prospect of current students transferring to lower-priced institutions is real. The potential negative effects of rising attrition are nontrivial, including a decreased income stream from tuition due to lower graduation & retention rates, which would decrease the prestige with a likely drop in the rankings game. Another long-term effect is a potential decline in alumni giving, not only from fewer graduates of the school, but also large student debt burdens that inhibit a graduate's ability to donate to his alma mater.
GWU's strategy to lower its average student debt is commendable for several reasons.
(1) It understands the current economic conditions and the public concern over the rising cost of tuition and student debt levels. As a high-priced private institution, it realizes that it relies heavily on tuition revenues and it must maintain, if not increase, enrollment levels to finance its operation. By offering a discounted net tuition, in the form of need-based aid, GWU appears to understand the law of demand: lower its price and increase the quantity demanded (enrollment).Every yin must have a yang. The negative aspects of GWU's strategy include:
(2) By not succumbing to the pressure of the academic arms race (ie- spending more on less), it is increasing its efficiency and better serving the public's desire to increase college access. The trade-off being the potential decline in "prestige".
(3) It is demonstrating rational self-control and exemplifying a long-term strategy of sustainment.
(1) It still has a sticker price exceeding $40k, which in itself will deter many potential applicants who are unaware of the availability of the needs-based aid.
(2) Faculty may get upset at the lack of elite students in the halls and leave, which is only a negative if you consider the high cost of recruiting replacement faculty.
(3) If it is planning to increase enrollment, will the quality of the education diminish to accommodate less academically talented students?
Monday, October 27, 2008
College for $99 a month?!?!
By Andrew Gillen
Straighterline, a new product from Burck Smith’s Smarthinking, is now offering a series of courses online. The courses, offered for $399 each, or $99 a month, package content from McGraw Hill, communications infrastructure from Blackboard, and one-on-one tutoring from Smarthinking.
Lots of schools and organizations offer classes online, so what makes Straighterline so special? Basically, that the product economizes on the most costly input into the system, labor. Note above that I said “economize,” not “eliminate.” From what I’ve seen in the past, previous online courses either eliminated the professor completely, or changed nothing about the course other than that they didn’t physically meet in room 205 at 1 o’clock on MWF. Straighterline breaks that mold, which excites me.
Smith notes that both content and communication costs for higher education, aided by technology, are tending toward zero. That essentially leaves the labor input, which Baumol argued would continually increase in cost. By specializing and rationing labor, employing it only when and where students really need it, Straighterline costs significantly less than just about anything else out there, giving students the opportunity to knock out a year (and maybe more in the future) of courses for $99 a month (transfer restrictions apply – though this will hopefully become less of an issue in the future).
Traditionally, pretty much everyone had to take the lecture based, labor intensive (and therefore expensive) course regardless of their need for the professors’ attention. This wastes huge amounts of resources because a fraction of the students don’t really need the professor at all. Enormous savings can be realized by moving away from the one size fits all model, and tailoring the amount of labor provided to the amount needed by students.
Consider a few examples from my past to illustrate. For some of the classes that I’ve taken, all I really needed was a textbook. I could read through and comprehend on my own, and found lectures and assignments distracting. Accounting 2 is a perfect example. I couldn’t even understand the lectures because the professor “spoke” English as a second language, but attendance was required, so I sat in the back and simply read the book while she lectured.
At the other end of the spectrum, there are classes where personalized attention from the teacher was necessary. A macroeconomics course in grad school comes to mind. The course used the book Recursive Methods in Economic Dynamics. While the book appears to be written in English, meaning I could understand the words individually, the words were arranged in patterns that I found incomprehensible. For this class, not only were the lectures and assignments useful, but they were crucial to my success in learning the material.
These experiences point to one of the keys to lowering costs in higher education, which is in distinguishing these two types of courses from each other for each student. I see Straighterline as the beginning of this process. While they are currently offering a mixed product, with traditional content bundled with a relatively unique tutoring service to replace the instructor, it is only a matter of time before they, or someone else, offers other, even more exciting variations. It shouldn’t be long until the option of taking the “cheap no frills” accounting class is offered along with the more expensive “walk me through it slowly while holding my hand” macroeconomics.
Straighterline, a new product from Burck Smith’s Smarthinking, is now offering a series of courses online. The courses, offered for $399 each, or $99 a month, package content from McGraw Hill, communications infrastructure from Blackboard, and one-on-one tutoring from Smarthinking.
Lots of schools and organizations offer classes online, so what makes Straighterline so special? Basically, that the product economizes on the most costly input into the system, labor. Note above that I said “economize,” not “eliminate.” From what I’ve seen in the past, previous online courses either eliminated the professor completely, or changed nothing about the course other than that they didn’t physically meet in room 205 at 1 o’clock on MWF. Straighterline breaks that mold, which excites me.
Smith notes that both content and communication costs for higher education, aided by technology, are tending toward zero. That essentially leaves the labor input, which Baumol argued would continually increase in cost. By specializing and rationing labor, employing it only when and where students really need it, Straighterline costs significantly less than just about anything else out there, giving students the opportunity to knock out a year (and maybe more in the future) of courses for $99 a month (transfer restrictions apply – though this will hopefully become less of an issue in the future).
Traditionally, pretty much everyone had to take the lecture based, labor intensive (and therefore expensive) course regardless of their need for the professors’ attention. This wastes huge amounts of resources because a fraction of the students don’t really need the professor at all. Enormous savings can be realized by moving away from the one size fits all model, and tailoring the amount of labor provided to the amount needed by students.
Consider a few examples from my past to illustrate. For some of the classes that I’ve taken, all I really needed was a textbook. I could read through and comprehend on my own, and found lectures and assignments distracting. Accounting 2 is a perfect example. I couldn’t even understand the lectures because the professor “spoke” English as a second language, but attendance was required, so I sat in the back and simply read the book while she lectured.
At the other end of the spectrum, there are classes where personalized attention from the teacher was necessary. A macroeconomics course in grad school comes to mind. The course used the book Recursive Methods in Economic Dynamics. While the book appears to be written in English, meaning I could understand the words individually, the words were arranged in patterns that I found incomprehensible. For this class, not only were the lectures and assignments useful, but they were crucial to my success in learning the material.
These experiences point to one of the keys to lowering costs in higher education, which is in distinguishing these two types of courses from each other for each student. I see Straighterline as the beginning of this process. While they are currently offering a mixed product, with traditional content bundled with a relatively unique tutoring service to replace the instructor, it is only a matter of time before they, or someone else, offers other, even more exciting variations. It shouldn’t be long until the option of taking the “cheap no frills” accounting class is offered along with the more expensive “walk me through it slowly while holding my hand” macroeconomics.
Chart of the Week: 10/27/08
Nationally, only 18.4 students graduate college for every 100 9th graders that enter the education system. Additionally, over half of all the students that enroll in college fail to graduate in 150% "normal time."
Past charts of the week can be found here
Wednesday, October 22, 2008
Wikipedia University
By Richard Vedder
An excellent blog by my colleague Daniel Bennett triggered some thoughts. Daniel told of a new on-line open source "university" that will offer courses for free. For a long time, I have marveled at Wikipedia, an on-line encyclopedia with formidable numbers of entries and lots of information that is absolutely free, "authored" by thousands of free volunteers who provide their knowledge for the joy of knowing that others will enjoy their contributions. To be sure, quality is uneven, just as it is in any university where there are stellar professors, along with some real dogs.
Just as there are people who are nasty and use the Internet for destructive purposes, creating viruses and damaging innocent lives, there are others who are kind and altruistic, who do good deeds for no compensation. They set up entire operating systems for public use, offerlng their knowledge free-of-charge. Why not take the Wikipedia approach of providing vast amounts of free knowledge and devise a Wikipedia University? I bet there are persons willing to devise parts or all of courses, to develop examinations, to evaluate student participants - all for the satisfaction of helping others.
To be sure, for many students, learning is only a small part of the university experience. College is part learning, part recreation, part socialization. The free Internet U is not for them. But for many others it could prove a great idea.
How would one accredit an university that has no employees? Or maybe the better question is: WHY accredit such a school? Its validity and quality would be determined by the extent of its use and the willingness of employers to accept its diplomas as legitimate.
And that brings up another point. Why doesn't the private sector start its own accreditation mechanism that evaluates schools on their success in meeting employer needs, rather than on such things as the number of Ph.D.s on the faculty or the number of books in the library? Why don't they devise standardized tests of college graduates that would help them learn whether students know anything (something the schools are afraid to learn by using their own graduation tests)? If you want to go to work for XYZ Corporation, suppose you must take a standardized test devised by, say, the U.S. Chamber of Commerce. Average scores on such exams, classified by college of attendance of the exam takers, could be useful in generally evaluating the effectiveness of colleges.
The shameful gaming of the US News ranking system by Baylor is just the latest example how schools are currently doing crazy things (giving the SAT test to already admitted students) to gain a false advantage on a flawed rankings measure. An external examination approach is one way to deal with it, and if students at unaccredited Wikipedia U (or whatever its name is) do well on the US Chamber test, employers may hire them. The heck what the Accreditation Cartel or US News says. Is it plausible? Yes. Would you have predicted the ready availability of a totally free encyclopedia, say 15 years ago?...Probably not!
An excellent blog by my colleague Daniel Bennett triggered some thoughts. Daniel told of a new on-line open source "university" that will offer courses for free. For a long time, I have marveled at Wikipedia, an on-line encyclopedia with formidable numbers of entries and lots of information that is absolutely free, "authored" by thousands of free volunteers who provide their knowledge for the joy of knowing that others will enjoy their contributions. To be sure, quality is uneven, just as it is in any university where there are stellar professors, along with some real dogs.
Just as there are people who are nasty and use the Internet for destructive purposes, creating viruses and damaging innocent lives, there are others who are kind and altruistic, who do good deeds for no compensation. They set up entire operating systems for public use, offerlng their knowledge free-of-charge. Why not take the Wikipedia approach of providing vast amounts of free knowledge and devise a Wikipedia University? I bet there are persons willing to devise parts or all of courses, to develop examinations, to evaluate student participants - all for the satisfaction of helping others.
To be sure, for many students, learning is only a small part of the university experience. College is part learning, part recreation, part socialization. The free Internet U is not for them. But for many others it could prove a great idea.
How would one accredit an university that has no employees? Or maybe the better question is: WHY accredit such a school? Its validity and quality would be determined by the extent of its use and the willingness of employers to accept its diplomas as legitimate.
And that brings up another point. Why doesn't the private sector start its own accreditation mechanism that evaluates schools on their success in meeting employer needs, rather than on such things as the number of Ph.D.s on the faculty or the number of books in the library? Why don't they devise standardized tests of college graduates that would help them learn whether students know anything (something the schools are afraid to learn by using their own graduation tests)? If you want to go to work for XYZ Corporation, suppose you must take a standardized test devised by, say, the U.S. Chamber of Commerce. Average scores on such exams, classified by college of attendance of the exam takers, could be useful in generally evaluating the effectiveness of colleges.
The shameful gaming of the US News ranking system by Baylor is just the latest example how schools are currently doing crazy things (giving the SAT test to already admitted students) to gain a false advantage on a flawed rankings measure. An external examination approach is one way to deal with it, and if students at unaccredited Wikipedia U (or whatever its name is) do well on the US Chamber test, employers may hire them. The heck what the Accreditation Cartel or US News says. Is it plausible? Yes. Would you have predicted the ready availability of a totally free encyclopedia, say 15 years ago?...Probably not!
Financial Literacy
by Daniel Bennett
In the midst of the current economic dilemna, some colleges are taking the initiative to educate their students in the realm of personal financial responsibility. Inside Higher Ed reports that California State University at Northridge requires all students to attend a non-credit seminar in financial literacy as a condition to receive a student loan. It is a one hour course that focuses on personal financial planning and is in addition to the federally mandated loan entrance counseling. CSU-Northridge also plans to extend its efforts into the classroom this year, offering a voluntary, for-credit freshman seminar entitled Financial Literacy 101.
Barnard College, an all-women's school in New York City, offers a financial fluency program for both students and alumnae. Barnard's program teaches basic personal finance, covering topics such as budgeting, credit card management, insurance, savings and investments. The program is offered through its career development office.
It is quite ironic to read about this today, as I was having a conversation with a neighber en route to the office this morning concerning the need to provide early personal finance education. My ideal concept would be to introduce basic financial literacy to all students, not just those that are college bound, at the high school level. This could be done in a fashion similar to the sex education week that many of us have had to endure, as a number of topics could be covered in this amount of time. This knowledge is especially important to those high school students who intend to enter the labor market immediately, as they will soon face important financial tasks, such as finding and maintaining a job, managing a checking account, preparing a budget, paying taxes, managing debt levels, purchasing a car, the rent vs. buy decision, and the importance of credit scores, among others.
In the past, we have left this responsibility to the parents, or the process of trial and error. The problem with this approach is that many parents are financiall illiterate themselves and too many young people are making horrible financial decisions that will have a negative impact on their ability to borrow money, rent an apartment, open a bank account, or even obtain a job for many years to come. The credit card companies and payday loan companies have profited big time on the financial illiteracy of many Americans by doling out loans at outrageous interest rates (up to 500% APY for a payday loan). This can lead to an endless trap of debt with no light at the end of the tunnel. And I don't believe there is a need to adress the issue of bad mortgage decisions at this point. You can pick up any newspaper and read about that.
As an undergraduate, I took on a second major in finance for one reason, to try and understand the complex array of financial decisions that would soon need to be made. I had no desire to become a banker, insurance mogul, or to work on wall street. I merely wanted to learn how to understand and manage my finances and make good investment decisions, because this was not part of my inheritance.
Back to the issue at hand and topic of this blog, higher education. The efforts, although somewhat reactionary in nature, by CSU, Barnard and others that I may be unaware, deserve some acclaim. Now is a momentous occassion, moving forward with the financial crisis, for institutions to understand the importance of financial education and to implement new programs aimed at providing students with a basic introduction to personal financial matters, although I hold my ground that this needs to begin at the high school level and reiterated in college. I do not propose that we attempt to turn everyone into a day trader or financial economist, but rather that everyone be given the chance to learn how to do suchs things as:
In the midst of the current economic dilemna, some colleges are taking the initiative to educate their students in the realm of personal financial responsibility. Inside Higher Ed reports that California State University at Northridge requires all students to attend a non-credit seminar in financial literacy as a condition to receive a student loan. It is a one hour course that focuses on personal financial planning and is in addition to the federally mandated loan entrance counseling. CSU-Northridge also plans to extend its efforts into the classroom this year, offering a voluntary, for-credit freshman seminar entitled Financial Literacy 101.
Barnard College, an all-women's school in New York City, offers a financial fluency program for both students and alumnae. Barnard's program teaches basic personal finance, covering topics such as budgeting, credit card management, insurance, savings and investments. The program is offered through its career development office.
It is quite ironic to read about this today, as I was having a conversation with a neighber en route to the office this morning concerning the need to provide early personal finance education. My ideal concept would be to introduce basic financial literacy to all students, not just those that are college bound, at the high school level. This could be done in a fashion similar to the sex education week that many of us have had to endure, as a number of topics could be covered in this amount of time. This knowledge is especially important to those high school students who intend to enter the labor market immediately, as they will soon face important financial tasks, such as finding and maintaining a job, managing a checking account, preparing a budget, paying taxes, managing debt levels, purchasing a car, the rent vs. buy decision, and the importance of credit scores, among others.
In the past, we have left this responsibility to the parents, or the process of trial and error. The problem with this approach is that many parents are financiall illiterate themselves and too many young people are making horrible financial decisions that will have a negative impact on their ability to borrow money, rent an apartment, open a bank account, or even obtain a job for many years to come. The credit card companies and payday loan companies have profited big time on the financial illiteracy of many Americans by doling out loans at outrageous interest rates (up to 500% APY for a payday loan). This can lead to an endless trap of debt with no light at the end of the tunnel. And I don't believe there is a need to adress the issue of bad mortgage decisions at this point. You can pick up any newspaper and read about that.
As an undergraduate, I took on a second major in finance for one reason, to try and understand the complex array of financial decisions that would soon need to be made. I had no desire to become a banker, insurance mogul, or to work on wall street. I merely wanted to learn how to understand and manage my finances and make good investment decisions, because this was not part of my inheritance.
Back to the issue at hand and topic of this blog, higher education. The efforts, although somewhat reactionary in nature, by CSU, Barnard and others that I may be unaware, deserve some acclaim. Now is a momentous occassion, moving forward with the financial crisis, for institutions to understand the importance of financial education and to implement new programs aimed at providing students with a basic introduction to personal financial matters, although I hold my ground that this needs to begin at the high school level and reiterated in college. I do not propose that we attempt to turn everyone into a day trader or financial economist, but rather that everyone be given the chance to learn how to do suchs things as:
Balance a check bookWe need(ed) to educate our society today (years ago) in order to progress out of this historic crisis and deter it from happening again in the future. It is time that we arm our citizens with the basic knowledge to defend themselves against the predatory actions of mortgage lenders, credit card companies and the repo-man.
Develop a budget and pay bills on time
Plan for the future (retirement contributions, saving for down payments)
Basic comprehension of insurance terminology (premium, deductible, co-pay, etc.)
Understand the difference between fixed and variable interest rates
Tuesday, October 21, 2008
Open Source Education
by Daniel Bennett
I read an article in the Chronicle that discussed the formation of a new online university, the Peer 2 Peer University. It is a collaborative, global effort of at least ten distinguished academics and administrative volunteers, that are teaming up to create an online study network that offers short university-level classes. It is described as an online book club with a final exam. P2P is planning to offer its first set of classes in January 2009, and the course list currently consists of:
The target audience includes retirees with a thirst to learn, professionals that want to enhance their education, but do not have time to enroll in a full degree program, and eager students with low-income.
The idea of offering free or low cost online courses is certainly not the first of its kind, as there have been other attempts. Yale University currently offers fifteen lecture series in a wide variety of liberal arts disciplines. Actual lecture series at the university were recorded and made available for free download to anyone with access to the internet.
Open source education is still in its infant stage, but appears to have some growth potential, especially in lieu of the rising costs of attending the bricks & mortar university. It would seem probable that the universities will collectively oppose the movement in a similar fashion that the recording industry has tried to thwart file-sharing. One of the early barriers for the P2P Univeristy has been action by the employers of the "star professors" to disassociate the university's name and reputation with the online community.
From the university's perspective, professors should not divert their time that is required to perform their job function (teaching, research) to work on such a project, but if the same professor wants to volunteer his/her spare time, then that should not be an issue. Some proponents even argue that this online learning network is ongoing research, although I'm guessing that administration is not going to buy that argument, especially when the long-term prospect of the research is a potential threat to the underlying asset - the university campus.
Personally, I believe that such online learning networks can only help to facilitate communication among a broader global audience in such a way that may actually enhance ideas and learning outcomes. Rather than fight the initiative, schools should figure out how to make use of the technology to increase their productivity and lower their operating costs.
There is a growing demand for distance learning and a lack of response by the traditional suppliers. This has resulted in a growing number of strictly online universities, often the initiative of entrepreneurs who are reacting to market conditions in an effort to capture a profit. This is good for competition and innovation, as the traditional model of higher education is in need of revamping. Is the Ivory Tower missing out on a golden opportunity to increase enrollment, lower costs, increase productivity, and ultimately, reduce the cost for the consumer?
I read an article in the Chronicle that discussed the formation of a new online university, the Peer 2 Peer University. It is a collaborative, global effort of at least ten distinguished academics and administrative volunteers, that are teaming up to create an online study network that offers short university-level classes. It is described as an online book club with a final exam. P2P is planning to offer its first set of classes in January 2009, and the course list currently consists of:
Open Economics
Media in Developing Countries
Non-Fiction Writing
Music Theory
Data Visualiation
Alternative Energy
The target audience includes retirees with a thirst to learn, professionals that want to enhance their education, but do not have time to enroll in a full degree program, and eager students with low-income.
The idea of offering free or low cost online courses is certainly not the first of its kind, as there have been other attempts. Yale University currently offers fifteen lecture series in a wide variety of liberal arts disciplines. Actual lecture series at the university were recorded and made available for free download to anyone with access to the internet.
Open source education is still in its infant stage, but appears to have some growth potential, especially in lieu of the rising costs of attending the bricks & mortar university. It would seem probable that the universities will collectively oppose the movement in a similar fashion that the recording industry has tried to thwart file-sharing. One of the early barriers for the P2P Univeristy has been action by the employers of the "star professors" to disassociate the university's name and reputation with the online community.
From the university's perspective, professors should not divert their time that is required to perform their job function (teaching, research) to work on such a project, but if the same professor wants to volunteer his/her spare time, then that should not be an issue. Some proponents even argue that this online learning network is ongoing research, although I'm guessing that administration is not going to buy that argument, especially when the long-term prospect of the research is a potential threat to the underlying asset - the university campus.
Personally, I believe that such online learning networks can only help to facilitate communication among a broader global audience in such a way that may actually enhance ideas and learning outcomes. Rather than fight the initiative, schools should figure out how to make use of the technology to increase their productivity and lower their operating costs.
There is a growing demand for distance learning and a lack of response by the traditional suppliers. This has resulted in a growing number of strictly online universities, often the initiative of entrepreneurs who are reacting to market conditions in an effort to capture a profit. This is good for competition and innovation, as the traditional model of higher education is in need of revamping. Is the Ivory Tower missing out on a golden opportunity to increase enrollment, lower costs, increase productivity, and ultimately, reduce the cost for the consumer?
Monday, October 20, 2008
Introducing “Chart of the Week”
CCAP is introducing a new weekly feature called “Chart of the Week.” Every week we will post an interesting chart related to higher education along with a brief commentary. These charts will also be featured on our new website centerforcollegeaffordability.org, where you can view past charts of the week as well. Below is this week’s chart.
On an annualized basis, growth in bachelor degrees awarded in the STEM disciplines has kept pace with degrees awarded in the non-STEM disciplines. This indicates that the percentage of students graduating with degrees in science, technology, engineering, and math has remained relatively constant over the past three decades.
This means that colleges have consistently turned out the same number of STEM graduated relative to non-stem graduates. Consequently, perceived shortages of qualified personnel for STEM jobs is most likely a case of increased demand rather than a relative decline in supply.
On an annualized basis, growth in bachelor degrees awarded in the STEM disciplines has kept pace with degrees awarded in the non-STEM disciplines. This indicates that the percentage of students graduating with degrees in science, technology, engineering, and math has remained relatively constant over the past three decades.
This means that colleges have consistently turned out the same number of STEM graduated relative to non-stem graduates. Consequently, perceived shortages of qualified personnel for STEM jobs is most likely a case of increased demand rather than a relative decline in supply.
Sunday, October 19, 2008
Necessity Is the Mother of Invention
By Richard Vedder
I just learned from an insider that one of the nation's largest teacher retirement funds, the State Teachers Retirement System of Ohio, has suffered over a 30 percent ($25 billion) loss on its common stock portfolio over the past year, including big losses in Fannie Mae and AIG. I am seeing the probability of more and more universities having to reduce, in absolute terms, their spending for next year, in a few cases by 10 percent or more. In real terms, huge restraints on spending will be necessary in many cases. Even the Harvards of the world, heavily dependent on endowment income, should be forced to reduce outlays funded from endowment, even using a three year moving average rule to smooth out fluctuations. It is hard to believe that these funds will not have some erosion of endowment values, unless we see a moderately impressive improvement in equity values in the next 9-10 months, which is certainly a real possibility, but not a certainty. The two year schools and non-research oriented four year state schools are certainly going to face at least a freeze on state subsidies, and often a noticeable reduction. The non-elite private schools, which are heavily dependent on tuition income, face the biggest problem, as I can see the possibility of enrollment drops reducing total tuition income at many institutions. Tuition increases will be sharply constrained, I think, by demand and supply considerations at many schools, although not at the most elite institutions.
What to do? Simple. Cut spending, and cut it decisively. It is a rare school that could not reduce administrative staff by at least 10 percent without facing meaningful quality reductions. It is a rare school that could not save money by contracting out some institutionally provided services, or by even selling assets (e.g., housing facilities) to private investors as a way of rebuilding battered endowments. Schools do not need a myriad of diversity coordinators, public relations specialists, or high-priced athletic programs (only 19 of the top schools are in the black according to NCAA accounting methods). Most large universities have at least a few Ph.D. programs that are mediocre, with low enrollment and a high cost of operation. Do we really need to store millions of library books that get very infrequent use and that are increasingly available in digitized form?
And, horrors of horrors, cannot we cut labor costs by not replacing some retiring faculty and asking the remainder of faculty to shoulder a higher teaching load? Why should persons without major scientific research grants teach less than, say, six courses a year, or certainly five? They used to teach that many. What if some obscure academic journals bite the dust for lack of good papers? The marginal return on most research investment outside the hard sciences and engineering has to be very low, and that may also apply for some scientific research as well.
As Plato said, necessity is the mother of invention. Perhaps financial pressures will lead to some economies of scale and efficiencies. As long as incentive systems to cut costs and improve efficiency are weak, however, do not expect too much. The universities expect to muddle through this, and perhaps they will, but public sympathy for their plight has sharply declined in the era of million dollar university presidents, ultra-swanky recreational facilities, and other examples of ostentatious university consumption. And even universities have to pay their bills.
I just learned from an insider that one of the nation's largest teacher retirement funds, the State Teachers Retirement System of Ohio, has suffered over a 30 percent ($25 billion) loss on its common stock portfolio over the past year, including big losses in Fannie Mae and AIG. I am seeing the probability of more and more universities having to reduce, in absolute terms, their spending for next year, in a few cases by 10 percent or more. In real terms, huge restraints on spending will be necessary in many cases. Even the Harvards of the world, heavily dependent on endowment income, should be forced to reduce outlays funded from endowment, even using a three year moving average rule to smooth out fluctuations. It is hard to believe that these funds will not have some erosion of endowment values, unless we see a moderately impressive improvement in equity values in the next 9-10 months, which is certainly a real possibility, but not a certainty. The two year schools and non-research oriented four year state schools are certainly going to face at least a freeze on state subsidies, and often a noticeable reduction. The non-elite private schools, which are heavily dependent on tuition income, face the biggest problem, as I can see the possibility of enrollment drops reducing total tuition income at many institutions. Tuition increases will be sharply constrained, I think, by demand and supply considerations at many schools, although not at the most elite institutions.
What to do? Simple. Cut spending, and cut it decisively. It is a rare school that could not reduce administrative staff by at least 10 percent without facing meaningful quality reductions. It is a rare school that could not save money by contracting out some institutionally provided services, or by even selling assets (e.g., housing facilities) to private investors as a way of rebuilding battered endowments. Schools do not need a myriad of diversity coordinators, public relations specialists, or high-priced athletic programs (only 19 of the top schools are in the black according to NCAA accounting methods). Most large universities have at least a few Ph.D. programs that are mediocre, with low enrollment and a high cost of operation. Do we really need to store millions of library books that get very infrequent use and that are increasingly available in digitized form?
And, horrors of horrors, cannot we cut labor costs by not replacing some retiring faculty and asking the remainder of faculty to shoulder a higher teaching load? Why should persons without major scientific research grants teach less than, say, six courses a year, or certainly five? They used to teach that many. What if some obscure academic journals bite the dust for lack of good papers? The marginal return on most research investment outside the hard sciences and engineering has to be very low, and that may also apply for some scientific research as well.
As Plato said, necessity is the mother of invention. Perhaps financial pressures will lead to some economies of scale and efficiencies. As long as incentive systems to cut costs and improve efficiency are weak, however, do not expect too much. The universities expect to muddle through this, and perhaps they will, but public sympathy for their plight has sharply declined in the era of million dollar university presidents, ultra-swanky recreational facilities, and other examples of ostentatious university consumption. And even universities have to pay their bills.
Friday, October 17, 2008
Attack on the BA, Part 4
by Andrew Gillen
The third response to Murray is by Kevin Carey, titled The Best of American Opportunity
Carey:
Up next, the follow up commentary.
The third response to Murray is by Kevin Carey, titled The Best of American Opportunity
Carey:
…There is a very high evidentiary bar for asserting, as Charles Murray does, that “the BA is the work of the devil.” It is a bar he does not come close to clearing. But in trying, he raises some important points about the flaws and failures of our higher education system. We don’t need fewer bachelor’s degrees. But we do need better bachelor’s degrees, and in this respect Murray’s arguments have value.
Murray would replace much of our current higher education system with a massive regime of workplace certification via standardized testing… In Murray’s preferred future, students could bypass a traditional college education and go right to the test.
But that begs a question: If businesses would be better off under such a system, why haven’t they implemented it already? … Tests, after all, are cheap compared to the cost of recruiting and retaining talented employees.
Of course, none of these things are actually happening, and for good reason: Employers value the bachelor’s degree, and most professions aren’t as easily definable—and thus testable—as accounting…
the main benefit of a good college education: It teaches students not how to do but how to think in ways that are applicable across varied careers. And such skills are much more important to many more people now than they were eighty years ago. The future economy will hold vast numbers of jobs that have yet to be invented. The bachelor’s degree will qualify students to pursue all of them… while a narrowly defined certificate, by definition, will not…
Murray points to the large number of students who drop out of college as evidence that we are cruelly forcing students to waste time and money pursuing a goal they are intellectually incapable of achieving. But … Most students who drop out don’t fail out… teaching is an afterthought in many colleges and universities… The problem often is not that academic standards are too high but too low, resulting in boring, unfulfilling courses that students conclude they can do without.
And it is in this last area that Murray’s essay… touches on some very legitimate areas of concern. It’s true that our higher education system is not serving the interests of many students. Not because it encourages them to earn a bachelors degree, but because it does a poor job of helping them succeed. Colleges are not judged by how well they teach students…
… Murray is correct that all programs don’t have to take four years. (European universities are rapidly coalescing around a three-year standard.) … There are many students out there majoring in business, education, social work, etc. who aren’t learning very much about those things, and the same is true for the classic liberal arts.
But the solution isn’t to divert those students into a huge testing and certification apparatus that would cripple a higher education system that remains, for all its flaws, a bulwark of the economy and the envy of the world. Instead, we should ensure that students learn more in college by keeping higher education affordable and holding colleges and universities accountable for how much students learn and whether they eventually succeed in the workforce and life. The bachelor’s degree represents the best of American opportunity, a vehicle for social and economic advancement that has produced fantastic dividends for our economy, citizenry, and society. We need to make it better, not tear it down.
Up next, the follow up commentary.
Golf Clap for Baylor
by Daniel Bennett
A few days after being nationally exposed for a somewhat dubious attempt to improve its ranking by offering a financial incentive to freshman to retake the SAT and improve their score, Baylor University announced that this move was a "goof". University spokeswoman Lori Fogleman offered this sentiment:
Baylor students and faculty are embarrassed by the university's actions. In defense of its actions, university officials suggested that other schools were using similar tactics, although there were no “honest Abes” out there with the ambition to step forward and rescind of unethical behavior. I have a strong suspicion that there are a number of other culpable parties out there who have engaged in similar behavior to game the rankings, but are not going to declare penitence. This is classical bureaucracy unfolding - allow the exposed conduit to serve as the scapegoat while the rest of the flock scurries back to cover its tracks.
I haven't heard whether the merit scholarships based on the SAT score improvements will stand or not, but I do believe that Baylor is doing the right thing in admitting that it was wrong. Hopefully, this expose of risqué university behavior will open the door to increased transparency and accountability of the US academe.
A few days after being nationally exposed for a somewhat dubious attempt to improve its ranking by offering a financial incentive to freshman to retake the SAT and improve their score, Baylor University announced that this move was a "goof". University spokeswoman Lori Fogleman offered this sentiment:
We have heard the criticism, it just had the appearance of impropriety. It raised unnecessary questions
Baylor students and faculty are embarrassed by the university's actions. In defense of its actions, university officials suggested that other schools were using similar tactics, although there were no “honest Abes” out there with the ambition to step forward and rescind of unethical behavior. I have a strong suspicion that there are a number of other culpable parties out there who have engaged in similar behavior to game the rankings, but are not going to declare penitence. This is classical bureaucracy unfolding - allow the exposed conduit to serve as the scapegoat while the rest of the flock scurries back to cover its tracks.
I haven't heard whether the merit scholarships based on the SAT score improvements will stand or not, but I do believe that Baylor is doing the right thing in admitting that it was wrong. Hopefully, this expose of risqué university behavior will open the door to increased transparency and accountability of the US academe.
Thursday, October 16, 2008
Attack on the BA, Part 3
by Andrew Gillen
Bryan Caplan has the next response to Murray, in a post titled Murray Needs a Model — How About Mine?
Caplan:
Up next, Kevin Carey.
Bryan Caplan has the next response to Murray, in a post titled Murray Needs a Model — How About Mine?
Caplan:
[Murray’s] going to need both important neglected facts and a clear story (or “model”) that explains them.
Murray is already doing well on the “important neglected facts” front, boldly pointing out that:
1. Only a tiny minority of students want or are capable of getting a liberal education.
2. … “[F]our years is ridiculous. …
3. Although students acquire few job skills in college, employers pay them extra anyway... the connection between what they studied and what they need to know to do their job is virtually non-existent.
So far, Murray and I are on the same page. But when he tries to explain how useless studies translate into big bucks, his story gets fuzzy. On the one hand, he tells us that “The BA really does confer a wage premium on its average recipient, but there is no good reason that it should.” On the other hand, he insists that “Employers are not stupid.” How can both be true?...
If Murray can’t clarify his model, no one is going to take his facts seriously. Fortunately, I can help. Here’s what Murray should have said: “To a large extent, the BA is what economists call signaling. Individual students who go to college usually get a good deal; so do individual employers who pay a premium to educated workers. The problem is that this individually rational behavior is socially wasteful, because education is primarily about showing off, not acquiring job skills.”…
An unfortunate implication of the signaling model is that cutting the BA down to size will be a lot harder than Murray thinks. As far as employers are concerned, the BA works. When they pay college grads more, they get their money’s worth…
If we want to get our wasteful education system back on track, though, we’ve got to make the BA less appealing. The most obvious route is to cut government spending for education. It’s just plain crazy for government to subsidize anyone who wants to signal that he’s smart and hard-working compared to other people. After all, no matter how big the subsidies are, only half of us can look better than average…
Once students (and their parents) started paying a larger share of their tuition, Murray’s dream world might stand a chance. Suppose, for example, that people really had to fork over $30,000 per year to attend college. In this environment, there would be a strong demand for certification tests, apprenticeships, and so on, because many high-quality workers wouldn’t go to college…
Up next, Kevin Carey.
Wednesday, October 15, 2008
Attack on the BA, Part 2
by Andrew Gillen
The first response to Murray is by Pedro Carneiro, titled If the BA Is the Work of the Devil, It’s Not His Best Work
Carneiro:
Up next Bryan Caplan.
The first response to Murray is by Pedro Carneiro, titled If the BA Is the Work of the Devil, It’s Not His Best Work
Carneiro:
Murray gives us a simple argument. For most people, completing a BA is a bad investment... In spite of this, a large share of the American youth aspires to get a BA, either because of strong social pressure to get a BA, or the illusion that the BA pays off for everyone in the labor market.
There’s nothing wrong with the logic of this argument… but for the most part it seems exaggerated.
Economists have been estimating the rate of return to investments in education for over 50 years… It is well accepted that in the U.S. this increase in earnings is, on average, not much lower than 10% per year of schooling… If this is true, education is a very productive investment...
Recent research shows that, empirically, the expected rate of return to college varies widely across individuals: As we expand college attendance we attract individuals who are increasingly less suitable to attend college, and who have lower expected returns to college than the ones who are already there. Nevertheless, these studies also show that most people can expect a relatively high return to college. Even if we take the most pessimistic estimates for the return to education for those outside the elite (whom economists would call the marginal students), they are probably above 7% per year of college…
So, what’s the punch line? Murray is correct in stating that a BA is not for everyone, and may be right in saying that some people are wasting their time getting a BA, but for most of the population I doubt that the case he is making is of great importance. As he says, firms are not stupid, and will not pay for a BA degree if a BA is not teaching anything to their potential recruits. Similarly, I believe that individuals make mistakes, but at this level they are probably not as serious as Murray is implying. For most of those enrolling in college, a BA has a good expected return, but there is some risk…
Do we really think that social pressure to get a BA, and misinformation about the value of a BA, will induce generations of youth (and their parents!) to systematically engage in bad education decisions? Why would they be doing that over and over again, if it was such a bad investment?...
for the cohorts born after 1950 there is a dramatic stagnation in education attainment…This stagnation occurred in spite of enormous increases in the returns to college in the 1980s and 1990s. So it may be that Murray’s contention that individuals are not responding to economic incentives is true, but if anything it is because they, or their parents, underestimate the value of education...
Up next Bryan Caplan.
Shame on You, Baylor!
by Daniel Bennett
The NY Times reports that Baylor University offered its freshman class a financial incentive to retake the SAT scores, claiming that it had a surplus in its merit aid budget that needed to be spent this year. Freshman students were offered a $300 bookstore credit to retake the SAT this summer, with a $1000 incentive for those who increased their score by 50 points. The total expenditures on the project are estimated at $409, 300, according to Baylor's student paper, the Lariot.
There are a number of critics lining up, suggesting that Baylor's action is an attempt to game the USNWR rankings system, of which the average SAT score accounts for 7.5% of the ranking. The core of the evidence for a motive lies in the university's strategic plan, Baylor 2012, in which it clearly indicates a desire to move into the top 50 of the rankings.
Other anectodal evidence comes from its own staff, including a vote of disapproval from the Faculty Senate and remarks from the VP for marketing and communications, John Barry, who could not fully explain the university's move, other than the university had excess money in the merit scholarship budget. The reason for this excess is made quite clear by Mr. Barry - the University failed to admit enough students with SAT scores that were above the threshold for award and it was unwilling to lower the threshold. In other words, if SAT scores are in fact a measure of the quality of an institution, then the quality at Baylor decreased this year. Its attempt to increase the admissons scores of students who were already admitted is an inappropriate use of funds, a violation of ethical conduct, and completely unfair method to award merit aid. Shame on you, Baylor.
This sort of story highlights the gaming that takes place in the battle for position in the USNWR, and other input-based rankings. This provides further support for the need to assess colleges on students outcomes, such as the Forbes-CCAP effort.
The harshest reality of this story is that it comes in the midst of the nation's economic woes in a time when the universities decry a need to raise tuition to meet the rising costs and declining public revenue stream. It is my suspicion that the war taking place among institutions to move up in the college rankings is one source of the rising costs, as schools spend foolishly in an attempt to game the system. If there really was extra money in the merit aid budget, then there surely were better ways to re-allocate this money to students, if that was the intention, or to save the money for a rainy day. Several ideas that come to mind include an across the board distribution, awarding the money to students based on their grades during the first semester, or even providing it to the best qualified students with the most unmet need.
This reminds me of the days that I spent working for a highly bureacratic government agency that would rush to spend any surplus in its budget near the end of the fiscal year, neglecting the obvious lack of need for such material and the certainty that these purchases would only incur further storage and inventory costs, with the taxpayers on the hook.
The NY Times reports that Baylor University offered its freshman class a financial incentive to retake the SAT scores, claiming that it had a surplus in its merit aid budget that needed to be spent this year. Freshman students were offered a $300 bookstore credit to retake the SAT this summer, with a $1000 incentive for those who increased their score by 50 points. The total expenditures on the project are estimated at $409, 300, according to Baylor's student paper, the Lariot.
There are a number of critics lining up, suggesting that Baylor's action is an attempt to game the USNWR rankings system, of which the average SAT score accounts for 7.5% of the ranking. The core of the evidence for a motive lies in the university's strategic plan, Baylor 2012, in which it clearly indicates a desire to move into the top 50 of the rankings.
Other anectodal evidence comes from its own staff, including a vote of disapproval from the Faculty Senate and remarks from the VP for marketing and communications, John Barry, who could not fully explain the university's move, other than the university had excess money in the merit scholarship budget. The reason for this excess is made quite clear by Mr. Barry - the University failed to admit enough students with SAT scores that were above the threshold for award and it was unwilling to lower the threshold. In other words, if SAT scores are in fact a measure of the quality of an institution, then the quality at Baylor decreased this year. Its attempt to increase the admissons scores of students who were already admitted is an inappropriate use of funds, a violation of ethical conduct, and completely unfair method to award merit aid. Shame on you, Baylor.
This sort of story highlights the gaming that takes place in the battle for position in the USNWR, and other input-based rankings. This provides further support for the need to assess colleges on students outcomes, such as the Forbes-CCAP effort.
The harshest reality of this story is that it comes in the midst of the nation's economic woes in a time when the universities decry a need to raise tuition to meet the rising costs and declining public revenue stream. It is my suspicion that the war taking place among institutions to move up in the college rankings is one source of the rising costs, as schools spend foolishly in an attempt to game the system. If there really was extra money in the merit aid budget, then there surely were better ways to re-allocate this money to students, if that was the intention, or to save the money for a rainy day. Several ideas that come to mind include an across the board distribution, awarding the money to students based on their grades during the first semester, or even providing it to the best qualified students with the most unmet need.
This reminds me of the days that I spent working for a highly bureacratic government agency that would rush to spend any surplus in its budget near the end of the fiscal year, neglecting the obvious lack of need for such material and the certainty that these purchases would only incur further storage and inventory costs, with the taxpayers on the hook.
Tuesday, October 14, 2008
Attack on the BA, Part 1
by Andrew Gillen
Some nice folks over at Cato have put together a fascinating collection of writings under the heading "Is College Worth It?" The writings are so interesting and informative that we've decided to highlight each of them.
Up first is Charles Murray, whose essay is titled Down with the Four-Year College Degree! Murray:
Some nice folks over at Cato have put together a fascinating collection of writings under the heading "Is College Worth It?" The writings are so interesting and informative that we've decided to highlight each of them.
Up first is Charles Murray, whose essay is titled Down with the Four-Year College Degree! Murray:
...the BA degree is the work of the devil. It wreaks harm on a majority of young people, is grotesquely inefficient as a source of information for employers, and is implicated in the emergence of a class-riven America...Up next, the first response by Pedro Carneiro.
imagine that you have been made a member of a task force to design America’s post-secondary education system from scratch. One of your colleagues submits this proposal:
First, we will set up a single goal to represent educational success, which will take four years to achieve no matter what is being taught. We will attach an economic reward to it that often has nothing to do with what has been learned. We will urge large numbers of people who do not possess adequate ability to try to achieve the goal, wait until they have spent a lot of time and money, and then deny it to them. We will stigmatize everyone who doesn’t meet the goal. We will call the goal a “BA.”
You would conclude that your colleague was cruel, not to say insane. But that’s the system we have....
The much more certain implication of the BA is that its possessors have a certain amount of raw intellectual ability that the employer may be able to exploit after the proper job training...
about a third of all those who entered college hoping for a BA leave without one...
State Spending on Higher Ed
by Daniel Bennett
The current financial crisis has led some, including myself, to speculate that there will be a decrease in state-level support of public higher education in the coming fiscal year. This appears to be coming to fruition, as the Chronicle reports today. Some of the states that have been, or may be, affected thus far include:
Massachusetts - losing 5.6% of state budget to offset a gap
Pennsylvania - faces a potential 4.25% cut to deal with declining tax revenues
Virginia - 5-7% cut to deal with a budget deficit
Utah - 4% cut in spite of 9% growth in enrollment
Tennessee - potential 3.4% (44 million) cut, on top of a $56 million cut last year
New York - 7% of funds to help ease a decrease in sales, fuel and corporate taxes
There are most likely more states facing higher education budget cuts in the face of a difficult economic period, but this provides a snapshot of a few of the more profound cuts. So how are the public institutions going to make up for the revenue shortfall? Some administrations will automatically decry the budget cuts and make a public plea to accept further tuition increases, which have already resulted in a huge burden on students and their parents. However, this solution is not the most viable and certainly is a worst-case scenario.
Instead, our nation's public institutions need to start behaving like good stewards of the taxpayer. Institutions should conduct an internal investigation of their cost structure and growth plans to find ways to reduce their expenses. The University System of Maryland has take such a vuluntary approach and appears to have made a great deal of progress, much to the satisfaction of lawmakers in the state. It dubs this the Effectiveness and Efficiency Initiative and has saved an estimated $94 millions since 2004 by reducing redundancies, increasing faculty productivity and controlling costs. The eye-opening part of this initiative is that the 11 campus system has managed to reduce its costs in the wake of growing enrollment. Coincidentally, expanded enrollment is one of the common arguments that institutions use to explain an inability to control costs.
Increased enrollment is supposedly causation for exponential growth plans, which often include luxurious student housing, recreation centers and student unions, not to mention the growth in executive-level administrative members. How many assistant provosts and directors are needed, especially in lieu of a declining number of full-time tenured professors and their teaching loads, and the increased use of adjunct faculty to instruct courses? This tactic appears headed for the waste-side as the part-time instructors prepare to unionize and battle years of abuse.
The bottom line is that public institutions need to be held accountable for their actions. It may be a good practice to require cost reductions as a prerequisite for taxpayer outlays - a pay for performance of sorts. This would provide some incentive for institutions to become more effective and efficient.
The current financial crisis has led some, including myself, to speculate that there will be a decrease in state-level support of public higher education in the coming fiscal year. This appears to be coming to fruition, as the Chronicle reports today. Some of the states that have been, or may be, affected thus far include:
Massachusetts - losing 5.6% of state budget to offset a gap
Pennsylvania - faces a potential 4.25% cut to deal with declining tax revenues
Virginia - 5-7% cut to deal with a budget deficit
Utah - 4% cut in spite of 9% growth in enrollment
Tennessee - potential 3.4% (44 million) cut, on top of a $56 million cut last year
New York - 7% of funds to help ease a decrease in sales, fuel and corporate taxes
There are most likely more states facing higher education budget cuts in the face of a difficult economic period, but this provides a snapshot of a few of the more profound cuts. So how are the public institutions going to make up for the revenue shortfall? Some administrations will automatically decry the budget cuts and make a public plea to accept further tuition increases, which have already resulted in a huge burden on students and their parents. However, this solution is not the most viable and certainly is a worst-case scenario.
Instead, our nation's public institutions need to start behaving like good stewards of the taxpayer. Institutions should conduct an internal investigation of their cost structure and growth plans to find ways to reduce their expenses. The University System of Maryland has take such a vuluntary approach and appears to have made a great deal of progress, much to the satisfaction of lawmakers in the state. It dubs this the Effectiveness and Efficiency Initiative and has saved an estimated $94 millions since 2004 by reducing redundancies, increasing faculty productivity and controlling costs. The eye-opening part of this initiative is that the 11 campus system has managed to reduce its costs in the wake of growing enrollment. Coincidentally, expanded enrollment is one of the common arguments that institutions use to explain an inability to control costs.
Increased enrollment is supposedly causation for exponential growth plans, which often include luxurious student housing, recreation centers and student unions, not to mention the growth in executive-level administrative members. How many assistant provosts and directors are needed, especially in lieu of a declining number of full-time tenured professors and their teaching loads, and the increased use of adjunct faculty to instruct courses? This tactic appears headed for the waste-side as the part-time instructors prepare to unionize and battle years of abuse.
The bottom line is that public institutions need to be held accountable for their actions. It may be a good practice to require cost reductions as a prerequisite for taxpayer outlays - a pay for performance of sorts. This would provide some incentive for institutions to become more effective and efficient.
Saturday, October 11, 2008
The Financial Crisis and Colleges: Part 3
By Richard Vedder
As the financial crisis has deepened considerably and the signs of economic decline mount, it is worth extending our analysis of what this means for colleges in the near term.
PRIVATE FOUR YEAR COLLEGES
The elite, wealthy schools are going to get hurt, but in different ways than others. Let's look at endowments under three scenarios. The first scenario is a relatively optimistic one, where the Dow stops falling shortly, bank failures are minimal, only a few big corporations go broke, and the Dow ends the college fiscal year (next June 30) around 10,000. The most fortunate rich schools should show maybe no nominal change in their endowment size, assuming payoffs from endowments roughly equal new contributions. Adjusting for inflation, the result is a modest decline. More realistically, most schools will suffer at least a 10 percent decline in endowments, which eventually for most rich schools, will force perhaps a two percent budget reduction. Under an intermediate scenario, the Dow falls more, the negative consequences continue, but we begin to pull out by the end of the fiscal year, with the Dow between 8,000 and 9,000. Everyone suffers some loss in endowment size, with a typical private school losing maybe 15-20 percent. At the richer schools, that translates eventually into a 3 to 6 percent reduction in budgets because of lower endowment returns. In a worse case scenario, the econmy continues to implode, with no recovery this fiscal year, with the Dow dropping below 8,000, and losses in endowment at a typical school of at least 20 percent, and the elites forced to cut budgets significantly (maybe 8 to 10 percent at Harvard for example, a noticeable reduction).
The elites in the Great Depression sought more rich kids who could pay full tuition, and I suspect that could happen again, the rhetoric of recent years notwithstanding. I wonder if the allegedly super bright investment gurus running endowment funds who have done well by investing in hedge funds and other risky investments at the Yales and Harvards of the world are going to take a huge fall, with their endowments declining as much or more than those of the colleges that have pursued a less daring investment strategy. Time will tell.
The less elite and wealthy private schools are in worse shape, maybe the worst of the various types of institutions. They are heavily tuition-driven, and students hunting for bargains may head for cheaper public institutions (they, too, will suffer some on the endowment side, and in declining annual contributions). A few of them might be toast. Some could face budget cuts in the 5 to 10 percent range, with more forthcoming. Uncertainties about student loan funding aggravates the problem.
PUBLIC FOUR YEAR UNIVERSITIES
Public appropriations will take a hit, hurting public schools. The ability to make up for this by increasing tuition fees is difficult on both economic and political grounds, so growing austerity is likely. This might have some modest positive impacts, such as leading to the elimination of some costly programs that are not terribly productive, and possibly some inter-institutional cooperation to consolidate offerings. Enrollment effects are hard to gauge --some publics have actually had enrollment gains in bad times, as students switch to them from higher cost privates and/or draw in students who are unemployed and thus do not face the huge loss of income when they attend school as they usually would. On the whole, however, I expect the net effect of the falling economy on enrollments to be negative, and for these schools to have budgets for next year that are typically several percentage points below this year in real terms. Obviously, the exact decline will depend on the extent of the general decline in the economy.
TWO YEAR PUBLIC COLLEGES
This category stands to gain enrollments, I suspect, because of substitution effects (people switching to lower cost alternatives). Yet these schools depend a lot on state funding, which is likely to decline. So these schools face the worst of all possible outcomes - rising enrollments and falling budgets. This could lead to legislatures reducing the subsidy reductions for these schools relative to four year universities.
Economists are hopeless at important predictions, and I am no exception. Who would have said six months ago that the Dow on October 10 would be around 8,500? Who would have predicted the demise of Bear Stearns, Lehman Brothers, Wachovia or Chrysler? Panic can have devastating effects, as anyone who has studied the Panics of 1819, 1937, 1893, 1907 or 1929-33 knows. If people lose complete faith in government and the Fed, all bets are off, and higher education will suffer big time across the board.
I am of the opinion that government should now actually back off some, and let market forces work. Buffet's financial infusions, the Wells Fargo purchase of Wachovia (taking the FDIC off the hook), and the GM purchase of Chrysler are good examples of private solutions to problems (not all of these efforts may succeed, to be sure). The decline in oil prices and its positive effect is one example of how the self-correcting mechanisms of the market work. Let us not try to mute those positive market forces.
As the financial crisis has deepened considerably and the signs of economic decline mount, it is worth extending our analysis of what this means for colleges in the near term.
PRIVATE FOUR YEAR COLLEGES
The elite, wealthy schools are going to get hurt, but in different ways than others. Let's look at endowments under three scenarios. The first scenario is a relatively optimistic one, where the Dow stops falling shortly, bank failures are minimal, only a few big corporations go broke, and the Dow ends the college fiscal year (next June 30) around 10,000. The most fortunate rich schools should show maybe no nominal change in their endowment size, assuming payoffs from endowments roughly equal new contributions. Adjusting for inflation, the result is a modest decline. More realistically, most schools will suffer at least a 10 percent decline in endowments, which eventually for most rich schools, will force perhaps a two percent budget reduction. Under an intermediate scenario, the Dow falls more, the negative consequences continue, but we begin to pull out by the end of the fiscal year, with the Dow between 8,000 and 9,000. Everyone suffers some loss in endowment size, with a typical private school losing maybe 15-20 percent. At the richer schools, that translates eventually into a 3 to 6 percent reduction in budgets because of lower endowment returns. In a worse case scenario, the econmy continues to implode, with no recovery this fiscal year, with the Dow dropping below 8,000, and losses in endowment at a typical school of at least 20 percent, and the elites forced to cut budgets significantly (maybe 8 to 10 percent at Harvard for example, a noticeable reduction).
The elites in the Great Depression sought more rich kids who could pay full tuition, and I suspect that could happen again, the rhetoric of recent years notwithstanding. I wonder if the allegedly super bright investment gurus running endowment funds who have done well by investing in hedge funds and other risky investments at the Yales and Harvards of the world are going to take a huge fall, with their endowments declining as much or more than those of the colleges that have pursued a less daring investment strategy. Time will tell.
The less elite and wealthy private schools are in worse shape, maybe the worst of the various types of institutions. They are heavily tuition-driven, and students hunting for bargains may head for cheaper public institutions (they, too, will suffer some on the endowment side, and in declining annual contributions). A few of them might be toast. Some could face budget cuts in the 5 to 10 percent range, with more forthcoming. Uncertainties about student loan funding aggravates the problem.
PUBLIC FOUR YEAR UNIVERSITIES
Public appropriations will take a hit, hurting public schools. The ability to make up for this by increasing tuition fees is difficult on both economic and political grounds, so growing austerity is likely. This might have some modest positive impacts, such as leading to the elimination of some costly programs that are not terribly productive, and possibly some inter-institutional cooperation to consolidate offerings. Enrollment effects are hard to gauge --some publics have actually had enrollment gains in bad times, as students switch to them from higher cost privates and/or draw in students who are unemployed and thus do not face the huge loss of income when they attend school as they usually would. On the whole, however, I expect the net effect of the falling economy on enrollments to be negative, and for these schools to have budgets for next year that are typically several percentage points below this year in real terms. Obviously, the exact decline will depend on the extent of the general decline in the economy.
TWO YEAR PUBLIC COLLEGES
This category stands to gain enrollments, I suspect, because of substitution effects (people switching to lower cost alternatives). Yet these schools depend a lot on state funding, which is likely to decline. So these schools face the worst of all possible outcomes - rising enrollments and falling budgets. This could lead to legislatures reducing the subsidy reductions for these schools relative to four year universities.
Economists are hopeless at important predictions, and I am no exception. Who would have said six months ago that the Dow on October 10 would be around 8,500? Who would have predicted the demise of Bear Stearns, Lehman Brothers, Wachovia or Chrysler? Panic can have devastating effects, as anyone who has studied the Panics of 1819, 1937, 1893, 1907 or 1929-33 knows. If people lose complete faith in government and the Fed, all bets are off, and higher education will suffer big time across the board.
I am of the opinion that government should now actually back off some, and let market forces work. Buffet's financial infusions, the Wells Fargo purchase of Wachovia (taking the FDIC off the hook), and the GM purchase of Chrysler are good examples of private solutions to problems (not all of these efforts may succeed, to be sure). The decline in oil prices and its positive effect is one example of how the self-correcting mechanisms of the market work. Let us not try to mute those positive market forces.
Infidelities and Verities
By Richard Vedder
On a couple long flights this past week, I read most of a remarkable memoir, Infidel, by Ayaan Hirsi Ali. It is a story of a Muslim woman's ultimately successful journey from an oppressive, intolerant, uneducated, cruel and poor society in Somalia and surrounding countries, to a life of intellectual inquiry, tolerance, and prosperity in Western Europe and America.
That got me thinking further about what I have previously termed the "End of the Enlightenment." Until the last quarter or at least the last half of the last millennium, the bulk of the planet was characterized by the type of society that Ms. Ali knew. There was lots of hatred of diversity from an orthodox religious dogma, little learning, little quest for discovery, lots of poverty. The fundamentalism of modern Islam was found in Christian Europe, albeit perhaps at a slightly diluted level, manifested in such things as the Spanish Inquisition, the persecution of Gailleo, or the Edict of Nantes.
The Renaissance and the Enlightenment brought about modern times, democracy, literacy, discovery, tolerance, and ultimately prosperity to the Western World. Writers like John Locke, William Shakespeare, and Adam Smith all added to our understanding of what it is to be human and have freedom of expression, as did painters like Michaelangelo and Da Vinci. Scientists like Newton and inventors like Gutenberg added to the richness of our lives. In this atmosphere, the medieval universities blossomed into modern institutions that both disseminated and discovered truth and knowledge. Religious dogmatism was replaced by rational, objective, dispassionate intellectual inquiry based on empirical observation.
Many American universities have moved a bit away from the modern approach towards a new type of intolerant fundamentalism, a rejection of evidence for dogmatism of a new sort. A student was almost thrown out of a Ivy League school for yelling "water buffalo" at an annoying fellow student (on the grounds that the words were hurtful and maybe, just maybe, racist). People try to repress research results that say provocative things, such as there are indeed genetic racial differences, or that maybe global warming either does not exist or is a natural phenomenon that does not justify all the hand-wringing and concerns of the environmental community. One of my students was punished for promoting on his personal web site a pro-family, anti-gay web site that he thought was important (the student was a dorm research assistant and the Residence Life Ayatollahs thought his position might be hurtful to gays).
Freedom of expression and the pursuit of rational inquiry have been the exception, not the rule, through human history, and their ultimate triumph in the West ushered in enormous improvements in the quantity and quality of our lives. We must fight attempts in the university community to implement a new secular, indeed rather anti-religious, form of fundamentalism. Down with political correctness, speech codes, and other attempts to return to some of the tyranny and oppression of the human spirit that Ayaan Hirsi Ali lived with for the first two decades of her life.
On a couple long flights this past week, I read most of a remarkable memoir, Infidel, by Ayaan Hirsi Ali. It is a story of a Muslim woman's ultimately successful journey from an oppressive, intolerant, uneducated, cruel and poor society in Somalia and surrounding countries, to a life of intellectual inquiry, tolerance, and prosperity in Western Europe and America.
That got me thinking further about what I have previously termed the "End of the Enlightenment." Until the last quarter or at least the last half of the last millennium, the bulk of the planet was characterized by the type of society that Ms. Ali knew. There was lots of hatred of diversity from an orthodox religious dogma, little learning, little quest for discovery, lots of poverty. The fundamentalism of modern Islam was found in Christian Europe, albeit perhaps at a slightly diluted level, manifested in such things as the Spanish Inquisition, the persecution of Gailleo, or the Edict of Nantes.
The Renaissance and the Enlightenment brought about modern times, democracy, literacy, discovery, tolerance, and ultimately prosperity to the Western World. Writers like John Locke, William Shakespeare, and Adam Smith all added to our understanding of what it is to be human and have freedom of expression, as did painters like Michaelangelo and Da Vinci. Scientists like Newton and inventors like Gutenberg added to the richness of our lives. In this atmosphere, the medieval universities blossomed into modern institutions that both disseminated and discovered truth and knowledge. Religious dogmatism was replaced by rational, objective, dispassionate intellectual inquiry based on empirical observation.
Many American universities have moved a bit away from the modern approach towards a new type of intolerant fundamentalism, a rejection of evidence for dogmatism of a new sort. A student was almost thrown out of a Ivy League school for yelling "water buffalo" at an annoying fellow student (on the grounds that the words were hurtful and maybe, just maybe, racist). People try to repress research results that say provocative things, such as there are indeed genetic racial differences, or that maybe global warming either does not exist or is a natural phenomenon that does not justify all the hand-wringing and concerns of the environmental community. One of my students was punished for promoting on his personal web site a pro-family, anti-gay web site that he thought was important (the student was a dorm research assistant and the Residence Life Ayatollahs thought his position might be hurtful to gays).
Freedom of expression and the pursuit of rational inquiry have been the exception, not the rule, through human history, and their ultimate triumph in the West ushered in enormous improvements in the quantity and quality of our lives. We must fight attempts in the university community to implement a new secular, indeed rather anti-religious, form of fundamentalism. Down with political correctness, speech codes, and other attempts to return to some of the tyranny and oppression of the human spirit that Ayaan Hirsi Ali lived with for the first two decades of her life.
Thursday, October 09, 2008
Tweaking USNWR College Rankings
by Jonathan Robe
The annual college rankings published by US News and World (USNWR) report have generated heated debate over college rankings in the academic world over the past several decades. While the most serious flaw in the methodology employed by USNWR is that it focuses on the inputs instead of the outputs of college education, it does demonstrate the usefulness of an outside assessment of higher education's performance.
But does the data used by USNWR really support the hierarchy of schools given by the rankings? In order to compute the overall school score, USNWR relies on seven separate categories of data, and each category is assigned a certain weight by USNWR. As Science News reports, a new study published by two mathematicians concludes that the USNWR ranking is highly arbitrary since there is no "defensible empirical or theoretical basis" for the choice of weights for the seven components. Although the two authors acknowledge that the data published by USNWR has some value to potential students and their parents, the weights assigned by the magazine are based solely on individual preferences and thus it is highly biased to present only one possible weighting scheme.
This study analyzes the affect different weighting schemes have on the ranking of the 130 schools included in USNWR Best National Universities for 2008. Using high dimensional geometry, the authors demonstrated that, depending on the weighting scheme selected, the ranks of the schools varied widely. For instance, although Harvard, Yale, and Princeton almost always topped the list regardless of the weighting scheme, the ranks of all of the other schools depended heavily on the component weights. A total of twenty–seven schools could appear in the top four schools, the study concluded, with one scenario putting Penn State at number 1.
Interestingly enough, the researchers published the ranking interval (the range of ranks for a school for 95% of the possible weighting choices). The average ranking interval for the 130 schools is 35.5 (41.1 for those schools not in the top 25), indicating that, in the words of the authors, a school’s “specific placement by USNWR is essentially arbitrary.”
While concluding that selecting one individual preference over another for a ranking system of colleges is not useful to students and their parents, the authors do suggest that college rankings adopt the approach of allowing individual users to access the data, make their own choices for weights, and develop their own specific ranking of schools depending on the factors which are most important to them.
Of course, in order to implement such an approach to college rankings would require that all of the data be made publicly available (USNWR publishes data for only some of its components). Such a move would certainly be for the better since it would increase transparency in higher ed for college bound students and their parents. After all, students should be given as much information as they deem necessary as they make one of the biggest decisions of their lives.
Any ranking, including our recent one in Forbes is guilty of having an "arbitrary weighting scheme," so the question becomes, which weights really matter to students. We think that our variables, which focus on educational output as opposed to the inputs used in USNWR, are better. But this paper is a useful reminder that rankings are always going to be somewhat arbitrary.
*Jonathan Robe is a research assistant for the Center for College Affordability and Productivity and an undergraduate student at Ohio University.
The annual college rankings published by US News and World (USNWR) report have generated heated debate over college rankings in the academic world over the past several decades. While the most serious flaw in the methodology employed by USNWR is that it focuses on the inputs instead of the outputs of college education, it does demonstrate the usefulness of an outside assessment of higher education's performance.
But does the data used by USNWR really support the hierarchy of schools given by the rankings? In order to compute the overall school score, USNWR relies on seven separate categories of data, and each category is assigned a certain weight by USNWR. As Science News reports, a new study published by two mathematicians concludes that the USNWR ranking is highly arbitrary since there is no "defensible empirical or theoretical basis" for the choice of weights for the seven components. Although the two authors acknowledge that the data published by USNWR has some value to potential students and their parents, the weights assigned by the magazine are based solely on individual preferences and thus it is highly biased to present only one possible weighting scheme.
This study analyzes the affect different weighting schemes have on the ranking of the 130 schools included in USNWR Best National Universities for 2008. Using high dimensional geometry, the authors demonstrated that, depending on the weighting scheme selected, the ranks of the schools varied widely. For instance, although Harvard, Yale, and Princeton almost always topped the list regardless of the weighting scheme, the ranks of all of the other schools depended heavily on the component weights. A total of twenty–seven schools could appear in the top four schools, the study concluded, with one scenario putting Penn State at number 1.
Interestingly enough, the researchers published the ranking interval (the range of ranks for a school for 95% of the possible weighting choices). The average ranking interval for the 130 schools is 35.5 (41.1 for those schools not in the top 25), indicating that, in the words of the authors, a school’s “specific placement by USNWR is essentially arbitrary.”
While concluding that selecting one individual preference over another for a ranking system of colleges is not useful to students and their parents, the authors do suggest that college rankings adopt the approach of allowing individual users to access the data, make their own choices for weights, and develop their own specific ranking of schools depending on the factors which are most important to them.
Of course, in order to implement such an approach to college rankings would require that all of the data be made publicly available (USNWR publishes data for only some of its components). Such a move would certainly be for the better since it would increase transparency in higher ed for college bound students and their parents. After all, students should be given as much information as they deem necessary as they make one of the biggest decisions of their lives.
Any ranking, including our recent one in Forbes is guilty of having an "arbitrary weighting scheme," so the question becomes, which weights really matter to students. We think that our variables, which focus on educational output as opposed to the inputs used in USNWR, are better. But this paper is a useful reminder that rankings are always going to be somewhat arbitrary.
*Jonathan Robe is a research assistant for the Center for College Affordability and Productivity and an undergraduate student at Ohio University.
Wednesday, October 08, 2008
More Vox Highlights
by Andrew Gillen
Vox EU has a few more higher ed posts.
In Longevity and investment in human capital: Lessons from today's developed countries Moshe Hazan examines the
Vox EU has a few more higher ed posts.
In Longevity and investment in human capital: Lessons from today's developed countries Moshe Hazan examines the
Conventional wisdom [that] suggests that an increase in life expectancy raises the time period over which investments in schooling can be amortised, thus raising schooling.In other words, that if you live longer, you’ll benefit more from education since you’ll have more years to exploit your education. This is one of the common reasons cited for the increase in educational attainment over the centuries. It’s certainly plausible. It wouldn’t make much sense to spend 22 years in school if the life expectancy is 35 years, but when the life expectancy is 75, perhaps it does. However, Hazan finds that
despite the gains in life expectancy, lifetime labour supply declined dramatically across cohorts…and that gains in longevity had no effect on the rise in schooling during the 19th and 20th centuries.In a separate post, Rick van der Ploeg and Reinhilde Veugelers in Towards evidence-based reform of European universities
International rankings indicate that European countries lag in higher education, research, innovation, and growth. This column argues that enhancing competition and governance are the key aspects of potential reform. But the most important recommendation is to invest in more data and analysis to support evidence-based reform.
Tuesday, October 07, 2008
Community Colleges and Need-Based Financial Aid
by Daniel Bennett
The Advisory Committee on Student Financial Assistance recently released a report entitled Apply to Succeed: Ensuring Community College Students Benefit from Need-Based Financial Aid. The report outlines the importance of community colleges in educating the US workforce and discusses the low application rates among the millions of students in these institutions.
It was reported that 55% of all community college students failed to apply for financial aid by completing the FAFSA during the 2003-04 school year, compared with only 37% of all students at 4 year institutions during the same year. Among full-time students at community colleges, 38% did not complete the FAFSA. Of the full-time students that did not apply, 49% of dependent students, 53% of independent students without dependents, and 29% of independent students with dependents reported annual family income less than $20,000, which would most likely have made those students eligible for a full Pell Grant. A survey of students cited various reasons for failure to apply, including:
*Thought they were ineligible for financial aid (39%)
*Had sufficient funds to pay for college expenses (35%)
*The financial aid application was too complex (6%)
*Did not want to provide sensitive information (2%)
*Other (18%)
The report indicates there is a lack of information being disseminated to students, especially first generation and low-income ones, concerning the procedure for aid determination and the potential benefits. Legislative changes enacted by the 2007 CCRAA increased financial aid eligibility for millions of students, but many students are still unaware of the changes and how it may affect their eligibility.
The ACSFC's policy recommendations include:
1) Communicate increased federal aid eligibility widely and effectively
2)Make applying for financial aid easy and a priority
3)Encourage students to moderate the number of hours worked
4) Improve implementation of the auto-zero EFC
First, sorting through financial aid information can be intimidating and cumbersome. CCAP supports simplification of FASFA along the lines of the proposed Spelling's Plan for Simplification that would drastically shorten the application from more than 100 questions to 27. High school guidance counselors and college financial aid administrators are essential players in the financial aid game and need to be better trained to educate students on the process and availability of aid. Colleges and universities could collectively sponsor a public service campaign to spread the word. This could include easy-to-understand information pamphlets, commercial advertisement and stakeholder training sessions. Such a campaign would be beneficial to all, as economies of scale would be realized and institutions could potentially increase their enrollment and retention rates and thus, increase their revenues. An increased number of graduates could have positive externalities on the economy as a whole, as some advocates suggest.
Many students at community colleges work while attending school full-time, which some suggest has an adverse effect on the persistence of their studies and the probability of degree completion. The report advocates advising students to work less hours and take advantage of financial aid, so that they may focus on their studies. While it is true that some students may work too many hours to allow sufficient preparation and study time for their courses, I believe that working part-time while in school can add value to an education, as it provides students with work experience and teaches them to manage their time more efficiently. Not to mention that these student jobs may lead to management positions upon completion of a degree. These sort of benefits are especially important at the community college level where institutions may not offer professional development opportunities (clubs/organizations) or have large career centers with extensive alumni relations.
While I do support the cause to make financial aid information more readily available and understood, I don't believe that we should downplay the importance of student work experience. There is a catch 22 to beginning a career that colleges often fail to inform students - many jobs require experience, but you can't get that experience without working. Internships and co-ops are the ideal experiences to have while in school, but not all students (especially those from low-income families) have the opportunity or access to engage in these types of positions. Therefore, jobs in retail, hospitality and customer service, among others, can provide valuable work experience for student that they can leverage to find a more suitable (and hopefully higher paying) job in the future. The key is striking a balance between work and school and for student's employers to ascertain their need to study.
The ACSFC report discussed the increased number of students who begin their college career at a community college with the intention to transfer into a 4 year institution. While this makes financial sense for many low and middle income students, the viability of the credits being transferable needs to be considered. Some 4 year schools will not accept transfer credits from 2 year schools, which leads to gravely inefficient use of financial aid resources if a student has to repeat essentially the same classes. Not to mention that it increases the time to degree completion, which may lead some students to not finish.
The Advisory Committee on Student Financial Assistance recently released a report entitled Apply to Succeed: Ensuring Community College Students Benefit from Need-Based Financial Aid. The report outlines the importance of community colleges in educating the US workforce and discusses the low application rates among the millions of students in these institutions.
It was reported that 55% of all community college students failed to apply for financial aid by completing the FAFSA during the 2003-04 school year, compared with only 37% of all students at 4 year institutions during the same year. Among full-time students at community colleges, 38% did not complete the FAFSA. Of the full-time students that did not apply, 49% of dependent students, 53% of independent students without dependents, and 29% of independent students with dependents reported annual family income less than $20,000, which would most likely have made those students eligible for a full Pell Grant. A survey of students cited various reasons for failure to apply, including:
*Thought they were ineligible for financial aid (39%)
*Had sufficient funds to pay for college expenses (35%)
*The financial aid application was too complex (6%)
*Did not want to provide sensitive information (2%)
*Other (18%)
The report indicates there is a lack of information being disseminated to students, especially first generation and low-income ones, concerning the procedure for aid determination and the potential benefits. Legislative changes enacted by the 2007 CCRAA increased financial aid eligibility for millions of students, but many students are still unaware of the changes and how it may affect their eligibility.
The ACSFC's policy recommendations include:
1) Communicate increased federal aid eligibility widely and effectively
2)Make applying for financial aid easy and a priority
3)Encourage students to moderate the number of hours worked
4) Improve implementation of the auto-zero EFC
First, sorting through financial aid information can be intimidating and cumbersome. CCAP supports simplification of FASFA along the lines of the proposed Spelling's Plan for Simplification that would drastically shorten the application from more than 100 questions to 27. High school guidance counselors and college financial aid administrators are essential players in the financial aid game and need to be better trained to educate students on the process and availability of aid. Colleges and universities could collectively sponsor a public service campaign to spread the word. This could include easy-to-understand information pamphlets, commercial advertisement and stakeholder training sessions. Such a campaign would be beneficial to all, as economies of scale would be realized and institutions could potentially increase their enrollment and retention rates and thus, increase their revenues. An increased number of graduates could have positive externalities on the economy as a whole, as some advocates suggest.
Many students at community colleges work while attending school full-time, which some suggest has an adverse effect on the persistence of their studies and the probability of degree completion. The report advocates advising students to work less hours and take advantage of financial aid, so that they may focus on their studies. While it is true that some students may work too many hours to allow sufficient preparation and study time for their courses, I believe that working part-time while in school can add value to an education, as it provides students with work experience and teaches them to manage their time more efficiently. Not to mention that these student jobs may lead to management positions upon completion of a degree. These sort of benefits are especially important at the community college level where institutions may not offer professional development opportunities (clubs/organizations) or have large career centers with extensive alumni relations.
While I do support the cause to make financial aid information more readily available and understood, I don't believe that we should downplay the importance of student work experience. There is a catch 22 to beginning a career that colleges often fail to inform students - many jobs require experience, but you can't get that experience without working. Internships and co-ops are the ideal experiences to have while in school, but not all students (especially those from low-income families) have the opportunity or access to engage in these types of positions. Therefore, jobs in retail, hospitality and customer service, among others, can provide valuable work experience for student that they can leverage to find a more suitable (and hopefully higher paying) job in the future. The key is striking a balance between work and school and for student's employers to ascertain their need to study.
The ACSFC report discussed the increased number of students who begin their college career at a community college with the intention to transfer into a 4 year institution. While this makes financial sense for many low and middle income students, the viability of the credits being transferable needs to be considered. Some 4 year schools will not accept transfer credits from 2 year schools, which leads to gravely inefficient use of financial aid resources if a student has to repeat essentially the same classes. Not to mention that it increases the time to degree completion, which may lead some students to not finish.
CCAP 2.0
CCAP is pleased to unveil its new, enhanced website, CenterForCollegeAffordability.org. In the coming months we hope to make a wide variety of resources available here. New site content will range from downloadable datasets to multimedia. Stay tuned.
Monday, October 06, 2008
Black Men in College
by Daniel Bennett
I read an article in the Chronicle of Higher Education that discussed several initiatives aimed at increasing the success of black males in college, including the University of Georgia's African American Male Intiative, CUNY's Black Male Initiative, California State's African American Initiative, the Student African American Brotherhood, and several independent research efforts.
The statistics reveal that less than 1/3 of black males that enroll in college graduate within 6 years and that black women outnumber black men by a factor of nearly 2:1 in college. At first glance, these numbers appear rather appalling and lead some to suggest an educational system that is failing to make progress in educating black males. This includes the President of Benedict College, David Swinton, who professes that no one should be happy with the progress of black men in the university, despite evidence presented at a recent conference hosted by the National Association for Equal Opportunity in Higher Education, that the share of black men who had attained a degree had increased from 13% to 18% since the mid 1990s, an increase of 40%. Despite the overall negative tone in the article towards the progress of academic achievement by black males, progress has been made and there is reason to be optimistic going forward.
First of all, the statistics cited are in absolute terms and fail to cast any light on relative terms. Yes, it is true that more white students, as well as a larger percentage, attain a college education than do black students. However, it should be noted that the percentage of African Americans who have attained a degree has increased at a rate nearly double that of the white population in the past decade. Meanwhile, the proportion of Hispanics earning a college degree has increased by less than both the white and black populations. This should be an area of concern for a population that is growing at a very rapid pace in the US.
The subject of my master's thesis, and on-going research, was educational inequality in the US. One of the key findings of my empirical investigation suggests that the relationship between black population and educational inequality has changed over the past several decades. In 1980, there was a statistically significant positive relationship between the percentage of state's population that was black, and educational inequality, meaning that the greater the proportion of blacks in a state, the more inequality in 1980. Surprisingly, this relationship changed to a statistically significant negative one by 2000, meaning that states with a higher proportion of black population exhibited lower levels of educational inequality. While the research is on-going, I believe that this shift in paradigm can be explained, at least partially, by the greater access to college for black students in the past several decades, made possible by diversity initiatives by the colleges, as well as the increase in federally-funded financial aid programs.
The preceding paragraphs suggest that progress is being made towards improving educational opportunities for the nation's African American population. Some supporters of black male initiatives suggest that many in this group come from low-income families, have less access to post-secondary education, and that we need to direct more attention to this particular issue. While I do not dispute that access to the nation's colleges and universities needs to be expanded to children of low-income families, I believe that these sort of initiatives need to be directed towards all motivated and capable young people who grew up in similar circumstances, regardless of race, ethnicity, or gender. We must concern ourselves with educational opportunities for all disadvantaged youth and not target only one specific group, as this would be a counter-productive agenda in that it favors one group over others, especially if their socio-economic status is nearly identical. Our focus should be, instead, to provide educational opportunities for the most capable of the disadvantage youth.
I read an article in the Chronicle of Higher Education that discussed several initiatives aimed at increasing the success of black males in college, including the University of Georgia's African American Male Intiative, CUNY's Black Male Initiative, California State's African American Initiative, the Student African American Brotherhood, and several independent research efforts.
The statistics reveal that less than 1/3 of black males that enroll in college graduate within 6 years and that black women outnumber black men by a factor of nearly 2:1 in college. At first glance, these numbers appear rather appalling and lead some to suggest an educational system that is failing to make progress in educating black males. This includes the President of Benedict College, David Swinton, who professes that no one should be happy with the progress of black men in the university, despite evidence presented at a recent conference hosted by the National Association for Equal Opportunity in Higher Education, that the share of black men who had attained a degree had increased from 13% to 18% since the mid 1990s, an increase of 40%. Despite the overall negative tone in the article towards the progress of academic achievement by black males, progress has been made and there is reason to be optimistic going forward.
First of all, the statistics cited are in absolute terms and fail to cast any light on relative terms. Yes, it is true that more white students, as well as a larger percentage, attain a college education than do black students. However, it should be noted that the percentage of African Americans who have attained a degree has increased at a rate nearly double that of the white population in the past decade. Meanwhile, the proportion of Hispanics earning a college degree has increased by less than both the white and black populations. This should be an area of concern for a population that is growing at a very rapid pace in the US.
The subject of my master's thesis, and on-going research, was educational inequality in the US. One of the key findings of my empirical investigation suggests that the relationship between black population and educational inequality has changed over the past several decades. In 1980, there was a statistically significant positive relationship between the percentage of state's population that was black, and educational inequality, meaning that the greater the proportion of blacks in a state, the more inequality in 1980. Surprisingly, this relationship changed to a statistically significant negative one by 2000, meaning that states with a higher proportion of black population exhibited lower levels of educational inequality. While the research is on-going, I believe that this shift in paradigm can be explained, at least partially, by the greater access to college for black students in the past several decades, made possible by diversity initiatives by the colleges, as well as the increase in federally-funded financial aid programs.
The preceding paragraphs suggest that progress is being made towards improving educational opportunities for the nation's African American population. Some supporters of black male initiatives suggest that many in this group come from low-income families, have less access to post-secondary education, and that we need to direct more attention to this particular issue. While I do not dispute that access to the nation's colleges and universities needs to be expanded to children of low-income families, I believe that these sort of initiatives need to be directed towards all motivated and capable young people who grew up in similar circumstances, regardless of race, ethnicity, or gender. We must concern ourselves with educational opportunities for all disadvantaged youth and not target only one specific group, as this would be a counter-productive agenda in that it favors one group over others, especially if their socio-economic status is nearly identical. Our focus should be, instead, to provide educational opportunities for the most capable of the disadvantage youth.
Friday, October 03, 2008
Spellings Last Stand
By Richard Vedder
A few months ago, Charles Miller and I met with Under Secretary of Education Sara Martinez Tucker in DC to discuss a radical revision in the federal student aid program. The senior officials of that department decided they were going to fight to the end for what they perceived to be a improved system of higher education in this country. I applaud them for their effort.
In July, Secretary Margaret Spellings, along with Sara Tucker, announced a plan to simplify and improve federal student aid, and a couple of days ago Spellings laid out the plan in greater specificity. First, the hated FAFSA form would be shortened by 75 percent. Financial aid decisions would be based on adjusted gross income and family size, and all the questions about family assets and liabilities would be dropped.
Also, families would be given information on their expected financial assistance before the beginning of the senior year in high school, allowing for more intelligent college searching. Both of these moves are welcomed. Whether they will ever come to pass, who knows, although the FAFSA simplification idea is very popular politically, and I don't see how people can argue against earlier notification. However, I sat in on a meeting in DC this summer on the FAFSA form where the educrats and financial aid types fought hard to keep most of the stupid questions on that form that has done more to reduce college access to the poor than anything else in America. The Establishment yields little ground without fighting.
More important, a ton more could be done. It would be comparatively easy to eliminate the FAFSA form, albeit with some IRS cooperation that might require congressional action to compel. The consolidation of more than a dozen different federal aid programs should happen now. Above all, the Pell Grant should morph into a full fledged scholarship (voucher) program which should have three characteristics: it should be progressive(more money going to poorer students), student-centered (money goes to kids, not to schools for distribution), and should be performance-driven (money gets cut off after a reasonable time period, and poor academic performance leads to fund reductions). Indeed, I think every single federal program should be rolled into one.
Of course, I really believe that in the long run the Feds should get out of the business of funding students. The greatest growth in student college participation in the U.S. came early, without significant federal involvement, and I believe the era of massive federal student aid has contributed significantly to the rise in college costs and the growth of university arrogance and inefficiency. But, in her own modest way, Secretary Spellings and Under Secretary Tucker have taken a good step in the right direction. Let us hope the momentum continues with the new administration.
A few months ago, Charles Miller and I met with Under Secretary of Education Sara Martinez Tucker in DC to discuss a radical revision in the federal student aid program. The senior officials of that department decided they were going to fight to the end for what they perceived to be a improved system of higher education in this country. I applaud them for their effort.
In July, Secretary Margaret Spellings, along with Sara Tucker, announced a plan to simplify and improve federal student aid, and a couple of days ago Spellings laid out the plan in greater specificity. First, the hated FAFSA form would be shortened by 75 percent. Financial aid decisions would be based on adjusted gross income and family size, and all the questions about family assets and liabilities would be dropped.
Also, families would be given information on their expected financial assistance before the beginning of the senior year in high school, allowing for more intelligent college searching. Both of these moves are welcomed. Whether they will ever come to pass, who knows, although the FAFSA simplification idea is very popular politically, and I don't see how people can argue against earlier notification. However, I sat in on a meeting in DC this summer on the FAFSA form where the educrats and financial aid types fought hard to keep most of the stupid questions on that form that has done more to reduce college access to the poor than anything else in America. The Establishment yields little ground without fighting.
More important, a ton more could be done. It would be comparatively easy to eliminate the FAFSA form, albeit with some IRS cooperation that might require congressional action to compel. The consolidation of more than a dozen different federal aid programs should happen now. Above all, the Pell Grant should morph into a full fledged scholarship (voucher) program which should have three characteristics: it should be progressive(more money going to poorer students), student-centered (money goes to kids, not to schools for distribution), and should be performance-driven (money gets cut off after a reasonable time period, and poor academic performance leads to fund reductions). Indeed, I think every single federal program should be rolled into one.
Of course, I really believe that in the long run the Feds should get out of the business of funding students. The greatest growth in student college participation in the U.S. came early, without significant federal involvement, and I believe the era of massive federal student aid has contributed significantly to the rise in college costs and the growth of university arrogance and inefficiency. But, in her own modest way, Secretary Spellings and Under Secretary Tucker have taken a good step in the right direction. Let us hope the momentum continues with the new administration.
Thursday, October 02, 2008
The Financial Crisis and Colleges: Part II
By Richard Vedder
One fallout of the current turmoil in financial markets that I did not fully anticipate was revealed in the Wall Street Journal today, namely that hundreds of colleges have literally billions of dollars of assets tied up in a frozen Wachovia account. Wachovia administered the monies for the Commonfund, which the Ford Foundation helped create nearly 40 years ago to help colleges get higher returns on endowments by engaging in more aggressive (i.e., riskier) investment strategies. The Short Term Fund portion of the Commonfund had nearly one-quarter of the Commonfund's total assets.
Colleges now cannot withdraw their funds from the Commonfund. Some of the assets were invested in mortgage backed securities, which are trading at a meaningful discount from par value, so the assets of the fund do not fully cover the stated values of deposits (the fund "broke the buck.") Small schools naively thought they could earn a bit more interest putting their money in this fund instead of treasury bills or keeping funds in cash. Some schools used these funds to meet immediate (e.g., payroll) needs, and are now scrambling to deal with the problem.
I have been worried for some time about the rise of highly risky investment strategies by greedy endowment managers, and the Wachovia/Commonfund problem shows my worries are justified.
********************
Is the bailout bill passed by the Senate something that must pass? I very, very reluctantly had concluded that the risks of a true economic melt-down from a loss of confidence was small, but sufficiently large that an insurance policy with a hefty premium was needed --something like the bailout package that failed to pass the House. People lose money all the time on homeowners insurance, since their house typically does not burn down or suffer big damages. But that does not mean you should not have homeowners insurance. The revisions in the rescue package bill made to win House votes, are mostly bad, in my judgment. I know a little bit about deposit insurance (I wrote my doctoral dissertation on the FDIC), and I consider a 2.5 fold increase in coverage done hastily to be a questionable thing, and one that would likely only have modest positive effects in any case. I think requiring health insurance policies to mandate mental health coverage is bad, bad, bad, and certainly not germane to the bill. As usual, Congress is taking a simple proposal --the original bill was only 3 pages long --and making it complex and less useful to the matter at hand. I am close to indifferent on the bill as it currently stands, and I believe that there is a very high probability that private market-based solutions would work better, for example, strong institutions and private investors buying shares in weaker institutions, infusing them with capital (that is already happening to some degree).
George Soros, a refugee from Communist Hungary, wants a return to the good old days of government ownership of the means of production, it seems, as he favors the government taking significant financial interests in financial institutions. Fortunately, that idea is a non-starter in Congress (I think). At the same time, however, there are ways that the taxpayer can be protected, and even benefit, from a bailout package, but as the bill gets longer and more complex, the important issues --restoring stability to the financial system --get subordinated to the whims of the special interests.
One fallout of the current turmoil in financial markets that I did not fully anticipate was revealed in the Wall Street Journal today, namely that hundreds of colleges have literally billions of dollars of assets tied up in a frozen Wachovia account. Wachovia administered the monies for the Commonfund, which the Ford Foundation helped create nearly 40 years ago to help colleges get higher returns on endowments by engaging in more aggressive (i.e., riskier) investment strategies. The Short Term Fund portion of the Commonfund had nearly one-quarter of the Commonfund's total assets.
Colleges now cannot withdraw their funds from the Commonfund. Some of the assets were invested in mortgage backed securities, which are trading at a meaningful discount from par value, so the assets of the fund do not fully cover the stated values of deposits (the fund "broke the buck.") Small schools naively thought they could earn a bit more interest putting their money in this fund instead of treasury bills or keeping funds in cash. Some schools used these funds to meet immediate (e.g., payroll) needs, and are now scrambling to deal with the problem.
I have been worried for some time about the rise of highly risky investment strategies by greedy endowment managers, and the Wachovia/Commonfund problem shows my worries are justified.
********************
Is the bailout bill passed by the Senate something that must pass? I very, very reluctantly had concluded that the risks of a true economic melt-down from a loss of confidence was small, but sufficiently large that an insurance policy with a hefty premium was needed --something like the bailout package that failed to pass the House. People lose money all the time on homeowners insurance, since their house typically does not burn down or suffer big damages. But that does not mean you should not have homeowners insurance. The revisions in the rescue package bill made to win House votes, are mostly bad, in my judgment. I know a little bit about deposit insurance (I wrote my doctoral dissertation on the FDIC), and I consider a 2.5 fold increase in coverage done hastily to be a questionable thing, and one that would likely only have modest positive effects in any case. I think requiring health insurance policies to mandate mental health coverage is bad, bad, bad, and certainly not germane to the bill. As usual, Congress is taking a simple proposal --the original bill was only 3 pages long --and making it complex and less useful to the matter at hand. I am close to indifferent on the bill as it currently stands, and I believe that there is a very high probability that private market-based solutions would work better, for example, strong institutions and private investors buying shares in weaker institutions, infusing them with capital (that is already happening to some degree).
George Soros, a refugee from Communist Hungary, wants a return to the good old days of government ownership of the means of production, it seems, as he favors the government taking significant financial interests in financial institutions. Fortunately, that idea is a non-starter in Congress (I think). At the same time, however, there are ways that the taxpayer can be protected, and even benefit, from a bailout package, but as the bill gets longer and more complex, the important issues --restoring stability to the financial system --get subordinated to the whims of the special interests.
Outsourcing to The Quick and the Ed
by Andrew Gillen
Continuing with my recent trend of outsourcing half my posts to the The Quick and the Ed staff, I'd like to point out yet another great point by Kevin Carey. The dean of admissions at Harvard recently said "At Harvard we get terrific students, and we turn out terrific students later on. Is that due to Harvard or is that due to the students to begin with? Who knows?"
Kevin:
Continuing with my recent trend of outsourcing half my posts to the The Quick and the Ed staff, I'd like to point out yet another great point by Kevin Carey. The dean of admissions at Harvard recently said "At Harvard we get terrific students, and we turn out terrific students later on. Is that due to Harvard or is that due to the students to begin with? Who knows?"
Kevin:
I appreciate honesty and candor as much as the next guy but shouldn't you know? ...To really make some headway you'd need at minimum a group of very smart, highly-skilled people with access to large amounts of resources along with specific training in various complex research and analytic methods, plus proximity to thousands of potential subjects to study. In other words, a place just like Harvard...
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