How Much Is Too Much Debt

by Andrew Gillen

Liz Pulliam Weston crunches some numbers and comes up with some depressing numbers.

If you're a student, your payments shouldn't exceed 10% of your expected monthly gross income once you graduate...

[If] you borrow the maximum allowed under current federal student loan programs, $23,000, in subsidized and unsubsidized borrowing for dependent undergraduate students -- your monthly payments will be around $276.

That payment level should be manageable if you're making at least $33,000, which means you'd better be an accounting or business major...

Liberal arts grads, on the other hand, generally have to settle for salaries under $30,000 to start.

Beginning pay for psychology majors is about $26,000, while English majors are getting about $28,000. At those pay levels, you're better off borrowing no more than about $18,000 over your college career.

This is not good news considering that the average debt of those with debt is now $20,098

HT Edububble

How much of a Priority are Intercollegiate Athletics at Division 1 Schools?

By Robert Villwock and Matthew Denhart

We have developed ratios for the salaries of head football coaches in the Division 1 Football Bowl Subdivision compared to the salaries of university presidents. This ratio gives a good indication of where universities put priorities in regards to athletics and other activities within the university. The data are for the 2006-7 year.

Keep in mind that according to the US Department of Education's Equity in Athletics Data, only 3.2 percent of college students participate as student athletes in Division 1 Football Bowl Series sports. If football makes up half of that percentage (an extremely generous estimate) then 1.6 out of every 100 students benefit from the coaching (instruction) given by these coaches. Though these coaches and their programs bring back revenue to the university, only 19 athletic programs had generated revenues in excess of expenses in 2006. College coaches are not expected to teach class because they must focus on the next week's gameplan, though a football team plays only 12 games a year with an additional game if the team qualifies for bowl competition.

Iowa's head football coach makes 9.35 times the salary of the president.
If salary is any indication of how much a school values its football program compared with other activities within the university, then these numbers are even more shocking. Below are listed the 25 schools with the highest ratios of head football coach salaries to the salary of that university's president.



Student athletes and the general student body both seem to be the victims in this case as they are footing the bill for most of the head coach and university presidents' salaries. To be fair, donations to athletic programs (especially the really good sports programs) make up a portion of the costs and occasionally
the university receives subsidies from the government to help offset those costs, but what are the opportunity costs associated with these expenditures?

Would large donations or other revenue streams that currently go to a university athletic department be given to the business school to pay for new computers? Or to a chemistry lab for new equipment?

Some student athletes are forced to decide between choosing a difficult major or continuing on with athletics because of the time commitments associated with both choices. As the NCAA continues to reform its academic standards, more and more athletes are forced to make this decision.

An unintended consequence of cracking down on academic performance is the prevalence of athletes taking easy majors to ensure academic eligibility. According to 2002-2003data, while less than 1 percent of undergraduate students at Auburn majored in Sociology, over 26 percent of the football team majored in that subject. This trend is seen at several other universities across the country.

While this trend is apparent, there are exceptions to this rule.

Again, we would like to congratulate Myron Rolle, a student athlete at Florida State University, who was one of 32 Rhodes Scholars chosen over the past weekend. Though he apparently received criticism last year from assistant coach Mickey Andrews for skipping Monday practice to go to a physics lab, he was able to overcome it to win the most prestigious scholarship in American Higher Education. We would also like to congratulate Christopher Joseph, another varsity football player from UCLA who was also chosen as a Rhodes Scholar.

Robert Villwock and Matthew Denhart are both undergraduate students at Ohio University and research associates of the Center for College Affordability and Productivity.

Chart of the Week: 11/25/08

This chart shows that as 4-year public schools have increased the ratio of non-teaching professional staff to students, tuition, fees, and room & board (2008 real dollars) have climbed.

View past charts of the week here.

Excellence and Exploitation in Intercollegiate Athletics

By Richard Vedder, Matthew Denhart and Robert Villwock

The naming of Myron Rolle and Chris Joseph as Rhodes Scholars shows that players on big-time college football teams can excel both athletically and academically. Rolle currently plays at Florida State, and Joseph graduated from UCLA. Congratulations to these fine men for an extraordinary achievement. Athletic competition can promote excellence and leadership, and this is a fine example of that.

But there is a dark side to intercollegiate athletics. Consider the following statistic, derived from Dan Fulks' statistics for the NCAA in 2006. For every one dollar spent on student scholarship assistance, $1.95 was spent on salaries and benefits for coaches, athletic administrators and support staff. If an NFL or NBA team spent 1.95 times as much on coaches salaries, the general manager's compensation, and that of other employees as they did on the players, it would not be around for very long.

Top college athletes are typically paid vastly less than the value of their marginal product --what they add to the revenue stream of athletic departments (this is true only at the top football/basketball schools to be sure). They do it because it is required by professional leagues, provides training for pro play later, or, in some cases, because the students genuinely crave a college degree, which they think they will need after their athletic career is over. And most of them have no realistic professional athletic prospects. Money that in a competitive market would go to the players goes for other things --but largely the salaries of coaches. Adults are exploiting children, albeit older children and sometimes even young adults. The better athletes leave early to go to the pros --$1 million a year in pay beats, say, $15,000 (or whatever the value of the grant-in-aid).

But what concerns us also are the negative spillover effects of downplaying academics for the sake of athletics. Colleges take in students who do not belong, who are good athletes but poor students. Is that right and appropriate? Then they give them a schedule of activities (games, practice, conditioning) that makes studying all but impossible, with games scheduled in examination weeks, practices during class hours, etc. So exploit them financially and set them up to fail academically, meanwhile sending a message to everyone "academics is fairly important, but sports trump everything." A bad message to send.

To be sure, we are speaking here of the Gang of 119 --the big NCAA football powers --not the average liberal arts college or even the smaller state schools. We are not talking about either the Ivy League or community colleges. And we are the first to argue --as we did at the beginning of this blog --that we love sports, we enjoy watching games ourselves, and that there are some real benefits of athletics in terms of developing leadership and character. But all things need to be done in moderation, and we are beyond moderation in intercollegiate athletics.

Richard Vedder directs CCAP and teaches at Ohio University, where both Matthew Denhart and Robert Villwock are undergraduate students and CCAP research associates.

Governor Crist's Florida Higher Education Proposals

By Richard Vedder

The morning started out by my number two sidekick, Daniel Bennett, begging me to read about the "funky" (Daniel's word) new higher education proposal of Governor Charlie Crist in Florida. I followed my marching orders (sometimes I wonder who is working for whom at CCAP), and was glad that I did.

The Governor said:

"Let individual institutions have the discretion of raising tuition rates up to 15 percent above the state-set base rate. Let their boards of trustees hire and fire top officials, approve or disapprove budgets, and set long term priorities. Let the state coordinating board, the Board of Governors, approve the proposed individual institutional tuition supplements, long term strategic plans of individual schools, new programs at individual schools, etc."

There are parts of the idea that I like. Philosophically, and also driven by empirical observation, I believe decentralized control of institutions and decision-making works best. Diversity is a hallmark of U.S. higher education, and it has served us well. As the French say, "vive la difference!" I also hate price controls, and believe institutions should have some price flexibility. But a decent case can be made that the Board of Governors should be able to say "no" if five schools decide when they want a new Ph.D. program in history, when arguably none is needed.

But what this really masks is a move to raise tuition fees, a lot, in a politically acceptable way. It is a move to meet budget realities (which are really tough in Florida) by giving the universities, in part, the easy way out. It probably works to forestall some needed radical cost-reducing reforms that would occur in the absence of greater tuition monies. And it works to perpetuate an academic arms raise driven by spending more rather than by charging less.

Having said all of this, Florida is a low tuition state. Students SHOULD pay a large portion (arguably, 100 percent) of the cost of their education. CCAP is NOT against tuition-based funding of schools - au contraire, we welcome it. Indeed, if the University of Florida wanted to raise its tuition fee to $20,000 with the understanding they will lose 50 cents of state subsidy per student for every dollar they raise tuition fees, I would let them do it. It would be a way of moving towards privatization, greater student sensitivity to price, and greater consumer sovereignty, with respect to universities.

At the same time, however, Governor Crist, who I respect, is NOT directly pushing schools to cost-saving approaches - use of new technologies, easing inter-institutional transfer of credit, etc., or at least not in this proposal. While he talks about raising retention and graduation rates, he says nothing about finding out if the students really are learning anything, which, if you believe the Intercollegiate Studies Institute National Civic Literacy tests results, is a highly questionable proposition. What do the kids learn? He should propose finding the answer to THAT question.

America's Report Card

by Daniel Bennett

A - 0.8%
B - 2.6%
C - 7.4%
D - 17.8%
F - 71.4%

These are the scores reported in the 2008 civic literacy test conducted by the Intercollegiate Studies Institute. A random survey of 2,500+ Americans tested their knowledge of the country's history and institutions, political structure and economics. The major findings by ISI include:

(1) Americans Fail the Test of Civic Literacy
(2) Americans Agree: Colleges Should Teach America's Heritage
(3) College Adds Little to Civic Knowledge
(4) Television - including TV News - Dumbs America Down
(5) What College Graduates Don't Know About America

And the crowd favorite:

(6) Elected Officials Score Lower than the General Public

Of particular interest to CCAP is the third finding - that colleges add little to civic knowledge. ISI reports that the average score for college graduates with at least a bachelors degree is 57%, versus 44% of non-graduates. Of the 33 questions, college graduates answered 18.9 correctly, versus 14.4 correct answers for non-graduates. ISI claims that a college education adds little value to the civic literacy of Americans. Some of the more astonishing results include:

(a) 36% of college grads can't name all 3 branches of US government
(b) Only 33% of college grads know the Bill of Rights expressly prohibits the establishment of an official religion in the US
(c) Only 54% of college grads can correctly define free enterprise
(d) 18% of college grads can't name a single right of the 1st Amendment
(e) Only 24% of college grads know that slavery was the main issue of the Lincoln-Douglas debates
(f) Only 24% of college grads know that the phrase "government of the people, by the people, for the people" came from Lincoln's speech

The US has a rich history of prosperity, due to the freedoms and liberties provided by our founding fathers and other great leaders. It would seem that these traditions are in danger if we fail to do more to increase the civic literacy of our citizens. More than 70% of Americans believe that colleges are responsible for teaching America's Heritage to future leaders of this country. The miserable results of ISI's survey should open some eyes to the greater societal problem and motivate our nation's educators and policy makers to take action.

Some groups are already taking action, such as the Public Interest Institute in Iowa, which is researching the curricula of all the colleges in the state to develop a checklist of civic topics covered. Many institutions are teaming up with ISI to develop a curriculum that focuses on civic education, including 8 year old Patrick Henry College. If you are a parent or student and are concerned about your civic education, then visit www.collegeguide.org for a report on the schools that you are considering.

Finally, you can put your civic literacy to the test here.

The Virtues of Fiscal Conservatism

By Richard Vedder

I believe that the top financial officers of universities should be fiscally conservative. They are spending other people's money. Since fixed costs are high (given tenure and other long term obligations), it is critical to minimize the possibility of major losses with university investments. When I went to college back in the late Ice Age, institutions argued about whether endowments should go mainly into bonds or whether blue chip stock investments were appropriate. Then came the era of go-go financing, which eventually hit universities, and everyone in recent years has talked about dabbling in hedge funds and derivatives. And, in an up market, those who did so heavily, including the bigger endowment funds, profited highly, just as those who bought stocks or expensive houses on borrowed money. But they tended to take massive deterioration in their net worth (sometimes to a negative number) as asset prices fell.

As the major stock averages fall 35-40 percent, endowment funds are taking huge hits. Early returns from some colleges indicate endowment declines in the 25 percent range for the period since June 30. People are saying this will be disastrous for colleges. However, prudence works here to minimize the problem. Most schools spend X percent a year from a three (or in some cases, five) year moving average of their endowment. That should work to cushion losses substantially.

Let us take some mythical university X whose endowment on June 30 was:

$750 million in 2006
900 million in 2007
1.0 billion in 2008, and
$750 million (suppose) in 2009.

In the current year, if the university took an average of endowments at the end of the 2006, 2007 and 2008 fiscal years, the figure would be $883.3 million, and $44.165million would be allocated for this fiscal year to spend, using a 5 percent payout rule ($883.3 million X 0.05 = $44.165 million).

For next year, spending would be the same -- as the 2009 figure would substitute for the 2006 figure in the calculation of the three year moving average (the 2006 endowment figure is the same as the 2009 figure). There would be no reduction in payout despite the 25 percent endowment decline. Suppose in fiscal year 2010, a partial market recovery occurs, and the endowment grows to $875 million. For that year, endowment spending would have to decline by about one percent --not a huge hit. The smoothing out that occurs with the moving average approach helps colleges avoid huge spending cuts. Moreover, the example above ignores increases in the endowment arising from new charitable contributions.

All of this is further reason why Congress should NOT impose an endowment spending rule, particularly one that enforces a five percent payout on a single year's endowment figure. Colleges are literally eating into principle in the short run as it is with ANY payout this year, and in the interests of inter-generational equity (never, to be sure, a concern of a Congress that is letting future generations hang out to dry with Social Security and Medicare deficits), imposing higher spending requirements on colleges is fiscally irresponsible.

In a study I did a few months ago, I argued that IF an endowment rule were established, which I oppose, it should be based on a very long term average rate of return (maybe over 10 or 15 years) on investments after allowing for inflation and enrollment changes. But colleges have legal obligations with respect to endowment funds that are potentially jeopardized by any mandatory spending rule. Raising endowment spending, in any case, will impact at only a few, mostly elite schools. Give up on this bad idea.

Two Campus Heroes: Walter Block and Loye Young

By Richard Vedder

I previously wrote about Loye Young, the instructor at Texas A and M International University, who not only flunked students who he said plagiarized in class, but also publicly humiliated them for it on his web site. The school said that was terrible, relieved him of his responsibilities, and said it was reviewing the student grades. I said that was totally inappropriate, that Young should be admired for taking a tough step towards academic dishonesty, etc. Young has not backed down, and has written a thoughtful response to his critics on the INSIDE HIGHER ED website.

Now comes Walter Block. I was not surprised to see Walter the object of controversy. Indeed, the only surprise is that it has taken so long. Walter delights in being controversial, saying outrageous things, etc. A radical libertarian, Walter has attacked Lowell Gallaway and me on occasion for not adhering to the Austrian economics party line - an odd criticism coming from a libertarian who should delight in diversity of viewpoints. So I, too, have been annoyed with Walter at times, and even have had some jousts with him in print.

But Walter is getting ostracized for stating facts, and for daring to approvingly mention the work of two of this country's most outstanding social scientists, the late Richard Herrnstein, Edgar Pierce Professor of Psychology at Harvard (and former chair of the department), and Charles Murray, author of several path-breaking books, including Losing Ground and Real Education. Specifically, Walter said that the politically correct explanation of black-white earnings differentials relates to such things as past discrimination, lower levels of educational attainment, etc., but that the politically incorrect explanation of Herrnstein and Murray is that the answer lies in IQ differences. Knowing Walter, he was not nuanced in making that remark, and probably did not discuss the possibility that there are still other explanations. But Walter was stating a fact - namely that Herrnstein and Murray found solid evidence of race-based IQ differences, and that earnings differentials are closely associated with variations in cognitive abilities, which, in turn, are highly correlated with IQ.

The prez of Loyola U. in Baltimore, where Block was speaking, has issued an impassioned statement saying, roughly, "we are not racist" and "we do not condone racism" and "we are a Jesuit institution that believes in tolerance, etc." Since when is it "racist" to cite well known and oft-cited studies in class? Where is academic freedom? Is it more "racist" to cite scholarly evidence relating to differences in cognitive function than it is to use vast college resources in order to get the "right" racial mix of students and faculty?

I think Walter not only was not irresponsible in what he said, but, roughly speaking, was correct. But even if he were incorrect, he certainly had the right to say it. Universities should be a free forum for ideas, and university administrators should not poison that environment by stating what views are "good" and which are "bad." Universities themselves should hold few views, but merely uphold basic principles of openness, tolerance, and academic freedom. Loyola of Maryland is run by the Society of Jesus (the Jesuits). Christians believe in "turn the other cheek" and "love thy neighbor". I am not sure that condemning someone for citing the views of respected social scientists is entirely consistent with that, which is disappointing since the President of Loyola is a priest and member of the Society of Jesus (a Jesuit).

Why Qualified HS Graduates Don't Go to College

by Daniel Bennett

The Institute for Higher Education Policy (IHEP) recently released a report that indicates that:

(1) Most non-college-goers believed the cost of college was too high
(2) Many non-college-goers felt that they needed to work
(3) Some non-college-goers are unwilling to borrow to cover the cost of college
(4) Some non-college-goers expressed uncertainty about their academic preparations
(5) Very few non-college-goers took any of the necessary steps to enroll in college

IHEP's conclusions are based on a sample of 1,800+ students, 600guidance counselors and roundtable discussions.

None of the findings come as a surprise to me, but it is always good to have good research that confirms our suspicions. The report does discuss an apparent disconnect between the student's reasons for not going to college and the perceptions of guidance counselors. This reaffirms my belief that the guidance counseling being provided in high schools is not very effective.

IHEP offers policy options concerning financial aid, opportunity cost and expectations. One option aimed to address expectations is to mandate a college planning course in middle school, so that students can start to think about these things at an earlier age. This is a very tangible and realistic idea that should help to reduce the information gap. In additon to this, school districts could organize more and earlier career fairs, in which employers and area college officers are available to answer student's questions.

The report also mentions, although it does not seem to advocate, a mandatory college prep curriculum for all students. I would scoff at standardized curriculum, as not all students want to go to college and we should allow them other opportunities for a successful career, such as vocational and technical training and opportunities with the military, which provide generous college benefits, by the way.

Academic Malpractice II: College Kids Don't Work

By Richard Vedder

In a pre-industrial society, some of the most productive workers are those between 18and 24 years of age. They are at the peak of their lives physically, and brawn trumps brains in most areas of human endeavor. While that is not true of today's America, persons in that age group are still energetic and capable of doing a lot of relatively productive work. Instead, a large proportion of them go on to college, to enhance their "human capital." It is allegedly a long term investment.

It is a tragedy, then, that their talents and brainpower are woefully underutilized in these productive, formative years. Why do college kids party and drink so much? Partly because they are bored - because the academic life poses insufficient challenges to keep them working at a pace resembling that of 18 to 24 year-olds who are in the work force - who party and booze less, on average.

You might say: where is the evidence? The answer is supplied, again, by the National Survey of Student Engagement (hereafter Nessie), which released its latest annual report a few days ago. Nessie is voluntarily administered by several hundred institutions at all levels of the academic hierarchy, although the more prestigious research universities use it less than less distinguished master's institutions or liberal arts colleges. Lots of students are surveyed, and some colleges are allowing the results to be published. Nessie publishes results for the aggregate sample.

Students are asked about the "hours per 7-day week spent preparing for class (studying, reading, writing, doing homework or lab work, analyzing data, rehearsing, and other academic activities)". For the entire Nessie sample of freshman or senior students (the results were virtually identical): 43 percent indicated they spent ten hours a week or less on these activities. The median number of hours worked appears to be 12, and 17 percent of students spent five hours a week working or less - the same proportion of freshman spending over 20 hours a week (20 percent of seniors worked 20 hours a week or more).

Add to that 16 hours a week in class --a generous estimate, since most kids skip at least some classes. Twelve hours of out-of-class work (the median) plus 16 classroom hours is 28 hours. Assume two 16 week semesters. Students work 28 hour weeks for 32 weeks a year typically, or 896 hours annually, less than one-half what their high school graduates counterparts in the work force are doing. To be sure, many of the college students also work several hundred hours a year in mostly menial jobs. The median hours annually worked or in school might hit 1,500 --still low by American workplace standards.

Half of college seniors have never written a long paper (20 pages or more) while in college. Several of my senior students tell me they have NEVER written a blue book (essay) examination in college (they do with me!!).

Meanwhile, the proportion of college students who are not highly literate has fallen sharply since the early 1990s if the Department of Education literacy survey data are to be believed. On Thursday, the Intercollegiate Studies Institute is going to release the results of the latest Civil Literacy Test it administers, and, if past results are any indication, it will not be a joyous celebration of the accomplishments of college students.

Meanwhile, as indicated yesterday, grade inflation continues at America's universities. In the College of Education at my school, it is so endemic that grades are totally meaningless --if you can breathe successfully into a mirror, you automatically get an A if you are an Elementary Education major (what does that mean for our future generation of children educated by these non-challenged future teachers?). Shame. Shame. Shame. We are running country clubs for the affluent and paying the managers of those clubs (AKA university presidents) huge salaries. Isn't about time to say: enough is enough!!!

To be sure, there are some schools that maintain rigorous standards, and today's best students are as good as ever. My Whiz Kids --uber bright college seniors for the most part --are the best group of kids I have ever had work with and for me. My daughter got a great education at Northwestern by working hard, as did my son at Ohio University. But we have a huge proportion of kids that are unchallenged by college and whose capacity for personal growth is not being reached. It is time for a change. If Mr. Obama truly wants to help the disadvantaged in society, he would worry less about their getting into college, and more about what they learn when they get there.

Chart of the week: 11/18/08

Since 1976 , staff per FTE student has grown mostly due to increases in non-faculty positions.

View past charts of the week here.

Academic Malpractice I: Decline of Standards

By Richard Vedder

Tomorrow, I will share with you some statistics confirming what many of us long suspected --college students on average do not work very hard, write few papers, read few books, etc. Today, I wish to suggest that one reason for this is that students simply are not expected to work --they are well rewarded with good grades no matter what they do, subject to some limits of course.

As of 2001-2, the average grade point average (GPA) at a wide cross-section of American universities was well above a "B" average, with the numbers rising over time. Using campusbuddy.com, a great new web site, my Whiz Kids (especially Matt Denhart and Jonathan Robe) checked out my own university, Ohio University, which is very typical, with an overall GPA of 3.05, and where only 12 percent of grades were below a "C," while 42 percent were "A" or "A-".

But what is more startling is the variation of grades by major or school within the university. At Ohio University, 99 percent of all grades examined by the website for the Department of Elementary Education were "A"s, and there were no Bs, Cs or Ds. Except for the infrequent student who simply stops coming to class but remains registered and therefore fails, everyone gets an A. Yet in the OU Department of Chemistry and Biochemistry, the median grade is C+, and fully 25 percent get "D" or "F" grades. Yet I would bet money the average Chemistry student has higher grades in his/her non-chemistry/non-education courses than the average Elementary Ed student. One department has zero standards, the other has rigorous academic ones. Yet there are no adverse consequences, to my knowledge, of having no standards. I suspect, indeed, students in the Mickey Mouse departments as far as grades go are unfairly rewarded with more scholarship aid, etc., that is based on student performance.

To be sure, the OU education college is a bit of an extreme, but extremely high grades are common in education schools. For example, according to campusbuddy.com, "only" 70 percent of the education college students at the University of Kentucky get "A' grades, and the average GPA for all education students is a 3.70. No one, of course, got below a "B". There is little evidence that these education colleges teach ANYTHING that gives us better teachers, and those with alternative forms of certification (e.g., not through colleges of education), those in the Teach For America program, etc., do very well relative to those with education degrees. Yet the colleges of education continue to exist, often with virtually no standards, no incentives for students to work hard, to excel, or to distinguish themselves. And we continue to subsidize them when perhaps they should be taxed out of existence on the grounds of their negative spillover effects to society.

Question to legislators: why do you fund this behavior? If state legislators gave colleges an extra $100 subsidy per undergraduate student for each 0.1 percent point average GPAs fell below 3.0 for undergraduates, I have a feeling some of the grade inflation would end. Maybe we would start to restore standards and make young scholars realize that in academe, as in the real world, rewards are tied to performance.

Rent Seeking Grows as Rome Burns

By Richard Vedder

The country has been suffering a significant financial crisis, and is slipping into recession. Iconic companies like Lehman Brothers and General Motors have entered or may soon enter bankruptcy. People are postponing retirement because of drastic declines in their pension portfolios. Tuition fees and college loan burdens are soaring. But one group is laughing all the way to the bank: university presidents.

The Chronicle of Higher Education's annual survey of public university presidents is out. The median salary of the surveyed schools rose 7.6 percent in the past year, vastly more than the inflation rate, even more than the tuition inflation rate, and certainly dramatically more than the compensation given to those who perform the core functions of teaching and research at our nation's institutions of higher education. To be sure, these increases were approved before the financial crisis hit. Nonetheless, they are consistent with the cynical view that the complaints of university leaders about inadequate funding may be just as much about shifting resources from taxpayers to their own personal pockets. This is "rent seeking" gone amuck.

We have previously reported on the huge increases in pay given to Gordon Gee, the cheerleader, comedian, fund hustler and administrator who runs Ohio State. He tops the Chronicle list of public university presidents. But the new survey shows some interesting comparisons that make no sense. Why does Charlie Reed, who heads the biggest university in America (the Cal State system) and is an extraordinarily able administrator, make 20 percent less total compensation than the head of the Kentucky Community and Technical College system? Why do the presidents of the University of Illinois system (Joe White) or University of North Carolina system (Erskine Bowles) or the University of California at Berkeley (Robert Birgeneau) make less than half as much as the president of lower ranked Ohio State?

Good leaders need to be compensated, and nationally the pay differential between people at the top and those in the rank and file have risen over time. Market conditions may require that major university presidents need to be compensateed enough so that they can live at least as well as successful doctors and lawyers. For most presidents, that might mean a salary of $300,000 a year plus a few perks, like a house and a car. But 15 public university presidents earn total compensation of $700,000 or more a year --way beyond that figure. Trustees say "we have to pay that or lose our prez to Competing U." Don't be surprised that public indignation to all of this may lead to a crackdown from legislatures, Congress (already Chuck Grassley has shown concern), state coordinating boards, etc. Congress, in a populist egalitarian mood with strong liberal Democratic control, might decide that tax exempt institutions should not pay employees more than twice that of the President of the United States.

What goes up often comes down. Hubris and greed were the topics of great Greek tragedies, and the lessons of 2,400 years ago apply today.

Plato on the Financial Crisis

By Richard Vedder

Plato allegedly said that "necessity is the mother of invention" a bon mot that fits in perfectly with the current financial situation facing American universities. Financial pressures are going to force universities to do some things that they have been reluctant to do. Desperation is going to break down some resistance to change. In some sense, the current financial turmoil can be an agent of opportunity and innovation.

The indications are that some states are in for deep cuts. New York, center of the financial services industry, is particularly hard hit, but so is its counterpart on the West Coast, California. The industrial Midwest was already suffering going into the crisis, especially Michigan, but also Ohio and Illinois. These states almost certainly will see actual and material dollar reductions in state subsidies --at a time when inflation is picking up, meaning inflation-adjusted subsidies will fall rather sharply. These states alone enroll 25-30 percent of our nation's college students. And other states hard hit by the subprime mess (Florida comes quickly to mine) are also in serious straits.

Some of the things schools will do are tried and true measures, although they in some cases may have negative qualitative implications. Increase class sizes. Use more low cost adjuncts and grad students to teach. But, as I repeatedly have said, the instruction component of the budget is typically less than one-third of the total. Schools are going to have to start cutting administrative staffs. Who knows, in some cases I suspect this will RAISE productivity, as more decision-making will become decentralized, and there will be less time for costly committee meetings leading to timid, compromise decision-making.

Obsessions with expensive sports facilities and high payments to university presidents, senior administrators, and coaches will be heavily scrutinized. The citizens of states that face the prospects of having workers go without unemployment insurance benefits are not going to take kindly to big raises for university presidents and coaches. And universities may find it harder to sell football tickets for $60 or, more importantly, sky boxes for closer to $1,000 a seat. And a Congress that is now on a spending spree might show its anger towards the rich (which it generally views as a bad group of people) by disallowing tax deductions for such sky boxes.

Already I read that Clemson University is furloughing its entire staff for a week to partially deal with a cash problem. These short-term desperation measures need to be supplanted by more thoughtful, far-ranging efforts to conserve resources. At Indiana University, rental charges are been enacted for use of facilities by all departments, a move, if properly done, can vastly increase utilization of existing space, reducing rising capital costs long term. Schools should consider radically shedding their non-core mission activities, like housing, food service, and the like, contracting these services out to specialists in a way that provides the colleges with small amounts of added income and does not lead to deteriorated quality of services for students. In many cases that is doable. My own school has failed to do it for fear of offending a labor union. That is a luxury it no longer can afford. Schools like my own that lose millions annually on intercollegiate athletics should say "enough is enough," perhaps meeting with other like minded schools and agreeing on ways to athletically partially disarm without taking the fun and excitement out of sports. Better yet, the NCAA should lead the effort, but it will not, as the jocks not the faculty control the system.

Of course, some schools will push to raise tuition fees rather than engage in the needed cost cutting. That solution is full of peril for them, however, thank God. Political anger over big tuition increases in the midst of national hardship would be substantial and cause huge damage to schools dependent on the public purse. It would lead to rigid and unproductive price controls. And, given rising sensitivity of students to prices, it might have adverse enrollment effects as well.

Let's turn adversity into opportunity! Stay tuned.

Incentives, Initiatives, and Innovation in Indiana

By Richard Vedder

The Indiana Commission on Higher Education, that state's university coordinating body, invited me to speak at their November meeting yesterday. I did, with my usual spiel about strengths and weaknesses of higher education, with a few suggestions for things to do to improve efficiency and productivity. What surprised me, however, is how much the state is already doing --in large part in response to demands from its coordinating board, which includes a number of impressive business leaders (who whom I also informally interacted).

A few examples of how Indiana is using the funding formulas to effect positive change are appropriate. They are moving away from funding institutions on the basis of students enrolled, towards rewarding them on the basis of actual outcomes. For example, they are transitioning to relating subsidy payments to courses successfully completed instead of courses attempted. They give institutions that improve their four and five year graduation rates added incentives --up to several thousand dollars per graduate.

Concerned about low levels of minority achievement, added incentive payments were approved for raising minority graduation rates. Concerned about the ease of transfer of credit between institutions, the Board has been giving some incentive payments to the community colleges (most predominantly, Ivy Tech, which has several branches). Realizing the community colleges already want transfer of credit to occur, the Commission is revising its incentive system to rewarding four year schools that actually give credit to community college or other students wanting transfer.

I applauded them for their efforts, but noted a problem that no doubt will be aggravated by this move, one I think some of the commissioners had not considered --grade inflation. If you give schools money for getting students through courses or graduation, you put pressures on to NOT fail students. Incentives rise to lower academic standards. Did the Commission vote to improve efficiency or lower academic standards? Time will tell.

I think the Commissioners were a bit surprised to learn that an Indiana-devised test instrument, the National Survey of Student Engagement, is widely used nationally but whose results are little known by the general public. I urged them to encourage schools to use Nessie, probably by using carrots (incentives) rather than sticks (requiring the use of the test). More important than using it, is analyzing and reporting its results to the general public, in a uniform manner for all Indiana higher education institutions under public control (the board has no control over the state's fine private schools, such as Notre Dame and my favorite, Wabash College, one of the top liberal arts institutions in the country according to the forbes.com rankings done by CCAP.

Indiana is a fiscally conservative state, and it is paying off. They have $1.3 billion in the bank, and deficits have not begun yet, although they will shortly. Consequently, the coordinating board recommended a budget that is essentially flat in terms of subsidies, an outcome many states would envy in the months ago when declining economic conditions really start hitting college campuses.

A Useful Reminder

by Andrew Gillen

The WSJ reports that pharmacy schools in India

must provide 168 square feet of building space for each student. The rule is intended to ensure students have enough space to learn. But it effectively caps enrollment at 300, even though students are spread so thinly in the eight-story building that the top floor remains unused, its lecture halls padlocked.

We have our share of convoluted and ill-conceived processes. Two that we've come across recently include student loans and Pell grants. The more you look into student loans, the more you realize the futility of it. If you think the FAFSA is bad, try disentangling what happens after a loan is made, or even worse, what happens if it defaults. Accounting for Pell grants is another example. If you're a public school, than GASB rules dictate that you report them as a federal grant. But if you're a private school, FASB rules allow you to count them as a federal grant or as an agency transaction, in which case they are not counted as a federal grant.

So while it's often disheartening to see such wasteful mazes (and the effects on those unable to navigate them successfully), it's useful to remember that it could be worse.

On a separate note, be sure to check out Secretary Spellings guest blog post over at Eduwonk.

Do College Credentials Matter?

by Daniel Bennett

The WSJ this morning reports that,

"Inflated academic credentials in the nation's executive suites may be more common than generally thought."

Barry Minkow, head of the Fraud Discovery Institute and former prison inmate, recently released the results of a survey in which his organization investigated the validity of the college credentials of 358 senior executives and directors at 53 publicly traded companies. Mr. Minkow says that he cross-checked the public biographies of officials against a database of college degrees. Mr. Minkow reports several instances in which an official's biography lists having received a university degree that didn't quite check out. In many of the cases listed, the person in question attended the university, but did not complete a degree.

This raises the question: To what extent do college credentials matter?

No one is going to argue that Bill Gates, Michael Dell or Larry Ellison should have stayed in school to complete their degrees. They were all extremely bright, tech savvy and ambitious enough to drop out of college and build strong global corporations, without a degree. The difference between these men and the executives being exposed by Minkow is simple - the former never tried to mask the fact that they do not have a degree.

This brings up an ethical dilemma: if these officials are dishonest about college credentials, what else are they hiding? This is an important consideration in the age of corporate scandals and cover-ups, as we need to have ethical and trustworthy leaders at the helm.

While a college degree probably has little influence on the talent and hard work that got executives to the top, the question remains whether these same individuals would have ever got their foot in the door without claiming to have the college credential. In the current state of the economy, the answer is most likely no, as employers use the college degree as a screening device in lieu of the ban on intelligence tests that were formerly used. This is the topic of CCAP's latest report, Griggs v. Duke Power, which is available on our website.

Good Job Sara!!!

By Richard Vedder

Just a short blog to note with sadness the departure of Sara Martinez Tucker from the Department of Education.

Sara has it all --class, intelligence, empathy, drive. She has been a positive force in improving higher ed, first at the Hispanic Scholarship Fund, then on the Spellings Commission (where we had a common bond --a love of Diet Coke), and now as Under Secretary of Education.

Her proposals to rationalize and simplify federal student aid programs are excellent (probably too timid though, no doubt a bow to political reality). She has battled the Accreditation Cartel and the attempts of universities to disguise what they are doing, or not doing, with the students under their care. She is a hero, right up there with the sainted Loye Young (see my blog about him). Sara is a graduate of a real Texas university, the University of Texas, and I hope she keeps working in higher ed.

Long Live Loye Young!!!

By Richard Vedder

Loye Young is today's hero. He has been fired by Texas A and M for lowering the self esteem of six cheaters in his class. Meanwhile, of course, the "F" grades he gave the students have been put on hold. At least that is what INSIDE HIGHER ED tells us this morning.

This is shameful and contemptible. Mr. Young warned students on his syllabus that he would do precisely what he actually did --humiliate and fail students who cheat and plagiarize. Students allegedly cheated, so Mr. Young followed his own policy, announcing his actions on his web site. A and M pointed out, no doubt correctly, that Young violated the Buckley Amendment designed to protect the privacy of students.

The net result: enforcers of academic dishonesty are punished, the perpetrators of the dishonesty are likely to be only lightly punished if at all, and the integrity of the academy has taken another hit. My advice to Governor Rick Perry -- threaten to punish A and M big time financially if this grave injustice is not corrected. If more people had the the balls and principles of Loye Young, the moral decay brought about by academic dishonesty would be dramatically reduced, the academy would be more faithfully fulfilling its mission, and the public would be more supportive of the universities that have grown rich, arrogant, and morally suspect.

The reason the market sector is efficient and works while the not-for-profit sector is relatively inefficient and does not work is explained by incentives. In private business, good is rewarded and failure is punished. In higher ed, the incentives are all perverse --don't anger anyone, no matter how destructive their behavior, and don't reward principled enforcement of standards (rather, punish it if it is too agressively followed). Loye Young went a tad far in publishing the names of cheaters, perhaps, given the law, but he was fundamentally right --humiliation is an effective form of punishment. I suppose the students now are going to sue Mr. Young for damaging their self-esteem. Maybe it is time to move to Australia -or Mars.

Shame, shame, shame for Texas A and M. All those Aggie jokes have validity, and long live Loye Young and the University of Texas, a real university.

Athletic to Instructional Expenditures

In a recent blog CCAP published data reporting total athletic to total instructional spending for a few select institutions. This figure has been calculated for all Division 1-A institutions reporting data for the 2006 school year. The results are available to be viewed on the CCAP website here.

Lessons from Korea

by Daniel Bennett

I've aware of the emphasis that Asian culture places on children receiving a good education and have heard some amazing stories of the amount of preparation that students do for exams, but I read an article in the Wall Street Journal on the commute to the office this morning that made me raise an eyebrow and question the attitude towards education in America.

In Korea, apparently the entire country all but shuts down on the national college entrance exam day. Korean society goes to great lengths to ensure that students are provided the fairest and optimal test-taking conditions, engaging in customs that are intended to reduce noise pollution and traffic. Some of these rituals inclue isolating the test creators from outside communication until the exam is complete, banning airplanes from landing, asking workers to come to work late, giving children not taking the exams the day off, and parents spending countless hours in churches and temples praying that their children will do well. The Koreans take every precaution in providing students with a fair and distraction-free exam.

So what is all the fuss? Apparently, Korean colleges have traditionally based admission on a single criterion - the national entrance exam. Many believe that this provides unadulterated access to the nation's higher education system and is the only equitable means of admission policy. Recently, there has been a movement to add other criteria to the admissions process at Korean institutes, but the tradition of national test day persists and the culture-wide value placed on education continues to impress.

So what lessons can America learn from Korea?

For one, American students should take a moment to consider how lucky they are to have an opportunity to gain a college education and start putting forth some real effort to learn something. I've heard many professors proclaim that college students have increasingly become consumers, demanding grades and degrees in exchange for the tuition that they paid, with very little effort going into learning.

Next, the US could certainly take a course in providing equitable opportunities for all students in lieu of all of the test prep companies that making a living by shoring up the results of those able to afford the course, which arguably hinders the chances of being accepted to a more selective school for low-income students. Maybe there should be a line on college applications immediately following the reporting of ACT/SAT scores that asks, "Did you take a test prep course? If so, which one?" This would allow admission officers to compare apples to apples and oranges to oranges. Of course, this would all depend on honesty from the applicants.

Finanlly, the higher education community should stop resisting attempts to measure student learning outcomes with a standardized test. This avoidance of providing useful public information raises concern that universities are not adding any value to learning. If the Koreans can base their entire admission policy on a test, then we can certainly make an attempt to evaluate the value added learning experience of college via a test.

CCAP Releases Net Tuition Report

A new CCAP annual report, Net Tuition Trends in the United States, documents that net tuition and required fees (“sticker price” minus grant aid) charged at American schools have increased markedly over the last half decade.

While everyone knows that the “sticker price” of college has been going up every year, some argue that this is not alarming because the net price to students is much lower due to financial aid. This annual report uses Department of Education data to find the average net tuition from the 2000-2001 school year up through the 2005-2006 school year. The findings, which show that net tuition has increased, depending on the type of school, anywhere from 11% to 73% over the last six years (after adjusting for inflation), have shocking implications for college affordability.

Read the full press release here.

OR

Read the study here.

Show me your budget, I’ll tell you your priorities

By: Matthew Denhart and Robert Villwock

Intercollegiate athletics were born in 1852 when Harvard and Yale first squared off in their now annual rowing competition on Lake Winnipesaukee in New Hampshire. Since that time the debate over the appropriate role of athletics at institutions of higher education has raged. Many argue that athletics enhance the undergraduate experience by teaching teamwork and leadership skills to athletes while building a sense of community among the wider student body. Yet many others disagree claiming that athletics is a distraction to the core academic mission of a university. Regardless of this debate, almost everyone would agree that academics should be by far the top priority of any institution of higher learning.

Yet our findings show that at several Division 1-A schools, athletic expenses per student are alarmingly large compared with instructional expenses per student. For example, using data reported by the U.S. Department of Education, we calculate that at the University of Arkansas total athletic expenses equal 56.5 percent of total instructional expenditures (as reported through the Integrated Post-Secondary Education Data Source—IPEDS). Several other schools have a shamefully high ratio of athletic to instruction spending as well. At the University of Alabama it’s 50.2 percent, Tulsa comes in at 48.2 percent and Nebraska’s figure is just under 46 percent. Listed below is our “Wall of Shame” with the 10 schools reporting the highest athletic/instruction spending ratio among the 119 Division 1-A schools.

1. University of Arkansas 56.5%
2. University of Alabama 50.2%
3. Tulsa University 48.1%
4. University of Nebraska 45.9%
5. Texas Christian University 43.2%
6. Oklahoma University 41.2%
7. Auburn University 40.8%
8. University of Mississippi 35.6%
9. Louisiana State University 33.8%
10. Clemson University 33.4%

These figures are astounding. Do Arkansas and Alabama really value athletics more than half as much as they value academics? This seems hard to believe as it would imply athletics are half as important to the institution’s mission as educating students. Our guess is that nobody from either of these schools would ever boast such a thing, however that is what their budgets suggest. Are students, their parents and taxpayers aware of this scandal? If such data was more transparent and available we would suspect there would be a loud public outcry.

To be fair, athletic department expenditures are fairly complex, and not all of the total expenses are being footed directly by the school itself. Rather, athletic programs do generate considerable revenue that help defray these costs. However, in 2006 only 19 Division 1-A institutions realized positive net revenues from athletics. The remaining 100 programs all lost money and had to be subsidized by allocated funds from the wider institutional budget. The claim that athletics is a major money-maker is a false proposition for 84 percent of schools. Thus, the figures reported above are still a substantial finding.

A number of schools report more responsible athletics to instruction expenditure ratios. The lowest of such ratios is Vanderbilt at 6.4 percent, followed by UCLA (a public school) at 7.1 percent. Listed below is our “Wall of Fame” with the five institutions reporting the lowest athletics/instruction ratio. It is not surprising that the top four schools listed are considered to be among the best public and private institutions in the country.

1. Vanderbilt University 6.4%
2. University of California, Los Angeles 7.1%
3. University of Washington 7.3%
4. Stanford University 7.5%
5. SUNY-Buffalo 7.6%

Collegiate athletics are certainly a staple of American culture, and as avid sports fans ourselves we would not wish to see them disappear. There is nothing quite like waking up on a Saturday morning to watch College Gameday over breakfast, or rooting on the basketball team as they push toward the NCAA tournament. However, the instruction of students, who are paying huge tuition bills, should be the academy’s primary focus. Intercollegiate athletics have come a long way since that day in 1852 when Harvard defeated Yale on the lake. We need to refocus our attention on what is truly important to a university, and our budgets need to reflect that commitment to education.

Matthew Denhart and Robert Villwock are research associates at CCAP and undergraduate students at Ohio University

A better way to debate

by Andrew Gillen

I recently stumbled across a really fascinating argument occurring between the Boston and Minnesota Federal Reserve Banks illustrating the potential power of decentralization. Researchers at the Minnesota Fed came out with a piece showing that the credit crisis was being overblown and was largely confined to the financial sector. They showed that typical businesses were still capable of finding financing.

But then researchers at the Boston Fed came out with a piece arguing that the Minnesota Fed was wrong, the credit crunch was a big problem and the Minnesota folks were missing the real story because they focused on the wrong things.

I have absolutely no idea who is right, but I love the fact that they are debating each other (with evidence no less!). What is fascinating to me is that they are both part of the same organization, yet there is no effort to suppress either view.

This got me thinking… why couldn’t the Department of Education be more like the Fed? There seems to be quite a bit of disagreement on many aspects of education, so why not let each school of thought run their own experiment and then compare the results? This might actually provide evidence with which to argue, rather than base everything on untested theories and faith.

To take but one example, those who believe

there is nothing wrong in hypothesizing that data-driven accountability could add more than it subtracts to education. But we have not had a real debate on that hypothesis

are right in one respect. There hasn’t been a real debate, mostly because there isn’t enough variation and data to conclusively prove one side or the other.

But they are wrong (in my view) that the benefits of data driven accountability are outweighed by the costs. There are those of us who've noticed that

When [schools] start to be evaluated based on student outcomes, student outcomes tend to improve.

It’d be great if those who think such efforts are a waste could go on doing whatever it was they hypothesize will educate children, while those who think that accountability will help could implement such programs.

While such decentralized experiments, with each system based on the assumptions and theories of those running the schools, would put some kids in inferior systems, at least in time we would be able to figure out which systems, theories and assumptions are truly inferior and abandon them. Such an outcome is vastly superior to the one where we constantly make everyone jump from one unconfirmed theory to another, never having evidence to determine if it helps or not.

Ohio State Evaluates its PhD Programs

by Daniel Bennett

The Chronicle reported that the Ohio State University exhibited a touch of pro-activism recently, by completing a year long evaluation of its PhD programs. OSU currently has 90 PhD programs and identified 29 of them as being either high quality or strong, 16 as good, 11 as not assessable due to being new or in transition, 29 in need of restructuring or reassessment, and 5 that are candidates for elimination. The five small programs marked for disinvestment include comprehensive vocational education, soil science, welding engineering, rehabilitation services, and technology education.

OSU decided to pursue the self-study when it found out that it trailed other Big Ten universities in the proportion of new PhDs granted, measured by PhDs per full-time tenure track faculty. The University will use the results of the evaluation as a means of allocating resources, such as student stipends.

The measures used to assess the programs include:

Students' Time to Degree
Students' GRE Scores
Graduate Job Placements
Student Diversity
Share of PhD production
Overall Program Quality and Centrality to the University's Mission

Despite the need for further information, it appears as though the measures are fair and provide an accurate assessment of the programs. Some of the measures are quantitative, but others are subjective and clarification would be nice. For instance, how was job placement evaluated? Is it number of placements, quality of placement, starting salary, or some other measure? Some fields, such as finance, economics, medicine and law, have excellent prospects for work outside of academia. How is this balanced? The program quality component is very ambiguous. What is included in the quality component? As for student diversity, what does this mean? Is the diversity a measure of gender, racial, or ethnic composition, or perhaps specialization? It would seem logical that a program would want to attract the best students without any pre-determined quota system. These are not criticisms, but rather a call for more information.

OSU jumped out in front of the curve in anticipation of the release of the assesment of American PhD programs by the National Research Council, which many universities will use to evaluate their graduate offerings and make adjustments. The results should help to allocate resources more effectively and reduce some costs, and it appears to have been done without the invisible hand of accreditation. This is progress in academia and let's hope that it spreads to other areas of the university and that other universites follow suit. Way to GO Buckeyes!

Obama on College Sports

By Richard Vedder

Neither presidential candidate said much about higher education in the campaign, other than to lament high college costs and to talk about throwing some more money at the problem. Oh, to be sure, McCain proposed axing Congressional research earmarks, a very good idea. And Obama talked about expanding aid to lower income kids, etc.

On election eve, however, Obama let loose with his first truly substantive proposal --and it was about college football. Let's have a national championship football game. Obama, in effect said: let us professionalize college sports further. Let us ruin the chances of student athletes actually learning anything in school a little more. Let us trivialize the academic function relative to the party/socialization functions of college. In short, I think Obama's idea stinks (as do many university presidents and, I suspect, most faculty).

We should be going in the opposite direction. We can have enthusiastic active teams and good entertainment, but at the same time reassert the priority of the academic function over the athletic one by doing a few things:

1) Limit the length of sessions. Regular seasons should not exceed 10 football games with one bowl game possibility, or 20-22 basketball games with the possibility of the NCAA tournament, nor more than say 35 baseball games played on no more than 22 dates.

2) Limit the size of teams drastically. No more than 60 on a football team --allowing two full offensive, defensive and special team squads, with a third backup for a few vital positions, like quarterback. Likewise, no more than 60 scholarships. Similar restrictions in other sports.

3) Prohibit weekday football games and limit those contests in other sports to a minimum. Absolutely prohibit contests during final examination week.

4) End red shirting and other practices that treat academic matters as secondary. A student has four years of eligibility from the time he/she matriculates at a college.

5) Toughen academic standards for athletes even further.

6) Limit athletic subsidies to one percent of the university budget excluding other auxiliary enterprises.

7) I hate setting wages administratively, but the NCAA, to help deal with #6 above might want to limit any coach/athletic director's salary (including camps, etc) to 90percent of that of the University president and three times that of the median of the top 25 paid professors). For example, if the president is paid $600,000, and the highest paid professors are paid $200,000, the football coach's salary could not exceed $540,000.

8) Create a new universal rule: all athletic revenues derived belong to the university as a whole, for distribution using standard university budget procedures. The athletic department would cease to be a separate empire onto itself.

Might there be a very slight reduction in the quality of play? Perhaps. Would the competition be as fun as ever? Yes. Would television be able to get enough games, and would sponsors still pay a fortune for television rights? Probably, and if they don't, tough. Let the couch potatoes watch pro sports or, horrors of horrors, read a book. What is good for ESPN is not necessarily good for the country.

Are Taxpayers Being Deceived or Ripped Off?

By Richard Vedder

The one word answer to the question posed in the headline is: yes. The more complicated answer follows.

At several prominent flagship public universities, state appropriations make up only 10-15 percent of the budget. At a school like the University of Michigan, University of Virginia, or even the University of Colorado, the average student tuition fee (including out-of-state students), net of scholarships, probably exceeds the marginal cost of educating freshman students, particularly given the widespread use of graduate students and part-time low paid adjuncts in teaching, along with the use of large lecture classes. In addition, at UVA or Michigan, there is probably $2,000 or more endowment income coming in per student (far more at the University of Texas) as well, not to mention several hundred dollars per student in new donations. My guess is that, roughly speaking, these schools make money off freshman and sophomores (after allocating some of the endowment income to their education as intended by donors), lose a bit on juniors and seniors, and, roughly speaking again, break even on all undergraduate education --without use of state subsidies.

If I am right, the entire state appropriations for these schools goes for research, graduate and professional education and non-academic activities. A large part of the graduate student funding helps students from out of state and often even outside the U.S. There is nothing inherently unethical or illegal about this, but it certainly violates the original concept of state universities, envisioned as places to provide, at public expense, low cost education to undergraduates. It also is not what taxpayers today THINK their money is going for, nor is it what university presidents talk about when they ask for greater appropriations --they talk, for example, about greater student access, even though these schools have selective admission policies, accept mainly rich kids, and use incremental monies largely to fund research, added administrative positions, and, occasionally, a little in the way of R and R facilities for the generally well-to-do students.

At less research intensive schools, this is less the case. In these instances, perhaps 25 to 35 percent of budgets still come from state appropriations, graduate enrollments are fairly modest, average tuition fees are a bit lower, and some of the state money actually goes to subsidize student education. That is clearly the case for community colleges.

What bothers me is the disconnect with respect to public funding of the prestige institutions (that typically get far more per student state funding than the lower ranked schools) between what actually happens and what legislators and the public think is happening. Would the public fund hundreds of millions for research at the University of Michigan annually at the expense of nothing for student subsidies? I rather doubt it. I think honesty and transparency requires that the taxpayers know where there dollars go.

All of this, of course, is just another reason why I believe that a superior funding model would be to give funds to students themselves rather than to universities, giving the universities only a limited amount for explicit subsidization of research. Not only would this scholarship or voucher approach stimulate inter-institutional competition, it would assure that funds are being given more in accord with the wishes of the people for whom government is meant to serve.

Giving money to institutions also promotes inefficiencies, such as the hiring of massive administrative staffs, or excessive payments of economic rents, as manifested in huge salaries for university presidents who a few years ago did the same jobs just as well for far less money. So taxpayers are being both deceived AND ripped off. The ultimate solution, of course, is to concede that higher education is largely a private good and gradually withdraw public funding altogether. In the interim, however, student-based funding is an idea whose time has come.

Are Colleges Failure Factories?

By Richard Vedder

The recently departed commissioner of education statistics, Mark Schneider, says American colleges are "failure factories", pointing out the dropout rate (after six years, yet) is far higher than the much more criticized high school dropout rate. INSIDE HIGHER ED asked another former Ed Department official, the indefatigable Cliff Adelman, for his comments, and they were not particularly favorable, implying Schneider has some hostility towards higher education (Cliff himself, however, is no shrinking violet, and has been known to be highly critical as well). Cliff notes, for example, that because of the plethora of part-time and transfer students, the published grad rates are seriously deficient, a point with some validity.

Even Cliff acknowledges, however, that roughly one-third of students have not graduated within EIGHT years (time enough even for most part-timers to graduate). And it does not seriously question Mark Schneider's contention that there are literally hundreds of institutions with published graduation rates below one-third. Why do we keep funding these institutions? Why do we not punish failure? Many institutions take students they KNOW will fail, robbing them of their tuition monies and giving them false hopes, only to have them left degree-less and debt-ridden.

This gets to the major problem. There are almost no consequences for substandard performance or behavior in higher ed. Because of grade inflation, students who goof off in class usually get by and graduate. The intellectual content of many courses has become sadly diluted, and the course content highly suspect, with kids even getting credit for learning how to get around the university campus (through credits given for orientation classes). Schools that take kids who are highly unlikely to graduate get subsidies for taking those kids.

Above all, there is no bottom line. In the 2007 FORTUNE 500 list, AIG was the company with the 11th highest market value; today it is history. Citigroup was 8th in 2007, and not in the top 20 in 2008. Capitalism punishes those who make mistakes, and punishes them brutally. And rewards are great too. Between 2007 and 2008 Berkshire Hathaway added over $40 billion in stockholder value as it rose from 14th to 7th on the Fortune 500 companies by market value.

Yet rankings of college show modest change over time. The top 10 schools in 1940 are, roughly speaking, the top 10 schools today. With no discernible way of measuring quality, we assume schools remain constant, no matter how ineptly they are managed, no matter how neglectful the school becomes of undergraduates, no matter how much the curriculum is diluted.

Mark Schneider may not have raised colleges' self-esteem, but he should be commended for telling it like it is.

Chart of the Week: 11/03/08

As of the year 2000, the United States lead the world in the average number of years its population spent in school.

Past charts of the week can be viewed here

Are Real Tuition Increases Declining?

By Richard Vedder

The annual College Board data on tuition charges are out. I have not had a chance to analyze things in detail (this financial crisis is keeping us economists busy), but preliminarily it looks like real tuition increases are continuing, but at a lower rate than in the past. The nominal rate of tuition increase (about 6 percent) is about the same, but because of increased inflation, the real rate of increase in tuition charges is declining.

Historically, tuition charges have risen 2 to 4 percent annually in real terms, while for 2008 it looks like the typical increase is no more than one percent, and probably a bit less. Growing economic uncertainty, falling real wealth, and a stop in the growth of the 18 to 22 year old population are perhaps reducing the growth in demand for higher education relative to supply, slowing down tuition increases in the process. We have blogged in the past weeks about the possibility of a tuition slowdown, a move also made possible in part because of greater public outcry over college costs.

If, as seems likely, the economy continues to be sluggish or worse, I see the possibility that the rate of real tuition increase will fall again next year, possibly to even below zero --meaning actual decline. If so, people will no doubt starting writing articles about the end of tuition price inflation. I am not so sure. The moderation in tuition charges does not reflect any important behavioral shifts on the part of universities, I suspect, but rather a response to temporary adverse macroeconomic conditions.

Moreover, as my associate Andy Gillen always reminds me, what is usually important are net tuition charges, not the sticker price. It is often a little difficult to accurate calculate those net charges (tuitiion minus grant aid) precisely. Rising non-tuition type fees (recreation fees, technology fees, health fees, etc.) seem to be growing in relative importance as well. We know that student loan demand is generally up a good bit, implying a probable real increase in student financial burden.

Real tuition charges are sensitive to the rate of inflation. When inflation rises, nominal tuition charges usually lag behind, so inflation-adjusted tuition fees stay stagnant or even fall --that happened in the 1970s, and again in 2008. Given the huge fiscal stimulus and expansive monetary policies being followed, I think there is a possibility this trend will continue in 2009. Yet I testified at a congressional hearing last Thursday (being run on CSPAN a number of times) where a witness argued the opposite --that we face the specter of deflation, which almost certainly would enhance real tuition increases. Who is right? Time will tell. The last year the Consumer Price Index fell was 1955, so I am not holding my breath on a surge in deflationary pressures, recession or no recession (indeed, if you believe in the Monetary Equation of Exchange, lower output should INCREASE inflation).

One thing is at work that lowers the rate of increase in the true average cost of college, something not probably revealed by the College Board statistics. There seems to be a bit of a shift away from expensive schools to less expensive ones. To be sure, enrollment at the Harvards of the world are holding constant, but there may be some shifting between non-selective four year public schools towards less expensive two year ones. I am getting vibes in Ohio that this is going on (although even four year enrollments are up a bit as poor job opportunities are driving some potential workers to go to school). It will be interesting to see what enrollments are this fall at the expensive but non-selective private schools that have middling rankings --I expect them to suffer from the downturn, although maybe not until next year.

I suspect the time is right for a new low cost education model. Vance Fried has suggested one in a CCAP study, arguing that a quality education is doable for well under $10,000 tuition a year. If publicly subsidized, that might translate to an out-of-pocket cost to students of, say, $5,000 a year. More and more students are taking Internet courses that, I would think, could be offered by an educational Wal-Mart type operation for that price or even less. The idea of an open source or Wikipedia University operating at extremely low cost is technologically feasible; can someone harness the idea and make it work? Don't underestimate American ingenuity, even in periods of pessimism and gloom in the broader American economy.

Lessons from India

by Daniel Bennett

Increasing educational opportunities is a hot topic this election season. Most Americans would agree that the youth of this country need an education to improve their job skills and prospects for the future, although there is considerable debate as to the approach that should be taken. One side would argue that we need to increase spending to make college accessible to a larger proportion of the population. Another argument, similar to the one made by the likes of Charles Murray, would be to focus on providing career and vocational training for a larger share of the population.

The debate over the path to a more prosperous future for all will likely continue to no avail for some time. In the meantime, the U.S. could learn a lesson or two from abroad. Take India for example, a country that was highly impoverished not long ago, but has since emerged has one of the hot spots for high tech jobs and manufacturing. Pundits will argue that India is siphoning American and western jobs by way of an unfair advantage of cheap labor and a lack of environmental standards.

But let's consider for a moment the oft untold portion of the story, that India has invested wisely in training a highly capable and productive labor force. Its growth has been spurted by the opening of the Indian Technical Institutes, a successful attempt to train a highly technical workforce and make the subcontinent an attractive location for businesses. These schools focused on developing specialized technical skills (IT, engineering, etc.), avoiding the liberal arts curricula prevalent in the American educational system. India enhanced its society by providing vocational training that made the labor force marketable to international companies and in doing so, created rapid economic growth that has led to a significant reduction in the poverty level of the country.

Another acute education concept from India was reported in the Wall Street Journal today. Automobile manufacturer Toyota Motor Corp, seeking to expand its market share in India, opened a school to provide vocational training for workers that it hopes to employ at the new manufacturing plant that it is building. It plans to give training in areas such as welding, auto assembly, maintenance, math, English, and Japanese. The school currently has 64 students, all of which are from poor rural farming families. Students at the school are grateful for the opportunity and have transferred some of the newly-acquired skills and principles back to their villages, a positive externality.

Rival auto manufacturer, Honda, has plans to open a similar technical college and other manufacturers in India have entered into partnerships with the Indian Technical Institutes to train future employees, a sign that the educational programs have been a success and that market forces can be very powerful. This is a great example of a market-based solution to increasing access to education and providing career opportunities. The U.S. is a service-based economy, with 70% of jobs categorized as a service sector. Indications are that future job growth will continue to be in this sector. Many of these jobs do not require a 4 year bachelor's degree, but will require some vocational training. As a nation, we could learn some valuable lessons from our Indian friends, especially before we send all of our high school graduates off to college and forgo vocational training in areas of need.