Weathering the Political Storm

by Daniel L. Bennett

Recently, my esteemed CCAP colleague Richard Vedder wrote in the pages of Forbes a very provocative piece entitled An $8 Billion Misunderstanding, in which he chastised the Obama Administration's attack on the for-profit sector. Awhile back, I submitted an article to Career College Central entitled Weathering the Political Storm: History Repeats Itself in the for-profit sector, which is the lead story in the latest issue of CCC. My article offers a similar castigation of the Obama Administration's handling of the sector. In the article, I draw comparisons to the current regulatory manifestations to those experienced in the late 1980's that, although they resulted in the closing of many career schools and reduced the sector's share of federal aid, only temporarily interrupted the growth of the sector. Click here to download and read a pdf of the article (kudos to the CCC team for their usual excellent graphics work). You can also access and read the entire magazine here.

Richard Vedder on the French

Richard Vedder participated in The New York Times' "Room for Debate" discussion on the topic: Why French Scholars Love U.S. Colleges.

Here's what he had to say about why French scholars immigrate to the United States:

It is true that of the four leading nationality groups of Europe -- British, French, Germans and Russians – the French are the least prone to emigrate, perhaps because of heightened ethnocentric behavior. But love of country, language, culture and even fine indigenous wines only goes so far -- if the enticements are big enough, even the French will move.

You can read the whole thing here.

Richard Vedder on C-SPAN

Last week in a segment for C-SPAN's Washington Journal program, Richard Vedder argued that college costs continue to rise because universities lack the necessary incentives to control spending. He also took questions from callers, many of whom shared concerns regarding the value of their college degrees, student financial aid programs and the difficulty with putting one's children through college.

You can watch the video below:

Richard Vedder to Appear on C-Span's Washington Journal

CCAP's Director, Richard Vedder, will appear on C-SPAN's Washington Journal this morning from 9:15-10:00 AM. The segment will be moderated by Robb Harleston and will discuss the issue of rising college costs, how the current political and economic climate is affecting higher education policy, and what types of savings plans exist to help families save for college. Viewers will also have the opportunity to phone-in to ask Dr. Vedder questions.

You can watch the segment live, by following this link. We hope you will join us.

The Economics of For-Profit Education

by Daniel L. Bennett

I have an article in the latest issue of Career College Central. In the article, I provide an overview of CCAP's latest study For-Profit Higher Education.

Incentives Matter

by Daniel L. Bennett

Economist Gary Wolfram reviewed CCAP's recent study on for-profit education for the Pope Center's Clarion Call. He largely agreed with our conclusion that incentives matter in education:

The profit motive creates a strong incentive to satisfy customers (in this case, students) at the lowest cost. The lack of the profit motive means less attention to the needs of students and less effort at making education affordable for them. That’s probably the most crucial point of all.

The Public Be Damned

by Richard Vedder

Two decades ago, give or take a few years, a spate of books highly critical of higher education appeared: Charles Sykes' ProfScam, Thomas Sowell's Inside Higher Education, Martin Anderson's Imposters in the Temple, and Allan Bloom's best selling The Closing of the American Mind are four examples. These books were critical of the unproductive use of time and resources of faculty, on the alleged political bias of the academy, of the failure to teach important verities about life itself.

In spite of all of this, nothing really changed. The points Sykes made over 20 years ago hold more or less the same today, for example. While the academic muckrakers of the late 20th century had little impact, the muckrakers of the early part of the same century like Upton Sinclair (The Jungle) or Ida Tarbell (History of the Standard Oil Company) measurably impacted policies relating to food, health and anti-trust legislation. Is higher education inoculated against reform?

A new generation comes along, and a new bunch of books critical of academia are starting to appear. Two recently out include Andrew Hacker and Claudia Dreifus' Higher Education? and Mark Taylor's Crisis on Campus. We are told colleges have lost their way, have lost sight of what is important, namely shaping young minds and turning immature adolescents into responsible young adults. The last round of muckraking had a decidedly conservative cast to it, while this one is more conventionally left wing or apolitical. But until there is mass indignation about the behavior of colleges--their obscene costs, their bloated bureaucracies, the scandalously low teaching loads, the tons trivial academic research, the corruption of intercollegiate sports (the University of Alabama has rescheduled classes for November 18 because they were worried classes might be a distraction for the Alabama-Georgia State football game that day), the high salaries of presidents, etc.--little will happen. Reform requires threats of reduced funding from the financiers of higher education.

As previously noted in this space, the pollster Scott Rasmussen perceptively argues that the nation's Political Class (politicians, lobbyists, party operatives, etc.) believe radically different things than the People believe, and given the people's ultimate control over the politicians, this spells big changes soon. One can argue that the Academic Class has radically different perceptions that the public that funds higher education. The public believes state universities have as their top mission the intellectual and leadership development of undergraduate students, while the Academic Class believes that research and graduate education is truly more important.

The public believe university presidents are public servants who should live comfortably but not luxuriously, compensated in part by their job security and the satisfaction derived from leading institutions of importance in furthering the continuation and development of Western Civilization. The Academic Class believes colleges must compete with corporations for top talent and thus pay salaries perhaps double what the public would view as justified.

The public believe faculty should spend a majority of their time teaching, advising students, preparing for classes and other instructional functions, whereas the Academic Class thinks that research deserves first billing, and that students should be limited in their access to professors.

How far can the Academic Class and the People diverge in the way they view higher education? Is a day of reckoning coming to higher education? Nothing happened in response to the academic muckrakers of c. 1990, but will the people of 2010 start demanding tough love towards American colleges and universities, tying funding to true reforms. Stay tuned.

Is Obama at War With the For-Profit Universities?

by Richard Vedder

I have read and heard some commentators say that the Obama Administration is at war with for-profit private higher education. While in general agreeing with that I would amend that statement to say that the Obama administration has had several battles with the for-profits as part of a bigger war against capitalism. In my view, basically the president is a socialist, a person who craves for collectivist, government solutions to problems, and is deeply distrustful of private enterprise. Thus the government has taken control of iconic private automobile and financial service companies, has viciously attacked Wall Street greed, has tried to manipulate more than ever the private use of money and credit, is favoring a huge increase in taxes on capital gains, etc. I am among those who believe that the current anemic recovery directly reflects the fear that businesses have of Obama, and their corresponding unwillingness to hire workers and invest. Gold prices are soaring, and stock prices are stagnant, a classic indication of poor investor confidence.

For- profit companies are merely part of the capitalistic Evil Empire that Obama despises. Apollo Corporation, Corinthian Colleges, Bridgepoint Education, Kaplan University -- these companies are bad mainly because they are in the business of trying to create wealth for private investors. The current bashing of the for-profits by both the administration and Congress needs to be put it that context.

That said, there ARE abuses that the for-profits have committed. No doubt there are recruiters who have misled persons as to the potentialities of a for-profit education, putting them into debt. And abusive practices should not be subsidized by the taxpayer. That said, however, the beating up on the for-profits is largely ideologically based and manifestly unfair. A large portion --indeed probably a sizable majority--of the educational malpractice going on in American higher education is occurring at the not-for-profit schools so richly subsidized by the taxpayers --and they are being given a pass as Congress considers hearings.

It is a fact that the four year graduation rate at the University of Texas at El Paso is about four percent --only 1 out of 25 graduate in a timely manner. Where are federal hearings about that? A smaller proportion of students graduate from UT El Paso than from Corinthian Colleges, but why is Corinthian being threatened by tough new legislation and UT El Paso is not? The loan default rate at Central State University in Ohio is vastly higher than at Kaplan University --why is no one investigating Central State, at either the state or federal level, while Kaplan is scurrying to meet probable new federal mandates? By many indicators students fare more poorly at Chicago State or Denver's Metro State than at Strayer University, a major for profit. Why are we not talking about legislation curtailing Chicago or Metro State? Why is the government talking about limiting the percentage of graduates of schools like the ITT Institutes or DeVry who pay more than eight percent of their income in student loan interest payments, when almost certainly the problem is probably as bad at Grambling State or Northwestern State University?

In taking on the for-profits, the President and Congress are attacking the very schools that have contributed importantly to reaching an Obama goal --vastly increasing the proportion of high school graduates with exposure to higher education. Some 38 percent of the increase in student head count between 2008 and 2009 occurred at for profit schools --more than at not-for-profit four year public schools (27 percent) or two year public community colleges (32 percent). Many traditional universities don't want to recruit ghetto and inner city children, or teach in the evenings and Saturday mornings, or do other things distasteful to the life style of the academic elite.

The People (as in "government of the people, by the people, and for the people") like for-profits, but what Scott Rasmussen calls the Political Class, does not. This is just another example of the huge divide, unprecedented in modern history, between the Political Class and the general public and our political leaders. Our nation is out of political equilibrium, and that means big changes are coming politically, probably starting at the polls this November.

I would note that this huge brouhaha would not have occurred if we had not embarked on a disastrous expansion in federal loans for students beginning four decades ago. Bottom line, too many people are going to college. Too many people are ill-equipped for the rigors of higher learning, manifested in some watering down of standards and high dropout and loan default rates. There are too many students going to too many colleges and paying too much money and getting too few good jobs. Until we wake up to that reality, we will not have truly efficient and worthwhile higher education reform in this country.

Charting a New Course in Higher Ed Regulation

by Daniel L. Bennett

I have an article in the August 2010 Career College Central Magazine discussing the need for radical new higher ed policy in the U.S. I make the case that colleges need to be held more accountable for the outcomes of their students, and that more and better consumer information is needed to ensure that scarce student and taxpayer resources are utilized efficiently. You can download a PDF of the article (kudos to the design team at CCC) or access the complete magazine online.

CCAP in the News

by Daniel L. Bennett

Mary Beth Marklein has an article in USA Today discussing Wednesday's Senate hearings on for-profit colleges that stemmed from the GAO's report that found instances of fraud and misrepresentation. I was cited in the article:

Daniel Bennett, author of a report on for-profit higher education being released Wednesday by the non-profit Center for College Affordability and Productivity, says the findings are not a sign of "widespread abuse."

"I'm not saying there aren't bad players, (but investigators) should also be looking at what is positive in this sphere, what schools are doing to cut costs and make things more efficient."

The Regressive Athletics Tax at Wannabe University

By Richard Vedder and Matthew Denhart

There is a growing concern about the costs of maintaining high-cost intercollegiate athletics (hereafter, ICA) programs. As universities engage in wage freezes, even furloughs and layoffs, the luxury of massively subsidizing sports is coming under real scrutiny. This is in addition to non-financial concerns arising from various cheating scandals, allegations of favored academic treatment of athletes, criminal activity on the part of athletes, etc.

The most unappreciated financial reality, however, is that the burden of subsidizing ICA falls very unevenly, and tends to be greater at schools that are less well off financially, and have students who are similarly less affluent than those at other schools. The big flagship state universities are mostly in major athletic conferences that earn big bucks from their football, and sometimes their basketball programs, and thus are largely self-sustaining. These schools tend to have higher spending per student, more endowment money, etc., than the less well known state schools. Yet these less well known schools in dozens of cases are trying to emulate their "big brothers" who play in the big Bowl Championship Series bowl games, make it to late rounds in the NCAA men's basketball tournament, etc.

Take the Mid-American Conference (MAC). In 2008-09, USA Today data suggest that subsidies comprised fully 72 percent of all ICA revenues, whereas in the Big Ten, serving roughly the same geographic area, the subsidies averaged less than four percent of ICA operating revenues. In the MAC, there was an average "tax" on students of $915 to cover the subsidy, whereas it was only $67 in the Big Ten. In this and some other conferences (the Mountain West, Sunbelt, and Western Athletic Conference), this athletic "tax" equaled 14 percent or more of revenues raised from tuition and fees, compared with less than 3 percent in the Big 10, Big 12, or Southeastern (SEC) conferences.

Nowhere is the comparison more stark than in the Detroit suburbs. The stadium of Eastern Michigan University (EMU) is located 6.3 miles from the Big House at the University of Michigan in Ann Arbor. At EMU, the $21.5-million subsidy of ICA is the equivalent of almost 16 percent of tuition revenues. But at the U of M, six miles away, the subsidy is essentially non-existent. Yet the EMU students are financially far less well off -- nearly 39 percent get Pell Grants, for example, compared with a third that proportion (i.e. 13 percent) at the U of M.

Why does Michigan, a state with a basketcase economy and double-digit unemployment, give millions to schools like EMU to subsidize athletic events that are extremely poorly attended (friends of ours tell us of a football game between EMU and Ohio U. where there were almost certainly fewer than one thousand persons actually in attendance, officially reported attendance numbers notwithstanding). It is time to reform ICA to end this costly and regressive diversion from the academic mission.

What if College Tenure Dies?

That is the question recently asked by The NY Times in its Room for Debate forum. Richard Vedder was among the panel of experts asked to opine.

My academic department recently granted tenure to a young assistant professor. In so doing, it created a financial liability of over two million dollars, because it committed the institution to providing the individual lifetime employment. With nearly double digit unemployment and universities furloughing and laying off personnel, is tenure a luxury we can still afford?

There are two reasonable arguments for tenure. First is that it protects academic freedom, shielding professors with unpopular views from retribution. Supposedly, this increases intellectual diversity, promoting universities as a marketplace of ideas. Secondly, tenure is a fringe benefit that makes academia more attractive to the best scholars, in so doing reducing the salaries needed to lure them.

While tenure has undoubtedly protected some good people from losing their jobs, it actually may on balance reduce intellectual diversity. Many ideologically driven tenured professors use their job security to aggressively thwart efforts to increase alternative viewpoints being taught. Hence conservatives often feel that they are frozen out of good academic jobs simply because the tenured faculty dominating departments simply do not want alternative perspectives given academic prominence. And, given competition for good talent, really good scholars have little fear for job security if harassed because of their academic viewpoints.

The fact is that tenured faculty members often use their power to stifle innovation and change. Because of the enormous fixed costs that tenure imposes, colleges cannot quickly reallocate resources to meet new teaching and research needs. Tenure contributes to the inefficient and expensive system of shared governance, where decision-making is by committee, and compromise and deal-making trump sound policy-making, including introducing cost-saving innovations. Is it no wonder that university administrations are gradually eliminating tenure by stealth, simply by hiring non-tenure track people for most new jobs?

The Delta Cost Project Report and True Reform

By Richard Vedder

The Delta Cost project, amidst some publicity (e.g., a story in Friday's New York Times), has released its latest study, detailing revenue and expense trends in American higher education over the 1998 to 2008 decade. While there are a number of areas where I could (and maybe will) quibble with the authors, on the whole I think their findings are spot on, and should rekindle an interest in soaring college costs.

Among the things that the authors say that I agree with are:

• A majority of incremental enrollment over the decade came OUTSIDE the traditional four year college sector, namely community colleges and for-profit institutions; they, not the traditional universities, are doing the heavy lifting with respect to expanding higher educational attainment; 
• however measured, the cost of colleges to consumers is rising faster than their incomes. As project director Jane Wellman says, "The funding models we've created in higher ed are not sustainable;" 
• generally, the instructional spending increase has been small relative to spending on student services, administration ("institutional support") and research; 
• the private research universities went on a spending splurge over this decade, increasing spending in some major categories by 35 percent or more per student adjusting for inflation;
• the funding gap between the elite institutions and those serving large populations (e.g., community colleges) rose importantly over time;
• while continuing to increase costs, institutions relied on tuition fees much more than in the past to finance the incremental spending;
• efforts to expand access are inconsistent with the continuing trend of falling or stagnant university productivity and a failure to innovate and move to cheaper delivery systems.

In other words, universities are largely ignoring the growing economic imperatives to reduce costs by rethinking the way they do business and engage in transformative change. The current economic downturn is forcing some reductions, but most appear to be draconian efforts to contain costs without changing the way services are delivered. Big change is being resisted at all costs.

All the talk about increased access, greater affordability and enhanced accountability is just that: talk. The three "A's make for good rhetorical flourishes, but what is needed for real transformation and rising productivity is attention to the three "I"s—information, incentives, and innovation. It will take other blogs to detail this fully. In short, part of the problem is that colleges fail to collect or disclose key information needed in assessing programmatic performance—you cannot solve a problem if you don't know what it is. Are students learning much? How do they fare after graduation relative to those attending other schools? Do anthropology majors fare better than those in physics? etc. etc. Who knows? For a sector that worships research, the amount of money devoted to R and D towards improving higher education performance is pathetic.

Incentives are largely perverse in higher ed. Institutions attain reputation, the coin of the realm, by turning students away rather than admitting them, causing a stagnation in the growth of supply. Faculty who teach a lot and teach well pay a financial price compared with those who write trivial second-rate papers on third-rate issues for fourth-rate journals. Administrators who trim bureaucracies and lower the stifling costs of decision-making by consensus are usually fired or sent to the branch campus in the equivalent of Timbuktu. University leaders raise tons of money to bribe powerful constituencies (faculty, students, alumni, trustees) by funding their pet projects (e.g., lower teaching loads, uneconomic subsidization of sports, etc.)

Paying attention to the first two "I"s will lead to the third I—innovation—new uses of cheap capital (e.g. computers) as substitutes for expensive capital (e.g., faculty), etc.

Finally, let me say that I think the Delta folks underestimate the problem. They don't conspicuously explain how they do their inflation adjustments. If they use either the respected, but flawed, Consumer Price Index or the absolutely inanely unjustifiable Higher Education Index of the Common Fund (the use of which should be a punishable felony), they are underestimating the inflation-adjusted increase in spending per pupil. By excluding sponsored research, auxiliary enterprises, etc., from consideration, they are not telling the whole story (although a case can be made for excluding these factors in some, but not all, of their analysis).

Enough is enough. Writing this is making me depressed, and it is too early to start drinking. So I will save more for another day.

Declining ROI of College Education

by Daniel L. Bennett

New research by Bloomberg Businessweek, which makes use of Payscale salary data, suggests that:

the monetary value of a college degree may be vastly overblown

College is not the million-dollar slam dunk people talk about

Over the past 30 years, the S&P 500 Index averaged about 11 percent a year. Only 88 schools out of the 554 in the study had a better return than the S&P. Everywhere else, students would have been better off—financially, at least—if they invested the money they spent on their college educations and never set foot in a classroom.

The new research corroborates what CCAP has been saying for some time - the value of a college degree is diminishing. Richard Vedder was even cited in the article:

One big conclusion that can be drawn from the PayScale data is that college—and college alone—may not be the great investment it was once thought to be. Richard Vedder, director of the Center for College Affordability & Productivity in Washington, D.C., notes that with the college-educated accounting for a larger percentage of Americans, the bachelor's degree has been devalued, and its ROI has taken a hit. "We have credential inflation in America. A college degree has become mundane and ordinary," Vedder said. "We used to send kids to college to become lawyers and doctors. Now we send them to college to work at Walmart."

Private Nonprofit College Tuition to Rise 4.5% -- The Vedder Perspective

Below is what CCAP's Richard Vedder had to say to Inside Higher Ed about the latest National Association of Independent Colleges and Universities survey, which revealed that private nonprofit tuition will increase by an average of 4.5 percent in the coming academic year:

it’s notable that private colleges increased tuition above both a nationally-accepted rate of inflation (the Consumer Price Index) and HEPI. HEPI is often subject to critics – Vedder among them – who say that it shouldn’t be used as a benchmark for tuition, because it’s an index that increases based on what colleges spend – not necessarily the true costs they carry. If administrative salaries increase, for instance, HEPI goes up in tandem, regardless of whether those raises were reasonable or necessary

“If all schools increase their spending a lot from one year to the next, the HEPI tends to rise more than it otherwise would,”...“So the schools are creating their own alleged inflation and then they use that as an excuse to say ‘Oh our costs are going up so much.’ The cost of college is going up hardly at all, according to that index, but the tuition rates are [up] 4.5 percent. Why?”

CCAP in the News

Andrew Gillen and Daniel Bennett were cited by Juliana Keeping in a recent article for Ann Arbor News.

[Gillen said that] colleges compete for students and dollars in a market where brand is everything. To maintain that brand, universities need to continually spend to maintain and improve their reputations.

"Higher education is structured in a way where institutions are forced to compete on reputation," Gillen said. "Because they're forced to compete on reputation, it's always beneficial for them to spend more money. They're always searching for ways to raise money, one of those ways being tuition."

[Bennett said that] the proliferation of government-backed loans drives higher tuition prices. He argues making loans available only to the students who most need them would fundamentally change a system where the sky’s the limit for increased tuition and the borrowed money to pay for it.
“Economics 101 would tell us this would decrease the demand and the willingness of people to pay exorbitant prices,”

Steve Smith cited Richard Vedder in this article:

Vedder's research shows that "…eight out of the ten job categories that will add the most employees in the next decade — including home-health aide, customer service representative and store clerk — can be performed by someone without a college degree."

And the state of West Virginia is still in disarray over the level of subsidization for college athletics at Marshall that CCAP reported.

CCAP in the News: 06/08/10

CCAP's latest report, Intercollegiate Athletics Subsidies: A Regressive Tax, continues to garner attention around the country. The Charleston Daily Mail in West Virginia, the El Paso Times in Texas, the NBC affiliate KLS in Salt Lake City and the Washington Monthly College Guide have all reported on the paper recently.

Innovations in Higher Ed -- New Chronicle Forum

Richard Vedder is one of the writers for the Chronicle of Higher Education's newest forum - Innovations. Check out Dr. Vedder's first post, "The Diminishing Economic Advantage of a College Degree".

Death by Gainful Employment

by Daniel L. Bennett

I have an article in the new issue of Career College Central magazine discussing the negative implications of the Department of Education's proposal to define gainful employment in terms of an income to debt ratio. You can access the online version of the magazine and flip to pages 24-27, or download a PDF to read the article.

CCAP in the News: 06/02/10

Inside Higher Ed and The Chronicle of Higher Education both covered CCAP's latest research on Tuesday. The Salt Lake Tribune picked up on the story as it relates to the Mountain West conference:

The MWC, home to the University of Utah and Brigham Young University sports programs, and the Western Athletic Conference, the stage for the Utah State Aggies, don't have access to lucrative revenue streams enjoyed by big-name conferences like the Big Ten, said report co-author Richard Vedder, CCAP's executive director. So these "wannabe" conference schools are forced to tap institutional resources, taxpayers and students in the mostly vain hope of competing with the nation's best football and basketball programs.

"It's coming at an awfully high cost," said Vedder, an Ohio University economics professor and American Enterprise Institute scholar. "I don't see it getting better. At some point it becomes a significant financial strain on the institutions. It's getting to be a luxury that we increasingly find we cannot afford."

"To the extent these subsidies increase tuition and fees, it's a burden. It's like a tax on a goods," Vedder said. "These are subsidies that have to be paid be someone. It forces tuition to go higher, or forces the quality of education to go lower."

Richard Vedder was one of the guests for a marketplace radio segment on the costs of college. Listen to the show.

In our zeal to get everyone a college education, we're finding more and more people going out with a bachelor's degree that are having a hard time getting a job that fits the skills that they believe they picked up in college. And maybe the notion that everyone should go to college is one that we need to rethink in light of this labor market experience.

Zac Bissonnette of Daily Finance agrees with Daniel Bennett's remedy for rising student default rates:

It's a good idea.

Many colleges -- especially for-profit colleges but also more than a few non-profit colleges -- are signing naive students up for levels of loan debt that are destined for failure. Borrowing $100,000 with an interest rate of 10% to pay for an undergraduate degree can almost never lead to a good financial outcome, and yet colleges enroll students with these debt loads all the time. In cases where financial aid offices sign students up for outrageous levels of student loan debt, the schools should at the very least share in the financial fallout.

The New Yorker cited Richard Vedder:

Economics majors aren’t doing badly, either: their starting salary averages about fifty thousand a year, rising to a mid-career median of a hundred and one thousand. Special note should be taken of the fact that if you have an economics degree you can, eventually, make a living proposing that other people shouldn’t bother going to college. This, at least, is the approach of Professor Richard K. Vedder, of Ohio University, who is the founder of the Center for College Affordability and Productivity. According to the Times, eight out of the ten job categories that will add the most employees during the next decade—including home-health aide, customer-service representative, and store clerk—can be performed by someone without a college degree. “Professor Vedder likes to ask why fifteen percent of mail carriers have bachelor’s degrees,” the paper reported.

The argument put forth by Professor Vedder (Ph.D., University of Illinois) is, naturally, economic: of those overly schooled mail carriers, he said, “Some of them could have bought a house for what they spent on their education.”