Growth in Government Subsidies

by Daniel L. Bennett

I'm working on an empirical study of educational inequality in the U.S. Part of the analysis is exploring the effect that governmental subsidies for postsecondary education (in addition to K-12 education) have had on inequality. While that analysis is still in the works, I have put together a chart below that shows real government subsidies by level, on a per student basis, over the past 90 years for postsecondary education.

As the chart reveals, federal subsidies were relatively constant for the first half of the 20th century before exploding as the second half of the century began. This coincides roughly with the birth of the federal government's financial aid system (beginning with the GI Bill in 1944 and later expanding to all students with the 1965 HEA).

State subsidies were relatively modest prior to the mid 20th century and experienced some volatility in the latter half of the century and beginning of the 21st century. Local government subsidies have traditionally been relatively modest, but have become increasingly more prevalent in recent years.

Interestingly, the more that we have subsidized college, the more expensive it seems to have become for students. This is a classic example of the unintended consequences that often result from public policies that artificially stimulate demand. See my colleague Andrew Gillen's paper on financial aid for an excellent read on this theory.

Note: Source of Data is National Center for Education Statistics (NCES). 2006-07 was latest year with complete data. It is not known to what extent local or state subsidies originated from a higher level of government to be distributed at the lower level. This limitation in the data could underestimate federal and/or state , and overestimate state and/or local subsidies in recent years.

Academically Adrift: A Must Read

By Richard Vedder*

The most significant book on higher education written in recent years is out, Academically Adrift: Limited Learning on College Campuses, by Richard Arum of New York University and Josipa Roksa of the University of Virginia. While I have not read every word of this new University of Chicago Press book, I have read enough of it and an accompanying summary to know that it is very, very important, and extremely devastating in what it says about American higher education today. Basically, students study little and, as a consequence, learn little.

Arum and Roksa wed data from two very important but underutilized test instruments, the Critical Learning Assessment (CLA), and the National Survey of Student Engagement (NSSE). These instruments are used at hundreds of schools, and the Arum and Roksa book is based on detailed results from a good sized sample of students from 29 institutions. The CLA measures things such as aptitude with respect to critical learning and writing skills, while the NSSE mostly measures how students are engaged at school, in large part measured by how they use their time.

For the reader not familiar with some of the findings, Arum and Roksa conclude:

• “gains in critical thinking, complex reasoning, and writing skills (i.e., general collegiate skills) are either exceedingly small or empirically non-existent for a large proportion of students”;
• 36 percent of students experienced no significant improvement in learning (as measured by the CLA) over four years of schooling;
• less than one-half of seniors had completed over 20 pages of writing for a course in the prior semester;
• total time spent in academic pursuits is 16 percent; students are academically engaged, typically, well under 30 hours per week;
• scholarship from earlier decades suggest there has been a sharp decline in both academic work effort and learning;
• “students…majoring in traditional liberal-arts fields…demonstrated significantly higher gains in critical thinking, complex reasoning and writing skills over time than students in other fields of study. Students majoring in business, education, social work , and communications had the lowest measurable gains”;
• 35 percent of the students sampled spent five hours or less a week studying alone; the average for all students was under 9 hours.

Critics will no doubt argue that the CLA is an imperfect test instrument or that the sample of schools was too small and unrepresentative. What strikes me most, however, is that these findings are similar to those found in other studies (e.g. the Time Use Survey of the Bureau of Labor Statistics), and with my own personal observations based on a half century of involvement in higher education in all types of institutions ranging from mid-quality state universities to elite private liberal-arts colleges and prestigious private research institutions.

Moreover, the survey seems to confirm that many of the modern-day trends in higher education have lowered the quality of the educational experience. “Collaborative learning” is all the rage, and students are encouraged to work in groups—the Arum and Roksa study, however, suggests that studying alone is more effective than studying in groups. Another trend is the decline in the “market share” of the traditional liberal arts disciplines—social and natural sciences and the humanities—yet students in these disciplines seem to be learning more. To be sure, the communications and business majors are sometimes picking up vocational skills that are useful, which are not measured by the CLA.

To me, this above all further strengthens the thinking of scholars ranging from Robert Hutchins and James Bryant Conant (to go back more than a half a century) to Charles Murray today. As the proportion of the population going to college rises, more and more of them are simply not suited for academically rigorous forms of higher learning. Consequently, schools dumb down the curriculum, engage in grade inflation, etc.

Why, then, do college graduates continue to earn a healthy premium over high school graduates? In part, because, despite being relatively lazy and relatively unchallenged in school, college graduates are still smarter, more ambitious and more disciplined than the graduates of our relatively mediocre (on average) secondary schools. College is an expensive (to students) screening device, and one that is increasingly emphasizing the socialization dimensions of young adulthood over the dissemination of true knowledge and ideas. We are sending too many kids to school to learn too little to get jobs for which often the little that they do learn is not even necessary.

Ultimately, the public policy question is why the financially strapped federal government provides billions of dollars to subsidize students participating in the increasingly expensive and hedonistic experience we call “higher education?” Why do states subsidize the institutions that are responsible for this decline, rather than directly supporting a modest number of serious, hard-working and financially needy students? Why is higher education so dysfunctional, and becoming more so daily? When is the bubble going to burst? Run; do not walk, to the store to get this book.

*This post originally appeared on the "Innovations" blog of The Chronicle of Higher Education on January 20, 2011.

Lessons for Higher Education From the American People

By Richard Vedder*

The 2010 elections sent a very clear message: On average, Americans think government is too big, spends to much, and intrudes too much in our lives. The Republican gains in the House (at least 60) were the largest in 74 years, and third-largest in the history of that political party, only behind the 1894 and 1938 experiences. While they lost the California governorship, they gained control of that office on net in more than a half dozen states (giving them at least 30 governorships), including several populous ones, such as Pennsylvania, Ohio, and Michigan. Several powerful Democratic committee chairs in the U.S. House of Representatives lost not only their chairmanships but also their seats, such as James Oberstar, John Spratt, and Ike Skelton.

Does this make any difference for higher education? In the past, the impact of such changes was often more rhetorical than real. Higher education was a secondary budgetary item and there was something resembling bipartisan support for most programs. I think that support has frayed considerably, partially because of budget pressures, but partly because of the arrogance of university leaders regarding the political process. Nonetheless, because of likely gridlock in Washington reflecting the division of power between the two parties, revolutionary changes are unlikely to occur at that level –the rhetoric will change more than the reality once again. Yet budget realities are so grim (independent of the election) that federal higher education subsidies are in peril. A similar situation exists in many states. I would observe the following:

1. While the Senate has those wanting to scrutinize and attack for-profit higher education more (e..g, Senators Harkin and Durbin), the GOP controlled House will push for greater accountability from all institutions, opposing the singling out of for-profit institutions. Presumptive speaker John Boehner likes the for-profits, for example, if his earlier experience as chair of the House Education committee is any guide.

2. Because of budget pressures, the expansion of Pell Grants and direct student loans may be stopped or even reversed. In particular, I think the GOP might start putting some accountability into the Pell Grant program, a program which, though apparently good at achieving its general goal, is excessively expensive. I am reasonably confident, for example, that more than 85 percent of Pell Grant recipients at the University of Texas at El Paso will never (at least not within six years) get bachelor’s degrees. Why should that institution (and many others like it) be allowed to continue in the Pell Grant program if the apparent success rate is so low? Isn’t that suggestion analogous to the Obama Administration’s proposal that for-profit schools whose students earnings from gainful employment are unacceptably low should lose the right to federal assistance?

3. The solid victory for legislation banning affirmative action in Arizona (joining similar laws in California, Michigan, Nebraska, and Washington) should further demonstrate the disconnect between the frequent call by university leaders for preferential treatment for people on the basic of group characteristics such as skin color or ethnicity, and the general view of the American people favoring an emphasis on meritocracy independent of racial, gender, or other status.

4. More generally, the political lesson this year is that “ignoring the people” has political consequences. Universities have been taking positions sharply out of tune with public opinion for decades. They ignore growing cries about rising tuition charges, for example. Could this contempt for public opinion lead to the further defunding of the universities?

5. I expect the defunding of higher education to accelerate a bit. Take my state of Ohio. The voters threw out a loyal Obama supporting liberal Democrat governor (Ted Strickland) for a rather conservative Republican (John Kasich) who has vowed to not raise taxes, at precisely the time the state faces the need for huge budget cuts, and at a time that Gov. Chris Christie of New Jersey has proven that tough budget cutting can actually be highly politically popular. Therefore, in Ohio, I expect universities are in for a painful retrenchment of public financial support. My guess is the situation in Michigan is very similar, as it is in probably quite a few other states.

Higher education is very good at pleading, but not so good at listening, especially to those outside the Ivory Tower. Yet it is ordinary folks who provide the third-party payments that have allowed higher education to grow so much—too much in my judgment. Direct subsidies to institutions and individuals by the government are supplemented by tax-sheltered giving from private donors. The general attitude in the Academy when the nation moves to the right is: “Be patient, this too will pass.” But the fiscal imperatives of dealing with trillion-dollar federal budget deficits, and similar fiscal stress in many states may lead desperate political leaders to consider more radical changes in policies regarding those institutions so dependent on public support.

This post originally appeared on the "Innovations" blog of The Chronicle of Higher Education on November 3, 2010.

The 2010 Election Results and Higher Education

By Richard Vedder*

Do the 2010 congressional elections really matter? I suspect the answer is yes, and I am probably a fool for speculating about them right before they take place, but tenured professors usually don’t care much about whether they are foolish or not, as it has little impact on their material lives.

Like everyone else, I think the Republicans are going to make big gains, likely taking over the House. I sense that Democratic last-minute actions to avert disaster have had a small amount of success, but not enough to prevent a bloodbath. Dozens of sitting Democrats in the House who want to continue will lose their jobs, perhaps exceeding the postwar high for that statistic. Nancy Pelosi is in her last weeks as Speaker.

John Boehner was the former chair of the House Education and Work Force Committee, and has a far more sympathetic view towards things like private provision of student loans and for-profit education. In the Senate, I think the GOP gains will solidify their ability to block Democratic initiatives, but not big enough to successfully put forward an alternative agenda. Remember, Barack Obama is still president, and I doubt he is temperamentally capable of bending and compromising in a pragmatic way with the GOP, so he would veto moderate, middle-of-the-road proposals that are inconsistent with his socialist and collectivist way of thinking.

What that might mean is gridlock. Now, gridlock is not all bad. In the mid-1990s, there was a period of divided power (Clinton in the White House, GOP controlling the House of Representatives) and our nation, more or less, flourished. Sometimes gridlock forces compromises that the increasingly partisan and ideologically oriented Congress could not otherwise deliver.

Yet some of the Obama plans need to be modified. The attack on the for-profit universities while ignoring poor performance of traditional institutions is both unfair and bad policy. Either hold everyone accountable by the same standards or turn quality control over to the states, where it originally resided and, arguably, where it belongs. The continued increase in federal financial aid without systematic reform of the system is fiscally irresponsible and contributes to the rising problem of the low-wage college dropout or even college graduate. Why shouldn’t Pell Grants, for example, be tied at least somewhat to expectations of success? Why shouldn’t academic excellence be rewarded and mediocrity punished, at least modestly?

I hope the House Republicans, if they assume control, push on these issues, even if they face a dubious future in the Senate and a potential Obama veto. Basically, the notion of federal college grants as an entitlement no matter how bleak the prospects of academic success are is extremely expensive, often debilitating, to the students involved, and arguably morally suspect.

The idea of requiring schools that want to operate throughout the U.S. online offerings to get licensing in every single state is anti-competitive, anti-consumer, anti-small business, anti-capitalist, and otherwise just dumb. It has been 186 years since the U.S. Supreme Court in Gibbons v. Ogden decided that New York State could not use its licensing powers to keep steamboat companies from operating in multiple jurisdictions. Individual state licensing of essentially interstate activities was condemned. It was a good decision during the Administration of James Monroe, and it is a good principle in the Administration of Barack Obama.

There are many other reforms of higher education that need to be addressed, but I doubt very much that Washington will be the impetus of these changes, at least for now.

In short, this election will make a difference, arguably not a transcendental difference owing to the likelihood of divided government, but a difference nonetheless.

This post originally appeared on the "Innovations" blog of The Chronicle of Higher Education on November 1, 2010.

Universities and Economic Growth?

by: Matthew Denhart

Yesterday the Pope Center and the Heritage Foundation jointly hosted a round-table luncheon to discuss the role of universities in promoting economic growth. Featured was a study by the Pope Center's Jay Schalin that summarizes the literature on the topic. Schalin concludes that higher education spending is subject to diminishing marginal returns and that more evaluation is needed to determine in which situations/settings augmented spending promotes growth and in which cases it is useless, or even harms economic growth.

It is common for politicians, university leaders and the media to promote the false claim that universities are an engine of economic growth, and that by investing even a small amount in higher education, a staggering economic payoff will result.

Work done by CCAP is highly skeptical of this view. Our research suggests that higher education appropriations are subject to diminishing returns, and that current funding levels are such that each additional dollar spent has a smaller benefit than the previous one. Indeed, many states may be so over-invested in higher education that more spending actually leads to negative growth (since resources could be used much more productively elsewhere).

Building an econometric model that accurately answers the question of universities' contribution to economic growth is very difficult. On one end of the spectrum, we have information about inputs into the educational process (government appropriations, number of faculty, incoming students' average SAT scores, etc). On the other end of the spectrum we have economic growth. Between these two are many factors.

Education is almost certainly an important factor in economic growth. Yet, despite all the spending (the U.S. spent $432 billion on higher education in 2008, which is more than the GDP of Belgium), we know virtually nothing about how much learning actually occurs in college.

Furthermore, we know very little about whether the learning that does occur is relevant to labor-market demands. Learning for learning's sake is great, but if one is trying to assess an economic impact of higher education, the possibility that the types of education offered may not have a high economic return must be considered. Better information about outcomes from the expensive higher education process is much needed.

Continuing research needs to closely examine how universities spend their money. It is reasonable to figure that investment in a new science lab will better equip students to be productive members of society. However, investments in things such as intercollegiate athletics, university-owned water slides and lazy rivers, and frivolous research are much more tenuous. Given how much money goes to non-academic dimensions of higher education, it is no wonder that further subsidizing this behavior has minimal (if any) impact on the economic growth of our country.

CCAP on YouTube: BLS College Data

In this YouTube video, Richard Vedder, Matthew Denhart and Christopher Matgouranis discuss the Bureau of Labor Statistics' data on American colleges and universities.

The BLS data is available here.

Interested viewers can access CCAP's YouTube channel and subscribe here.

Market Distortions and Failures

by Daniel L. Bennett

I posted a blog yesterday that compared the current condition of higher ed to that of the housing market that recently imploded, concluding that the fundamentals of the higher ed market are completely out of whack due to the mass subsidization of it by the government. This post spurred an interesting series of emails with the author of No Sucker Left Behind: Avoiding the Great College Rip-Off, who stated that:

I think that higher education is much more essential than home ownership. If someone doesn't own a home, they can simply rent. If someone doesn't go to college, they are at an extraordinary disadvantage in getting a decent job. In our current economy, employers are unfortunately very lazy and therefore require applicants to have a college degree (because employers are too lazy to evaluate each candidate - the degree requirement provides an easy screening criteria for them). Therefore, a person without a college degree is in a much worse position than a person who does not own a home.

Likewise, I enjoyed Marc's note and replied to him:

I agree with you that the two markets (homes and colleges) are difficult to compare, as the former is tangible and has a resale value while the latter doesn’t. And I largely agree with you concerning the current state of affairs - employers use a college degree as a screening device.

The point of my original post is that the government’s meddling in the higher ed market, similar to that in the housing market, has created tremendous distortions in not only pricing, but also the supply and demand conditions for college education and graduates in the labor market. I would argue that many employers now demand a college degree for entry level work because they can, not because the type of work requires it. Again, I believe that the government’s subsidization of college, combined with all of the rhetoric that a college degree is essential to succeed, has helped create these distortions. A court case, Griggs v. Duke Power, played a role as well by banning the use of pre-employment intelligence testing.

I think that we must also must consider that many people either (A) get a degree and wind up doing a job that wasn’t worth the investment of their time and money (in other words, college education doesn’t pay off for everyone), or (B) fail to finish and are left worse off than had they not attended college at all, often with debts that must still be repaid and the opportunity cost of not working or spending their time doing something else.

For the above two cases, which combined are not an insignificant percentage of persons attending college, I think that such persons are in a sense as bad off (if not worse due to the non-discharge ability of student loans) as homebuyers who are forced into foreclosure. They are certainly as worse off as someone unable to buy a home because they themselves are unlikely to be able to buy a home due to high student debt and/or insufficient income, and in the extreme, may be worse off if they are so far in student debt that they have to move in with relatives because they can’t even afford to rent an apartment. Of course such cases are the minority, but as the cost of attending college continues to rise and more people enroll chasing the dream, I think that we can expect the number of these instances to rise.

To which Marc replied:

I thoroughly agree with you regarding the drop-outs. Have you ever noticed that college drop-outs are NEVER included in the calculation of the financial benefit of college? Instead, researchers simply compare high school grads with college grads. That's like estimating the payoff of the stock market by comparing those who have not invested in the market vs. those who have invested in the market but never lost money!

Something has to be done to highlight the plight of the drop outs.

Marc is absolutely right - something has to be done about the rising number of dropouts (as well as those who finish but fail to benefit from college). But let's not "solve" the problem the way that we solved the high school dropout problem many years ago - by reducing standards. Face it, the lowered standards of high school have at least partially contributed to the high attrition rate among college goers. I believe that part of the solution is providing alternative forms of education (hands-on technical and vocational training, for instance) to those who struggle in the more traditional academic setting. And perhaps traditional colleges and universities could learn a thing or two about student retention and how to utilize resources more effectively from the career colleges.

Help, I’ve Got Some Cognitive Dissonance

by Andrew Gillen

I usually make it all the way to Wednesday or Thursday before breaking my brain, but this week, I didn’t even make it to lunch on Monday. The culprit was this article in CHE by Eric Kelderman. It turns out, the IRS is looking into

potential discrepancies between colleges' financial activities and what they report to the government.

Towards the end, there is this:

how private colleges set the salaries for their top employees, such as presidents and chancellors. Private institutions can be subject to a tax penalty if they pay key employees amounts above what is comparable for similar positions at similar organizations.

[AG: I didn’t know this. That’s pretty cool – perhaps if this is actually enforced it would curtail the practice of university presidents getting all the rewards of CEO’s without having any of the potential downside, like the possibility of running the business into the ground and them losing their job.]

Forty-five percent of small colleges and 38 percent of the largest institutions in the survey reported not using the IRS's suggested procedures for setting the compensation of their highest-paid employees.

[AG: What? The IRS has suggested procedures for setting compensation at private entities! How can they be private if the government is determining what they can pay? Well, maybe this is just my libertarian side getting out of line. From a practical perspective, the IRS needs some way to know if they are paying “above what is comparable for similar positions at similar organizations”, so maybe this is just a survey of what salaries are at other schools…]

The IRS also noted that it is concerned that too few private colleges are using an independent survey of comparable institutions to determine salaries.

[AG: Ahhhh – that “also” is killing me. Not only are these private institutions supposed to use a survey to help guide compensation decisions, but that is separate from the IRS sanctioned procedures. I need some help on this one – due to their tax advantaged status, I can see why it might be appropriate to restrict the compensation choices of these private institutions, but I’m pretty sure that having the IRS determine what procedures they must follow is way over the line. Can we have one without the other? If not, which one is more important?]

A New Vice Higher Education Czar

As reported by Kelly Field in the Chronicle:

The U.S. Senate education committee has approved President Obama's nomination of Eduardo M. Ochoa as assistant secretary for postsecondary education, a long-open leadership spot at the Education Department.

If confirmed by the full Senate, Mr. Ochoa, who is now provost and vice president for academic affairs at Sonoma State University, in California, would take charge of the Education Department's Office of Postsecondary Education, which administers most of the federal government's programs for colleges and college students. The assistant secretary has also typically served as the chief adviser to the education secretary on higher-education issues.

The position has been vacant since Mr. Obama took office more than a year ago. He nominated Martha J. Kanter for the other top postsecondary job, under secretary of education, in April of last year, and her appointment was confirmed last June. The president nominated Mr. Ochoa in February.

As assistant secretary, Mr. Ochoa would report to Ms. Kanter, who also came from California, where she was chancellor of the Foothill-De Anza Community College District.