Tuesday, May 05, 2009

Links 4/5/09

by Andrew Gillen

Inside Higher Ed has a quite fascinating interview with a student loan reform advocate. I’ve just bought the book.

Neal McCluskey and Kevin Carey agree that saying states have abandoned funding for higher ed and that is why tuition is going up is incorrect.

Chickens are partly responsible for killing Detroit. Really. Robert Lawrence explains.


RWW said...

University Finances in the BustWrites an important professor at a famous university:Just discovered your podcast archives: What a treasure. After listening to the Celente interview I thought I would give you a bit of a view of what's happening at my university right now. I happen to be up to my neck in the budgeting process, and I can assure you it is getting very bloody with no end in sight.

We had expanded slowly, methodically over the years to create a system that was profoundly dependent on inflows of revenue from rich alums, tuition payments that are largely funded by loans, and, of course, government payouts. We had received more than a billion dollars from a single donor in portions over the years. Others donated $500 million a year or two before their personal fortunes contracted. How could one possibly not get giddy under these circumstances? We started anticipating revenue flows rather than using savings. They built buildings before the donors showed up. They turned to the short-term debt markets in a big way. They "swept" short term accounts into the endowment to maximize gains. We institutionally acted as though the good times would never end. During the summer of 2008 I had lunch with a high official and discussed whether our endowment was secure. I asked him if we were marking to market, and he assured me we were on it. I let it drop, but parted ways by saying to him "Endowments are going to blow up." I was thinking Harvard and Yale because it was patently obvious that they were being run as hedge funds; apparently my university is on the list. The situation has changed radically.

We are going through rapid budget contractions in a way that most cannot really understand. I tell my colleagues to imagine that you slowly over eat for decades--the weight distributes evolutionarily over your ever-fattening torso. Suddenly, the doctor says you are a hundred pounds overweight and, moreover, you must lose it immediately or you will die. You do not have the luxury of evolving it back off. You cannot simply reverse the process that got you there. You find that liposuction, stomach stapling, and limb amputations are the only means of rapid weight reduction. Any Austrian would understand this.

We are cutting 5% per year for three years. Sounds trivial on the surface, but it is not. First, we are restricted by parameters being passed down from the top. We are told to maintain our national ranking (seems unlikely; vide infra). Do not cut faculty salaries. (Scandal may ensue at some point, but the idea is that faculty salaries are demanded to maintain prominence.) We are ramping up tuition while ramping up financial aid; there goes the middle class.

So what is happening at the local level of my department? We are a big operation. Our current trajectory is that we will lose any staff line that isn't mission critical. We will, if we continue as told, lose half of our teaching assistant lines. Loss of half of our teaching assistants leaves some combination of three tactics:

(a) Cut spaces in lab-intensive courses (essentially all large courses). We would be forced to tell hundreds of kids they must chose a major that does not require our subject. (We teach several thousand kids per semester.)

(b) Double the work demanded of teaching assistants. This is actually quite possible except we will not get any English-speaking students into the program until other PhD-granting institutions make the same cuts. Hard to argue that this would help the quality of education.

(c) Cut the laboratory experience for each student in half, once again virtually guaranteeing a mediocre education.

Some changes will ultimately be positive. Others will be scarring because of the misallocation of resources. We are in a mad scramble to reallocate the much more limited resources, but the damage has already been done--the bell cannot be unrung (as any Austrian economist knows). As you can imagine, I find it profoundly frustrating not fully understanding how we blew it so badly, whether the course of action--the blanket budget cuts in lieu of surgical cuts--is the best course of action, and having to wrestle with colleagues who must be part of the solution but do not understand the problem.

There are so many seemingly foundational tenets of modern economics that are demonstrably wrong. I have repeatedly wondered and asked others whether the pros know they are not right or if they are delusional. Probably both.

Just pondering on a quiet Sunday morning...

PS--William F. Buckley's autobiography includes a chapter describing why he refused to donate to Yale. He describes in detail the process by which Yale prostituted itself to the State. He also discusses why Yale should not simply become a ward of the State (become a state school). Interestingly, he shoots down all the obvious reasons pertaining to money and quality. He concludes the essay with a simple concept. Every once in awhile the interests of the Yale and the interests of the State diverge: "That is why."

The LRC Blog

RWW said...

Students downsize college dreamsBy Michael Birnbaum, Washington PostWASHINGTON - Michael Parra loved the University of Delaware the moment he stepped on its campus, so much so that the aspiring civil engineer slapped a college sticker on his mother's bumper and sent in a deposit not long after he was admitted.

But after he learned that he would be $60,000 in debt by the end of his college years, he scuttled the plan and signed up with cheaper George Mason University, joining thousands of other high school seniors across the country who had to dial down their dreams before last week's college response deadline.

"We just don't have the money," said Parra, 17, who attends Wakefield High School in Arlington County, Va.

That's a refrain muttered across countless dinner tables this year, from those with single mothers such as Parra's who work two jobs to those with parents who started pouring money into college savings plans as soon as their children were born.

When a college counselor laid out the financial aid Delaware offered Parra, the student realized that half the package was loans, not grants as he initially thought. It wouldn't work, Parra decided. George Mason will pay most of his expected $8,000 annual in-state tuition, and he'll somehow come up with money for room and board.

Families who have seen retirement funds shrivel but make too much to qualify for need-based aid are nervous, too.

"This season, more families have asked me about the probability of getting merit packages than they have in years," said Steven Roy Goodman, a D.C.-based educational consultant and admissions strategist.

Parra's Wakefield classmate Clayton Miller, 17, also picked a Virginia public university in the end, even though neither his consultant mother nor his lobbyist father had big drops in income. Miller had dreamed of studying environmental science at the University of Texas.

But a college fund invested in the stock market dropped 40 percent this year. A full-tuition freshman year scholarship for valedictorians that he thought he qualified for turned out to be for Texas residents only.

Instead, Texas offered him a $6,000 merit scholarship. He'd be on the hook for $80,000 in loans after four years. Suddenly, Virginia Tech looked a lot more attractive. He sent in his deposit last month.

"I was devastated for a good three weeks," Miller said. "I'm still a little bitter about it."

The recession has touched Albert Einstein High School in Kensington, Md., in basic ways. Sales of yearbooks have plummeted, and teachers are opening their wallets to buy them for their students. A golf tournament will raise money for $2,500 scholarships, but for some students that might be woefully inadequate.

"It should be $20,000 for the way things really are," said Joseph Monte, a school counselor.

To pay tuition bills, some parents are scrambling to boost their income at a time when few jobs are available.

Mary Claire Erskine, 18, an Einstein senior, said that the difference between her scholarship money and the total bill at Oberlin College, where she sent a deposit last month, was about $40,000 a year. Her mother is a journalist at a time when many newspapers are trimming staff. Her father, an artist, is looking for another job.

Erskine is resigned to graduating from Oberlin with a big debt, with interest rates that might not be cheap in these times of tight credit. Rates for unsubsidized federal Stafford loans, a popular way of financing college, are just under 7 percent, and those of private loans can be much higher.

"It's increased my awareness of money and finances and what that all means," she said. "I'm going to be carrying this with me for however many years."

RWW said...

What better time to press recommendations for reform, sound cost-cutting measures, and effective productivity solutions when colleges and universities are reducing their budgets?

Can tuition hikes be precluded, if only partially, by addressing the above issues?

Berea college seems to be doing okay as I understand it.

Where does CCAP "fit" in this picture?