Chart of the Week: Percentage of Public 4-Year Institutions with Differential Tuition
There are a number of economic reasons which suggest that colleges and universities, rather than charging a single rate of tuition for all of its undergraduate students, should charge differential tuition rates. For instance, colleges could use differential tuition rates to reflect different earnings potentials for various majors or (as Stephen Hoenack and William Weiler argued in a 1975 paper for the The Journal of Human Resources) to reflect variation in educational costs across majors. The Cornell Higher Education Research Institute (CHERI) has published the results of a survey it has conducted of public 4-year institutions to determine the prevalence of differential tuition policies at public institutions of higher education. The CHERI survey “found 143 public academic institutions with some from [sic] of differential tuition,” commonly for such majors as business, engineering and nursing, though sometimes tuition rates varied by student level (i.e., higher tuition fees for seniors than for freshmen). As the chart below illustrates, differential tuition policies are more likely to be in place at doctoral institutions (as 41% of public doctoral institutions in the survey reported using differential tuition rates for their undergraduate students). By comparison, only 11% of public master’s institutions and 29% of bachelor’s institutions made use of such tuition policies.
Source: Cornell Higher Education Research Institute
Daily reCCAP: 02/22/12
…with tuition prices continuing to climb and the economy stuck in neutral, families will increasingly demand more information on what they’re buying.
Like politicians elsewhere, Virginia lawmakers have heard such complaints from parents and decided to do something about it. Over the last two years, the state legislature has passed two bills that, beginning this spring, will give families access to a key component in answering the value-of-college question: median salaries for the graduates of hundreds of academic programs across every public institution and some private colleges in the state.
The court’s decision in the new case holds the potential to undo an accommodation reached in the Supreme Court’s 5-to-4 decision in 2003 in Grutter v. Bollinger: that public colleges and universities could not use a point system to boost minority enrollment but could take race into account in vaguer ways to ensure academic diversity.
…a new survey by the Cornell Higher Education Research Institute. Researchers checked the websites of every public institution that awards bachelor’s degrees, and then surveyed some of the institutions identified as having differential rates. A total of 143 public colleges or universities were found to now have differential tuition policies. That figure includes 29 percent of bachelor’s institutions, 11 percent of master’s institutions, and 41 percent of doctoral institutions.
My experience is that the same folks who lash out at value-added also pooh-pooh each of the alternatives (except a weak sauce version of peer review). Rather than recognizing that each approach has strengths and weaknesses, and that smart accountability is designed accordingly, they attend only to the potential flaws–and use those to reject each in turn. The result? What they’re ultimately rejecting is not just the tool of value-added but the notion that public educators who are paid with public funds to serve the public’s children ought to be responsible for how well they do their jobs. And I, along with the “reform” community, find that an unacceptable stance.
Bottom line: It’s fair to note the limits of value-added and insist that this crude tool not be overused. It’s also fair to critique and reject any of these other approaches in isolation. But serious critics can’t serially reject every means of accountability without ever putting forward an actionable alternative. That adds up to nothing more than a recipe for public sector entitlement.
The Online Revolution in Higher Ed
Susan Gilbert, Dean of the School of Business and Management at Thomas Edison State College, makes an decent case that online education offerings are at the root of the education revolution that will ensure that, going forward, the United States “will be better educated at more affordable tuition rates, and scholarship will not suffer in the least.”
Bennett Hypothesis 2.0 Coverage
Be sure to check out coverage of our new study:
- My op-ed in Inside Higher Ed.
- A story in The Chronicle of Higher Education.
- And some commentary at Minding the Campus.
Thoughts on Why Bennett Hypothesis 2.0 Applies to For-Profits
My just released study finds that the Bennett Hypothesis applies to for-profits. In a freaky coincidence, a new NBER paper by Stephanie Riegg Cellini and Claudia Goldin finds that the Bennett Hypothesis applies to for-profits too:
Many for-profit institutions that are not Title IV eligible offer programs and certificates that are similar, if not identical, to those given by institutions that are part of Title IV. We find that the Title IV institutions charge tuition that is about 75 percent higher than that charged by comparable institutions whose students cannot apply for federal financial aid. The dollar value of the premium is about equal to the amount of financial aid received by students in eligible institutions, lending credence to the “Bennett hypothesis” that aid-eligible institutions raise tuition to maximize aid.
But there seems to be some debate about why the Bennett Hypothesis holds at for-profits. Mark Kantrowitz cities the 90-10 rule as a driving force of the result, while Claudia Goldin disagrees:
Goldin, however, said the so-called 90/10 rule had no bearing on the study’s findings…
for-profits are not operating in a properly functioning marketplace.
“This is a market that is not in equilibrium,” she said. “There should be more competition and prices should come down.”
I’m with Kantrowitz on this one. As footnote 27 of my new report states:
Competition in higher education is broken for two reasons. The first is the lack of information necessary to judge quality discussed above, which precludes competition based on quality. The second reason only applies to for-profits, and it is the ill-conceived 90-10 rule. This rule dictates that for-profits cannot get more than 90% of their revenue from financial aid. Since colleges can’t limit the amount of federal aid their students choose to take, this encourages for-profits to set tuition higher than federal aid alone can cover, which rules out price competition. Since for-profits can’t compete based on price or quality, they mostly compete on marketing prowess, which is even more wasteful than competition based on prestige since it doesn’t even have the possibility of leading to a better education for students.
Goldin is right that “for-profits are not operating in a properly functioning marketplace”, and one of the reasons for that is that the 90-10 rule all but rules out price competition among Title IV participating for-profits. The 90-10 rule isn’t the only reason that the Bennett Hypothesis applies to for-profits (even without it, there would still be massive uncertainty regarding quality), but it is one of the two important ones.
New CCAP Study: Introducing Bennett Hypothesis 2.0
We are pleased to release “Introducing Bennett Hypothesis 2.0” today. From the press release:
Almost exactly 25 years ago, then secretary of education William J. Bennett argued in the New York Times (Our Greedy Colleges, February 18, 1987) that “increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.” Thus was born the Bennett Hypothesis, the idea that colleges raise tuition to capture financial aid funds. It is with great pleasure that the Center for College Affordability and Productivity announces the release of Introducing Bennett Hypothesis 2.0 by Andrew Gillen.
The study argues that the mixed evidence and controversy surrounding the original Bennett Hypothesis is largely due to an overly simplified view of the concept, and refines the idea to “account for a more realistic view of who receives financial aid, the actions available to colleges, and the nature of competition in higher education.” (pg. 1)
“The three key refinements of the original that constitute Bennett Hypothesis 2.0 are as follows:
- All Aid is Not Created Equal
- Selectivity, Tuition Caps, and Price Discrimination are Important
- Don’t Ignore the Dynamic Story” (pg. 5)
“These three refinements not only help explain the mixed empirical evidence, but also provide a better understanding of the relationship between financial aid and tuition.” (pg. 25)
It explains why “For decades we have been caught in the vicious cycle of Bennett Hypothesis 2.0:
- In an effort to improve college affordability, the government increases financial aid funding.
- The financial aid allows colleges to raise tuition so as to gain more revenue to pursue excellence.
- The higher tuition reduces affordability, leading to calls for more financial aid, sending us back to step 1 and starting the process all over again.” (pg. 22)
Bennett Hypothesis 2.0 is ultimately so worrying because “The goal of providing financial aid is to improve college affordability, but the competitive mechanism within higher education ensures that colleges will raise tuition to capture the aid, undermining the goal of providing aid.” (pg. 19)
The entire study is available here.
Trimming the Fat
In our mammoth report that we issued during the latter months of 2010, 25 Ways to Reduce the Cost of College, we included chapters devoted to the following recommendations for lowering college costs:
Of course we can’t claim any originality for these ideas as there are others pushing for these same ideas as well (many of whom I doubt have seen our report). One such individual is Sal D. Rinella, the chief executive of Penson Associates. According to Chronicle reporter Brad Wolverton, Mr. Rinella has argued that “[t]oo few colleges have explored distance education or a no-frills model… ‘Not everyone needs an engineering program or a medical school,’ Mr. Rinella says. ‘Institutions can really focus more on centers of excellence so they’re not duplicating programs as much.’”
This is very much along the lines of our suggestions regarding cutting unnecessary programs as well as streamlining redundant programs. Part of the rationale for cutting unnecessary programs is that it is better for a particular institution to focus resources on fewer missions that it can fulfill excellently rather than more missions that it can only achieve sub-average results (in other words, even institutions of higher education should abide by the law of comparative advantage–as many do already, to one extent or another, though there is room for improvement). In our report, we listed three criteria which would be helpful for institutions to determine which programs should be ones considered for elimination or streamlining:
- Is the program critical to the institution’s mission?
- Is there sufficient student demand and faculty interest?
- Is the program financially viable?
As we put it in our discussion of these questions:
These three criteria are not an exhaustive list of everything to be considered, but do cover the three most important questions when determining where to make strategic cuts. Furthermore, a program does not have to fail all three to be cut while a program failing one criterion but passing the others may be legitimately saved from a cut. It is up to individual institutions to make these tough calls through their own decision-making processes. Yet these criteria are important considerations and it is crucial that someone is asking these important questions.
This analysis is particularly important in the context of online offerings of distance education. Even if we concede that online education is inferior to the traditional, face-to-face model of instruction (and there is some evidence, for instance a 2010 report put out by the U.S. Department of Education, which would suggest that this concession is not necessarily supported by the evidence), the no-frills, distance education model Mr. Rinella endorses is that may be exactly what a significant proportion of college students need and want. In other words, not every student needs the education provided by the intensive, traditional model of instruction; for some students, the quality of instruction and education they receive from a strictly no-frills model is sufficient, for fulfilling their academic and vocational needs and goals.
The bottom line is that explicitly (or even implicity) forcing these students to go through a traditional instructional collegiate model is perhaps not wise on both educational grounds (if they lack the ability or desire to excel or even succeed at the traditional model, we may be setting them up for little more than disappointing failure) as well as on cost grounds (by requiring the students to pay for a very expensive educational service when they would be well served by a lower cost service, we can wind up burdening them with unmanageable debt loads). This is why evaluating education in terms of value (which is a function of both quality and cost) is a much better approach than just looking at only quality or cost and excluding the other.
Bennett, Biden, and Boondoggles
Joe Biden admitted at a talk at Florida State University the other day that, yes, federal student-financial-assistance programs probably did contribute to rising college costs. That was newsworthy, and I suspect a statement that was not vetted by the White House (not the first Biden rhetorical faux pas from the Administration’s perspective.)
The Biden statement flies in the face of the generally perceived wisdom among supporters of the federal student-loan and grant programs, namely that these programs really have little impact on college costs. The Biden admission, however, implicitly agrees with those who argue the gains from these programs to college students are significantly dissipated by the fee-raising behavior of the schools enrolling the affected students.
Biden, in effect was embracing an idea first vocally proclaimed by Bill Bennett, then Secretary of Education, in 1987. If Biden and Bennett are right, why continue to expand these programs if their effectiveness is significantly reduced, maybe even eliminated, by tuition-increasing behavior?
My colleague Andrew Gillen has completed the best single analysis I have read on federal student financial aid and what he calls the Bennett Hypothesis. The study will be released in the next few days by the Center for College Affordability and Productivity (CCAP), and will brilliantly explain a paradox: Some scholars claim the hypothesis is not true (that the tuition effects of federal-aid programs are minimal) while others claim pretty big effects—these programs raise tuition fees perhaps 50 cents or even more for each one dollar of aid per student dispensed.
I don’t want to steal Andrew’s thunder, but the key to his analysis comes from the fact that there is a lot of complexity to student-aid programs and college behavior. Pell Grants, for example, have a different impact than so-called unsubsidized federal student loans (which, in fact, have an implicit federal subsidy associated with them). Harvard behaves differently than Slippery Rock State University. Some universities face tuition caps. Most importantly, the long-run effects of college almost certainly are different than the short-run effect, and what college A does impacts on college B’s behavior in the long term.
Andrew’s study uses simple but powerful graphical analysis to make a point, and is an absolutely great example of how simple economic theory and some knowledge of college behavior can deliver stunning insights. In the end, Andrew embraces the essential truth of the Bennett Hypotheis, modified a bit (what he calls, “Bennett Hypothesis 2.0″).
And Andrew points out that paying attention to the three “I’s” of reform—information, incentives, and innovation, can lead to a weakening in the operation of the Bennett Hypothesis, as could, of course, my preferred solution, which is for the federal government to get out of the college-financing business, particularly since it cannot responsibly handle its own internal finances.
Andrew’s study comes as two other empirical realities came to my attention that are, I think, broadly consistent with the Bennett Hypothesis. First, these aid programs have always been justified primarily on the grounds of offering equal educational (and thus economic) opportunity. Yet Postsecondary Education Opportunity points out in its January 2012 newsletter that the degree-attainment gap between those in the top and bottom income quartiles has widened dramatically since 1970—roughly the era of major federal student-financial-assistance programs. This trend is exactly what we would expect if aid payments to price-sensitive lower-income students are largely wiped out by aid-induced rising tuition costs. (Because upper-income students are less price sensitive, their ability to pay is not as damaged by tuition hikes in response to increases in federal financial aid.)
The second piece of news relates to continuing research that I am doing with Daniel Bennett, a Ph.D. candidate in economics at Florida State. Our research so far suggests that expanding college attainment is associated with less, not more, income equality. Could it be that the aid programs that were designed ostensibly to lower inequality have the precisely opposite effects? I must hasten that our research is ongoing, and further investigations and refinements could lead us to different conclusions.
Nonetheless, right now, I am betting that Joe Biden and Bill Bennett—the political odd couple if there ever was one—are right. Run, do not walk, to the CCAP Web site next week to read the Gillen study.
*This post originally appeared on the “Innovations” blog of The Chronicle of Higher Education on February 13, 2012.
Chart of the Week: Gift Contributions to U.S. Colleges and Universities
In a press release issued yesterday, the Council for Aid to Education published survey data (of 1,009 institutions) on charitable giving to American colleges and universities during fiscal year 2011. In total, charitable gifts to these institutions of higher education increased (after adjusting for inflation) 4.8 percent from the previous year to $30.3 billion (a total of 58.1 percent of institutions reported increases in non-inflation adjusted giving for the year). According to the CAE survey data, leading all colleges and universities was Stanford University, which raised $709 million, followed by Harvard ($639 million), Yale ($580 million), MIT ($534 million), and Columbia ($496 million). As the CAE noted, the vast majority of these charitable gifts went to a small number of institutions, as the chart below illustrates. Only 25% of institutions (in terms of gifts received) received more than 86 percent of all charitable gifts to colleges and universities. The bottom 50% of institutions (in terms of the giving they received) accounted for less than 5 percent of the total giving.
Source: Council for Aid to Education
Daily reCCAP: 02/15/12
Some students, disproportionately from privileged backgrounds, matriculate well prepared for college. They are given challenging work to do and respond by learning a substantial amount in four years.
Other students graduate from mediocre or bad high schools and enroll in less-selective colleges that don’t challenge them academically. They learn little. Some graduate anyway, if they’re able to manage the bureaucratic necessities of earning a degree.The central problem in American higher education today is that most of the people running things in politics, business, and academe come from the first group, but most of the actual students enrolled in college are in the second group. The former cannot see the latter, because they are blinded by their own experience. And so they think the problems of the many don’t exist.
tenured academics has worked a great scam. They’ve managed to monetize peoples’ affection for regional football teams, and their desire for a work credential, and then somehow diverted that money into paying academics to work on whatever they want, for the rest of their lives, without any oversight by the football fans or the employers…
we provide a five-year retrospective of what has changed in the aid application process, what has not, and the possibilities for future reform.
Many for-profit institutions that are not Title IV eligible offer programs and certificates that are similar, if not identical, to those given by institutions that are part of Title IV. We find that the Title IV institutions charge tuition that is about 75 percent higher than that charged by comparable institutions whose students cannot apply for federal financial aid. The dollar value of the premium is about equal to the amount of financial aid received by students in eligible institutions, lending credence to the “Bennett hypothesis” that aid-eligible institutions raise tuition to maximize aid.