Daily reCCAP: 05/16/12
Government grants for basic research are defensible because, by definition, basic research generates only external benefits. Subsidizing tuition by means of below-market student loans makes less sense. If the loans, not being subsidized, were more costly, tuition would be lower; and promising students would still receive scholarships and low-cost loans, financed by the universities themselves, because universities want to have good students (along with student athletes, legacies, and “diversity” admits), to build reputation and attract good faculty. Many students who receive subsidized loans to enable them to go to college, but would not be subsidized by a university, would be better off not going to college. College is not for everyone.
Andrew Martin and Andrew W. Lehren
But even if student loans are what many economists consider “good debt,” an increasing number of borrowers are struggling to pay them off, and in the process becoming mired in a financial morass.
Unless Congress acts soon, the interest rate on subsidized Stafford loans will rise from 3.4 percent to 6.8 percent, on July 1. Democrats and Republicans both want to postpone the increase for a year, to placate student voters, but they disagree on how to cover its cost.
The Saylor Foundation has been building an online catalog of free, self-paced college courses since 2010. But students who completed those courses could not typically earn credit toward a degree, since the nonprofit group is not an accredited institution. Saylor’s new partnership with the online course-provider StraighterLine seeks to change that, giving students an inexpensive way to earn academic credit using freely available materials.
Trillion-Dollar Misunderstanding: The Seven Sins of Federal Student Loans
Charles Miller, chair of the Spellings Commission, reminded me the other day that that panel in its report referred to the federal financial aid system as “dysfunctional.” I think I (as a member of the commission) picked the word and Charles seized upon it. More than five years have passed, and the system now has been promoted to “uber dysfunctional.”
Let me outline seven problems or “sins” with the program, some of which I outlined earlier in a piece for National Review Online.
1. The low interest rates (3.4 percent currently, and likely to continue) on federal subsidized Stafford loans are set by the political process, not market forces. Loose Federal Reserve monetary policy along with irresponsible lending by such government subsidized agencies as Fannie Mae and Freddie Mac contributed hugely to the housing bubble and 2008 financial crisis, and federal student loans today are having a smaller but still sizable detrimental effect in higher education.
2. Loan terms are invariant–the wealthy, bright kid almost certain to graduate from Cal Tech in engineering into a high paying job gets the same loan terms as the risky student of marginal educational background attending a school with a high dropout rate, and who majors in ethnic studies, English, social work, or education–subjects whose graduates usually get relatively low-paying jobs. Thus, subsidies are implicitly greater for mediocre students than good ones, and the same is true for majors that are less valued in the job market.
3. There is good evidence that the student-loan explosion has contributed to the tuition explosion of the past three decades or so; cheap loans increase the demand for higher education and reduce the supply in a way that raises the cost of attending school. Former Secretary Bill Bennett hypothesized this relationship in 1987, and it is even truer today than 25 years ago.
4. That said, the net effect of student loans is to increase enrollments, leading to dual problems. First, the quality of the incremental students on average is probably lower than those who would have attended in the absence of loans, leading to more mediocre students, a dumbing down of material, an easing of student expectations–all of which has happened (read Arum and Roksa’s Academically Adrift). Also, the number of graduates now far exceeds the number of traditional college-graduate entry level jobs. Hence we are now in the era where well over 100,000 janitors have college degrees. This has contributed to the anger and angst over servicing over $1-trillion in student loan debt.
5. As currently run, the U.S. government has become essentially a monopoly provider of student loans, robbing students of the variation in options and competition between private providers, etc. Just as the U.S. Postal Service and the Bureau of Motor Vehicles will never win awards for customer satisfaction, the same can be said of the U.S. government’s loan program.
6. The student loan and related federal grant programs have spawned the infamous Fafasa form, hated historically for its complexity (over 100 questions) and the fact that it is a significant barrier to application, especially among low-income persons not used to completing long government bureaucratic documents. It also allows the colleges to engage in price discrimination of its customers to a degree that no other providers of services can.
7. The problem above, along with the tuition price explosion, has led to a smaller percentage of low-income recent college graduates today than was true in, say, 1970, before loan programs were as large as now. A program designed originally to promote equal educational and economic opportunity may well have contributed to rising, not falling, income equality in the United States.
The Congress and the President are tinkering with a failed system, giving it a Band-Aid in the form of essentially zero-interest (in inflation adjusted terms) loans until after the election, if things go as predicted in the Senate and House-Senate Conference. It is time to start from scratch with a newer, more innovative, approach. I hope to discuss this more in subsequent epistles.
*This post originally appeared on the “Innovations” blog of The Chronicle of Higher Education on May 4, 2012.
Focusing Teaching Correctly
Back in February, InsideHigherEd reported on efforts underway at the American Historical Association (working with the Lumina Foundation) to “define what an associate, bachelor’s, master’s and doctoral degree in history should mean.” As reporter Scott Jaschik noted at the time, this was the first time a disciplinary association has sought to implement Lumina’s idea for defining specific and targeted outcomes for students. While I’m by no means qualified to comment upon the propriety (or for that matter the efficacy) from an academic perspective on the particular standards the Association focused on, I did think James Grossman, executive director of the Association, was right on the money when he said that “[w]e need to ask what we want our students to learn. It’s not what do we want to teach.”
This is very much the attitude academia needs to begin with. Otherwise, professors can too readilty lose focus (if some haven’t already) of their mission as teachers; teachers not just in general but teachers of their own specific students. Without an embracing of the proper attitudes, faculty could fall into the error of just teaching their own very narrow (though perhaps somewhat interesting) academic interest with only a passing consideration of its usefulness to the world as a whole or falling into the trap of neglecting to account for what Arnold Kling terms the “disconnect between the academic talents of the professors and the more ordinary abilities of the students.” I wonder if it’s actually a failure to recognize the existence of this disconnect that is at the heart of some of the current ills in higher education.
College Sports and the Seven Deadly Sins
My colleague Roy Boyd and I were complaining about the latest excesses in intercollegiate athletics (ICA) at our school (Ohio University), when Roy opined that a large number of the seven deadly sins were involved. Upon further reflections, I think all seven of those sins have been part of the ICA scene in recent years.
I will use a slightly updated (from Biblical times) list of the sins as used by Dante in the Divine Comedy, very close to what I understand to be the official doctrine today of the Roman Catholic Church regarding such matters.
1. Lechery or Lust: Of course, the Penn State scandal seems rooted in lust, but so are many others. Football coaches have been sacked at several schools (e.g., the University of Arkansas, University of Colorado) over scandals related to the provision or inappropriate pursuit of sexual favors.
2. Gluttony: Excessive spending and consumption pervades high level and even mid-major college sports. Coaches love to brag to competitors, “my indoor practice facility (weight room, office, artificial-surface football field) is bigger/nicer than yours.” This has contributed to the athletics arms race.
3. Avarice/Greed: Arguably the most pervasive of the sins, the pursuit of wealth and power is the hallmark of modern intercollegiate athletics. The mega-million dollar salaries, exploitation of students in the pursuit of wealth (e.g., the NCAA), etc., are all about greed.
4. Discouragement/Sloth: True, most of the successful participants in ICA are anything but slothful (lazy), yet the culture of ICA discourages hard academic work, and stories abound of athletes taking no-work courses, of schools canceling classes to allow the party atmosphere around big games to fester, etc. News reports claim that even Berkeley administrators are telling instructors not to schedule midterms on days when the team has a Friday night home game.
5. Wrath: Again, the competitive juices that lead to entertaining matches sometimes boil over into excessive anger accompanied by physical force. Players have been intentionally maimed, coaches have hit their own players, etc. For decades, Bobby Knight’s temper tantrums were a fixture of college basketball.
6. Envy: Much of the spending spree has been motivated by envy–a desire to not only keep up with competitors but also a desire to reduce their power and glory in order to improve one’s own relative position.
7. Pride, Hubris: Supposedly the deadliest of the deadly sins, the desire to be more important, more regarded than others, is at the heart of the athletics arms race. All the talk about the favorable financial and applicant gains associated with athletic success are all cover-ups for the hubris involved.
My discussion with Roy was prompted by news from Ohio University. A few weeks ago, our basketball team went far, making the NCAA Tournament Sweet Sixteen. Our $250,000 a year basketball coach, John Groce, behaved rationally–within a few nanoseconds (it seemed) of season’s end, he departed for the University of Illinois for roughly five times the salary. Ohio University then hired a new coach, with a below .500 record at Texas Christian, as head coach at $425,000 a year–70 percent more than the previous coach was paid (but less than his TCU salary). The football coach, Frank Solich, making a paltry $330,000 a year despite a pretty good record, probably marched into the athletic director’s office and demanded to make more than the basketball coach, and reportedly is now being given a $100,000 raise. A successful basketball season leads to a $100,000 raise for the football coach–go figure.
Stories like this are going on all over the country. In the same year that I was told I could no longer have a phone because of budget constraints, my university is increasing intercollegiate athletic subsidies because it succumbed to some of the Seven Deadly Sins.
College sports is not Garrison Keillor’s Lake Wobegon. The fatal problem is the Iron Law of Sports: every time someone wins a game, someone else loses. It is mathematically impossible for a majority of schools to excel at the major sports. A majority of schools, including mine, almost certainly can never really succeed on any sustained basis, since they lack the population base or the following to realistically generate the revenues justifying extravagant expenditure. The fact that they continue to try shows how subsidies and tuition fees collected by higher education have often been misused in wasteful, even anti-academic, ways.
*This post originally appeared on the “Innovations” blog of The Chronicle of Higher Education on May 1, 2012.
The Stafford Loans Mess
I’ve been more than a little baffled with all of the political blathering the last couple of weeks about the need to avoid the “crisis” of a doubling (from 3.4 percent to 6.8 percent) of the interest rates on federally subsidized Stafford loans (as if the federal government, by terming other loans “unsubsidized Stafford loans,” somehow means it isn’t providing a subsidy to colleges and students with that program as well) unless the Congress amends current law by July 1 of this year. As CCAP’s Richard Vedder observed here last week, the grandstanding by both President Obama and likely Republican nominee, former Massachusetts Governor Mitt Romney, shows that regardless of who wins in November, the incoming administration will be on the wrong side of this issue. Others (such as Josh Barro at Forbes.com and Matthew Chingos for Brookings) have made much the same point. Glenn Reynolds (h/t Joanne Jacobs) correctly described the political conversation as nothing more than a “pose.” Jason Delisle of the New America Foundation had a good post illustrating just how insignificant this proposal really is in the broader context of federal higher education spending (the total amount of student loans currently carrying the 3.4 percent interest rate is only roughly 3 percent of total outstanding student loan debt). Somewhat tongue-in-cheek, I’ve repeatedly suggested in the last few days that maybe we should keep the rate at 3.4 percent for students but make the colleges themselves pay the additional 3.4 percent interest on new loans, thus making the “reform” deficit neutral while keeping rates low for students.
The elephant in the room (no pun intended) that both Obama and Romney are missing is that it is cheap and readily available federal student loans themselves which have aided and abetted the tuition increases at colleges and universities (as Jason Delisle calculates, around 13 percent of recipients of subsidized Stafford loans come from families making more than $100,000 a year, presumably because they are still eligible for such loans when they choose to attend elite–and expensive–institutions). This is the point that people ranging from Arthur Hauptman to Bill Bennett have been making for years (indeed, just a little while ago, CCAP released a paper by Andrew Gillen offering an explanation for the relationship between federal financial aid dollars and tuition increases). Of course, the higher ed establishment is so in love with its federal financial aid dollars that it would be absolutely loath to admit any role student loans play in rising prices, let alone going alone with any type of regimen that would force them to incur part of the cost.
Of all of the commentary on this silly little dog and pony show Obama and Romney have taken us on, the best line has to come from Rick Hess: as he puts it, this is “now-bipartisan panderfest that’s broken out over Stafford loans.” Despite his characteristically extravagant rhetoric, Hess is spot on with this one.
Joshua Hall Joins CCAP
Joshua Hall, an economics professor at Beloit College, has been named Associate Director of the Center for College Affordability and Productivity. Prof. Hall is a graduate of Ohio University(where he studied with me), and has a Ph.D. in economics fromWest Virginia University. He has had extensive experience working on public policy matters, first as policy analyst for the Joint Economic Committee of Congress, and later as an author of studies for a variety of market-oriented think tanks.
Dr. Hall is a prolific writer, writing dozens of papers, articles, and even has edited books, notably Doing More With Less, a compilation of research on higher education issues done for CCAP. Josh and I have jointly authored articles together as well, most recently (with Ben VanMetre) for the Cato Journal. Aside from his considerable research accomplishments, Prof. Hall has demonstrated leadership excellence, serving, for example, as a member of the board of directors of the Association for Private Enterprise Education. He is married and has two children.
Josh Hall is a perfect fit for CCAP. Even before going to graduate school, he has showed a real interest in education issues, working with me on measuring the determinants of educational excellence inOhiopublic schools. As a first-rate teacher and college professor himself, he knows American higher education from the inside. He has been associated with mid-size research universities as well as an excellent liberal arts college.
What will he do at CCAP? A variety of things. He will help energize and add to research efforts, both his own and that of young student-scholars who work for CCAP. A first rate administrator, I hope in time to turn over more and more of the chores that the head of an organization must do, including fund raising and speaking with various communities. I give literally dozens of talks every year at colleges, to governing boards, to legislative groups, etc. Fairly soon, I hope Josh can do some of this. Similarly, I give a triple digit number of media interviews annually, something I think Josh can do masterfully.
When I founded CCAP in 2006, I was already at the traditional retirement age. Starting with the initial idea of philanthropic executive Jim Piereson and critical support of Kim Dennis of the Searle Freedom Trust, I have enjoyed creating something and see it grow into a significant force in higher education reform. But, I am getting to the point where everyone is telling me I should consider really retiring, not just pretending to do so. Josh and I are close and dear friends, and I would love to see someone like Josh–energetic, articulate, strong believer in the power of markets, honest, fun—to succeed me at CCAP someday in the not too distant future.
Welcome to CCAP Josh Hall!!
Setting the Interest Rate on Subsidized Stafford Loans
What if Congress raised the statutory interest rate on new federal subsidized Stafford loans back to 6.8 percent but kept the rate at 3.4 percent for students, requiring the colleges themselves to pick up the rest of the tab? For all the faults with this option, at the very least, were it to be even brought to the table, it has the virtue of bringing a look of panic on the face of every college lobbyist (which would be a lot of fun to see!).
Cheap Stafford Loans: a Wolf in Sheep’s Clothing
Political efforts to keep Stafford Loans at the 3.4% interest rate rather than rise to 6.8% is a Faustian Bargain. Here are five things wrong with keeping the interest rate low:
One, the low rate amounts to a stimulus package that taxpayers will have to finance. A one-year freeze at the 3.4% rate would cost taxpayers $6 billion. Dr. Samuel Johnson once observed that people need more often to be reminded than told. We remind politicians that the federal government is staggeringly in debt.
Two, as with Fannie Mae and Freddie Mac’s cheap loans, applicants need to be only breathing to qualify for the loans. A proliferation of easy funds will encourage a housing-like bubble that will necessarily burst, as it did in the housing market.
Three, 43% of students who enter college don’t graduate. Providing easy loan money to such students will mean a waste of literally multi millions of dollars.
Four, universities seeing the newly found funds will raise tuition, fees, and related costs to confiscate such loans, which will drive college costs even higher. This in turn will drive low-income and minority students out of the market. I have worked in higher education all of my adult life; I know how they work.
Five, the job market for college graduates is terrible. A recent analysis of government data provided to the Associated Press reports that 53.6% of students graduating, now under the age of 25, were unemployed or underemployed last year. They have had to settle as bartenders, taxi drivers, receptionists, and the like—low level demanding jobs that just as easily could be filled by high school graduates. Even worse, only three of 30 occupations that graduates covet require a bachelor’s degree or higher.
So what is an alternative? It is this: we must change the paradigm of the higher education cartel—unspoken but understood—that controls and increases at will college costs, which like the Energizer bunny keep going up and up. We must encourage competitive market alternatives—namely community colleges, proprietary schools, and online institutions.
Community colleges are vastly cheaper. As for proprietary schools, they work successfully for students. An exhaustive study by The Perryman Group in Texas, for example, reports: “Private career colleges and schools play a key role in helping prepare Texans for the jobs of the future. . . . About 70% of the most recent graduates were employed in a related field immediately.” Even more significant, Bill Hammond, president of the Texas Association of Business, recently reported that career schools are “going to play an essential part in meeting the workforce needs of the future. We can’t meet our goals without them.”
As for online learning, it can be vastly cheaper. Stanford professor Sebastian Thrun offered his “Introduction to Artificial Intelligence” course online without charge. Some 160,000 signed up for the course. Says Thrun, “Literally, we can probably get the same quality of education I teach in class for 1 to 2 percent of the cost.”
Similarly, the Massachusetts Institute of Technology recently introduced online free of charge the course “Circuits & Electronics,” which drew 120,000 registrants in the first month.
Now the critics of online instruction will asked, what about the educational quality of online teaching? A 2009 study by the U. S Department ofEducation entitled, “Evaluation of Evidence-Based Practices in Online Learning,” reviewed 50 studies, finding that “Students in online conditions performed modestly better, on average, than those learning the same material through face-to-face instruction.” Moreover, this study found that “online learning is much more conducive to the expansion of learning time than is face-to-face instruction.” And it found that with online teaching “assembling and disseminating instructional content [is achieved with] more cost efficiency.”
Students don’t need cheaper loans. They need cheaper market alternatives. Three cheers for creative destruction.
*This post originally appeared on “Higher Education and the Economy,” CCAP’s blog space on Forbes.com.
Give It the Old College Try
This blog was written prior to Mitt Rommey announcing support for extending the low interest student loans discussed below. My criticism of that stand thus extends to both presidential candidates.
Even his critics will acknowledge that Barack Obama is a shrewd politician with a pretty good ability to measure the nation’s mood. Unfortunately for him, the nation’s mood is not particularly good, and as an incumbent seeking reelection, his poll numbers are consequently not very robust. Moreover, he lacks the warmth of personality of say, a Ronald Reagan or a Bill Clinton. Despite costly efforts at economic stimulus, the economy is performing, at best, in a mediocre fashion. His signature legislative victory, Obamacare, is not liked by a clear majority of likely voters and may soon face the humiliation of being found unconstitutional. The public and investors are nervous about other policies, notably the huge federal-budget deficit. Bashing the rich and trying to raise their taxes is not resonating sufficiently well for the president, and exclusive emphasis on that issue makes the president look, well, not presidential. The high price of gas has not helped Obama either.
So what to do? The president thinks he needs to rekindle the youthful enthusiasm for him that helped him hugely win election in 2008. How to do that? Become a champion of students and declare war on rising college costs! Hence President Obama is traveling this week to three states he won in 2008 but are viewed as now up for grabs—North Carolina, Iowa, and Colorado, in each case to speak at the flagship public university. I think the president’s political decision to stress this issue is shrewd, and the GOP failure to talk much about it is a huge political mistake for them.
Yet, lest I seem too warm and fuzzy about Obama, I must add that I feel his ideas for dealing with the problem are largely disastrous, in keeping with the Democratic Party’s long record of enacting entitlement programs which, because of the Law of Unintended Consequences, often lead to results quite different than intended. Specifically, what will the president call for this week? If previous pronouncements are any guide, he above all wants interest rates on student loans to remain at 3.4 percent, despite a law (passed by a Democrat-controlled Congress) that calls for them to mostly rise to 6.8 percent in two months. I should note that this legislation will benefit current students relatively little. Loans are repaid after college, and the average age of student debt holders is presently around 33, and surprising amounts of loans are owed by persons in their forties or even fifties. Given high default rates (correctly measured) on loans, it is fair to say that interest rates on these loans in a competitive loan market would probably be much higher than 6.8 percent, so current law will merely reduce a huge interest-rate subsidy to a somewhat smaller one.
My beef is that we should NOT be engaging in massive programs to entice people into college, and certainly not give windfalls to those who, in many cases, left school a decade or more ago. A recent AP story says 50 percent of recent college graduates are either unemployed or, more often, underemployed, working as baristas, bartenders, taxi drivers, etc. The number of college graduates is too great even in a robust job market; using public resources to send taxi drivers and bartenders to school for 16 as opposed to 12 years is not an optimal use of resources in a time of trillion-dollar budget deficits.
The president will call, undoubtedly, for more Pell Grant money. There are dimensions of the Pell Grant program I like, but I fear it is has been vastly overextended to persons who are not poor in any traditional sense, and to those for whom the probability of graduating is low. It would be a better program if funds were directed, voucher-style, to students directly and its size needs to be reduced, not enhanced.
The president will probably renew his call for quasi-tuition price controls, threatening schools with retribution if they raise tuition excessively. While the sentiment here is good, this is another example of encroaching federal control over higher education, which, in my judgment, is decidedly bad. The great strength in American higher education precisely lies in its diversity. If the president wants to make colleges more price (tuition) sensitive, reduce federal student aid. In the final analysis, Bill Bennett was and is right: the federal student-assistance programs have largely been dissipated by more aggressive tuition raising than otherwise be the case. It is not an income transfer from taxpayers to students as much as from taxpayers to university employees (creating more of them, lowering productivity in the process).
I hope the president promotes one thing he brought up in the State of the Union: we should have data on the earnings of postgraduates of schools. The IRS and Social Security have the data—they just need to be untapped. Adroit public disclosure of earnings of college graduates could have a revolutionary impact on higher education.
Finally, I predict the President will NOT say that American universities are teaching little, expecting too little of their students, and becoming more and more a cross between hedonistic finishing schools and country clubs. That probably does not win votes (and thus will not be mentioned), but it is true and needs to be said.
*This post originally appeared on the “Innovations” blog of The Chronicle of Higher Education on April 12, 2012.
Daily reCCAP: 04/25/12
As [Florida's] Governor, Scott can more easily direct new funds towards STEM than tell entrenched university bureaucracies how to reallocate funds among existing programs. In particular Scott wants to promote STEM and computer science graduates for the externalities they produce but universities don’t get paid for producing externalities they get paid based on student enrollment.
Half of new graduates are jobless or underemployed
If you really want to look for employee abuse, just look at the ranks of the grad students. They’re often expected to work insanely long hours and they get paid next to nothing. Most don’t even get jobs when the college industrial complex decides to just toss them away… If we want to stay up to 3am working long hours on some intellectual effort, that’s our choice. I agree. But there are few systems as feudal as the college industrial complex and it certainly has no right to pass judgement on the assembly lines in China.
In most universities tenure decisions originate within departments. Tenured professors, especially at first-tier universities, have strong incentives to favor scholars whose presence on the faculty would enhance their prestige. Doing away with tenure would replace academic tenure as we know it with an implicit tenure controlled by unions and administration. And their incentives are not consistent with maintaining or increasing the quality of candidates for faculty positions.