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Misconceptions About The Profit Motive In Higher Education

Posted on August 21st, 2014, by Leave a comment

Daniel Bennett, a research fellow at CCAP, has a piece in the most recent edition of Career College Central which challenges the conventional “problems” that a profit motive brings to higher education. He discusses the difference between the short term profit: luring a naive student to capture the federal money that comes with it with no regard for the student’s outcome or well-being, with a more likely goal of long term profit: Develop top notch programs that produce successful graduates, increasing the reputation of the institution. He says:

It is in the investors’ best long-term interest to pursue a strategy that seeks to develop a strong brand name by offering an educational product that satisfies its consumers; demands at a price at or below their willingness to pay. In contrast to the view espoused by Shireman and other critics, the profit motive actually provides an incentive for collegs to meet the educational needs of their students.

He further discusses the role of Moral Hazard in higher education, and has a discussion of whether information asymmetries are a market or government failure.

 

Read the full story here.

Dr. Vedder to Appear on NPR Today at 2:10pm EST

Posted on August 20th, 2014, by Leave a comment

Dr. Vedder will join a panel including Sandra Baum of the Urban institute, President Michael Roth of Wesleyan College, and Graeme Wood of The Atlantic this afternoon on KCRW’s “To the Point” hosted by Warren Olney.  The panel will discuss the rising cost of college tuition and what colleges are doing about it. The program will run from 2:10pm to 2:45pm Eastern Time.

Tune in to your local NPR affiliate, or online here.

 

Schools That Are Keeping Costs Low: Infographic

Posted on August 20th, 2014, by Leave a comment

While we generally do not accept guest infographics, this one is interesting as it highlights the Affordability aspect of higher education that we promote.

The underlying data is provided here.

 

Making College Affordable
Source: Affordable-Online-Colleges.net

Bloomberg Chart of the Day: Soaring Costs of College

Posted on August 18th, 2014, by Leave a comment

Bloomberg ran a chart of the day today tracking the rise of college tuition over the past 35 years. In the discussion section they quote Richard Vedder saying:

Some schools are effectively limiting cost increases by bigger tuition discounting, but on the whole college presidents have not adjusted to a fundamental shift in attitudes toward the value of a high-cost education … Colleges are too slow to reinvent themselves.

 

The chart of the day is below. Find the full story here.

 

 

O’Bannon v. NCAA Ruling Could be a Game Changer

Posted on August 15th, 2014, by Leave a comment

On Friday, August 8th, Federal Judge Claudia Wilken of United States District Court in Oakland California handed down a 99-page ruling that prohibitions of player compensation by the National Collegiate Athletic Association violate Section 1 of the Sherman Antitrust Act. O’Bannon brought forth a class action lawsuit against the NCAA in 2009 to “challenge the association’s rules restricting compensation for elite men’s football and basketball players. In particular, Plaintiffs seek to challenge the set of rules that bar student-athletes from receiving a share of the revenue that the NCAA … earn(s) from the sale of licenses to use the student-athletes’ names, images, and likenesses.”

Ed O’Bannon, Power Forward for the 1995 Championship UCLA Bruins. (photo credit: Los Angeles Times)

The Amateurism Fallacy

In the course of the trial, the NCAA argued that it’s restrictions on player compensation established to maintain amateurism in collegiate athletics. In her ruling, Judge Wilken outlines how the bylaws surrounding amateurism and compensation have changed drastically over the NCAA’s 100+ year history. She states, “Indeed, education – which the NCAA now considers the primary motivation for participating in intercollegiate athletics – was not even a recognized motivation for amateur athletes during the years when the NCAA prohibited athletic scholarships.”  She rules that the court finds these restrictions on student-athlete compensation “not justified by the definition of amateurism in its current bylaws” and that the “restrictions on … compensation do not promote competitive balance.”

The NCAA also argued that it does not serve as a monopoly, and therefore was not guilty of enabling price fixing, arguing the plaintiff’s claim that the NCAA was in violation of Section 1 of the Sherman Act.  Wilken sides again with the Plaintiff, citing the Supreme Court when it relies on then Judge Sotomayor’s concurrence with Judge Salvino that “competitors ‘cannot simply get around’ antitrust liability by acting ‘through a third-party intermediary or ‘joint venture.’’” Here she points to the NCAA as establishing Monopsony practices that harm suppliers. She points to Mandeville Island Farms v. Am. Crystal Sugar Co. which provides the precedent “suppliers … are protected by antitrust laws even when the anti-competitive activity does not harm end-users”.

Addressing the issue of using the players’ names, images, and likenesses, the ruling of O’Bannon v. NCAA allows for universities to set up trust funds for players to be drawn from after graduation, or at the end of athletic eligibility. This effectively enables players to be compensated for their part in the multi-billion dollar industry that flourishes off the use of their likeness. This is in addition to annual payments that match the total cost of attending, including the previously capped amount (tuition, fees, room and board, books, certain supplies, tutoring, and academic support) and adding allowances for other incidentals.

Judge Wilken does enable the NCAA to impose limits on these trust fund amounts, however. The court rules that the NCAA cannot prohibit these payments on anything less than $5,000 per year. This total payout of $25,000 is much less than the hundreds of thousands that players were hoping to get, according to ESPN’s Lester Munson.

Other Antitrust Concerns

If the NCAA were truly pro-competition they would remove the limits to eligibility of transfer athletes that require a one year no playing probationary period after switching schools and teams. Further it would allow unbridled compensation for players, which would reduce the incentive for schools to expend resources on lavish facilities, and expensive coaches that currently seduce the college recruits.

Today the top teams in the big market conferences do not compete with Division 1 schools in lesser conferences. The Big 10 is leaps and bounds ahead of its neighboring Mid-American Conference (MAC).  The NCAA pretends to create a fair playing field for all schools across the same divisions through compensation probation, when in reality the schools that would entice players with large salaries, instead build the biggest stadiums, promise national coverage, and buy the best coaches.

This case highlights some of the problems that plague collegiate athletics, but the fact remains that these athletic programs in many markets are not self-sustaining. These programs rely on steep student subsidization which in turn increases the cost of attendance. This tied good (in order to receive the education you must also pay the fee to subsidize the athletic teams) opens even more room for anti-trust scrutiny, but on an institutional level.

NCAA Board Approves Autonomy for ‘Big 5 Conferences’

Other developments challenge the status quo elsewhere in the NCAA. Thursday, August 7th, the NCAA’s Division 1 Board of Directors voted to allow the “Big Five” athletic conferences – Southeastern Conference, ACC, Big 12, Big Ten, and Pacific-12 – autonomy to vote on changes in a vote of 16 to 2. One of the first items on the list of topics addresses a similar issue to what is discussed above, namely the additional benefits for student-athletes in the NCAA’s highest-revenue sports.  The Washington Post reports that this vote “puts an effective end to the suggestion that all 351 Division I programs operate on a level playing field.”

This new set up coupled with the recent ruling of O’Bannon v. NCAA open the door to increased recruiting compensation at these top schools, over the smaller programs. The smaller programs should be advised that to remain competitive with these major market teams is to incur huge costs to the institution. These costs will be transferred onto the students by way of higher fees, further increasing the cost of college.

Rising Confidence in Online Higher Ed

Posted on August 14th, 2014, by Leave a comment

Online higher education is steadily gaining favor as a credible alternative to the traditional classroom. According to a recent Gallup report, more U.S. adults agree or strongly agree that online colleges and universities offer high-quality education (37 percent) than did so in 2012 (33 percent) or 2011 (30 percent) when Gallup first introduced the report.

Although far more Americans agree that community colleges and traditional universities offer high-quality education (58 and 77 percent, respectively), increasing consumer trust in online education is notable. Online higher education has been a divisive issue amongst academics for years, seen by many as convenient and affordable but unremarkable in value and legitimacy.

When online education went toe-to-toe with traditional classroom-based learning in another recent Gallup report, Americans considered online better at “providing a wide range of options for curriculum” and offering “good value for the money.” Traditional education overshadowed this accomplishment, however, besting online in areas such as instruction, rigor, employer favorability, and student format.

In this regard, Gallup posits:

Although online colleges and universities are still in their nascent stage…findings seem to indicate an increasing acceptance of internet-based education as a viable alternative to other more traditional institutions. As online colleges continue to grow and adapt to the needs of students and the marketplace, they have the potential to lower costs and increase accessibility to higher education, while imparting knowledge and skills that may be more relevant to today’s high-tech employers.

Online education still has a fair amount of ground to cover. Only 15 percent of Americans believe online is better at “providing high-quality instruction from well-qualified instructors” than traditional classroom-based learning and even less (5 percent) believe online courses provide “excellent” material.

The bottom line in all of this, however, is that online education is stirring American interest. Eight percent of young adults are currently enrolled in online courses as access and affordability play a more prominent role in academic discussion. Seen as offering immense potential for advanced learning, make no doubt that as online education continues to expand and mature, so will its reception.

This post originally appeared on CCAP’s Innovations in Higher Education blog at Forbes.com.

Athletic Scandals Were Headaches During Gottfredson’s Presidency

Posted on August 12th, 2014, by Leave a comment

UPDATE: In his resignation letter,  Gottfredson makes no mention of the two athletics scandals mentioned below. President Gottfredson cites his scholarly interests and family as factors for his resignation. The wording in the story below is updated accordingly.

The Chronicle of Higher ran an interesting story this morning on the University of Oregon presidency, calling the position a “Revolving door.”

The story points to a number of headaches that President Michael R. Gottfredson’s dealt with in his short stint at the University of Oregon: athletic scandals, unfriendly faculty, and a governance crisis while taking on a serious fundraising campaign.

The Chronicle notes that the faculty has long felt that the athletic spotlight has overshadowed the university’s academic mission.  Phil Knight, the co-founder and chairman of athletic retail giant Nike and accounting graduate from Oregon, donated $68 million to fund a 140,000 square foot facility. The facility includes a weight room that equipped with a 40 meter track — with cameras that analyze everything from the length of a players stride to the tilt of his head — and specially heated wading pools that reduce lactic acid.  It is worth noting that while Knight has paved the way to athletic success in green and gold, he has also pledged $500 million to the and Science School, expressing his commitment to academic excellence.

Oregon Ducks mascot at Cal.

Oregon Ducks. (Photo credit: Wikipedia)

This money has allowed the athletic department to become financially independent from the university, which has led to questions of accountability.  These scandals only support the claim that there is none. Further, while athletics have had all the focus in the past few years, the academics have suffered.

Oregon has fallen in our ranking of America’s Top Colleges for the second time in a row (210th in 2012; 217th in 2013; and 236th in 2012). As the academics fall, head coach Mark Helfrich is making a cool $1.8 million dollars base salary per year plus an array of potential bonuses for win records, bowl qualifications, and titles. If you think that’s an absurd sum remember that he’s only the 7th highest paid in the PAC 12 Division. Before Helfrich, Chip Kelly commanded $3.5 million and was considered one of the most powerful coaches in the game. Kelly left Oregon to fly with a bigger bird, taking a 6.5 million dollar head coaching job with the Philadelphia Eagles.

Thanks to flashy jerseys and lavish facilities the University of Oregon has become a household name. However, the athletic department continues to find itself in trouble, which diminishes any positive effects that athletics can sometimes have on academics.

Gottfredson’s athletic struggles are only one of many challenges that, as the Chronicle puts it, makes the presidency at University of Oregon so difficult. We wish Scott Coltrane, the university’s provost and now-interim president, the best of luck, and hope that he refocuses the school on academic success. What better time to do that than while the football team is on probation?

This post originally appeared on CCAP’s Higher Education and the Economy blog on Forbes.com.

Chronicle: Problem with Government Affordability Measures

Posted on August 8th, 2014, by Leave a comment

Here is an interesting graphic from the Chronicle of Higher Education by Beckie Supiano and Soo Oh that discusses the difference in measuring family income by the U.S. Department of Education and by the wealthiest schools.

Sacrificing College Quality On The Altar Of Athletic Spending

Posted on August 1st, 2014, by 3 Comments

Athletic success can increase athletic donations, but for schools who want a shortcut to success, it rarely translates into academic progress.

For most schools, some evidence points to an increase in donations from athletic success. However, those donations go toward athletics programs. And, to the extent that fundraising focuses on new athletic facilities, it can crowd out funds for academics. It’s difficult to get alumni excited about new equipment for the physics department when the university president wants a football stadium.

The poster boy for success is Notre Dame: a strong academic program and strong (independent) athletic program. Yet, for every Notre Dame, a dozen schools seek athletic success, but only gain subpar academic performance and higher student fees and tuition. Boise State Universityhas achieved notoriety for its football prowess, but its four-year graduation rate is 11 percent, and its six-year rate is 38 percent. It has remained in or near the bottom 150 colleges on Forbes’ Top Colleges list, along with many other schools striving for prestige through sports.

Photo Credit: SBNation

Proponents of college athletics dismiss the criticism, and most athletic directors say that athletic and academic fundraising isn’t a zero-sum game. Success in sports, the argument goes, promotes the university’s reputation and attracts students. That holds for some powerhouse universities such as Ohio State (whose revenues outpace spending), but universities in conferences such as the ACC or MAC levy mandatory athletic fees on students, which can approach $1,000 per year.  Athletics at Kent State University receive a 77 percent subsidy. Eastern Illinois University operates with a subsidy approaching 73 percent. In 2013, according to USA Today, 154 universities operate their athletic programs with at least half the funding from subsidies. The subsidies come from student fees, direct and indirect institutional support, and state money. However the ratios, students and taxpayers cover the vast majority of athletic spending.

University missions differ, and one can’t expect a Big 10 university to act like a regional university. However, it’s improper for the regional university to act like an SEC powerhouse and subvert an academic mission to the altar of the athlete.

Donations for athletic projects, moreover, tend to consume other funds. The recreation centers, stadiums, and other infrastructure gives a campus grand buildings, but maintenance and upkeep are overlooked. Those expenses fall on the students, regardless of the administration promising student fees will not be used in such a manner. In 2012, for instance, Ohio University announced plans to build a multipurpose center with an indoor football field for practice use. Though officials vowed it would be paid for by donations, an $800,000 shortfall prompted the administration to allocate funds from the student general fee to finance the project.

Universities advertise such projects as sources of civic pride — and it doesn’t come cheap. In 2010, the University of Akron built a $60 million stadium, while Colorado State University aims for a $220 million stadium to be built by 2016 (with half the funding raised through private donations). Such anecdotes are numerous. As grandiose athletics projects provide tangible examples of university presidents taking action on campus, students realize they have no input on how their money is spent and benefit little from them.

Increased spending on athletics isn’t always harmful to universities. Some evidence shows that a spillover effect holds, rather than a crowding out effect. For the majority of college students, however, university desires for athletic success hold some blame for rising student fees and tuition. Universities attempting to improve their quality, rigor, and prestige should realize that students with less debt and more knowledge promote their image better than a trophy on a dusty shelf.

Post originally appears on the CCAP contributor page for forbes.com in conjunction with the Forbes/CCAP release of “America’s Top Colleges”

Introducing CCAP Associate Director, Michael DeBow

Posted on July 31st, 2014, by Leave a comment

Michael DeBow will join CCAP as the associate director tomorrow, August 1st.  We are excited to welcome him and his unique talents to our team.  CCAP has come a long way since its founding by Dr. Richard Vedder in 2006. DeBow is another exciting step along the journey, ushering in a new age for the Center for College Affordability and Productivity.

Below is the press release on this topic. Please share and spread this news!

 

CCAP Hires Associate Director: Michael DeBow

The Center for College Affordability and Productivity (CCAP), a Washington, D.C. based research center primarily interested in issues relating to the economics of higher education, announces that Professor Michael DeBow will assume the role of Associate Director effective August 1st. Professor DeBow will assist Director Richard Vedder in fulfilling the Center’s mission. DeBow will continue to serve as a Professor of Law at Samford University’s Cumberland School of Law.

DeBow joined the Samford Faculty in 1988.  He teaches courses in real property, business organizations, administrative law, legislation, and local government law.  In addition, he has served in a part-time capacity to two Alabama attorneys general – Bill Pryor and Luther Strange.  He co-founded and co-edits the Federalist Society’s annotated bibliography of conservative and libertarian legal scholarship, and its pre-law reading list.

Michael holds bachelor’s and master’s degrees in economics from the University of Alabama, and a law degree from Yale University.  His professional career included a stint in private practice; a judicial clerkship with Judge Kenneth Starr of the U.S. Court of Appeals for the D.C. Circuit; and tours of duty with the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice, during the Reagan Administration.

CCAP, founded by Richard Vedder in 2006, is a nonpartisan research organization primarily devoted to exploring ways to increase efficiency and affordability in America’s universities. In particular, it emphasizes the role that markets and non-governmental institutions can play in bringing more affordable, higher quality higher education. The Center publishes studies, writes shorter commentaries for newspapers, magazines, and the Internet, does rankings of colleges and universities for Forbes, participates and helps organize conferences, etc. Two highly regarded recent CCAP studies include Dollars, Cents, and Nonsense: The Harmful Effects of Federal Student Aid, and Why Are Recent College Graduates Underemployed? Dr. Vedder and other CCAP staff appear frequently in radio and television interviews, including such NPR shows as Morning Edition and All Things Considered, the Laura Ingraham and Bill Bennett talk radio shows, Fox News programs with John Stossel and Neil Cavoto, the PBS News Hour, as well as appearances on ABC and NBC nightly news. Articles by CCAP staff have appeared in the Wall Street Journal, New York Times, Washington Post, National Review, Chicago Tribune, Los Angeles Times and USA Today, to name but a few.