Law Schools Fiddle while Rome Burns

Posted on February 25th, 2014, by 1 Comment

Long seen as a path to success, law schools have taken a hit in enrollments and guarantees of success. As students notice the disconnect between the costs and benefits of more education, things continue to worsen for many law schools. Enter Thomas M. Cooley Law School, a low-ranked diploma mill (by most measures at least) with campuses in Michigan and Florida.

The National Jurist reports that Cooley’s enrollment decreased 40.6 percent from 2010-11 to 2013-14. While Cooley’s numbers are especially troubling, almost all law schools are hurting: the Wall Street Journal notes that enrollments fell 11 percent across the board in 2013. Many institutions have recognized flaws in their business model. A majority of schools have reduced class sizes. Some have cut faculty.

Cooley, however, doubled down on its controversial practices.  The law school has “not made any adjustments to curriculum or faculty.” Paul Zelenski, Cooley’s associate dean of enrollment and student services, states that “Cooley has been active on the recruitment scene by adding new programs and events to attract students when the market recovers.”

Zalenski admits that law schools must “[find] ways to reduce the cost of a legal education,” though some observers doubt administrators’ sincerity. For example, Staci Zaretsky at Above the Law criticizes the supposed commitment to affordability at Cooley: “[I]t currently costs $43,500 per year to attend this bastion of legal education. Gee, that’s only $9,160 more than what it cost to attend the school last year ($34,340), and $8,850 less than it costs to attend one of the other second-best law schools in the nation (Harvard, $52,350), so it seems like Cooley is doing a real bang-up job with this cost-control concept.”

While the situation is most dire at law schools, Cooley’s troubles may be a portent of things to come for many colleges and universities. Tuition and fees have been rising at staggering rates despite stagnating enrollments and disappointing graduate outcomes. Cooley and many struggling colleges and universities continue to ignore market realities. It seems unlikely that such practices will be viable in the long run.

What Colleges Can Learn from Twitter

Posted on February 12th, 2014, by 1 Comment

In recent news: Twitter is doing more for transparency than most universities.

In a company blog post, the social media giant unveiled Twitter Data Grants, which will “give a handful of research institutions access to [Twitter’s] public and historical data.”

According to The Chronicle of Higher Education, “Scholars mine Twitter to track how voters view politicians, how the public reacts to antismoking campaigns, even how people’s moods change through the day.” By providing researchers with access to its data sets, Twitter advances scholarly analysis through greater transparency. Many colleges and universities, unfortunately, continue to fall behind.

A recent press release by the Student Press Law Center (SPLC) points out that many institutions have failed to comply with federal and state disclosure laws in a timely fashion. Moreover, most schools fail to record, let alone disclose, important data regarding faculty, students, and alumni.

Lack of transparency has fueled a growing disconnect between universities’ claims and graduate outcomes, as Richard Vedder notes:

We know little about some fundamental questions. Are the students at the University of Colorado learning more than those at the University of Kansas? Are they learning more now than five or 10 years ago? These and other schools are either clueless as to the answer, or if somewhat knowledgeable, they typically keep the findings a secret. Public comparison with peer schools is considered bad form by the university presidents I know. Trustees are usually part-time cheerleaders for the institution, not hard-nosed representatives of the public demanding accountability, efficiency and transparency.

Until administrators are willing to collect and publish important data—including alumni debt loads and average salaries—we can expect continued overestimation of the value of higher education for many consumers. Perhaps colleges and universities can look to programs like Twitter Data Grants for inspiration.

Judging MOOCs: What Are They For?

Posted on February 5th, 2014, by Leave a comment

Massive open online courses (MOOCs) dominated higher education news in the past year, with think pieces both supportive and negative. MOOCs stand as the brave new world of education, or as a fleeting fad destined to disappoint. However, drawing from recent data, MOOCs fill an experimental niche for students to try supplemental education that’s too costly in a traditional college.

Even among supporters, the purpose of MOOCs has escaped definition. Some open source idealists think MOOCs will increase the accessibility of higher education, providing opportunities to would-be students in impoverished regions of the world. More pragmatic promoters recognize the MOOC’s potential as a complementary addition to an orthodox education. No time to study artificial intelligence while earning your MBA? Stanford offers the course for free online — although the university’s president has recently expressed concern that MOOCs might be a little too massive.

Recent statistics from Harvard and MIT’s edX MOOC program might support the courses’ role as an auxiliary form of education. Between 2012 and 2013, more than 841,000 people registered for 17 courses offered by edX. Sixty-six percent of registrants already held a bachelor’s degree or higher. Only 3 percent of registrants came from underdeveloped countries.

With battling conceptions of its purpose, no one seems to agree on how to judge the MOOC, either. While completion rates and graduate earnings work as benchmarks for physical institutions, most MOOCs compare abysmally. Only 5 percent of edX registrants earned a certificate of completion. A glaring 35 percent never looked at the course materials.

If MOOCs are here to stay — for years or decades — shouldn’t we figure out a way to decide which ones are successful?

Maybe not. Or, at least, not yet.

One of the beautiful things about the MOOC is its flexibility. Lacking a concrete definition, the MOOC provides a chance to educate oneself for education’s sake — an undervalued commodity. The room for debate in online education is a good thing. It means that, for the time being, students are free to explore without pressure. If MOOCs eventually start to offer college credit in place of certificates, then the market will undoubtedly find a way to rate their value.

It’s important to consider that MOOCs already signal value to keen employers. A certificate of completion indicates dedication and interest in a profession beyond the workplace. Employers of yesteryear might have seen the bachelor’s degree as a similar sign of excellence; a step above and beyond the minimum standard of eligibility.

Curious students use MOOCs as if they step into an unfamiliar class “just for kicks.” To judge courses based on completion might turn away prospective students unnecessarily. For now, MOOCs are not analogous to brick-and-mortar schools, and they shouldn’t be rated as if they were.

Administrators: The Eternal Scapegoat of Higher Ed

Posted on February 5th, 2014, by Leave a comment

Increasing administrative staff drive colleges costs!

But is it really that simple?

From The Chronicle of Higher Education:

The report, “Labor Intensive or Labor Expensive: Changing Staffing and Compensation Patterns in Higher Education,” says that new administrative positions—particularly in student services—drove a 28-percent expansion of the higher-ed work force from 2000 to 2012. The report was released by the Delta Cost Project, a nonprofit, nonpartisan social-science organization whose researchers analyze college finances.

The report also notes that “the number of full-time faculty and staff members per professional or managerial administrator has declined 40 percent, to around 2.5 to 1.”

Those are hefty numbers. However, the 28 percent should be kept in context. We at CCAP criticize the increasing numbers of administrators, but stress that administrators drive only a facet of the costs in higher education. What, exactly, do they do for colleges? Megan McArdle explains it very well in a recent Bloomberg column. Student, parent, and faculty demands have played roles in getting more administrators on staff; ignoring that lets everyone scapegoat administrators for a deluge of debt.

Any analysis of costs in higher education should be read with the thought that, if it focuses on one aspect, it only presents a partial picture, and cannot fairly claim otherwise.

Endowment Returns Rise in 2013

Posted on January 31st, 2014, by 1 Comment

Following a dismal -0.3 percent average in 2012, college endowments saw a large increase in returns on investments last year. According to the annual NACUBO-Commonfund Study of Endowments, endowment returns averaged 11.7 percent in 2013.

Don Troop at the Chronicle of Higher Education observes:

The average return for colleges with endowments of more than $1-billion was 11.7 percent, mirroring the average for colleges with endowments below $25-million, as well as the average for all institutions.

The similarity was notable because the two classes of institutions generally followed very different investment strategies in 2013.

Though failing to reach pre-recession levels, many universities’ endowments have reached their highest points in years. For example, while still shy of 2008’s $36.9 billion figure, Harvard’s endowment stands at $32.3 billion, a 6.24 percent increase from last year.

In general, most wealthy universities are still doing quite well. The Ivy League schools’ $98.9 billion would make them the 60th richest nation in the world, just behind Puerto Rico. Princeton, whose endowment rose a paltry 7.35 percent to a modest $18.2 billion, battened down the hatches and increased tuition yet again.

Kansas Should Uphold Academic Freedom

Posted on January 6th, 2014, by

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For all the pomp and circumstance surrounding higher education, colleges routinely exhibit why the praise falls undeserved. Universities emphasize their public founding and mission to education and train students for citizenship, then implement policies that resemble a a restrictive corporation.

A few weeks ago,  the Kansas Board of Regents, which is “adopting a policy that grants public colleges’ chief executive officers the authority to discipline their institutions’ employees for a wide range of controversial statements aired online.” The policy change seems to be motivated by an aversion to outside criticism. That is, ideological groups who send angry emails. Angry emails wouldn’t be an issue but, as the Chronicle notes, “‘too many administrators seem to have abandoned their backbone’ when defending faculty members who come under attack for their speech.”

Limiting free speech in the name of tolerance, cohesiveness, or a “benign” paternalism isn’t a new phenomenon, as American history and the Foundation for Individual Rights in Education’s case history attest. Social media and the ubiquity of cameras require a response that upholds free speech and academic integrity, not an overcautious PR approach that tries to offend no one.

On Tuesday, the Board announced that the policy will be reviewed, the chairman asking for recommendations by April.

Price Controls Reward the Status Quo

Matt Reed of Inside Higher Ed has an uncommonly good argument against a Congressional proposal for price controls on tuition:

 A name-brand college that charges $50,000 per year raises its sticker price by four percent. A community college that charges $5,000 per year raises its sticker price by eight percent.  Which is worse?

The name-brand college, by a long shot.  A four percent increase off a base of 50k is $2,000. An eight percent increase off a base of $5000 is $400. If you look at percentages, you would praise the name-brand college. But if you actually do the math, the name-brand college increased costs by five times more than the community college. Without some sort of intervention, setting percentage-based ceilings across the board will simply increase the gaps between the well-funded and the rest. In this example, in one year the gap went from $45,000 per student to $46,600. And that’s assuming that the community college was aggressive!

If you set a maximum percentage — in the case of a “freeze,” it would be zero — then you are assuming that the existing base rates are correct.  I know of no reason to assume that.  Those who overcharge now can keep overcharging.  Those who have made a point of keeping costs down will be consigned to penury for having failed to get while the getting was good.  That’s not just counterproductive; it’s perverse.  “No good deed goes unpunished” should not be a guiding principle for public policy.

Institutional pressures prioritize short-term, immediate “solutions” from politicians, regardless of the benefits or costs. Action is better than inaction.  That instinct tends to protect the status quo, substituting oversight and regulation for innovation or creativity. That limiting of action can entrench what doesn’t work, or, in this instance,  reward behavior that policymakers try to discourage. As a result, a more robust or innovative model becomes harder to implement.

The culpability of university administrations in regards to cost and university structure shouldn’t be forgotten. Those who control the finances control the institution. Price controls fail to penetrate university structures, nor do they dictate how the money should be spent.  When administrators cannot modify prices, quality tends to decline. If Congress wants to improve cost, quality, or access to higher education, more promise lies in allowing flexibility and experimentation, not dictating how colleges can price an education. Visions of higher-education goals are as plentiful as higher-education institutions, and solutions to various problems stubbornly resist an undifferentiated approach from Congressional action.

Grade Inflation at Harvard: The Average Is Exceptional

Posted on December 5th, 2013, by 1 Comment

The grade most often awarded to Harvard students is an A. Published in the Harvard Crimson, the scandal has already spread to the likes of the Huffington Post, Time, and Businessweek. The Crimson reports that, according to Michael D. Smith, dean of the Faculty of Arts and Sciences at Harvard, “The median grade in Harvard College is indeed an A-. The most frequently awarded grade in Harvard College is actually a straight A.”

Harvard is hardly an outlier, according to the National Journal. Peer institutions such as Yale and Brown frequently hand out As. In fact, “it would be much weirder if Harvard trended [toward lower average grades],” Brian Resnick reports. Grade inflation is not an Ivy League phenomenon; National Journal looks to data that CCAP has previously addressed:

According to the work of Stuart Rojstaczer…a former Duke Geophysics professor who is probably the most quoted source on this issue, the average GPA in American colleges rose from 2.52 in 1960 to 3.11 in 2006. That’s nearly a whole letter grade higher.

That Harvard’s practices have sparked such controversy indicates growing concern about rampant grade inflation in higher education. Yet some proposed reforms might exacerbate the problem. CCAP’s Richard Vedder, in an interview with the Wall Street Journal, warns that the Obama administration’s goal of tying federal aid to graduation rates produces an even greater incentive to award students higher grades. Perhaps effectively addressing such problems will require rethinking the federal government’s role in higher education.

Federal College Ratings Will Harm Higher Education

Posted on November 21st, 2013, by Leave a comment

On August 22, President Obama outlined his plan to make college more affordable for students and limit the financial strain that loans place on graduates. The new plan measures college performance and, he claims, provides the most financial aid to schools that offer students the best value. Publications such as The Chronicle of Higher Education and Forbes, however, have decried Obama’s plan as ultimately detrimental to the lower class.

Let’s examine some common arguments against Obama’s plan and outline why—contrary to administrative statements—it may not be a “better bargain for the middle class.”

Obama’s plan focuses on a number of outcome-based variables such as graduation and transfer rates, graduate earnings, and number of advanced degrees earned. It also examines aspects of accessibility, tuition levels, scholarships, and loan debt. If all goes well, colleges and universities will be rated under the new system by 2015, shaped by input from “state leaders, college presidents, students and parents” obtained at public hearings.

Descriptions of the ratings system do not indicate how schools will be categorized. The Obama administration claims that it will “promote innovation and competition;” however, based upon the current language, institutions that predominantly serve lower-income students will be punished with reduced appropriations, as those institutions tend to have low graduation rates and high levels of student debt. Those schools might provide a quality education, but they fare poorly when compared to other institutions, as their student body has a weaker academic background.

Geography limits many low-income students when choosing a college; in that regard, certain colleges might get punished for their inability to choose students, just as students might get punished for their inability to move. Student self-selection can bias traditional metrics. With wealthy, high-performing students picking selective institutions over cheaper, local alternatives, the administration’s plan could encourage a growing disparity between wealthy and poor institutions.

The Obama administration has already released a “college scorecard” that offers information regarding affordability and value. Under the new ratings system, a detailed website would be created. Ronald Volpe, president of Hood College, expressed his concern that such a ratings system would attempt to railroad prospective students toward select colleges. The private marketplace, he contended, is perfectly capable of rating colleges and giving students information. For example, U.S. News and World Report, The Princeton Review, and Forbes offer reputable college rankings used by individuals and organizations alike (including the Center for College Affordability and Productivity).

As opponents to Obama’s plan have pointed out, the data used for the ratings is incomplete. Federal graduation rates only include first-time, full-time students. Furthermore, graduate earnings data are limited. Such a ratings system could mislead students and provide unfair appropriations.

The Obama administration has responded to concerns regarding flawed data, claiming that while no institutional data is ever complete, the Department of Education would remain mindful of updated information. Additionally, Secretary of Education Arne Duncan stated that the plan would bring greater transparency of institutional data to the public. Considering the actions taken against transparency by this administration in nearly every other sector of government, Duncan’s claim warrants skepticism.

Obama’s plan does one thing right: Capping federal loan repayment rates at 10 percent of income. But ultimately, the government is best to stay out of the ratings game. Endorsing schools based on uncertain and contested metrics cannot have a positive effect on the higher-education market. The final plan and ratings system will be made public next spring; until then, it seems likely that heated dialogues will continue between the Obama administration and the universities, educators, and students whose futures are at stake.

Changing the Higher Education System: Lowering Costs, Improving Outcomes

Posted on November 15th, 2013, by 1 Comment

Richard Vedder presented the following remarks on November 15, 2013 at a Free Market Forum in San Diego sponsored by Hillsdale College on “Markets, Government, and the Common Good.”

Let me present you with a counterfactual proposition.  Suppose that the federal government had never enacted the Higher Education Act, and that they had not entered into the business of providing financial assistance to college students. In other words, suppose we had no federal guaranteed student loans, no Pell Grants, no federal work study programs, no higher education tax credits or any other program designed to ostensibly aid students pay for college. Given the limited focus of this session, I will ignore other federal encroachments into higher education, such as federal research grants.

What would higher education be like today? While no one can answer that question with any absolute certainty, I expect the following would have happened. First, there would be a somewhat lower proportion of adult Americans today with college degrees, but in both absolute numbers and as a percent of the adult population, we would today still be at an all-time high. Higher education enrollments would have grown, but not quite as much.

Second, I suspect tuition fees of universities would be significantly lower than they are today. My guess is that sticker prices at colleges or universities would conservatively be 20 percent lower than they in fact are, and probably even lower than that. Similarly, fees at state universities would also be lower.

Third, I would predict the proportion of recent college graduates from the bottom quartile of the income distribution would be greater than it actually is today. In other words, the substantial variation of college participation by income would be at least modestly less than today, and higher education would have a somewhat less elitist character to it.

Fourth, I would predict that the strong disconnect between labor market realities and the output of college graduates would be significantly less. We would not have over 115,000 janitors with bachelor’s degrees, nor over one million retail sales clerks.

Fifth, we would have significantly better academic outcomes than in fact we have today. We would have fewer college dropouts, for example, and a larger proportion of those who graduate would have done so in the traditional four years. We would probably have less grade inflation. We would have fewer climbing walls and luxury dormitories, but a larger portion of students showing they acquired meaningful increments to their knowledge about our civilization or to their critical thinking skills while in college.

Sixth, we would have a much smaller army of collegiate bureaucrats, what Johns Hopkins’ Benjamin Ginsburg calls “deanlets,” probably very modestly lower salaries for faculty, possibly greater emphasis on teaching, and fewer, maybe no, million dollar university presidents. Universities and colleges would have smaller budgets, and the total resources devoted to higher education would be tens or scores of billions of dollars less than we in fact spend today. The actual productivity decline in higher education would have not occurred. There would be no talk of a higher education bubble, no U.S. presidents making speeches denouncing university fiscal behavior, or the like. The American Council on Education and other higher education trade groups would have fewer lobbyists at 1 DuPont Circle trying to collect economic rents from the federal government. In short, the face of higher education would be dramatically different than it in fact is.

Let me briefly elaborate on these necessarily somewhat speculative assertions. I do think the provision of grants and subsidized loans has increased the demand for education from what it otherwise would have been. It probably also increased the supply of educational services too, but to a lesser extent since many higher education institutions do not try to maximize enrollments, believing they derive prestige by turning customers away. McDonald’s does not have an Admissions Office, but Harvard does. The government induced expansion of demand and to a lesser extent supply means total enrollments, and probably the number of graduates, is higher than it would have been otherwise. The government programs have succeeded in getting more kids through college, even though I suspect the six year graduation rate of Pell Grant recipients, which is a state secret that even the National Security Agency probably does not know anything about, is somewhere in the order of one third –for every Pell recipient who graduates, two do not.

Since these financial aid programs raise demand, they lead to higher tuition fees. Then Education Secretary Bill Bennett posited that hypothesis in 1987, and I think he was right then and right now. The possible offset of rising demand by rising supply has not occurred for a variety of reasons, including the aforementioned aversion of many colleges to enrollment expansion as it detracts from maximizing prestige, but also because accrediting agencies impose barriers to entry into the higher education business, and no doubt other reasons.

Federal data suggest that around 1970, before Pell Grants and when federal student loans were very modest in number and size, around 12 percent of recent college graduates came from the bottom quartile of the income distribution, compared with barely 7 percent today. Despite federal financial assistance programs that have multiplied more than ten-fold even after allowing for inflation, a smaller proportion of poor persons are college graduates, suggesting that these programs have abysmally failed at achieving their ostensible goal of expanding educational opportunity to the economically less advantaged.

Lower income persons are more price sensitive than more affluent ones, and high sticker prices have led  more lower income persons than higher income ones to say no to college, or pick less expensive options  like community colleges. The FAFSA form required because of the federal programs has been historically a highly complicated and intrusive way of getting financial information. Kids from affluent families complained about the forms but filled them out, but many from lower income environments just gave up rather than answer  over 100 questions, many demanding highly personal information that if asked by any other type business might have led to their facing potential criminal charges.

In 1970, less than one percent of taxi drivers had college degrees. People did not work their way through college to take a job requiring less than a high school education to perform. By 2010, the proportion of taxi drivers with bachelor’s degrees or more exceeded 15 percent. College graduates expect their degree means a ticket to a comfortable, moderately affluent middle class life in a managerial, technical or professional job. Yet almost half of graduates are in occupations that the Labor Department tells us typically requires less than a college education to perform well. To the extent the enrollment explosions in recent decades have been fueled by federal student financial assistance programs, it has aggravated this problem, which is NOT merely a consequence of the slowdown in employment growth reflecting the financial crisis and the anti-work public policies of the government.

The connection between university student performance and federal student financial aid is arguably more indirect and subtle, but in my judgment is nonetheless real. The amount of time students spend on academics has declined in tandem with increases in federal student aid programs.  Grades have risen with increased student aid—and reduced student academic effort. The Civics Literacy Test of the Intercollegiate Studies Institute and the decennial Adult Literacy Survey of the U.S. Department of Education show that core knowledge and literacy amongst college students are falling. Arum and Roksa compellingly argue that critical thinking and writing skills are not substantially advanced during the college years.  I don’t think this is coincidental. Despite rampant grade inflation, college dropout rates remain stubbornly high.

I think a major reason for deteriorating academic standards amidst rising federal student aid is that there is absolutely no performance expectation associated with receiving this aid. Indeed, I suspect on average mediocre students get more Pell Grant money than good students, since good students are likely to take four years to graduate while the mediocre ones take longer. Colleges have no skin in the game, so they accept and promote federal student borrowing for those who they know have low probability of academic success. All of this contributes to a dumbing down of the curriculum and standards.

If colleges have raised tuition fees more because of federal student aid, this has added to their revenues.  Where have these incremental funds gone? A look at changes in college staffing and spending suggests that a large portion has gone for non-instructional purposes. Particularly noteworthy in the period since the student financial aid explosion began is the huge growth in non-instructional professional staff at universities, roughly speaking, administrators. Rising university revenues have probably also stimulated the collegiate Edifice Complex –expensive buildings, many of them for not academic purposes. The federal student financial aid programs are helping fund a costly and academically dubious academic arms race.

The Dilemma: Changing the System

My remarks have emphasized that the current federal financial aid program is dysfunctional –costly, not achieving its initial goals, worsening the rise in tuition fees, and so forth. Obviously, getting rid or at least significantly downsizing the program is highly desirable. Ideally, it should be eliminated, not reformed. The dilemma, however, is that an immediate elimination of the program would have significant disruptive effects and arguably be unfair to individuals expecting these programs for college financing. In other words, there are significant transitional issues involved in moving away from the status quo. Moreover, given the huge political constituency that has received or anticipates receiving federal student financial aid, it is probably politically impossible to eliminate the program overnight. But I think there may be politically feasible ways to move to mitigate its negative impact.

Here are seven actions that would dramatically reduce the burden to taxpayers and inefficiencies and pathologies associated with the current system. First, return the program to its roots: helping poor persons attend college. Right now, over 17 percent of students from families with incomes from $60,000 to $80,000 a year get Pell Grants—these individuals have above median incomes. Over a few years we should tighten eligibility significantly, reducing the number of Pell recipients by perhaps 50 percent.  Similarly, PLUS loans to parents of high income kids should end. Tuition tax credits benefit families whose kids would go to college in the absence of the credit, mostly from above average incomes. Go to a single grant program and a single loan program.

Second, impose academic performance standards to continue receiving grants. Reward students who graduate in less than four years, and cut off aid for, say, students who are in their sixth year of full-time attendance.

Third, get the federal government out of the business of making loans, confining their role to guaranteeing loans made by private lenders. The Feds have to borrow to pay their own bills, so implicitly they borrow from, say, Chinese bond purchasers in order to lend money to college kids. Not only return lending to private lenders, but strengthen the tie between interest rates charged students and market rates.

Fourth, make participating colleges have some skin in the game. If colleges accept students and promise them Pell grants or guaranteed loans, make them share in the burden of high levels of defaults on loans, or the failure associated with Pell recipients not graduating. This would lead to a needed reduction in lending to persons who lack the aptitude, background, or discipline for college level learning.

Fifth, view federal aid as assisting students obtain a basic college education from a relatively low cost university. Limit the assistance to a few thousand dollars a year, and do not subsidize a Harvard education more than one at a relatively lower cost state university. This implicitly involves reviewing limits on aid per student. Right now there is a vicious circle. Colleges raise tuition fees so the Feds make larger loans to students, leading the colleges to raise their tuition fees still more. Cap per student federal assistance expansion to the rate of increase in inflation. In other words, allow all students to borrow, say, $5,000 a year on a federal guaranteed loan regardless of the school attended, with the amount rising annually only with the rate of inflation.

Sixth, convert the Pell Grant program into an educational voucher. Right now, Pell money is managed and distributed by school financial aid offices. The college offers government money to students, as if it were the college’s money. Why not give the money to the student directly and let them use it wherever they want, empowering them more and make the institutions more attentive to student needs? Moreover, such educational vouchers could be issued only to very low income students, and made progressive, with the voucher size diminishing with need. Similarly, receipt of the voucher could be tied to academic progress, with a merit dimension included. Top students could be paid extra for superior academic performance. If 5 million of these grants were made at an average amount of $4,000, some $20 billion would be paid out –more than 40 percent less than currently, and virtually all Americans attending college who were truly “poor” would be accommodated.

Seventh, encourage private investors to begin human capital equity funds, where students sell equity in themselves rather than debt. The investor would pay the cost of college upfront, with the graduate paying the investor a portion of his or her income for a specific time period. The seller of equity gets college financing and knows in advance what the post-graduation burden of college repayment for college will be. Markets would adjust to favor students with better prospects for graduation and greater post-graduate productivity. A graduate from M.I.T. majoring in electrical engineering might have to pay 8 percent of his income for 12 years, while a graduate in anthropology from Central Michigan University might have to pay 15 percent for 20 years. These market signals would be useful in reallocating resources within higher education. The mechanics of encouraging such funds need resolution, but the idea of students paying for college with equity rather than debt commitments is an appealing one.

To reiterate, in a perfect world I think the federal government should get out of the financing business. America has suffered, not benefited, from the existence of a Byzantine number of federal loan, grant, work study and tax credit plans. But if the government presence is going to continue, at least rationalize the system by downsizing and redirecting it. Getting out of the student financial aid morass is going to require imagination, political will and even political entrepreneurship.  The current system is dysfunctional and not sustainable. The time for reform is now.