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A New True Believer in the Bennett Hypothesis?

Posted on March 7th, 2013, by 1 Comment

Occasionally the Bennett Hypothesis, which  holds that federal financial-aid programs contribute to college-tuition increases, gains support from unlikely sources. A year ago, for example, Richard Vedder pointed out in this space that Vice President Joe Biden, contrary to the received wisdom in the White House, endorsed the basic tenet of the Bennett Hypothesis. Now we have Kevin Carey, in a somewhat confused but nevertheless thought-provoking essay,  announcing his agreement with that hypothesis while  trying to deny that he does:

The thesis advanced in some conservative and libertarian circles that federal aid causes increased college spending has tenuous empirical support. But federal aid has certainly abetted college spending, allowing institutions to avoid the kinds of difficult structural reforms experienced in other industries.

The first sentence is entirely defensible (even if it were to turn out to be incorrect), but I should point out that Carey is

attacking the simplest (and laziest) version of the Bennett Hypothesis. Variations and improvements to the basic Bennett Hypothesis model (see this CCAP paper by Andrew Gillen) allow for the complexities of college pricing because those are necessary for us to explain why the empirical evidence on Bennett Hypothesis effects are often “mixed and contradictory.” It’s because of the mixed evidence that Carey makes a valid point when he criticizes the view that federal aid necessarily drives up college costs in all cases.

What is fascinating to me, though, is Carey’s next sentence in the above excerpt, which contains a surprising admission, given his previous sentence. His language (“federal aid has certainly abetted college spending”) is remarkably similar to former Secretary of Education William Bennett’s original formulation (“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”). Despite his stated aversion to the notion, evidently

Carey feels compelled to embrace the core of the Bennett Hypothesis. No wonder why it has stuck around with us for more than 25 years.

Sometimes Truth Is Almost as Strange as Fiction

Posted on March 6th, 2013, by Leave a comment

George Leef directed my

attention to

this tongue-in-cheek blog post by Don Boudreaux who imagines what it would look like if someone in Congress pushed for a “minimum grade” law. This may not be all that far-fetched in higher education. The University of Wisconsin at Oshkosh has already put in place a somewhat similar program (which will be expanded next year) in which the school basically increases pay for some faculty because others are paid more.

Chart of the Week: Commuters vs. On-campus Residents on Loans

Posted on March 5th, 2013, by Leave a comment

UCLA’s Higher Education Research Institute (HERI) recently released its Freshman Survey, the 2012 Freshman Norms, which reports responses from just under 200,000 first-time, full-time students entering 283 four-year colleges and universities. The survey questions cover why students want to attend college, which factors most significantly affect students’ matriculation decisions, and how confident the students are in being able to graduate in four years. Freshmen were also asked about their stance on common social issues and political leanings.

Among the highlights of the study, however, is the behavioral change in first-year

students’ choice of housing. Overall, 79.3 percent of incoming students in 2011 reported planning on living in a dormitory, where as 76.1 percent report planning on doing so in 2012, a 3.2 percentage point drop. Meanwhile, there was a 2.2 percentage point increase between 2011 and 2012 among students who plan on living with family or other relatives.

Nevertheless, the HERI survey shows that there is a notable dichotomy between first-year students living on-campus versus those living with

family. For example, 55.6 percent of those first-year students living with family report a “very good chance” of getting a job to help pay for college expenses. On the other hand, only 47.8 percent of those living in dorms report doing so. Also, 14 percent of commuter students report a strong likelihood of working full-time, compared to only 5.9 percent living in dorms.

Concerning financing the high costs of higher education, 48.7 percent of commuter students are likely to finance their first year through loans versus 62.3 percent of those living in dorms, a difference of 13.6 percentage points. Additionally, 21.1 percent of commuters are likely not to use family resources to pay for those first-year expenses against 12.7 percent of those living in dorms. In other words, there is a higher proportion of commuter students compared to those living on campus, who do not rely on loans or family to pay for their first year (of course, the fact that the students are living at home, we can view living expenses as an implicit family subsidy). As indicated earlier, the fact that they are working more than the students living on campus shows the measures that students have to resort to more and more as costs rise and, therefore, debt incurred from student loans would increase.

debt financing commuter vs on-campus

Source: UCLA HERI

Chart of the Week: Subsidies for Intercollegiate Athletics

Posted on February 22nd, 2013, by Leave a comment

USA Today maintains a wonderful database on sports spending for more than 220 public colleges and universities across the country (they obtained the data through public records requests). This database, along with reporting total revenue and total expenses for athletic departments, also reports data on an institution’s “total subsidy;” that is, the amount of money athletic departments receive from students (in the form of fees as distinguished from tuition payments) or directly from the institutions. About three years ago, CCAP wrote a white paper that

examined athletics subsidy patterns (for 2008) for a sample of 99 schools across the 11 FBS conferences. That report found significant differences across conferences in the proportional size of subsidies relative to total athletics revenues.

The chart below updates our 2010 analysis to include the latest data (for 2011) available from USA Today. The sample of schools included in this chart is the same sample (with the same conference affiliations) as in our 2010 paper. We kept the same conference affiliations to avoid  confounding the effect of conference realignment (as opposed to the effect due solely to intra-institutional athletics-subsidy trends) on average conference subsidies (four schools in our sample—Utah, Colorado, Nebraska, and Boise State—were no longer affiliated with their 2008 conferences in 2011). The data still show enormous differences in subsidy patterns across conferences: whereas athletic subsidies accounted for three percent of total revenues in the SEC (which had more than $1 billion in revenues for 2011), athletic subsidies were more than 72 percent of athletic revenues in the MAC. Compared to the 2008 subsidy levels, the SEC, Big Ten, Big 12, ACC, Big East, and WAC saw modest decreases in subsidy levels (all less than 2.5 percentage points). The Pac-10 (now Pac-12), MWC, Conference-USA, and Sunbelt saw modest increases in the proportion of athletic revenues  from subsidies (only the MWC saw an increase of more than three percentage points). The MAC, the conference with the highest level of subsidies, saw no change between 2008 and 2011.

athletics subsidy 2011

Source: USA TODAY Sports’ College Athletics Finances

 

MPR Talks About CCAP's New Study

Posted on February 20th, 2013, by Leave a comment

Minnesota Public Radio’s “The Daily Circuit” featured CCAP’s new study on college graduate underemployment

in a lengthy segment yesterday. Discussants included PayScale’s Katie Bardaro and Rutgers’ Carl Van Horn.

Take a listen:

Jobs That Don't Require a Bachelor's Degree

Posted on February 20th, 2013, by Leave a comment

A segment for the

Wall Street Journal‘s “MarketWatch” recent featured good paying jobs which don’t require

workers to have a bachelor’s degree. For those students who may be worried about the cost of college (particularly given the risk of being underemployed after graduation), these types of jobs may be the occupational route for some students who are looking for alternatives to a job that needs a four-year degree.

Low Wages for Graduates Encourages More Education

Posted on February 19th, 2013, by 1 Comment

In yet another dismal talking point about the job prospects for college graduates, they’ve been declining for six years.

Tyler Cowen recently posted a chart from the Progressive Policy Institute that tracks the decreasing average wage (benefits excluded) of college graduates since 2000:

 

educationwages

 

As worrisome as the trend is, it’s probably understating the problem. It only

counts full-time workers, not part-time workers, and doesn’t address the underemployment of graduates. Especially since 2008, I’d expect

the trend to be more drastic.

The slide since 2000 could bolster Bryan Caplan’s claim that education works as a signaling mechanism; students are realizing smaller returns from higher education in the marketplace. Instead of gaining useful skills, the ever-increasing tuition teaches and prepares students for less.

Choosing to earn a graduate degree distorts the data as well; students who can’t find work after graduation decide to attend graduate school instead of joining the labor force in a low-paying, mismatched. If we look at graduate enrollment for 20-to-24-year-olds since 2006, it’s constantly increased:

 grad enrollment 2000 to 2011

 I’m unsure how to explain the average wage increase during the mid-2000s; perhaps more graduates chose employment over graduate school (and more debt), whereas more graduates chose graduate school instead of low-paying employment. Thus, with fewer graduates in the job market who took low-paying jobs, the wage increase wasn’t weighed down. Or, the market simply had an increased demand for graduates; from 2003 to 2006, United States GDP grew by $2 trillion.

If universities are over-educating students for jobs that don’t exist (regardless of whether economic growth lags or increase), students become over-educated, underemployed, and debt-ridden. They successfully avoid some pain in the short run for greater pain in the long run.

Quote of the Week (from Last Week)

Posted on February 4th, 2013, by Leave a comment

Arthur Brooks:

In the end, however, the case for the 10K-B.A. is primarily moral, not financial. The entrepreneurs who see a way for millions to go to college affordably are the ones who understand the American dream. That dream is the opportunity to build a life through

earned success. That starts with education.

Actually, I would be more likely to agree if I were allowed to swap out the “10K-B.A.” for “MOOCs.” It’s not that I think MOOCs will someday displace

the truly elite liberal arts education (I doubt it) but that the approach MOOCs are taking (though they still have far to go) is probably the best way to expand educational access now to millions around the world who otherwise wouldn’t have anything remotely resembling the quality these online courses can offer them.

A Portent of Things to Come?

Posted on February 4th, 2013, by 1 Comment

This may just be an indicator that the fiscal challenges for many institutions of higher education have faced post-financial crisis. Or it might a signal that the sector is facing

long-run structural challenges. Either way, this report from InsideHigherEd is probably not without some significance:

Moody’s Investors Service downgraded 34

higher education institutions in 2012 while upgrading only 3, the ratings agency reported Friday, an indicator of ongoing financial challenges facing colleges and universities. Analysts chalked up the downgrades to problems raising net tuition revenue, continued state budget cuts, and enrollment troubles.