Richard Vedder contributed to a recent study published by the Texas Public Policy Foundation on higher-education reform in Texas. Toward Strengthening Texas Public Higher Education: 10 Areas of Reform by Thomas Lindsay, director of the Center for Higher Education at the Texas Public Policy Foundation, offers seven internal reforms and three external reforms for the state to lower costs and improve quality for students, educators, administrators, and taxpayers. As “the average cost of tuition at Texas public universities has increased five percent a year —every year— since 1994,” the higher-education system could greatly benefit from reform.
Among the suggested reforms, Lindsay advocates tying university funding to learning outcomes rather than enrollment figures; feasibility studies for a 10 percent reduction
in administrative staff budgets; feasibility studies for a
$10,000 degree in every institution’s four most popular degrees; more transparency from institutions in regards to tuition, retention rates, graduation rates, average student debt relative to other institutions, and other data that can help prospective students and parents make informed decisions; and reform Texas law that prevents other quality institutions from entering into competition.
It remains to be seen whether any reforms will be enacted, but recent efforts might provide an argument for optimism. Regardless, the study provides a blueprint for other states to examine weaknesses in their higher-education systems and a path to improvement.
I only just now came across this video that Peter Schiff posted
about a month ago. It is funny,
if nothing else:
H/T Nathan Harden
In a new article at Minding the Campus, Richard Vedder discusses college presidential pay and the recent news that 25 of the 50 highest-paid university presidents don’t pay income taxes; their institutions cover it as a perk:
[T]his is still another example of universities avoiding transparency —no, let’s use a better word- -honesty. It is dishonest to tell the world “we pay our university president $500,000 a year” when, in fact, that person is getting a hidden fringe benefit so exotically outrageous that it is virtually unknown to the American public. American corporations, facing withering criticism from stockholders, abandoned this practice years ago. But universities have no stockholders, and trustees ordered to jump off the top of the school’s 30 foot climbing wall by the president typically will do so. There is little constraint on college presidents from their ostensible “bosses.”
At the New York Times, Andrew Martin wrote a featured piece on colleges acquiring large amounts of debt to finance building projects and
its effect on rising college tuition and the academic arms race. He quotes Richard Vedder:
Despite a lull in construction after the financial crisis, borrowing has continued to grow, Moody’s data shows. “Schools are behaving like the Greeks, irresponsibly,” said Richard K. Vedder, an economics professor at Ohio University and director of the Center for College Affordability and Productivity. As an example, he cited his own employer, Ohio University, which has proposed spending $2.6 billion on construction projects in the next 20 years, half of it paid for by debt — an undertaking university officials said was necessary to update antiquated buildings.
“The Edifice Complex pervading higher education flies in the face of other trends that call for caution in capital spending,” Dr. Vedder said in an e-mail.
On National Review Online, Katrina Trinko quotes Richard Vedder when writing about efforts in Florida and Texas to offer a $10,000 degree:
Richard Vedder, director of the Center for College Affordability and Productivity and a professor at Ohio University, points to a variety of tools that colleges could use to reduce costs — including online education, reduction of administrative staff, and requiring professors to teach more hours. “There’s no reason a public-school education can’t
be offered for $10,000 a student,” he remarks.
For a blog at the Atlanta Journal-Constitution, Richard Vedder gets referenced on a post about differential pricing in colleges for majors:
I once was part of an interesting discussion with Emory President James Wagner — he was meeting with the AJC editorial board — on whether tuition should be calibrated so that an education major, for instance, pays less than an engineering major, whose education costs colleges more to provide. The issue came up during a broader discussion about rising college costs and possible solutions.
(Here is a good essay on this issue by Richard Vedder, who directs the Center for College Affordability and Productivity at Ohio University. If you read it, be sure to read the second comment in response to Vedder’s essay.)
Yesterday Richard Vedder appeared on
“InstaVision” on PJTV to chat with
host Glenn Reynolds about the high cost of college:
According to data provided by the College Board (see, specifically, the link for “Figure 2″), total student financial aid total
$237 billion in academic year 2011-12. As the chart below shows, however, there was wide variation in the amount of aid by source. Federal loans, the single largest
source of aid, totaled just over $105 billion that year, two-and-a-half times more than the next largest source of aid, institutional grants (which totaled $42 billion). Proportionately, federal loans accounted for 44 percent of all student financial aid dollars while institutions grants accounted for 18 percent. Pell Grants, which totaled $35 billion, were just 15 percent of all aid dollars.
A little while ago, the Los Angeles Times reported that Timothy P. White, who will soon become the chancellor of the Cal State System at the end of this month, has requested that the portion of his salary covered by state funds be cut by 10%, in light of the substantial budget
challenges the System is facing. Because the salary the System’s Board of Trustees was considering was around $451,000 or so (the same pay as outgoing Chancellor Charlie Reed), with $30,000 of the package coming from the Cal State University Foundation, the cut equates to about $42,000.
Obviously, one could dismiss this move as nothing more than crass symbolism because saving $42,000 on the president’s pay is somewhat akin to throwing a chair or two (or at most, three) off the Titanic in hopes of keeping it afloat. A savings of $42,000 in the Chancellor’s pay is, after all, a mere two tenths of a hundredth of a percent of the more than $2 billion in total state spending on the Cal State System. This savings won’t directly make much of an impact on any budget deficit the System has to overcome.
Nevertheless, I think this cynical take is wrong. True, this step may be (almost) entirely a symbolic one. But it is precisely in its symbolic meaning that this decision derives its force. There is no question that many higher education institutions (particularly in California) are facing significant fiscal hurdles in the near-turn (to mention nothing of the long-run), and in solving those problems, it is imperative that the leaders, the ones making the final decisions, actually show some leadership. It seems to me that a good leader, at the very least, is one who, when pain must happen, does not seek to divert the negative effects onto others. In this sense, Mssr. White has done the right thing. What is significant, though, is that this one act of leadership, while small in and of itself, may begin to put pressures on others to step up (indeed, as the Chronicle‘s “Ticker” has since reported, California Gov. Jerry Brown is pressuring UC-Berkeley to undo a
pay increase for new incoming head). Is this the first domino to fall? Only time will tell.
The chart below depicts the change in real state appropriations (per full-time equivalent enrollment) and the change in real public tuition and fees, with both indexed to 1980-81 levels. In academic year 1980-81, real state appropriations adjusted by public full-time equivalent enrollments were around $8600, nationally. In academic year 2011-12, however, real state appropriations were $6700 per student ($6600 per student, if one excludes federal stimulus funds), according to data compiled by the College Board. This equates roughly to a 23% decline in real per student appropriations over a three decade period, though, as can be seen from the chart below, looking at just the endpoints masks the fluctuations in the appropriations data during that period. Per student appropriations rose in real terms during the periods 1982-83 to 1986-87, 1992-93
to 1999-2000, and 2003-04 to 2007-08 but fell in real terms during periods 1988-89 to 1992-93, 2000-01 to 2003-04 and (a period which continues to the present) 2007-08 to 2011-12. It is also interesting to note that over this period, the absolute maximum for per student appropriations occurred in the late 1980s and subsequent peaks have always been lower in real terms. Prior to the recent financial crisis, though, in 2007-08, real per student appropriations were actually slightly above 1980-81 levels (by only 4% or so).
In contrast to the rather large and significant fluctuations in per student appropriations, over this same 31 year period, real tuition and fees has continued in an inexorable upward trajectory. Compared to inflation-adjusted public tuition and fees in 1980-81, public tuition and fees in academic year 2011-12 were 375%
higher. While these data do suggest that there may be something of an inverse relationship between appropriations and tuition (for example, the years which saw upward turns in the rate of tuition increases were generally years in which real appropriations per student were declining or not rising), overall perhaps the best description of the data is something along the lines of “sometimes state appropriations go up and sometimes they go down, but tuition always goes up.”
What with all of the recent news about the sudden expansion of the so-called “Big Ten” Conference in collegiate athletics, now to include 14 members, does this mean we must dispense with the notion that many of the institutions comprising that athletic conference are any longer “Public Ivies“? After all, they don’t appear to be able to perform basic arithmetic operations…
I’m currently working on a project related to economic rent-seeking in higher education. As part of the research, I’m combing various histories of American higher education to learn how colleges have managed to gain government subsidies and political favor throughout history. One such volume is The Shaping of American Higher Education (2010) by Arthur Cohen and Carrie Kisker. While the book has provided some useful insight into the early developments of American higher education, I was taken aback when I came across a passage discussing the meager pay of college faculty during the 1790-1869 period and decided that some simple economic lessons are in order for our historians. On page 98, the authors write “…the professors were severely underpaid in terms
of the years of education it took before they became qualified…”
Several principles of economics suggest that the authors’ assertion is incorrect. First is the principle of opportunity cost. If the professors were willing to accept the wage rate offered to teach, then they must not have had a better option. Either that or they value teaching and affiliation with the college more so than strictly pecuniary benefits. Regardless of the preferences leading to the faculty member’s decision to work for the college, the principle of opportunity cost in addition to rational behavior suggest that the professor did not have a better alternative and was thus not underpaid.
Second is the simple principle of supply and demand: When supply of faculty members is greater than demand for them, downward wage pressure exists, irrespective of the time required to obtain the necessary qualifications. The authors recognize, in the paragraph preceding the above assertion, that “…supply of faculty was never in jeopardy,” yet they are still led to an incorrect conclusion that professors are underpaid.
The authors cannot be said to be ignorant of the existence of economic principles that govern human behavior, but a case can be made that they misunderstand them. The following sentence illustrates the point: “As long as the supply was greater than the demand, and as long as there were no contracts to enforce payment of a living wage, the colleges lived on the backs of their staff members.” Here the authors are not denying that supply and demand factors dictate the wage rate of professors, they instead are suggesting something akin to a minimum wage need to be instituted. While it is true that a minimum wage would increase the pay for those professors able to get a job, such a rule would also entail greater unemployment among persons qualified to become professors. Assuming that professors teach because doing so and being affiliated with the college is reflection of their preferences, not being able to do so because of a minimum wage rule entails these persons being made worse off than in the absence of the rule.
If the goal is to make the professors better off, then restricting their opportunity to do work that they value by enforcing a minimum wage rule is not the way to go about it. Some will be made better off and others worse off. This is not what economists call a Pareto, or welfare, improving policy.
This post originally appeared in CCAP’s “Higher Education and the Economy” blogspace for Forbes.com.
Last month’s announcement by Indiana University that they will freeze tuition for some students presents
an interesting experiment in keeping down higher-education costs, along with student loans.
If, after a student’s sophomore year, he or she remains in “good academic standing” and will graduate in four years, tuition increases will be offset. University President Michael McRobbie emphasized that the tuition freeze should be regarded as a temporary, not a permanent, policy.
While the initiative might hold down student-loan debt and increase IU’s four-year graduation rate, it’s anything but a guarantee.
For the students receiving the freeze, they’ll accumulate a lower burden of debt and university tuition. Though that doesn’t mean universities fees, an increasing share of the cost of an education, will remain flat.
A tuition freeze, however, doesn’t actually combat higher-education costs; it only lowers costs for the students granted the freeze. The loss of tuition revenue from those students must be recovered through other means (higher tuition levels for incoming students, increases in state funding, or perhaps increasing alumni donations a more aggressive fundraising strategy), or services must be cut or restricted.
Of course, if it costs less to educate a student during their junior and senior year than it does to educate them in a fifth or sixth year (typical expenses along with the opportunity cost of a seat for a fifth-year senior rather than a seat for a freshman who will pay tuition for at least three more years), the tuition freeze could actually increase revenue along with graduation rates.
The freeze clearly benefits the affected students, but the as-yet-unseen effects will determine the long-term sustainability of the proposal. The freeze needs to lower the cost of educating students, instead of acting as a subsidy, paid for by other or future students. As colleges and universities view a reduction of their budgets or a cut in
services as tantamount to a felony, don’t expect them to accept revenue reductions without replacement increases.