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.
I only now came across Bill Gates’ review (published a couple of weeks ago) of the blockbuster book, Academically Adrift. There were a few snippets from Gates which I thought are worth chewing over:
Overall, the book depicts a culture in academia where undergraduate learning is only a peripheral concern; where the professors don’t want to assign complicated papers because grading them is hard work; where the main feedback is course evaluations from students who dislike writing complicated papers; where there’s an attitude of, “Don’t mess with us and we won’t mess with you.” And there’s no accountability for
any of it…
…I’m optimistic about the potential of innovation to help solve many of the problems with our post-secondary system. But we need more and better information. I’m reminded of a point made by Andrew Rosen of Kaplan, the for-profit education company, that colleges today know more about how many kids attend
basketball games and which alumni give money than how many students showed up for economics class during the week, or which alumni are having a hard time meeting their career goals because of shortcomings in their education.
While certainly would second the motion that we need “more and better information,” from where I sit, I think the chief problem in higher ed today is actually what Gates mentions at the beginning of the passage I quoted. What really needs to happen is for student learning to move from the periphery to the primary focus. New and improved information is only worth in the context of achieving that overarching goal.
Every once in a while I find myself fixated for a time on the latest cheating scandal du jour on American college campuses (for a taste of this, see here and here and here and here). Sometimes the scandal involves student behavior (the classic example would be “The Shadow Scholar” article published by the Chronicle two years ago to the day), but other times it is relatively high ranking school officials engaging in illicit calculations (the Claremont McKenna College scandal of earlier this year being the most prominent example). Other times the scandal is out and out academic fraud, culminating in revelations of researchers fabricating entire empirical studies, such as the one recently reported concerning Yoshitaka Fujii in Japan.
Now the latest scandal of dishonesty to hit the news comes from the heart of the nation’s capital (queue the political jokes) and from the campus of George Washington University (queue the cherry tree jokes). As the Chronicle reported, “George Washington University’s admissions office misreported data on the class rank of incoming students for more than a decade… [which] resulted from a combination of good data and faulty ‘estimates.’” In one sense, the GW saga is less scintillating than the Claremont McKenna one. For starters, CMC is a top 10 school (according to U.S. News) while GW barely misses out on the top 50. While one might suppose that GW was cooking the books to effect an increase in rank, one would have a much bigger hill to climb to credibly make the same assertion about CMC. That said, there is no justification for either case; the CMC case dealt with overt data falsification and the GW case dealt with practices that are explicitly forbidden in the data guidelines U.S. News sends to schools.
Somewhat understandably the InsideHigherEd story focuses on the implications the GW data manipulation has for the U.S. News rankings. Part of the problem with viewing the scandal primarily through this lens is that it tends to ignore the possibility that this kind of less-than-laudatory behavior may very well occur absent any motive related to rankings. In fact, that appears to have been exactly what was going in the Claremont scandal: the underlying cause had more to do with the bickering between the dean of admissions and the college president over institutional policy than it did with the U.S. News rankings (and, in fact, the data falsification in that case did not change Claremont McKenna’s rank anyway).
I suspect that if we could indeed imagine a world without rankings, we would realize two disconcerting facts: 1) it’s not easy, and 2) we’d still be left dealing with problems related with institutionally reported data, if for no other reason than that there would still be motive for some to fraudulently burnish their image for prospective students, parents and the general public. In fact, I tend to view the existence of rankings as both providing much needed consumer information in higher ed that would otherwise not be available but also as facilitating our ability to catch those who do massage the data improperly. Taking the GW scandal as an example, I would argue that it would have been much more difficult to discover and establish that numbers were
being cooked absent the presence of rankings. First off, if there are no U.S. News rankings, there would be no U.S. News guidelines on data reporting, implying that there would be even more disagreement than at present over what should be considered standard reporting practice. Second, if the school had thought it could get away with manipulating data without much (if any fear) of retribution because almost no one would think twice about reported class ranks (the notable exception being prospective students and their parents
on a campus tour), it would not have had any less motive to engage in the practice and much less reason to disclose it (because if others are doing the same thing, why harm yourself by being the only one to raise the red flag?).
The bottom line in my view? It goes back to the issue of cheating. Should we really wonder why students seem to like cheating so much (McCabe et al estimate it’s somewhat more than two-thirds of all students) if the schools in which they are incubated are doing much the same with more regularity than we would care to think
In terms of a refreshing, step-back-and-look-at-the-big-picture, Bryan Caplan’s answers to objections to a
free market in educational loans is at the
top of the list.