Chart of the Week: Academic Costs vs Overhead Costs

Posted on March 29th, 2013, by Comments Off

In their paper, “Measuring Baumol and Bowen Effects in Public Research Universities,” Robert Martin and R. Carter Hill present cost data for public research universities in the United States. They break the cost data into two broad categories: academic costs (which they define as spending on instruction, research and public service) and overhead costs (which includes spending on academic support, student services, institutional support, plant operations/maintenance, auxiliary activities, hospitals, and independent operations). They examine spending growth over two periods: 1987 to 2008 and 2008 to 2010. They use the former period to gauge the long-run spending trends in higher education (at least for the past twenty years) while they use the latter period to assess institutions’ responses to the financial crisis and recession. The average annual growth rates in the spending categories are given in the following chart.

Source: Martin and Hill

Source: Martin and Hill

These data show that from 1987 t0 2008, costs increased across the board: total spending increased by 2.1 percent per year, with 1.8 percent annual increases in academic costs but 2.5 percent increases in overhead costs. Because overhead costs were increasing at a faster rate than academic costs, the academic share of total costs fell slightly from 49 percent to 48 percent from 1987 to 2008. However, following the 2008 financial crisis, there was an “abrupt” break in spending trends: while academic costs increased 8.2 percent per year, overhead costs actually declined by 6.1 percent per year. Because total costs increased by 0.5 percent per year from 2008 to 2010, academic costs as a share of total costs rose from 48 percent to 55 percent in 2010.

To Consolidate or Not Consolidate? That Is the Question.

Posted on March 21st, 2013, by Comments Off

House Republicans want to consolidate federal job training programs; House Democrats are largely opposed. California Watch published some investigative reporting which suggests that California community colleges could save millions by consolidating; however, “a litany of… financial, legal and political hurdles would stand in the way.”

Without commenting on the merits of either the House Republicans’ bill or the suggestion from California Watch, I think both may be excellent illustrations that while consolidation (in one form or another) may, on its face, present the simplest way to improve affordability in education and job training, there are numerous obstacles (and not all of them are necessarily political in nature) to the implementation of any revamping that is based on that premise.

Heading in the Right Direction

Posted on March 20th, 2013, by 2 Comments

Yesterday’s InsideHigherEd reports on an interesting new development down in the Peach State. The Board of Regents of the University System of Georgia has announced that it will assume some direct oversight authority over the athletics programs at the System’s institutions (none of which have their own separate Board). Previous System policy left control of the athletics programs exclusively at the institutional level. Though Georgia is not the first university system to make this move (apparently the University System of Maryland has already adopted a similar policy), this is, I think, very much a step in the right direction and may be an indication of things to come. Basically the new policy allows for the Board to require a formal review and approval of expansions of athletic programs. There is, however, one big loophole: the whole process is triggered by a requirement of the presidents of the various institutions to alert the System’s chancellor who then gets to decide whether or not the proposal should be forwarded to the Board. What if the Chancellor decides not to go that route? Will the new accountability measures be thwarted in that manner?

On the plus side, the reason this move makes sense is that it is odd to keep certain System functions outside of the purview of the Board whose job it is to oversee the System. If we are going to pair high-stakes athletics programs with institutions of higher education, let’s at least put it all under the channels of command. Obviously, micro-management of athletics may not be desirable (even if it were workable), but that in no way is a sufficient argument against the move by the Georgia Board to take on a modest oversight  role over the athletics programs. If anything, this shift may put pressure on the institutions to be more circumspect and accountable with their athletics programs knowing that they may have to justify their plans to the Board.

CCAP In the News: March Madness Edition

Posted on March 19th, 2013, by Comments Off

CCAP’s Faculty Fellow David Ridpath has been interviewed by major media outlets during the past month. A few highlights follow:

  • USA Today asked for his opinion on Miami University’s scuffle with the NCAA over an ongoing investigation:
  • The New York Times discussed the benefits and costs for Florida Atlantic University from letting a private prison corporation buy stadium naming rights
  • Time magazine discusses his recent research on students relative knowledge (or ignorance) on how much their fees pay for intercollegiate athletics

Hacking Higher Education: Dale Stephens and Unschooling

Posted on March 19th, 2013, by 1 Comment

Part higher-education critique and part self-help, Hacking Your Education by Dale Stephens isn’t an academic deconstruction of higher education so much as a guide for pursuing an alternative education. To understand the book, it’s better to start with the epilogue. Stephens states, “How do we help people educate themselves? … I am not arguing against school, I am writing in favor of choices.” As graduates hold heavy debt loads and only 58 percent finish within six years of enrollment, it’s refreshing to read something with examples of individuals able to skirt that system and achieve success.

Stephens is anything but normal. He dropped out of school after fifth grade, became involved with the unschooling movement, started a business, worked in politics, and lived in France.  During his first semester at Hendrix College, he started UnCollege, a website dedicated to providing resources for and ideas on how to get an education without college, and dropped out. In May 2011, he was named a Thiel Fellow, whereupon he received $100,000 to develop projects or ideas of his choosing. Hacking Your Education “is not a book about dropping out but rather about becoming empowered to make your own decisions.”

However, his nonconformity limits the book’s practicality for policy reform. Educators and administrators can find many ideas for reform, but it’s a mistake to expect an utter displacement of traditional education. To oversimplify the thesis into a political slogan: disruption to create competing avenues for education, but not displacement for a new monopoly.

That approach to higher education—that one correct way exists and should be trumpeted above all others—has shown weakness since economic downturn exacerbated systemic issues and allowed alternatives to gain credibility.  A clash of visions about what colleges and universities should be makes a state and federal top-down approach increasingly unviable. Concerns over institutional debt, student debt, and unemployment have revealed different operating presumptions of faculty, administrators, students, employers, and government officials. Who owns the university? On what should it focus? Who holds the decision rights? Hacking Your Education demonstrates that the unschooling movement has established a strong community and alternative system for a valuable education by consciously avoiding the university and its issues; it’d be foolish to avoid integrating it into acceptable educational pathways.

Arguments against forgoing college usually equivocate “Student X shouldn’t go to college” to saying “No one should go to college,” which has the advantage of pivoting the discussion from a cost/benefit examination to the philosophical platitudes about higher education. As should be clear after reading Stephens’ multiple examples of successful individuals who skipped college, some students might benefit from skipping college, while others need to attend for success. The problem is hemming in students to a dichotomy of “college or janitor.”College isn’t always necessary for success, and talented individuals have been crippled by well-meaning parents and administrators who disregard, and government policies that limit alternatives to college. Everyone can’t move to another continent, learn a language, and start a business upon their return, but someone interested in writing or business might find an alternative education more beneficial than lecture halls for four years.

Education policy could be enlightened by adopting ideas from Stephens, but he won’t drive general policy. Expanding definitions of education and success, rather than demarcating and regulating them, should be the takeaway from Hacking Your Education, and implementing those principles would be desirable. American education needs a balance of diverse traditional options while encouraging entrepreneurship and risk-taking for students unattracted to traditional models.

For students not focused on academics, Stephens does a commendable job. He proposes alternatives, provides resources, and, most importantly, helps remove the stigma associated with skipping college. The type of student attracted to the book isn’t overly risk-averse or concerned about conformity; to an extent, one must hold an interest in taking risks and entrepreneurship to see Stephens’ perspective as attractive. Even if they experience failure, they can still enroll in college. Bad policy that steers students into a prescribed path inhibits learning and leads to unintended consequences.

Stephens reminds us that “Universities do not exist to train you for the real world; they exist to make money.” The sooner policymakers understand that higher education isn’t managed and composed of selfless individuals narrowly focused on students and rigorous scholarship, the sooner will develop a realistic and beneficial policy toward education.

This post originally appeared in CCAP’s “Higher Education and the Economy” blog for

Rising Prices: College Tuition vs. the CPI

Posted on March 19th, 2013, by 7 Comments
As time passes, college administrators make health-care providers appear miserly. According to the Bureau of Labor Statistics, while the Consumer Price Index for all urban consumers (CPI-U) has risen 179 percent since 1980, college tuition and fees have increased nearly five times more— a staggering 893 percent.
Source: BLS

Source: BLS data, author’s calculations

By comparing the 1980 average seasonal-adjusted annual price for each category to its 2012 counterpart (with a base period of 1982-1984=100), we found that college costs have risen almost twice as much as the increase in the price of medical care, an oft-heralded exemplar of rising costs, and over six times more than the prices of food, housing, electricity, and apparel.

In last month’s State of the Union Address, President Obama stressed the importance of confronting the spiraling costs of college:

[T]axpayers cannot continue to subsidize the soaring cost of higher education. Colleges must do their part to keep costs down.

Institutions such as Ancilla College and Hiwassee College have begun to respond to students’ and legislators’ calls for lower prices: Ancilla is implementing a 4.7 percent across-the-board reduction in next year’s tuition, while Hiwassee plans to cut its yearly tuition by $6,000 in the fall of 2013.

Despite these efforts, many schools are set to raise tuition for the upcoming year, continuing a longstanding trend of tuition hikes. The College Board reports that the “[a]verage published tuition and fees at public four-year colleges and universities increased by…27% between 2007-08 and 2012-13.”

Private four-year colleges and universities were marginally better, averaging a 13-percent increase between 2007-08 and 2012-13, showing little indication that an end to rising college costs is near.

Chase Peterson-Withorn is a student research assistant at the Center for College Affordability and Productivity and an undergraduate student at Ohio University

Yesterday’s House Committee Hearing on Student Loans

Posted on March 14th, 2013, by Comments Off

Yesterday, the House Committee on Education and the Workforce held a hearing on student loans (the official title was “Keeping College within Reach: Examining Opportunities to Strengthen Federal Student Loan Programs,” which is nice, long and bipartisan). I’ve expressed dissatisfaction over how congressional hearings have treated that topic, partly because none of the Members seem keen on talking about the concept of risk, critical for any discussion of a loan program. After watching the hearing yesterday, however, my fears on that count began to fade as the hearing was expressly supposed to address the question of how to treat risk in federal student loan programs. While I share the (now radical) view that we should abolish federal student-loan programs, it is nice to see some sanity enter the discussion. One of the witnesses at the hearing, New America Foundation’s Jason Delisle (who may be the single most important student-loan policy analyst out there), was especially forceful in his testimony, criticizing the arbitrariness of current federal student-loan interest rates, the perverse incentive some of the programs provide for “colleges and universities to raise their prices with impunity,” the repayment program at the Department of Education for giving the “the largest benefits to those who borrow most,” and the lack of a proper incentive for timely completion.

Will Congress listen? I’m not sure. As was noted at the hearing, many political incentives run counter to the implementation of sound public policy. Take the brouhaha that broke out last year about ending the cut in the (arbitrarily set) interest rates of subsidized Stafford loans as a case in point. Republicans and Democrats kept falling over themselves in their rush to be the first ones to endorse keeping the interest rate at 3.4 percent rather than increasing it to 6.8 percent. Meanwhile, just about every serious education policy analyst was busy arguing that this was about the worst thing Congress could do. As they stand, the federal loan programs are political winners because Congress can subsidize higher education without having it look like they are negatively impacting the federal deficit. Why bother risking the chances of re-election? Besides, it’s not like Congress is the one being stuck with any tab.

A Peripheral MOOC Experiment

Posted on March 14th, 2013, by Leave a comment

It only now occurs to me that the rapid rise of massively open online courses (MOOCs) in the last year or so may allow us something of a natural experiment related to the incidence of the “profit motive” in education. Over recent decades (and particularly so over the past few years), there has been substantial discussion over the role of profit in higher education in the context of pitting for-profit colleges and universities against the non-profit sectors. In one sense, this really isn’t the appropriate context in which to make a cross-sector analysis. For one thing, the history and educational foci of the for-profit sector has been considerably different than that of the non-profit sectors. For another, as Cower and Papenfussably point out in their chapter in CCAP’s book, Doing More with Less, there are good reasons to suppose that the for-profit model may not, in fact, be as appropriate as the non-profit model in the context of providing quality general education, at least insofar as we have traditionally conceived of it. (On the other hand, they argue [pg. 186] that the “traditional efficiencies of for-profit firms dominate” when the “relevant [educational] output is easily defined and measured,” which explains why for-profits have tended to specialize in vocational training programs.) In other words, noting that Harvard, say, does a much better job at delivering a liberal arts education than does Kaplan University, for example, may not actually tell us anything meaningful about the efficacy of the profit motive in education (this effect is further compounded by the fact that Harvard has a much better established educational pedigree than does Kaplan).

In the case of the MOOCs, though, we may be able to get a much clearer picture of whether or not a profit-based education model works as well as a non-profit model in offering the exact same educational services. On the for-profit side, we have Coursera and Udacity (though even here there are notable differences between the two), and on the non-profit side we have EdX. Given that they all are operating on more or less the same educational model (offering courses to practically anyone who wants to take them, for no formal credit) and all arose at approximately the same point in time, we can actually now control for some of the factors which already may explain differences between for-profit and non-profit colleges. We can, in the course of this natural experiment, actually apply our “other things equal” assumption and know that it will hold. By doing so, we can then get a much clearer and better picture of the efficacy of the for-profit model in at least some aspect of higher education, though care must be taken not to overly generalize any results from this experiment.

Chart of the Week: Loan Delinquency Rates

Posted on March 14th, 2013, by Leave a comment

According to data published by the Federal Reserve Bank of New York, in the fourth quarter of 2012, delinquency rates on outstanding household debt fell overall (from 8.9 percent in the third quarter to 8.6 percent). However, there was one debt category for which 90+ day delinquency rates actually increased: student loan debt (the delinquency rate is currently at 11.7 percent). The delinquency rates for various consumer debt categories is shown in the following chart. As the New York Fed itself points out, though, this may even understate the problem:

these delinquency rates for student loans are likely to understate actual delinquency rates because about 44 percent of the borrowers are estimated to be currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.

Loan delinquencies (2012 Q4)

Source: Federal Reserve Bank of New York

Quote of the Week

Posted on March 12th, 2013, by Leave a comment

Christopher Loss:

Simply put, higher education is setting itself up for failure by making promises it will not be able to keep. Does anyone really believe that we can create a system where every student who enters college graduates four years later with a degree, debt-free? Or that we can have classrooms where all students learn the same amount and in the same way? Or that every college graduate will land the job of her dreams? Higher education has never, ever done that. Not in the 19th century or in the 20th. And it never will.