Federal Meddling Costs Vanderbilt $150 Million a Year

A study by Vanderbilt suggests that the university spent $150 million complying with federal regulations during 2013-14.  Although the details of how Vanderbilt arrived at these alarmingly figures have yet to be released, they should nonetheless be viewed as additional validation that the federal government’s overweening supervision of higher education is making college less affordable for students and their families. Most people would likely agree that making college more affordable is a good objective and the best way to achieve this is to get the government out of the higher-education business altogether.

Growth of Federal Regulations

According to the Mercatus Center’s RegData, the number of restrictions or obligations placed on colleges and universities by federal regulations increased from around 430,000 in 1997 to nearly 583,000 in 2012, an increase of more than 35 percent. This makes higher education one of the most heavily regulated sectors of the economy –only insurance brokers, architects and engineers, and oil and gas extractors face more regulatory burdens and obligations.

A recent report of the Task Force on Federal Regulation of Higher Education, prepared by the American Council on Education, suggests that the Department of Education (DOE) has been engaged in regulatory overreach, as many of the regulations that it has imposed have been executed by fiat. In 2010 for instance, DOE by its own volition mandated that a credit hour be universally defined by seat time.

The department also controversially altered the gainful employment regulation governing vocational programs in 2011, a rule that was struck down by a federal court as arbitrary before it went into effect. Despite the early judiciary setback and the House of Representatives’ staunch disapproval of further regulation, the DOE pressed on with its aggressive regulatory agenda and in 2014 passed a nearly 950-page gainful-employment rule.

The federal government also increasingly imposes regulations on colleges and universities virtually unrelated to educating students, protecting them or providing accountability for the proper use of taxpayer dollars. The Task Force report highlights several regulations of this sort, such as burdening colleges with verification that males are registered with the selective service, distributing voter registration forms, and informing students about laws concerning illegal filing sharing.

DOE also increasingly acts as an unconstrained and unaccountable rule-making body, imposing regulations through sub-regulatory guidance–a process that not only lacks Congressional approval but is also executed without a public-comment period. Such regulations are often enacted through “Dear Colleague” letters or emails. The DOE issued 270 of these letters in 2012, about one per working day.

Costs of Regulation

Vanderbilt is not the only institution that has attempted to estimate its cost of regulatory compliance. Stanford University estimated that it spent $29 million to comply with regulations in 1997. Hartwick College estimated that is spent nearly $300,000 to comply with regulations in 2011-12. Although the cost estimates differ substantially, all three of these institutional studies suggest that regulatory compliance costs amounted to 7-11 percent of their annual expenditures.

Among the 7,022 colleges and universities with expenditure data in IPEDS, the average institution spent $72 million in 2013-14. Conservatively assuming that regulatory compliance amounts to 5 percent of expenditures, the average institution spent $3.6 million to comply with regulations, putting the total regulatory cost of the sector at $25.3 billion.

Let’s put this back-of-the envelope estimate of the regulatory costs in perspective. The total cost burden is equivalent to the size of the economy in Vermont or Equatorial Guinea. These costs significantly affect each student, amounting to about $1,200 per student, or approximately 15% and 9% of the mean enrollment-weighted tuition fees set by public and private 4-year instructions, respectively.

Making College More Affordable

Federal red tape imposes real costs on colleges. The burden of these costs is almost assuredly passed on directly to students in the form of higher tuition fees, given that most economists believe the demand for college education is relatively inelastic, meaning that consumers are not very responsive to price increases.

Growing awareness of this alarming trend is likely to prompt people to point fingers at the DOE, as discussions grow louder over college costs. Indeed, the Task Force report cited above is a step in this direction, calling for greater constraints to be placed on the Department of Education, more transparency in the regulatory process, and a reduction in regulatory burden. Such reforms, which would be an improvement over the existing system, do not address the root of the problem and are akin to rearranging the deck furniture on the Titanic.

A significant amount of the regulatory burden is tied, either directly or indirectly, to the federal student aid programs. Indeed, the growth of higher education regulations has accompanied the growth of federal financing of student tuition. According to the College Board, real total federal aid expenditures amounted to $60 billion in 1997-98, a figure that nearly tripled by 2012-13, reaching $171 billion. The Mercatus regulatory data mentioned above suggests that the number of higher education regulations increased by 35% over this time period.

Colleges love the flow of taxpayer money stemming from the federal student aid programs, but they hate the strings attached in the form of regulations. Lying in bed with the beast is hardly cost-free. And colleges have certainly not been saintly stewards of taxpayer money. A recent report from the Federal Reserve Bank of New York is the latest study to provide evidence in favor of the Bennett Hypothesis (named for former Secretary of Education William Bennett) that federal student aid incentivizes colleges to raise tuition.

The only viable long-term solution to make college affordable is to get the federal government out of financing higher education and allow the free market to do its work. This will reduce the justification for regulating colleges, reducing these costs. It will also reduce the perverse incentives for colleges to increase tuition to capture more revenues. Additionally, it will create a more competitive and innovative higher education sector, making college more affordable for millions of students.

Daniel Bennett

Daniel L. Bennett is a Research Professor at the Baugh Center for Entrepreneurship and Free Enterprise at Baylor University.

One thought on “Federal Meddling Costs Vanderbilt $150 Million a Year”

  1. The usual lame conclusion — if the government would just stop funding higher education, everything would be fine — from the likes of Daniel Bennett. Who now appears to work at a very high-expenditure college — nearly three times per student what it costs where I work.

    Too bad, because the issue of the actual costs of federal regulations is an important one.

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