All posts by Richard Vedder

Richard Vedder directed the Center for College Affordability and Productivity and teaches economics at Ohio University. He is also an Adjunct Scholar at the American Enterprise Institute.

Popping the Higher Education Bubble

Nearly a decade ago, my then colleague Andrew Gillen suggested that one could say that higher education was in a bit of a “bubble”: over-exuberant “investors” in human capital, better known as students, were potentially misallocating their resources, becoming increasingly underemployed after graduation, leading to adverse financial consequences. In the private sector, bubbles, like those in the housing or stock markets, usually lead to “crashes” and sharp falls in prices along with diminished volumes of activity. In higher education, massive government subsidies mute the decline in volume (enrollment) and prevent big price (tuition fee) crashes, but some sort of correction is nonetheless observable.

Lots of signs show the bursting of the bubble is underway. Enrollments are down, lower today than six years ago –a first decline of that duration in modern peacetime American history (including the Great Depression). Tuition increases are moderating and a few colleges are even starting to cut published tuition fees (sticker prices). Even some prestigious schools such as Oberlin College are having financial problems because their freshman class is smaller than anticipated. Student loan delinquency is high and rising, remarkable since the economy has been having the best performance in years, with real output growing at over a three percent annual rate and the unemployment rate at a very low 4.1 percent.

Related: Let’s Scuttle the University as Hotel

Even more ominous is a clear decline in public support for colleges. This is critical because higher education depends on governments, directly through grants or indirectly through the student financial assistance programs, for a large portion of their financial support. If higher education loses political appeal, declining public financial subsidies will quickly follow. Three surveys in 2017 show many are skeptical of higher education’s contribution. For example, a Pew Research Center survey showed 36 percent of Americans believed higher education had a “negative effect on the way things are going in this country.” A strong majority (58 percent) of Republicans had that opinion, which is no doubt one reason why a number of provisions in the recent Republican-led tax reform bill adversely impact on universities.

There are even potentially some legal clouds on the horizon. Universities are populated by lots of attractive young persons, so the possibility of sexual harassment lawsuits is certainly high. To cite an example, at my own school, Ohio University, an English professor recently lost his job (after a good deal of legal maneuvering), and the university faces potential meaningful damages in civil proceedings brought by female graduate students who allege they were sexually harassed and that university officials did nothing to stop it. Prominent faculty at other schools (for example, Columbia) are facing accusations of misconduct.  Also, as evidence mounts that football head injuries have significant long-run adverse effects on human cognitive function, the potential of expensive lawsuits against universities rises dramatically.

Enrollment demand is not likely to surge soon, in large part because of a demographic reality: a stagnant population in the 18 to 24 age group, along with a longer-term problem of general declining population growth. Moreover, increased visa restrictions and the growing reputation of universities elsewhere are stifling the long-term increase in the enrollment of foreign-born students.

Universities are inadequately preparing for the bursting bubble, for good reason. To be successful and maintain popularity and job security, university presidents typically need to please their campus constituencies – powerful administrators, superstar faculty, wealthy alumni, students, even popular football coaches. The way they do this is to raise a lot of money and use the funds to bribe the various constituencies by giving them what they want – higher salaries, lower teaching loads, better parking, new facilities, etc. Many schools have increased their debt loads to finance some of this, and added to already oversized staffs (especially in the administrative area), raising costs and making university finances more precarious. Thus university presidents often seem oblivious to political reality –the world outside the Ivory Tower.

A Nightmare Future of Higher Education

It is the role of university governing boards to correct excesses, to deal with precarious finances, and to bring a real world business-minded perspective to the Ivory Tower. Yet, many of them fall down on the job. They are wined and dined by the administration, thereby weakening their inclination to question and criticize.  They rubber stamp administrative wishes and are often ignorant of what is really happening on campus: they only look at the information the administration provides, often providing unrealistically rosy scenarios of campus life. They sometimes contribute to public criticism of universities by giving senior staff large salary increases.

To be sure, there are exceptions, and the bubble is bursting unevenly across academia. Harvard, Yale, and Princeton, for example, could close their doors to new students and operate with billion-dollar budgets forever doing absolutely nothing of importance, given the size of their endowments. Purdue’s president Mitch Daniels is bucking many conventional trends, for example, freezing tuition fees for six years, making the institution more affordable to students and popular with the general public. Berea College and the College of the Ozarks effectively are free, using endowments to lower costs rather than engage in spending extravagance. Hillsdale College’s decision decades ago to not take any form of federal aid is looking like a good one –the school seems to be prospering.

The solution? A bit of Schumpeterian creative destruction might help. The number of colleges closing or merging is inching up, and nothing challenges universities to change their modus operandi like the possibility of going out of business. The age of boom and expansion that characterized mid-twentieth century higher education is over. Will higher education’s problems be temporary, or will there be a slow decline like that of ancient Rome or Venice in the late Middle Ages? Stay tuned.

Taxing the Campus Plutocrats

One provision in the new tax legislation is going to give scores of colleges and universities a lot of heartburn –the 21 percent federal excise tax on compensation of employees making $1 million a year or more. The idea of extra taxes on supersized salaries is not new: private corporations have paid excise taxes on direct salary payments exceeding $1 million annually to top executives for years, although they have found ways to evade much of the tax by turning most compensation into performance-based bonuses.

The public believes that enterprises receiving special tax treatment and even public subsidies should concentrate on serving the good of the general public by offering affordable schooling along with some socially beneficial research. They should not be able to use those special privileges to make large payments to top employees. The excise tax is a way of letting our not-very-astute higher education leadership realize that the government, representing the people, is angry with the way they have been treating top employees like private business plutocrats.

Money at the Top

Over the past decade, even as colleges complained about real reductions in state government appropriations, stagnant growth in federal research monies, and other perceived affronts, salary increases have accelerated for those at the top of the academic heap –college presidents and, especially, what salary data suggest are the most important people in academia, those coaching young adults in how to throw and otherwise manipulate footballs and basketballs.

In 39 of 50 states, the most highly paid employee of a nonprofit organization was a college football or basketball coach. Nick Saban, football coach at the University of Alabama, makes an extraordinary $11.1132 annually, which starting next year will result in the Crimson Tide receiving a federal tax bill exceeding $2 million. The best-paid basketball coach, Duke’s Mike Krzyzewski, earns more than $7 million a year. In 2015, well over 50 football coaches made over $2 million annually, and now there are assistant coaches (“offensive and defensive coordinators”) whose salaries will force their university to pay federal excise taxes. A rough guess is that without downward salary adjustments, American universities will have to fork over perhaps $50 million annually in taxes just to cover the uber-pay of these sports gurus.

College Presidents Doing Well

But there are a few other persons in higher education who make as much as the likes of Nick Saban, Ohio State’s Urban Meyer, or Kentucky’s John Calipari (all making over $6 million annually): endowment managers who run the endowments at rich schools like Harvard and Yale. There were reports of payments reaching into the tens of millions annually, although stun by alumni criticism, recent Harvard endowment managers have made “only” $6 to 8 million annually. Harvard’s Narv Narvekar currently makes “only” $6 million, while Yale’s legendary investment wiz David Swensen has made $4 or $5 million annually in recent years.

University president salaries have soared in recent years. In 2008, there were only nine private-school presidents (and no public-school ones) making over $1 million annually; by 2015, there were 58 (and also eight public-school ones). Topping the list was Nathan Hatch at Wake Forest at $4 million); making over $3 million a year were James Wagner (Emory), C.L “Max” Nikias (University of Southern California), and Amy Gutmann (University of Pennsylvania).

Gutmann exemplifies the collegiate salary explosion. In 2008 and 2009, her salary was slightly under $1 million a year, or a bit more counting some deferred compensation payments. By 2015, she made $3.086 million, implying double-digit annual salary increases over a prolonged period. For all private school presidents, in 2015, salaries rose 9 percent, quadruple the rate of inflation and dramatically more than salaries of others, both in universities and the broader economy. Although the Chronicle of Higher Education listed the Savannah College of Arts and Design (SCAD) president Paula Wallace’s 2015 salary as “only” $1,901,841, Georgia newspaper reports indicate she actually made around $9.6 million in both 2014 and 2015 –in a school with a budget of only about $350 million.

Call the Profits ‘Surplus’

Jim Duderstadt, president emeritus of the University of Michigan, once told me he made $175,000 a year in his last year as president, 1995-96. The current president makes about four times that, implying average annual salary increases over nearly a generation of well over four percent –after accounting for inflation. As tuition fees soar, universities have used some of the surplus (better known as “profits” among competitive corporations) to enrich the people with clout in universities. They have abused the public trust, and the privileges granted them. Their arrogance, contempt for the public mood, and sheer greed are one reason public support for universities is waning. Universities are starting to lose their privileges, as evidenced by things like excise taxes on huge endowments and supersized salaries.

For some time, universities and their senior employees have been wards of the state. Thus they heavily favor progressive politicians who want big government with the attendant high subsidies for universities. They mostly give their financial contributions to liberal Democrats and condemn conservative Republican candidates and ideas. Congress, controlled by the Republicans, are sick of it and are sending universities a message. Already reeling from falling enrollments and declining public confidence, universities can ill afford to antagonize the elected representatives of the people further.

Same Old College Rankings—What Did You Expect?

Shocking news: the new Wall Street Journal/Times Higher Education college rankings say that Harvard is the best school in the United States. So does Forbes in its rankings, while US News ranks it second. Some eight schools (Harvard, Yale, Princeton, MIT, Stanford, Penn, Duke and Cal Tech) are in the top 10 in all three rankings. The top schools are like 17th century English landed aristocracy: all are old (the newest, Cal Tech, was founded over 120 years ago), with half of the top 10 in the WSJ listing beginning even before the nation in which they reside.  Indeed, none of the top 50 WSJ colleges was founded after 1950. All the top 10 are rich, with multi-billion investments –some, like Harvard, Yale, and Princeton, have about two million dollars of endowment for every student.

Related: What I’d Add to College Rankings

There is a monotonous stability to the rankings –some embryonic assessments in the first half of the last century all placed Harvard, Yale, and Princeton at or near the top. Indeed, college rankings dramatically demonstrate how rarely healthy and innovative Schumpeterian “creative destruction” comes to higher education. I located a 1994 Fortune Magazine with its list of 500 leading American corporations. Of the top 10 1994 companies, six have changed dramatically, now have different names, and a seventh (General Motors) has gone through bankruptcy. Only three of the top 10 in 1994 (GE, IBM and Ford) are the same companies they were in 1994. At least one of them, Ford, was on life support once in the intervening 23 years. The new corporate leaders as measured by stock valuation, Apple and Google, did not even exist a half-century ago. The top American universities resemble far more the old British aristocracy than the business institutions that ultimately provide them with most of their wealth and resources.

According to the WSJ rankings, state universities are the junior varsity of higher education —not one of them makes the top 20 (that is true for most other widely used rankings). There are only eight state schools in the top fifty (for some reason, the military academies seem to be totally excluded). I would also note that the oldest and still probably the most popular rankings, those of US News, show a considerable decline in the number of state schools at the top over time.

Related: The Problem with College Rankings

How did the Wall Street Journal and the British-based Times Higher Education do their rankings? They used 15 factors, heavily emphasizing outcomes (40 percent), and resources (30 percent). Another 20 percent reflects student “engagement, ” and 10 percent is a diversity component.

Let’s analyze “resources” more closely. A school that spends more on instruction per student gets higher rankings or has a higher faculty-student ratio. It does better if the faculty publishes a lot of papers in top-flight academic journals. In other words, if a school is wealthy, it is better, since rich or high tuition schools can buy faculty and even research. Quality is measured here by inputs, not outputs. If a school gives its faculty all 10 percent raises, rankings go up —but does institutional effectiveness rise?

That problem, though, is minor compared with the diversity component, rhetorically disguised as an “environmental” factor. The University of Michigan could improve its already respectable 27th placement by replacing students from Michigan by those from Iran and by replacing white students with those from presumptively better races. While I believe having students of diverse backgrounds is useful in promoting a full learning experience, there are few American schools that do not largely achieve that already (although the number of poor students at top schools is typically relatively small).  The WSJ diversity component to me is not measuring quality but rather is catering to political correct racist instincts (and I bet a majority of the WSJ’s editorial board, not involved in this undertaking, would agree).  Campus tolerance and support for a diversity of ideas, of course, is what is really important, and it is not considered in the rankings (although it would be difficult although not impossible to do so).

Preventing the Public From Knowing

Stealing (as many do) from Winston Churchill, college rankings are the worst way to evaluate colleges —except all others. I know, because I began and directed those of Forbes for nine years. There are two huge problems: information and varying human preferences. Universities are supposedly in the business of creating and distributing information and knowledge, but when it comes to themselves, they do everything possible to prevent the public from knowing much. Some of them fought the Department of Education from creating the College Scorecard, providing some of the data used in the WSJ rankings (and which was just updated and expanded to make it more useful). College lobbyists have successfully kept us from knowing things like how much did students learn while at school? Or, what are post-graduate earnings of all graduates (not just those taking federal student aid) by university and major field of study? The college lobby in 2008 successfully outlawed efforts to get a better student outcomes database. Politicians as diverse politically as Elizabeth Warren and Orrin Hatch have proposed a College Transparency Act to lift restrictions allowing for better consumer information.

“Variety’s the very spice of life” William Cowper opined in 1785, so the best college or university for an individual varies with personal interests, academic performance, geography, income, sometimes race or religion, accessibility to friends or relatives, etc.  Published college rankings reflect some generic set of values that need to be modified to fit individual circumstances. Still, given the difficulty in getting really good objective information about colleges cheaply and quickly, published rankings serve a good purpose. Even though the criteria vary a fair amount amongst the top rankings, usually the schools considered the best are pretty similar. When I did the Forbes rankings, I would experiment with a variety of different weights on a large number of factors, but almost never could get Princeton out of the top ten. The nation could use a website with data about 10 or 15 important factors (graduation rates, earnings immediately after graduation, earnings 10 years after graduation, costs before financial aid, probability of getting financial aid, student attitudes towards instructors, etc.) that would allow people to concoct their own “do it yourself” rankings using personalized weights on the various measured factors.

Just Another Good or Service

For some reason, the WSJ rankings rekindled in my mind a recurring thought for almost six decades: why do we treat colleges different than any other good or service? Why do we subsidize them rather than taxing them? The reality, of course, is the so-called “private schools” dominating the rankings are very highly publicly indirectly subsidized by the federal government through its financial assistance programs, and the modest but real retreat by state governments from funding “state” universities has been offset by enhanced federal funding, having the unintended consequence of helping so-called private schools that are traditionally heavily tuition financed relative to state schools that traditionally depended very heavily on state subsidies. With very small exceptions (e.g., Hillsdale College) all higher education is government supported. Considering campus spending excesses, mediocre learning outcomes, and assaults on free expression, I am increasingly asking myself: why?

A Bi-Polar Report on ‘Laggard’ Public Colleges

Right now, the biggest news in higher education is a controversial paper from Dimitrios Halikias and Richard Reeves of the Brookings Institution, arguing that “the upper middle class is substantially over-represented” in America’s universities, that “public investment…too often fails to produce either social mobility or socially beneficial research,” and that “the significant public subsidies spent on the education of the relatively affluent could be better spent elsewhere.”

The report, “Ladders, Labs or Laggards? Which Public Universities Contribute Most?” argues that the upper middle class is impeding the rise of less well-off Americans. It is amplified in Reeves’ recent book, Dream Hoarders, and by a New York Times column last week by David Brooks agreeing that “we in the educated class have created barriers to mobility” blocking the rise of the less well-off.

Too Focused on Economic Mobility?

Many of us in the field will accept the basic argument. For years, I have complained that we devote huge subsidies to support the comparative affluent students who dominate most American schools, individuals who in an earlier, poorer age, largely supported themselves. I have railed against “academic gated communities” that work to create a new sort of credentialed aristocracy inconsistent with the American Dream or the country described beautifully by Alexis de Tocqueville nearly two centuries ago. And I have questioned vacuous academic research, arguing that we are “overinvested” in higher education – meaning, to me, that we should reduce public support. With all of these points, there is solid supporting empirical evidence.

But then the authors go astray and their report turns bipolar. To them (neither of whom attended American state universities, one graduating from Oxford and the other Yale) the leading purposes of public institutions are “serving as engines of social mobility and producing world-class research.” Is that the core of what higher education does? What about diffusing knowledge and promoting wisdom, character building and leadership? And, as Robert Samuelson points out in discussing the Reeves book in the Washington Post, there is still a great deal of income mobility in America.

How Important Is Most Research?

To Halikias and Reeves, a school is a “laggard” if it is not top flight in research. Yet research prowess is defined by a crude Carnegie classification system that evaluates schools on research inputs (what it spends) and on the number of graduate students. According to these criteria, a dollar spent on research is better than a dollar spent on instruction; a graduate student admitted is good, an undergraduate is a dubious loss leader, at best a cash cow to subsidize more important graduate students, many of whom someday will publish articles for the Journal of Last Resort or its equivalent, read or cited by very few if any scholars.

Moreover, the authors decided to ignore private schools –the purest bastions of academic privilege for the affluent, many of which are indirectly governmentally subsidized as much or more than so-called “state” universities—why? Similarly, the authors arbitrarily exclude the nation’s historically black colleges and universities — they have a “specialized” mission, we are told. But they also have large numbers of low-income students, and the accessibility of American schools by poor persons was a central issue to the authors.

We are told the 342 schools sampled were “selective” admissions schools, a somewhat dubious categorization for many sampled universities where relatively few students are rejected for admission (e.g., University of South Alabama, Youngstown State University, University of Texas at El Paso).

Only 70 schools, 20 percent of the sample, were cited as  the “leaders” in higher education (having high-income mobility among the students, along with high levels of research among the faculty). I took six schools from the top 20 on that list: the University of Texas at El Paso, the University of New Orleans, the University of Texas at San Antonio, Wayne State University, the University of South Alabama and Cleveland State University. Using data from the U.S. Department of Education website College Scorecard, I observed that at all of these schools, a large majority (over 60 percent) of full-time students failed to graduate in six years –well above the national average. These “leaders” did not do what many of us consider Job One: graduate entering students.

A decidedly alternative interpretation: many schools prey upon the poor and academically unprepared: they admit them, telling them college is a ticket to a better, solidly middle-class life, knowing full well that most of them will fail to graduate –but will incur large student loan debts (at “leader” Wayne State, over 60 percent of students who borrowed had failed to pay at least one dollar of their student loans back –three years after attending). Yet these schools sucker academics of the Thomas Piketty perspective into believing they are “leaders” in the quest for intergenerational income mobility. A better than decent case can be made that some of the Halikias-Reeves “leader” universities should actually die: their social costs exceed the social benefits.

A good case can be made that progressive public policies have created much of the problem that the Brookings researchers lament. A third of a century ago, Charles Murray showed how generous entitlement policies of the federal government created a relatively permanent underclass of poor people who have lost the incentives and will to work and learn, qualities transmitted to their children. Teachers unions finance leftish politicians and their big spending, accompanied by their opposition to school competition, merit pay, and parental choice. All this has contributed mightily to the genuinely awful schools that dominate most inner cities inhabited by a large portion of the nation’s poor.

A Plug  for Vocational Education

The authors at one point do make one sensible suggestion: many students might benefit from vocationally oriented schooling that does not result in a four-year degree. The probability of completing that type of education is probably greater, costs are lower, and earnings of, say, plumbers, welders, or drivers of large trucks tend to compare favorably with those with B.A. degrees in gender studies from some obscure state school.

Universities were created mainly to create and disseminate knowledge and ideas. The case for public subsidy of them typically assumes that universities have enormous positive externalities (good spillover effects) and/or promote economic opportunity and income mobility. Frankly, I think the positive externality argument is more an article of faith than an empirical reality. And I think Halikias and Reeves are right that college does not promote income mobility –look at rising income inequality in the decades since higher education spread to the masses. So to me, the question is: why do we continue to publicly subsidize colleges?

Mitch Daniels’ Bold Move Into For-Profit Education

Who gains as Purdue University acquires on-line Kaplan University? For Kaplan, the sale has strong appeal. For-profit companies have been maliciously maligned by politicians and leftist ideologues, and the Obama Administration tried to kill them through regulations that largely did not apply to traditional not-for-profit institutions. Students will like the prestige of the Purdue name, so enrollments will grow, helping Kaplan receive fees from performing non-academic back-office functions.

Shedding the For-Profit Stigma

For Purdue, the deal jumpstarts its comparatively anemic presence in on-line education, buying expertise it simply does not have. It allows it to join the likes of Western Governors University and Southern New Hampshire University, on-line providers that have flourished in part because they don’t have the “for profit” stigma associated with them.

Purdue President Mitch Daniels views this as a natural extension of its land-grant mission, just as agricultural extension services and branch campuses have provided ways for individuals to learn at affordable prices. Daniels, previously a lawyer, budget guru, seasoned business executive, and governor, sees the deal as nearly no-risk for Purdue. Andy Rosen, CEO of Kaplan who, like Daniels, I know and respect greatly, sees this as a winner, as does, no doubt big stockholder Donald Graham.

Yet according to news accounts, the Purdue Faculty Senate said the deal “violated both common sense educational practice and respect for the Purdue faculty….” A long-time nemesis of for-profits and the architect of much of the Obama Administration’s war on them, Robert Shireman, referred to the Kaplan-Purdue deal as “a dangerous long-term marriage between a public university and a firm answerable to Wall Street investors.”

The biggest threat to the deal probably comes not from the faculty, but from the cartel that controls entry into higher education, notably the Higher Learning Commission, Purdue’s regional accreditor. It would not let Grand Canyon convert from for-profit to not-for-profit status, and may do the same to Purdue. The defenders of the status quo (faculty interests, other universities) will try to use accreditation to stop this effort by Purdue to do the equivalent of creating another branch campus. This is another reason why accreditation as we know it should die.

To me, the deal makes a lot of sense. Purdue uses expertise it does not have to expand its educational outreach and improve access. Kaplan probably will gain too, partially just because the word “Purdue” is worth more than the word “Kaplan.” If the new entity is truly part of Purdue, the faculty will ultimately gain some control over curriculum content and teaching. At my school, the main campus faculty has only limited control over those at the branch campuses, and it is not a big issue. I suspect the same will become true at Purdue.

Faculty Want in

What this controversy really is about, however, is ownership. As the late Henry Manne pointed out first over 45 years ago, so-called “not-for-profit” universities like Purdue really generate financial surpluses (“quasi-profits”) that get distributed –much as they do at private corporations. These distributed surpluses are often like dividends.

The problem is the ownership of Purdue, unlike that of private companies, is ambiguous. Legally, probably the state of Indiana owns the institution, and the state turns its ownership interest over to university trustees for administration. Yet the faculty call for “shared governance” is as much a call for “shared ownership.” The faculty thinks, “There would be no Purdue without us —we are entitled to an ownership interest in the enterprise. We want to share in the surpluses.” Yet the Trustees, Mitch Daniels, and Indiana taxpayers may disagree – they are other claimants for at least some ownership rights.

President Daniels has been disruptive of traditional arrangements. He has not raised tuition fees during his tenure. Higher tuition fees are revenues to be distributed, at least in part, as “dividends” to faculty, administrators, and others. He has personally accepted a lower base salary than most university presidents, wanting to be rewarded by bonuses for superior performance. He occasionally sits with students during football games instead of indulging in the perks of the presidential suite. I suspect the students love him –as did the voters who twice elected him governor by solid majorities. He does not bow excessively to collegiate elites.

Too Many Going to College

So, despite having a faculty orientation embedded in my DNA, I am supportive of Daniels move. Higher education is in a bit of a crisis –yet much of it does not know it, being largely shielded by public (state government appropriations, federal student tuition assistance) and private largess (endowments, alumni donations). Enrollments in the aggregate are falling as costs continue to rise and benefits stagnate or even fall.

“Creative destruction” (Joseph Schumpeter) or “disruptive innovation” (Clayton Christensen) are needed to make higher education more nimble, efficient, productive, and responsive to societal needs. Thus, a good case can be made for Daniels’ latest in a long series of innovations that includes the tuition freeze, Income Share Agreements, textbook deals with Amazon, etc.

The strongest case against pushing a big on-line expansion actually is an argument the faculty would emphatically not support: there are simply too many kids going to college, and Daniels’ move is likely to aggravate that problem. The private rate of return on college investments is falling, and the so-called “positive externalities” of higher education are, conservatively put, overstated.

That said, given the policy environment and the attitudes of Americans, higher education, while beset with problems, is not going away soon. Educational entrepreneurs like Mitch Daniels are responding to the changing environment, in the process transforming American higher education. albeit too slowly.

900,000 Costly Bureaucrats Work on Campus—How Many Do We Really Need?

For universities and many colleges, this is the age of administrative bloat. The Office of the President of the University of California has roughly two thousand employees – doing no teaching or research. In just the Diversity and Engagement area of her office (which probably did not even exist 50 years ago), there are five senior administrators with the words “vice provost” or “director” in their title, and 25 other identifiable support personnel. And this, of course, includes none of the administrators at any of the ten campuses where students are actually taught. If these 30 diversity and engagement employees abruptly fired, would learning or research be impaired in the slightest? Who was Socrates’ Diversity Coordinator?

More ‘Administrators’ Than Faculty 

Over the last ten years, at the California State University System, “the growth in the number and compensation of management personnel significantly outpaced other employee types,” nonacademic according to the state auditor. The Cal State experience is repeatable all over America.  For all American four-year public universities, for example, the National Center for Education Statistics tells us that from 2007 through 2014, spending for “student services on academic professional personnel) rose 18.8 percent in inflation-adjusted terms, nearly double the 10.6 percent rise in spending for “instruction.”

There are more “administrators” broadly defined, than faculty at most American universities. For the year 2015, I added up the number of full-time employees in “management,” “business and financial operations,” “office and administrative support,” and “student and academic affairs” and compared that with the total number of faculty. There were 911,428 in the administrative category, far more than the 807,032 faculty (some not teaching).

Deliberately Hard to Track Numbers?

The U.S. Department of Education, I suspect deliberately, has increasingly made it difficult to track the trends in administrative staff, changing employment categories, recently including most administrators in a very broad category of “other” employees. Nonetheless, after reviewing a lot of historical data, I am reasonably confident that, even after adjusting for enrollment growth, there are nearly twice as many administrators today as there were in the mid-1970s, while the number of enrollment-adjusted faculty has grown only very modestly.

Two explanations are often advanced to explain this. First, federal regulations have increased substantially, requiring more administrators.  Examples include safety requirements surrounding use of laboratory materials, rules on investigating human subjects, regulations regarding discrimination in hiring, admitting students, and contracting, and the infamous 2011 Federal “guidance” regarding campus sexual assault.

Second, we are providing so many more services today for students than previously –- it takes administrators and other workers to maintain the climbing walls, indoor running tracks, and lazy rivers that we provide students. Universities are now as much country clubs as they are learning communities –my school (Ohio University) employs workers just to run the golf course’s pro shop and schedule tee times (ah, the heavy burdens of academic life!)

Layers of Bureaucracy

When I began working at Ohio University in the mid-1960s, there was no Provost, but a Vice President for Academic Affairs who had one assistant.  Enrollments have risen about 50 percent, but now our Provost office has an administrative staff of 16, including a “senior vice provost for instructional innovation” and, our equivalent of a Secretary of State, the “vice provost for global affairs.”

So it goes across the country. At some schools, two levels of bureaucracy oversee an already large campus administrative staff. Take the University of Texas. There are a large number of campuses, including the Austin flagship, but others at locations such as Arlington, San Antonio, Dallas and El Paso. Overseeing them is a university-wide administrative apparatus. But on top of that is the Texas Higher Education Coordinating Board, an organization with over 200 administrators overseeing not only the University of Texas but other public schools like Texas A & M, the University of Houston, and Texas Tech University.

Why is this happening? As they say in analyzing felonious (as opposed to merely wasteful and inefficient) behavior: look at means, motive, and opportunity. Regarding opportunity, the faculty have lost an enormous amount of power on campuses to non-academic apparatchiks. It used to be difficult to recruit professors, but now in many fields in academia it is a buyer’s market –there are often dozens of applicants for every position. Increasingly, the faculty are hired hands, not persons with real clout. Decision-making is done by administrators, who have not only seized opportunity but have ample motives to expand their own empires of underlings to do irksome chores.

Buying Peace on Campus

The federal student assistance programs have enabled higher tuition fees, providing the means to hire more staff. Rising fees mean more revenues. To be sure, some added staff are fundraisers, as universities become more aggressive about begging for money from alumni and others to continue their profligate ways.

Some of the administrative expansion reflects attempts by university administrators to buy campus peace and tranquility. Loyal alums who equate university excellence with student ball- throwing prowess demand that schools hire lots of coaches and weight training experts –and pay some of them far higher salaries than the university president. Environmental activists pressure universities into spending vast sums on sustainability coordinators and economically dubious alternative energy projects. Minority students demand all sorts of “diversity” related positions or special services. Thus presidents will create positions to reduce discontent, or, less politely, bribe militants to behave.

An interesting academic exercise is to ask: how much more affordable would American universities be if the administrative bloat of modern times had not occurred?  Looking at public universities, in recent years spending on “public service,” “student services,” “academic support” and “institutional support,” all largely administrative staff categories, has almost precisely equaled the revenues raised from tuition fees. If spending in these areas had been reduced 20 percent, which historical data suggests would have been possible, then tuition fees could likewise probably be reduced about 20 percent. Are rising administrative costs an important factor in rising tuition fees? The answer seems clearly “yes.”

What can be done about this? Passing laws restricting administrative staff growth is tempting, but the cure could be worse than the disease if one-size-fits all rules are indiscriminately applied. Reducing the fuel supply (financial support) for the administrative apparatus is another, perhaps more promising approach, by restricting federal student financial aid that enables universities to promote high tuition fees, and by state governments continuing recent trends towards restricting financial support.

The Seven Deadly Sins of Higher Education

About 15 years ago I began writing extensively about the rising cost of higher education, even starting a research center (the Center for College Affordability and Productivity) focused on that topic. I am now convinced that rising costs are NOT the dominant problem facing our universities. There are at least seven deadly sins –not precisely the original Christian deadly sins of pride, greed, lust, envy, gluttony, wrath and sloth—but pretty close.

Let’s start with greed. The first deadly sin is that colleges are outrageously expensive. It takes a larger proportion of the income of the typical citizen of New Jersey to pay the listed tuition fee of Princeton University today than it did in 1840. Whereby the cost of virtually everything else has risen less than our incomes, thereby making them more affordable, college is the unique exception.

The federal government has contributed mightily to the problem: tuition growth has accelerated rapidly since the late 1970s –when federal student loan and grant programs were vastly expanded to the bulk of the college population. In 1987 Education Secretary Bill Bennett claimed federal aid programs enabled colleges to raise fees dramatically, and recent research at both the New York Federal Reserve and the National Bureau of Economic Research confirms it. Higher tuition fees have funded a vast unproductive university bureaucracy (the sin of gluttony) that detracts from teaching and research.

Related: How Students Intimidate Professors and Stymie Learning

Not only are costs rising, benefits are falling. The second deadly sin is that there is far too little “good” learning going on in America’s universities. By good learning, I mean learning that entails the transmission of the knowledge and wisdom of previous generations to the current one and enables us to add to this past cultural and intellectual capital. Today’s college students, typically spending less than 30 hours weekly for 32 weeks a year on academics, are remarkably ignorant about our own past, giving them the impression that they are the Superior Generation, possessing an extraordinary fount of knowledge and moral virtues.

Thus historical and wrathful ignoramuses at Yale insisted that John C. Calhoun’s name be taken off a college, despite the fact he served as Vice-President of the United States under two presidents, was in Congress (elected by the people or the state legislature) for over two decades, and held major cabinet appointments under two other presidents.  Like many others of his generation, he strongly defended slavery, becoming a strong believer of state rights. Times change, and the notion of today’s faux Superior Generation that “only our values are morally sound” denigrates those responsible for America’s exceptionalism.

This sin in not limited to historical illiteracy. For example, I suspect one-third of my students use the word “compliment” when they mean “complement.” A federal Adult Literacy Surveyed some years ago showed declining literacy among college students, an undoubtedly continuing trend. I doubt most college students could name one of John Milton’s works and are clueless on what Aristotle or Rousseau contributed to our culture. Contrary to the contemporary zeitgeist, an appreciation of the contributions of some “dead white men” strengthens the greatest civilization ever created.

There are not only sins of omission (failure to teach the Western canon) but also of commission –the third deadly sin is that political correctness has led to the suppression of many ideas and freedom of expression, robbing students of the vitality associated with questioning conventional wisdom. We increasingly preach ideology –universities often appear to be secular theocracies, with campus bullies – 21st-century Torquemadas–suppressing free expression.  Scientists, for example, are increasingly afraid to suggest that global warming is possibly not quite the threat the establishment believes –the Spanish Inquisition redux.

Why aren’t university presidents asserting their authority to put an end to this foolishness, especially the suppression of First Amendment rights and free expression? To be fair, some do, but far too many let the campus crazies intimidate them. The fourth deadly sin is one of feckless non-leadership –sloth if you will –that enables the barbarians to storm the gates and dramatically diminish the vitality and good coming from the campus experience.

Related: Crime but No Punishment at Middlebury?

Yet the presidents are not alone in consenting to the gradual deterioration of the campus learning environment. A fifth sin emanates from a faculty that too often fiddles with its often non-consequential research while letting Rome (or Berkeley, Missouri, Claremont McKenna, Middlebury or Yale) burn. After all, the faculty do the teaching and usually control the curriculum. It is the faculty that removed required courses in history, language and other foundational subjects while implementing all sorts of politically correct courses devoid of intellectual content to appease vocal minorities.

Also, the governing boards of universities are typically made up largely of excessively prideful folks who combine their lust for recognition with a slothful inattention to what really is happening on campus—a sixth sin, one of neglect. To be sure, the information they receive comes typically from the president, who often fails to inform trustees of wasteful spending and campus scandals.  When trustees occasionally try to fulfill their oversight role by seeking delicate information, they are sometimes ostracized and even sued —witness the sad spectacle of Wallace Hall, a regent at the University of Texas, a man who exposed an admissions scandal– and consequently faced impeachment and vindictive legal proceedings.

Or how about governance in North Carolina’s Research Triangle, where Duke University trustees protected the university president as his administration savagely and unjustly punished the lacrosse team, or where North Carolina’s trustees were either sinfully unaware of a major athletic scandal or hid it from the public they allegedly served. Trustees, indeed,   too often serve as administration cheerleaders rather than overseers.

Related: Troubling News from North Carolina

That brings me to the seventh deadly sin: a lack of transparency, combined with obfuscation, and deception. Universities go to great lengths to hide important information about themselves –the amount students learn or earn (after college), salaries of key employees, or morally questionable activity (remember Jerry Sandusky?) They bury the bad news, exaggerate and promote the good news. They suppress competition and innovation through their accreditation agencies that they claim promote integrity and high quality. I would be very hesitant to buy a used car from a senior university official in today’s America.

To be fair, not all universities are highly sinful, and there are many good people in America’s colleges. But the seven deadly sins mentioned above are prevalent enough to erode public confidence in our universities (as recent New America polling confirms), ultimately leading to reduced support and declining enrollments.

How the Leftist Monoculture Took Over the Campus

By Richard Vedder

I didn’t sleep too well last night, thanks to Heterodox Academy’s (and NYU’s) Jonathan Haidt and John Leo, who recently carried on a provocative exchange in this space. Two questions really bothered me: Why is there so little intellectual diversity in the academy? And what can we do about the related problem of weak university leaders capitulating to ever more outrageous demands from student protesters?

So why is the academy increasingly a leftist monoculture, at least in the social sciences and humanities?  The standard answers relate to self-selection: conservatives and libertarians want to make money, so they go into business or the professions, or, more uncharitably, they are not as smart and thus cannot meet academic standards. In short, they are cognitively unfit for a life of the mind. Last month, James Phillips in an excellent paper discredited the latter notion with respect to law-school faculty presenting compelling empirical evidence that conservative underrepresentation amongst law-school faculty likely reflects some ideological discrimination.

Faculty—Wards of the State

One reason discrimination exists is that faculties are in some respects like fraternities—they like to have people around them with similar tastes and preferences; people who are simpatico ideologically probably will be closer colleagues and friends.

But it goes beyond that: faculty are increasingly wards of the state. They derive their income in large part directly or indirectly from governmental largess even at so-called private schools. Progressives favor big governments; big governments shower more dollars onto college campuses, providing larger salaries and lower teaching loads for academics. Those on the left push for free college and loan forgiveness; those on the right talk about restricting student-loan programs. The progressive view promotes larger enrollments and budgets, and with that more and higher-paid faculty. Don’t bite the hand that feeds you.

That brings me to the problem of recent student protests and the spineless reactions of presidents of prestigious universities like Yale. As temperatures rise this spring, protests will mount (our fragile students don’t want to discomfort themselves by protesting in the cold). Continued appeasement of students who seize control of buildings and curriculum and threaten university leaders destroys the rule of campus law and further reduces intellectual diversity and academic freedom. What can be done?

More Adult Supervision

I agree with Jonathan Haidt: bring in some adult supervision. Specifically, trustees and prominent alumni were educated when children were not protected by their parents from hearing or seeing hurtful things, when kids were raised to endure hardships and occasional blows to their self-esteem. By and large, I suspect trustees and large donors do not approve of coddling students. And one thing trumps everything else on campus: money. You don’t offend big donors

Typically, trustees rubber stamp administrative actions, and are seen but not heard. But they have significant power that needs to be unleashed: to borrow from a misguided University of Missouri professor, “Let’s have some muscle over here.” Presidents should be told in no uncertain terms that groups of spoiled brats cannot be allowed to ignore university procedures, disrupt operations, and threaten unfettered scholarly inquiry.

The problem ultimately is one of ownership. Radical students think they own the university. Faculty think they own or co-own it. Senior administrators think they are the owners, as sometimes so do powerful wealthy alumni. Universities earn financial surpluses that get disbursed to the putative owners, much like the dividends corporations pay to stockholders. That is what “shared governance” is all about –give the faculty low teaching loads and good salaries, administrators armies of junior administrators to do the heavy lifting, students low workloads and good recreational facilities, and the alumni a good football team. Everyone is happy except those paying the outrageous bills.

But for non-representative groups of students to claim an absolute right to determine major policies in return for not using violence is extortion. The legal owners of universities need to assert themselves and tell the presidents to show leadership and not let the lunatics run the asylum.


Richard Vedder directs the Center for College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

The U. Texas President on the Brink

Bill Powers, embattled for years as president of the University of Texas at Austin, appears at last to be facing his Alamo.  On Thursday, the UT Board of Regents will meet and Powers, mired in controversy over costs and mission, is expected to either resign or be fired. A face-saving compromise would be to let Powers, who is 68, serve one more year, allowing time to search for his replacement.

Continue reading The U. Texas President on the Brink

The Higher-Ed Bubble Starts to Pop

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Everything created by humanity is subject to a cycle of creation and destruction. Humans live 70-80 or sometimes even 100 years; their business enterprises rarely last that long. A generation ago, there was no Facebook or Google, but Enron and Eastman Kodak were going strong. Even buildings seldom last more than 200-300 years.

Until recently, higher education has seemed immune from this reality, as few colleges or universities ever died or closed. The perpetual gain of college enrollments, combined with increasing government subsidies and private philanthropy, shielded higher education from the discipline of market forces that lead private businesses to face relatively high mortality rates. That’s changing. As tuition revenues and outside subsidies stagnate and cost-saving innovations fail to materialize, more and more schools are facing serious financial problems.

Continue reading The Higher-Ed Bubble Starts to Pop

Do We Over-Invest in Non-Traditional Students?

hazel soares.jpgHere’s a scary statistic about American higher-ed: more than 40 percent of college students don’t graduate. But that number hides enormous variations in drop-out behavior. The National Student Clearinghouse Research Center has issued a “state supplement” report filled with interesting statistics; Here are some:

  • Completion rates are vastly lower for part-time students relative to full-time ones;
  • Students attending private schools are more likely to graduate than those at public institutions;
  • Far more two-year public college students fail to complete their degree than successfully do so;
  • Interstate variations in completion rates are large;
  • Roughly 20 percent of those completing schools graduate from an institution different than the one they originally attended, although that proportion is lower at four-year schools;
  • Those entering colleges right out of high school are much more likely to get a degree in six years than those who wait to attend college;
  • Women are more likely to complete school then men.

Continue reading Do We Over-Invest in Non-Traditional Students?

The Awful New Rules on ‘Gainful Employment’

uphoen.jpgThe Gettysburg Address is just over 300 words long, while the Declaration of Independence is 1,137 and entire U.S. Constitution is 4,400 words. But the Obama Administration’s new rules pertaining to “gainful employment,” applicable to many higher-education institutions, including virtually all “for-profit” ones, run about 185,000 words and 841 pages, slightly longer than the Bible’s New Testament. Never have so many words been uttered to achieve so little, cause so much anxiety and destroy so much wealth, only to ultimately signify nothing.

These regulations are, simply speaking, awful, further cause to reduce the federal role in higher education. People who lose billions annually running a postal monopoly and cannot even provide decent Internet access to a poorly conceived health-care system certainly should not be trusted with regulating the creation and dissemination of high levels of knowledge.

Continue reading The Awful New Rules on ‘Gainful Employment’

Dropouts Cost More Than $12 Billion a Year

Critics of American higher education usually focus on the deficiencies of college graduates —for example, their critical thinking isn’t much better than that of college freshmen, or they increasingly end up in relatively low-paying jobs requiring few high-level skills. Yet an indefatigable retired South Carolina college professor, sometime state legislator and relentless purveyor of collegiate statistics, Harry Stille, points out in a new study that a “continuing national scandal” arises because massive amounts of resources are devoted to unsuccessful attempts to educate students who ultimately drop out of college. Dr. Stille measures not the success (graduation) rate, but its inverse -the failure rate, for public institutions. Nationally, almost two out of five college students fail to graduate in six years, using data that corrects for some of the measurement problems arising from student transfers. He calculates what state subsidizes students from state appropriations, estimating that nearly $12 billion in appropriations annually are largely wasted on students who drop out.

Moreover, as Stille observes, that $12 billion is the tip of the iceberg, as other resources are also used educating those drop outs. He calculates the perceived wastage of state appropriations by state, with numbers ranging from a low of $16 million in New Hampshire to a walloping $1.207 billion in Texas. Doing an admittedly back of the envelope calculation, I would estimate that the present value of all of the costs of educating these non-graduates over a generation approaches one trillion dollars.

High Failure Rate in the West

Yet Dr. Stille’s data show that there are enormous state variations in college failures. There are seven states where half or more public university students failed to graduate: Alaska (68.5 percent!), Idaho, Arkansas, New Mexico, Louisiana, Utah, and Nevada. Yet there are another seven states where the failure rate is dramatically lower -less than 30 percent: Iowa, Virginia, Delaware, Washington, New Hampshire, Pennsylvania, and New Jersey. What explains these huge interstate variations? Why do about 45 percent of students fail to graduate New York and Texas, but one-third or less in California, Illinois or New Jersey

Compare the high failure (over 50 percent) and “low” failure (less than 30 percent) states. All of the high failure states are west of the Mississippi River; most of the “low” failure states border the Atlantic Ocean. But why is that? What is different about mostly western states with high failure rates compared with mostly eastern states (exceptions: Iowa and Washington) with relatively low rates of non-completion?

The high failure states are low tuition states, while the low failure states charge high tuition fees. Looking at 2013-14 College Board data on average public four-year college in-state tuition fees, in the seven high failure states, the non-weighted average tuition was $6,325 a year, while it was an extraordinary 82 percent higher –$11,494 annually–in the states with low failures. The lowest tuition state in the low failure group, Iowa, had higher tuition fees than the most costly of the high failure states (Arkansas).

This is consistent with a basic economic behavioral principle. When something is expensive, people use it carefully–the financial cost of failure is too high. When something is relatively cheap, incentives to use it prudently are reduced -the financial costs of dropping out are lowered. I have long believed that is why relatively higher priced private colleges have significantly lower dropout rates than public institutions, even after controlling for such other factors as admissions selectivity.

Why Accept Unprepared Students?

That said, I also agree that Harry Stille is asking the right question: “why do senior [four year] institutions enroll or need… poorly prepared students in the first place?” The answer: it is often financially advantageous to schools to admit them. Of the nearly 1.8 million taking the ACT’s college-entrance test in 2013, barely one-fourth were considered ready for college in all areas examined (Reading, English, Math, and Science). Colleges admit students knowing full well that many of them have a high probability of failing.

What to do to stop this? Here are some ideas:

  • Make colleges have some skin in the game with respect to students defaulting on loans because they failed to complete their degree and get a good job;
  • make schools shoulder some of the loss associated with the default;
  • Tie state school funding to the number of students graduating, not the number enrolled;
  • Set minimum admission standards (Stille suggests 910 SAT scores or a 19 ACT score); alternatively, tie state funding partially to student quality, rewarding schools who are selective in their admission practices, thereby reducing dropouts;
  • Force low-performing high-school students to attend community college, allowing them to transfer to four-year schools only after a year or two of good academic performance;
  • Pay college presidents largely based on student performance indicators -graduation rates, average postgraduate earnings, retention rates, etc.
  • Move to the relatively successful model of high tuition fees and modest state subsidies.

These ideas all have problems, the largest of which is that some of them incentivize schools to engage in even greater grade inflation than at the present. Quality control standards need to be incorporated into any new policies. All in all, however, our efforts to provide “college for all” have been accompanied by high levels of resource waste, academic failure, and student disillusionment accompanying financial pressures (high student loan debt). This must change.

Four Ideas for Higher Education

Speaking at the nation’s largest community college (Miami Dade), Senator Marco Rubio proposed some very specific ideas on higher education that deserve serious consideration.

Rubio recognizes that our federal student financial assistance program has enabled colleges to raise fees: “these hiked tuition rates….form a free subsidy for colleges…which use the funds to finance a myriad of non-academic pursuits.” Rubio proposes to simplify the process of obtaining aid, getting rid of some of the Byzantine complexity and moving to allowing income tax deductibility for college expenses.  Good, but pretty routine.

But Rubio then makes four specific proposals. First, dramatically improve information students receive about the likely costs and benefits of various majors at different colleges. He and Senator Ron Wyden proposed this a year ago, but nothing has happened. Why not? President Obama proposed something similar several years ago. Why shouldn’t college graduates be given information such as “the average earnings of a graduate of the University of Illinois majoring in sociology is $41,000 five years after graduation, but those earnings average $74,000 for electrical engineering majors” (I made up those numbers for illustrative purposes).

Second, Rubio proposes making loan repayment automatically a fixed percent of one’s income.  If you have a $40,000 loan and make $35,000 a year, perhaps you will repay $3,500 a year, but if you make $50,000 a year, your payments will be $5,000 (and you get out of debt sooner). While income contingent loans are not a new idea (and quite common in other nations), Rubio wants to make it the standard mode of repayment. Again, this is not too different from some Obama ideas.

I have somewhat mixed views on this proposal. On the one hand, some flexibility in loan repayment is highly desirable. But there is a political temptation to enact a maximum repayment time limit, effectively leading to loan defaults for those taking low paying jobs after graduation.  Unless carefully done, income contingent loans implicitly subsidize resources going into areas of study with little economic utility as measured by labor markets. The fact that we charge the same interest rate on all student loans, regardless of the income repayment probabilities of the student, shows federal lending programs violate good financial practices -contributing to high default rates.  The loan program really needs more radical revision -and probably in the long term privatization. As Rubio himself notes, it is a prime culprit in the tuition inflation which is the root cause of the rising burden of attending college.

But Rubio hits a home run with his third new proposal. He wants to create a framework where investors can buy equity in students as opposed to lending to them. In effect, students sell stock instead of bonds in themselves.  Under these Income Share Agreements (ISAs), a student agrees to pay the investor a certain percent of his or her income for a fixed number of years -say five percent for 10 years in return for a $15,000 investment in college costs.  If the student ends up making $125,000 a year well before 10 years are up, the investor makes a huge profit; if the student makes only $30,000 a year, the investor likely loses on the student. The risks of borrowing move to the investor away from the student.

For ISAs to work, they need to be free of federal regulation. The only role I see for the Feds is to assure that legal impediments such as tax discrimination are removed. Already several entrepreneurs have experimented in limited ways with them. While no panacea, ISAs are a financially responsible approach that imposes no burden on taxpayers and reduces anxieties to students needing financial support.

Finally, Rubio notes that “we have a broken accreditation system that favors established institutions while blocking out new, innovative and more affordable competitors.” He wants to promote on-line education, the use of standardized tests to demonstrate competency, and a new, competing on-line accrediting agency approved by Congress. While I worry about the federal role, the concept on the whole is highly appealing.

Welcome to Robin Hood University

When I attended Northwestern beginning in the late 1950s, most students paid exactly the same tuition, room and board fees. Today, only a minority of college students pay full tuition (“the sticker price”) from their own funds. At exclusive private schools, some students pay nothing for tuition, room and board, but others pay $50,000 or more. The variations in the amount students pay from the sticker price is undoubtedly much greater than a generation or two ago, although no one even tries to calculate that statistic.

At Harvard, the practice even became institutionalized, with low income students (e.g., family incomes below $60,000 a year) paying nothing, and those above that  paying 10 percent of their income up to $180,000, with many still more affluent students paying the full fees. Harvard, in effect, imposed its own private income tax of 10 percent over a wide income range.

Why are universities engaging in vigorous price discrimination, much more than in earlier generations? No doubt the most important factor is that attending college is one of the very few things in life that is substantially less affordable than a half century ago. Take the university at which I teach, Ohio University (OU), a typical state school. In 1964, the $450 annual tuition amounted to 6.25 percent the median family income in the Buckeye State. By 2012, the tuition of $10,204 was almost 17 percent of median family income.  If the burden of going to OU in 2012 had remained what it was in 1964 (6.25 percent of median family income), the tuition fee would have been $3,756 -over 60 percent less. When tuition fees are really low, the need to offer tuition discounts in the form of “scholarships” is dramatically reduced.

A superb January 13th Wall Street Journal analysis by Douglas Belkin reveals that Robin Hood finance (robbing the rich to help the poor) grew particularly virulently between the 2004-5 and 2012-13 academic years at a dozen flagship state universities examined,  with subsides to lower income students from higher income ones growing an astounding 13.4 percent a year.  Effectively, fees increased a lot for upper income kids, but did not for their poorer peers.

Two questions arise. Is this good? Is it sustainable?  To the first question, most academics would enthusiastically answer “yes,” but I am far more skeptical. On fairness and egalitarian grounds, there are strong arguments to minimizing financial impediments for low income persons going to college. But is it the job of unelected university trustees and presidents to redistribute income, or does that more appropriately belong to the formal political process? What is the function of progressive taxation and various government in-kind subsidies for food, housing and medicine for the poor? In order to engage in their redistributionist policies, colleges become privy to all sorts of family financial information that, in my judgment, is none of their business. Moreover, there is some evidence they use this information to punish responsible financial behavior, by such pathologies as giving lower tuition discounts to families that save and live modestly as opposed to ones that borrow prodigiously to finance high levels of personal consumption.

Will Robin Hood finance continue to grow robustly? I think not, for two reasons. First, as costs of college attendance has soared (especially for the affluent) and benefits stagnated, the growth in demand for college has declined abruptly, making large tuition increases unlikely in the next few years. The college bubble is bursting. Secondly, some schools are getting smart and taking advantage of opportunities massive price discrimination offer.  Some schools, especially private ones, with high sticker prices (say $45,000 a year) but big tuition discounting) are going to try to attract upper income students by lowering sticker prices drastically (say to $30,000 a year), by essentially slashing need-based scholarship assistance. Sewanee pioneered this a few years ago, and others (Ashland University) are following.

Welcome to Robin Hood University

RHood.jpgWhen I attended Northwestern beginning in the late 1950s, most students paid exactly the same tuition, room and board fees. Today, only a minority of college students pay full tuition (“the sticker price”) from their own funds. At exclusive private schools, some students pay nothing for tuition, room and board, but others pay $50,000 or more. The variations in the amount students pay from the sticker price is undoubtedly much greater than a generation or two ago, although no one even tries to calculate that statistic.

At Harvard, the practice even became institutionalized, with low income students (e.g., family incomes below $60,000 a year) paying nothing, and those above that  paying 10 percent of their income up to $180,000, with many still more affluent students paying the full fees. Harvard, in effect, imposed its own private income tax of 10 percent over a wide income range.

Why are universities engaging in vigorous price discrimination, much more than in earlier generations? No doubt the most important factor is that attending college is one of the very few things in life that is substantially less affordable than a half century ago. Take the university at which I teach, Ohio University (OU), a typical state school. In 1964, the $450 annual tuition amounted to 6.25 percent the median family income in the Buckeye State. By 2012, the tuition of $10,204 was almost 17 percent of median family income.  If the burden of going to OU in 2012 had remained what it was in 1964 (6.25 percent of median family income), the tuition fee would have been $3,756 -over 60 percent less. When tuition fees are really low, the need to offer tuition discounts in the form of “scholarships” is dramatically reduced.

A superb January 13th Wall Street Journal analysis by Douglas Belkin reveals that Robin Hood finance (robbing the rich to help the poor) grew particularly virulently between the 2004-5 and 2012-13 academic years at a dozen flagship state universities examined,  with subsides to lower income students from higher income ones growing an astounding 13.4 percent a year.  Effectively, fees increased a lot for upper income kids, but did not for their poorer peers.

Two questions arise. Is this good? Is it sustainable?  To the first question, most academics would enthusiastically answer “yes,” but I am far more skeptical. On fairness and egalitarian grounds, there are strong arguments to minimizing financial impediments for low income persons going to college. But is it the job of unelected university trustees and presidents to redistribute income, or does that more appropriately belong to the formal political process? What is the function of progressive taxation and various government in-kind subsidies for food, housing and medicine for the poor? In order to engage in their redistributionist policies, colleges become privy to all sorts of family financial information that, in my judgment, is none of their business. Moreover, there is some evidence they use this information to punish responsible financial behavior, by such pathologies as giving lower tuition discounts to families that save and live modestly as opposed to ones that borrow prodigiously to finance high levels of personal consumption.

Will Robin Hood finance continue to grow robustly? I think not, for two reasons. First, as costs of college attendance has soared (especially for the affluent) and benefits stagnated, the growth in demand for college has declined abruptly, making large tuition increases unlikely in the next few years. The college bubble is bursting. Secondly, some schools are getting smart and taking advantage of opportunities massive price discrimination offer.  Some schools, especially private ones, with high sticker prices (say $45,000 a year) but big tuition discounting) are going to try to attract upper income students by lowering sticker prices drastically (say to $30,000 a year), by essentially slashing need-based scholarship assistance. Sewanee pioneered this a few years ago, and others (Ashland University) are following.

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Richard Vedder directs the Center for College Affordability and Productivity, teaches economics at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

(Photo Credit: Warner Bros Pictures.)

How About Post-College Exams?

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In a recent Wall Street Journal article co-authored by Purdue University president Mitch Daniels, Gallup CEO Jim Clifton observed that “Gallup’s hundreds of business clients report that many, if not most, college diplomas don’t tell them much about graduates’ readiness for productive work.”  The information gap particularly hurts students attending non-selective admission colleges of so-so reputation: how do they demonstrate to potential employers that they are competent and potentially highly productive? Indeed, how do those colleges generally tell the world that they are more successful in graduating productive individuals than their reputation as measured by magazine rankings suggests?

I am particularly interested in these questions because I DO college rankings (for Forbes) and know that given large information gaps that we now have, current rankings are very weak in evaluating the post-graduate success of students by institutions. Hence I have been begging folks like the Education Testing Service and ACT to develop new test or survey instruments to permit better assessment of the performance of universities in preparing students for the world of work, as well as instruments that would help individuals demonstrate their post-graduate potential.

New Opportunities for Post-College Assessment

Necessity is the mother of invention. Two new instruments are being developed to meet the needs of students, universities, and potential employers to fill the information gap. The CLA + test is a modified version of the existing Critical Learning Assessment test, a fine instrument that formed the basis of the magisterial research effort of Richard Arum and Josip Roksa published as Academically Adrift,  showing that American college seniors on average showed only modest gains over freshman in terms of their critical thinking and writing skills.

Right now a student graduating from, say, California State University at Fresno, Kansas State University, or the State University of New York at Brockport with a 3.3 average has a tough time getting considered for a good job. These schools, while by no means considered academic disasters or diploma mills, accept kids that were mostly above average but not exceptionally good high school students. A 3.3 average once denoted “a well above average student” but does not anymore in this era of grade inflation. In short, absent more information, this hypothetical student would be considered “a so-so student from a so-so university,” perhaps not worth employers investing human resource department dollars to carefully assess and interview.

Enter the CLA + and the new Gallup-Purdue Index. Our hypothetical student can take the CLA+ and employers can see quickly and inexpensively how he or she fares relative to, say, a 3.1 student graduating from the University of Virginia, UCLA, or Swarthmore College, far more selective institutions.  On the basis of those test results, some of the students at the less selective universities will manage to get interviews and serious consideration by employers.

The Gallup-Purdue Index will provide assessment of institutions -how, on average, do their students fare in their post-graduate life? A good bit of that relates to occupational success -the type of job they hold and how much they make. But the new survey given relatively recent graduates apparently will get into other things as well, such as the degree of community engagement of the alumni.  Not only is this information useful to employers (should we even bother to interview graduates of Purdue or North Carolina State University?), but it helps universities identify their strengths and weaknesses regarding their own preparation of students for the real world. It puts pressure on poorly assessed schools to do better.  And students of schools with strong showing on the Gallup-Purdue Index can use that indicator in trying to gain future employment.

Why We Need These Tests Now

There are three fundamental reasons why we need these instruments now, but did not need them nearly as much in, say, 1960 or 1980. First, college students simply are not nearly as engaged in their academic pursuits as they were a couple of generations ago. The Bureau of Labor Statistics’ Time Use Survey and other data sources confirm today’s students spend far less time (typically under 30 hours a week) on academic pursuits than their grandparents did. It is hard to learn if you spend little time going to class or studying.

Second, grade inflation has gotten to the point that the evaluation of student academic performance as represented by grade point averages is dramatically less meaningful than it used to be. The colleges have abdicated a responsibility to seriously and rigorous assess their students’ performance. Hence new forms of assessment are necessary.  In the middle of the last century, a typical grade point average (on a four point scale) was around 2.5 -consistent with a student earning one-half “B” grades and one half “Cs”. Today it is over 3.0 —above a “B” average. At some schools it is even much higher.

Third, in 1960, fewer than 10 percent of adult Americans were college graduates. Even those attending so-so institutions with so-so grades were part of the elite, and the number of graduates was far smaller than the number of relatively good paying managerial, professional, and technical jobs that college graduates typically filled. Today, over 30 percent of adults have four year degrees, more than the number of relatively high paying, highly skilled jobs. Consequently, we today have more janitors with bachelor’s degrees than chemists. The college diploma is losing its value as a screening device -a means of certifying competence. Thus new instruments are needed.

I rejoice in the development of these two new instruments and hope they get widespread use. Universities are providers and creators of knowledge, but have been woefully disdainful of gathering and disseminating useful knowledge about their own performance and that of their students.

What Charles Vest Did for Higher Education

If low-cost Internet-based learning totally transforms higher education, we can thank Charles “Chuck” Vest, long-time president of M.I.T. Chuck, who died last week of cancer, was a great man in many ways, but his crowning achievement, the OpenCourseWare program at M.I.T., spurred  huge changes whose full implications are only beginning to be understood.

In 2002, Chuck made his greatest contribution to higher education by inducing MIT to put all of its syllabi, reading materials, examinations, etc., on-line, allowing anyone with an inquisitive mind to learn a large portion of what formally enrolled MIT students would learn in Cambridge. “This program is based on the twin values of opportunity and openness,” he said. How nice. Most highly selective schools focus on the elite and ignore the broader population. These schools are characterized by three “E” words: expensive, exclusive, and elitist. Chuck was more sympathetic to three “A” words: accessibility, affordability, and accountability.  The stress on affordability may reflect the fact that Vest grew up in West Virginia, one of the nation’s poorest states.

Out of this open source movement morphed the MOOCs. Educational entrepreneurs like Sebastian Thrun were critical in developing this movement, but they all drew their inspiration from the earlier moves of Chuck Vest (MIT now is in partnership with Harvard with their edX MOOC offerings).  But Vest made his mark in terms of promoting accessibility in other ways, such as dramatically increasing female and minority student and faculty participation at MIT.

While Chuck Vest was in some ways a revolutionary (in his aggressive support of on-line education), he was in other ways the epitome of the Academic Establishment. He excelled in the academic arms race, going on a huge building program and over tripling MIT’s endowment. After MIT, Chuck went on to serve until early this year as the head of the National Academy of Engineering.

I served with Vest on the Spellings Commission on the Future of Higher Education in 2005-2006.  Some of us (to an extent chairman Charles Miller and myself, for example) were willing to throw bombs and seek far-reaching changes, but Chuck urged moderation, aware of the difficulties of trying to radically alter the conservative ways of academia. Along with his close friend and former University of Michigan president and colleague Jim Duderstadt and Penn professor Bob Zemsky, he  counseled us to stick to attainable moderate changes.

Chuck Vest was not paid the over $1 million salary that 42 present day private school presidents currently earn. I always sensed he regarded his leadership role as more of a vocational mission, not just a high-paying job.  Unlike some current leaders of schools that seem almost mercenary and self-centered, Chuck genuinely wanted to help people and solve problems. When Bill Clinton needed someone to help in the redesign of the international space station, he called on Chuck. When George W. Bush needed help in a highly sensitive matter of assessing American foreign intelligence failures after the Iraq war, he called on Chuck too. When my university needed a sagacious academic leader to impart wise words at the annual commencement ceremony, Chuck accepted the call.  Chuck was a kindly, gentle, good-humored man who personified much that was good about American higher education.

Are there other Chuck Vests out there, talented, bright persons who are more community-spirited than self-centered? I think so, but the proportion of university leaders fitting the Chuck Vest mold may be diminishing. While there is much to be said for making universities more business-like, an occasional side effect is that a growing proportion of today’s academic leaders view themselves as quasi-corporate executives, expecting appropriately corporate-size salaries and perks. Universities sometimes forget that they are given a privileged place in society precisely because they are different from profit-seeking corporations.  Corporations pay taxes; universities receive taxpayer subsidies. Good university presidents are aware of that, and behave accordingly.  We need more leaders with the vision, the sagacity, and the unselfish integrity of a Chuck Vest.

Disarray at the University of Texas

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In Texas, academic disputes often are Texas-sized: protracted, bitter brawls where civilized rules of conduct are often ignored. Another chapter in a long a drawn out soap opera has played out in Austin, with UT President Bill Powers retaining his job after a Board of Regents meeting regarding his fate.  Powers will soon finish his eighth year as president, making him the second longest serving leader in UT history, and will pass his 68th birthday by the end of this academic year.  Since Powers is clearly at retirement age, and several Regents have been concerned about the direction the school is taking, many expected Powers to ease into retirement.  But things are seldom that simple at UT.

The UT situation may seem a bit like a reprise of the 2012 University of Virginia brouhaha when that institution’s Board of Visitors briefly fired Teresa Sullivan. But the UT saga is far more protracted and dirtier. Full disclosure: I played a bit role in the drama, having co- authored a report on UT faculty workloads contributing to the ensuing kerfuffle.

Bill Powers became President of the University of Texas at Austin in early 2006, previously being dean of its law school.  He has been a strong defender of the school’s quest to be a nationally leading research university among public institutions. Texas is the second most populous state with easily the largest (over $18 billion) public school endowment, so its flagship university should be ranked in the top five public schools.

We’re Number 52

Yet UT’s performance seems somewhat disappointing.  In 2006, US News & World Report ranked it  52th among national universities; after eight years of Powers, its 2014 rank is the same.  Among public universities, it ties for 16th (with Ohio State and the University of Washington). Far from being at the top of public universities, UT ranks below five campuses of the University of California, and below schools in several much smaller states – Michigan, Virginia, North Carolina, Pennsylvania, Illinois, Wisconsin and Florida.  Texas ranks somewhat higher in the Forbes list (compiled by my Center for College Affordability and Productivity -CCAP), the 9th top public school (excluding national military academies). But again, UT ranks below flagship schools in Virginia (two of them), Michigan, North Carolina, Illinois and Washington (as well as California).

About three years ago, word spread that the UT Regents were not happy with Powers.  A report on faculty workloads that CCAP did showed vast variations in teaching, with lots of high paid professors with low teaching loads but also not receiving large amounts of external research support.  Rick O’Donnell, hired by the Regents as a special adviser, reached similar findings, questioning some of the research endeavors. Yet, as I noted on the Chronicle of Higher Education web site in 2011, “UT leaders have mobilized groups as diverse as UT alumni and the Association of American Universities to fight, before any specific proposal has even been seriously made….”

Indeed, the ferocity of the UT response to any criticism seems extraordinary.  One UT supporter, in an obvious  attempt at intimidation, made a public records request to Ohio University regarding my work there (which it wisely declined to provide). The Texas Exes, an alumni support group, issued a barrage of nearly 100,000 emails supporting Powers. Shortly before I participated in a conference in Washington, D.C., on university productivity, UT issued a press release trying to discredit my yet unmade presentation (which only tangentially mentioned UT).  The UT community raised such a brouhaha about O’Donnell’s role that he was let go as a special adviser.

Attacking a Regent

One Regent in particular who demanded information about various campus activities was Wallace Hall. Even though he is a Regent, UT refused to provide him information. Some information he sought apparently related to special favors UT may have performed for legislators, including preferential admissions of children (which got the president of the University of Illinois fired a few years ago).   Not wanting dirty linen publically aired and wanting to shut down annoying board oversight, the pro-Powers lobbying effort got the Legislature to pass a bill eliminating the Regent’s ability to fire Powers, an effort wisely vetoed by Governor Rick Perry. So they mounted an effort to impeach Hall, who so far has fended off the attacks.

Since this is Texas, far more important things than mere academic reputation or a presidency are at stake:  will the school’s top paid employee, the football coach, Mack Brown, be fired?  Powers likes him, although others want him gone because his 2013 team (8 wins, 4 losses) only matches the school’s good but not stellar academic ranking.

Governing boards sometimes excessively meddle in administrative matters, such as trying to hire or fire football coaches. Yet the bigger problem is the opposite: typically they uncritically rubber stamp administrative initiatives, serving as cheerleaders rather than insuring accountability.  In UT’s case, with a huge constitutionally provided endowment, the notion that the institution should face little or no accountability to the democratic political process strikes me as the height of irresponsibility, leading to terrible abuses.

And this is not just a Texas problem: a member of the University of North Carolina governing board recently bitterly complained to me that he too has difficulty getting even basic information in a timely manner. Maybe that school’s scandal over non-existent courses for athletes would have been avoided had the board been involved. The hardball tactics used to fight legitimate criticism outrageous at a university aspiring to become great.  And certainly the Regents should periodically determine who will captain the ship.

(Photo: UT President Bill Powers. Credit: Texas Tribune.)

Going for the Gold:
Universities Gamble Big-Time on Research

Like compulsive Las Vegas gamblers, many university presidents like to make big bets hoping for large payoffs. And like most gamblers, they usually lose. But they have a big advantage over those going to Vegas: they are gambling with other people’s money.  The most famous form of higher education gambling involves football and basketball, where schools lose vast sums trying, mostly unsuccessfully, to become national sports powerhouses. But there is another form of university gambling that by most measures is quantitatively far more important: spending on research.  It amounts to tens of billions annually, with much of it funded by federal, corporate or other grants.  Because of generous federal overhead provisions, many schools believe research not only advances a legitimate scholarly purpose– the advancement of knowledge–but also institutional prestige, while actually improving school finances. There is some limited justification for this.

But colleges usually think there is second way research can enhance institutional revenues: the licensing of patents arising from university research. According to the Association of University Technology Managers, universities took in $2.6 billion in license fees and royalties on patents last year. To lure this money, schools need not only researchers doing commercially valuable activities, but also offices of technology transfer with experts on licensing, including in-house or external patent attorneys. As a result, there is a burgeoning university research bureaucracy. In the Office of the President of the University of California, for example, there are 29 employees in the technology transfer office, not counting another 32 in the research grant office (important in funding the research leading to patents), or dozens more working on the 10 University of California campuses.

Offices That Lose Money

The University of California holds more patents than any other university in the world. But significant technology transfer offices also exist at far less research-intensive universities. For example, at my school, Ohio University, there are 11 individuals on the Technology Transfer staff, some part-time.  My school is one of the few lucky ones that actually have made some money, ranking fourth in a 2008 Forbes survey on “return on investment” in research, by virtue of researcher John Kopchick’s discovery of the human growth hormone drug Somavert.

But Ohio University is atypical. In a new study for the Brookings Institution, Walter D. Valdivia confirms what I long have suspected: most technology transfer offices (TTOs) lose money. His estimate based on a survey of 155 universities for 2012 is that 130 lost money–84 percent. “What is more, …2012 was a good year because over the last 20 years, on average, 87 percent did not break even.”

While complete national data are not available, it is interesting that legal fees appear to have absorbed 20 percent or so of the $2.6 billion in license revenues. Intellectual property lawyers are expensive. And even at schools where patent/licensing revenues are large, a huge proportion of the funds do not go to aid general university purposes.  Of the $103 million or so generated by the University of California in 2012, only about $39 million filtered down to support the various campuses or  the university’s general fund–less than the share going to inventors who shared in the proceeds of the inventions.

Diversity as a Betting Strategy

While presidents dream of hitting home runs and earning millions annually in patent revenues, at a time of financial stringency for most campuses it seems spending large sums on technology transfer offices is highly dubious, particularly for the vast majority of schools where  there is little history or high prospects for breakthrough inventions. Buying lottery tickets is probably at least as financially remunerative, and requires virtually no bureaucracy.  Actually, Valdivia uses the lottery analogy, and concludes that the current technology transfer approach of striving for research home runs works only for the top 10 or so schools with respect to the amount of research grants received. They have enough diversity of research projects that the probability of big success occasionally occurring is reasonably large.

What should most universities do? Valdivia recommends an alternative, outsourcing approach. Universities should encourage new business start-ups utilizing university-generated technology. University lawyers and bureaucrats are less good at capitalizing on new ideas than private entrepreneurs with some skin in the game themselves. Universities might invest in some of these ventures, but turn the operation over to others incentivized to make inventions commercially successful. My own university has been highly successful using this approach, making me inclined to agree with Valdivia.

The conclusion that research commercialization generally is not viable economically raises a broader issue: is the current tendency of hundreds of schools wanting to be major research institutions a good one? Would we not be better off having, say, 100 institutions doing serious research, reducing research commitments at other institutions in favor of higher teaching loads that might lower instructional costs? The law of diminishing returns applies to research as to nearly everything else. We may well have too many so-so quality researchers addressing topics of marginal importance, with the low-hanging fruit already gathered.

As the transformation of higher education proceeds, the role of research,  so far basically unquestioned, needs greater scrutiny.

Why the Huge Payouts to College Ex-Presidents?

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Brandeis University gave a surprising good-bye present to former president Jehuda Reinharz: a post-retirement compensation package of $600,000 a year for little apparent work. Indeed, Reinharz is earning another $800,000 annually in a full-time job for the Mandel Foundation (a Cleveland-based charity that has generously supported Brandeis). These kinds of deals are increasingly common in higher education. When Gordon Gee left the Ohio State presidency this summer, he received a five-year compensation package valued at $5.8 million, including a direct cash payment of $1.5 million, $400,000 annual salary payments, large research grants, and even some funds for federal tax obligations. To be sure, he is doing a lot of post-retirement work for those funds (full disclosure: I am working with Dr. Gee on some Ohio higher education issues), but the implicit per-hour compensation rate is extremely high. Similarly, Lawrence Bacow of Tufts received $1.7 million “end of service compensation” when he retired as president.

Not Like Priests Any More

It used to be university presidents were a bit like priests or governmental officials-they were relatively modestly compensated, given their talents and magnitude of responsibilities, for a lot of work.  Now, their compensation, counting the value of post-retirement pay, is increasingly in the seven digits, vastly more than that of classroom professors. Throughout the 50 states, the most highly paid public official is typically the president of the flagship state university or the football coach.

Three questions immediately arise. First, are such huge post-retirement deals necessary-what would have happened to the quality of education at Brandeis, Ohio State, or Tufts if these payments had not been distributed? Second, are these high compensation arrangements confined to university presidents -or is the problem more widespread? Do they contribute meaningfully to rising tuition costs? Third, given the tax-exempt nature of donations to universities, not to mention public subsidies and other privileges, are universities abusing special privileges granted them by society?

There are actually good arguments for granting deferred compensation to presidents. They are a means of evening out the income a president receives over a lifetime, and income deferral usually also lends tax advantages as well. If, when Jehuda Reinharz was hired as president, he was told “we are going to pay you less than we think you are worth now, but we will make up for it with a big post-presidency financial windfall,” the post-retirement deal with Brandeis might make sense.  But I bet that the size and nature of the post-graduate arrangement was not fully negotiated earlier, and that at least some of Reinharz’s payment is what economists call economic rent –payments made eliciting absolutely no increased work.

Do these payments really amount to more than a pittance in a huge university budget? Actually, sometimes they do. Brandeis has fewer than 6,000 students, so $600,000 a year in post-presidential compensation is $100 per student. Over four years in college, a student might be paying $400 of tuition fees in a “Reinharz tax” to fund this postretirement benefit.  The $1.7 million goodbye gift for Lawrence Bacow approximates $150 for each of Tufts’ students.

More for Other Top Administrators Too

In addition, big pay and benefits for presidents lead to bigger compensation for other senior administrators. Returning to Ohio State, until 2010 the school had a respected former state budget director as the chief financial officer, who was paid around $300,000 a year. He retired, and was replaced by a man making over double that amount, a person with a penchant for spending large sums annually on first-class international travel (compared with less than $2,000 a year for his predecessor). Add in provosts and deans and you have potentially large incremental sums spent on administration. The gap between the pay and perks for the president and his senior advisers cannot be too large, so big salary (including deferred compensation) payments at the top usually are multiplied by increases down the line. Potentially, at even a big school like Ohio State, these additional costs amount to several hundred dollars per student a year. Money is being transferred from students and their parents to university administrators. Often federal student loans help finance this transfer of income and wealth. Add to that the exploitation of star football and basketball players at high profile athletic powers, and you can make a case that higher education increasingly involves unnecessary and morally dubious transfers of money from relatively innocent and defenseless youth to adults they wrongly trust.

If universities are going to act like profit-making corporations in paying their leaders, then maybe they should be taxed like them too. The tax-exempt status of universities was created when schools honored the notion that academic leaders are quasi-public servants who should be compensated enough to allow them to live comfortable lives, but not ultra-luxurious ones.  Why should individuals pay lower income taxes in return for university donations helping support luxurious life styles for university bureaucrats?

Market forces may be starting to put a crimp on the academic arms race leading to these salary shenanigans. Enrollments have peaked, tuition increases are easing, and slow economic growth is constraining philanthropic giving.  Revenues fueling these salary explosions are not rising like previously. Governing boards approving deals like that at Brandeis should wake up to the new reality.

(Photo: Jehuda Reinharz. Credit: Boston.com)

New Report: Why Colleges Get
an ‘F’ in Cost Control

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The College Board has released its annual report Trends in College Prices, and never has a seemingly boring document full of tables and graphs revealed more about American higher education.  Five observations culled from the data:

  • The rate of increase in tuition fees moderated a good deal this year, continuing a trend, especially at state universities, although less so after inflation is taken into account; (p.15)
  • In some regards, state universities are becoming more like private ones; 25 years ago, four-year public universities charged less than 20 percent the tuition that their not-for-profit private counterparts did; today they charge almost 30 percent; adjusting for inflation, fees roughly doubled at private schools, but tripled at public ones; (p. 15)
  • 10 flagship state universities–West Virginia, Mississippi, North Dakota, Iowa, Alabama, Oregon, Delaware, Rhode Island, Vermont, and New Hampshire– all have more students paying out-of-state tuition than in-state fees; (p. 19)
  • Total enrollment and inflation-adjusted revenues rose considerably at both public and private research universities in the first decade of the 21st century, in spite of the financial crisis and protestations of universities over inadequate revenues; (p. 26)
  • Over the 25-year period 1988-89 to 2013-14, inflation-adjusted room and board (not tuition) rose more than 67 percent at public universities and 50 percent at private ones, explaining much of the rise in total (tuition, room and board) charges over time. (p.15)

Let’s elaborate. While sticker prices at universities now are growing at a slower rate than historically typical, they still are rising after inflation adjustment – annually about one percent (public schools) or two (private schools). The actual decline in enrollments last year (and possibly this year) has softened demand, but universities are very reluctant to slow their reliance on tuition revenues. That may be changing -a few schools have announced rare tuition reductions for next year. To really do that, though, schools are going to have to really cut costs – not merely reduce the rate of increase.  The pressure to ax administrators, increase teaching loads, get rid of low enrollment majors, etc., is growing.

More Out-of-State Students

In 2000, private research universities were much more tuition dependent (38 percent of revenues) than public ones (27 percent); a decade later, a majority of that difference had disappeared (private schools got 39 percent, public ones 35 percent from tuition). Since out-of-state tuition fees are higher than in-state ones, almost certainly all of the 17 flagship schools with at least 40 percent out-of-state students (including such major state universities as Michigan, Wisconsin, and Colorado) are more dependent on out-of-state tuition monies than they receive from in-state students. State schools are becoming less state-centric, reaching out of state in order to gain tuition revenues.

Colleges increasingly complain about a lack of resources. At public schools, they point to stagnant or falling inflation-adjusted state appropriations. At private schools, they emphasize that endowments in real terms are lower than a half dozen years ago, 2007. Yet the overall “bottom line” is one of rising per student revenues, even adjusting for inflation. In the first decade of the 20th century, the College Board data show that institutional revenues per student adjusting for inflation rose by 14.2 percent at public research universities, and even more (19 percent) at private ones. Resources were expanding -except at the community colleges, where they did in fact decline. At a time when most of the American economy saw a decline in the resources needed to produce one unit of output because of productivity growth, higher education required ever greater amounts of resources to educate a student. While it is true colleges also do many other things -research, medical services, food and dining operations, entertainments (e.g. ball throwing contests)–supposedly teaching is “job one.”

The Big Rise in Room and Board

The soaring price of room and board is particularly revealing. Suppose over the 25 years from 1988 to 2013, room and board charges rose only at the national inflation rate for food and housing services (which was very close to the overall inflation rate). In 2013, average total charges (tuition, room and board) for students at American public research universities would have been 21 percent lower.  About 40 percent of the real (inflation-adjusted) increase in college costs was in the non-instructional area of housing and food service.

Why did room and board costs rise so much? Three explanations come to mind.

  • First, colleges are experts at providing instruction and doing research, but they are extremely inefficient at running hospitality operations.
  • Second, colleges have inflated food and lodging charges to earn income used to finance other operations (or perhaps pay for capital expenses). In other words, these rising charges are a disguised tuition increase, with the disguise used to damper already strong negative public sentiment about growing stated tuition charges.
  • Third, more luxurious housing and food goods and services are being provided to students.

My guess is that all three explanations above have some validity. They show the importance of non-instructional factors in the tuition cost explosion. The purest element of instructional costs is faculty salaries: faculty salaries per student have risen a bit over time with modestly higher faculty to student ratios and some increase in real faculty compensation. But the increase over the past decade, which varies a good deal from college to college, is seldom as much as 50 percent in inflation-adjusted terms -way below the over 100 percent increase in stated tuition fees.   A central reason college has become more expensive is that college is less and less about learning (instruction), and more and more about other things -much to the detriment of students and their parents.

(Photo Credit: Clark Community Volunteers)

The Collegiate Learning Assessment–Let’s Support It

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Surveys suggest, unsurprisingly, that most students go to college to acquire job credentials, not to pursue  deep learning or ponder eternal truths. The biggest problem: that credentialing is extremely expensive–usually between $100,000 and $200,000–and doesn’t indicate much. Given today’s non-selective admissions policies, grade inflation and lax college academic standards, a college diploma doesn’t tell us what it once did.

Enter the Council for Aid to Education and their new Collegiate Learning Assessment Plus (CLA +). For a modest fee, students can take this 90-minute test designed to reveal their ability to critically analyze and evaluate solutions to problems. I have personally examined a sample test question and on that limited exposure think the CLA is probably a pretty good instrument.  Holding a college degree is a little bit like being pregnant: you either are, or are not.  The CLA gives the test-takers, colleges, and, most importantly, future employers, more precise information on performance, since the test is graded like the SAT, on a scale with many possible scores.

None of this would be necessary if one of two things had happened. First, historically employers could get a pretty good idea of the industriousness, intelligence, and discipline of students from the grade point average (GPA). A 3.0 “B” average, for example, once meant a student was “pretty good,” above average in academic performance and likely to be a serious candidate for a responsible position. Today with average GPAs above 3.0 and with students working about 25 percent fewer hours on academic matters than decades ago, a 3.0 student is probably “so-so to mediocre,” but there is some uncertainty because some fields (e.g., engineering, economics) have been less infected with the grade inflation disease than others.  In the College of Education at my school, where the typical course grade is a A-, a “B” student may border on being illiterate.  Yet for those economics majors who take tough courses with no-nonsense instructors, today’s 3.0 student is probably still above average compared with peer students and most likely capable of reasonably rigorous thinking and analysis.

Second, the courts, aided and abetted by the other branches of the federal government, have largely destroyed high-quality employer testing of job candidates. Four decades ago, in Griggs v. Duke Power, the Supreme Court outlawed testing that had a “disparate impact” on minorities. Such testing was an effective and inexpensive way of learning about the job potential of students and other job applicants. After Griggs, educational credentials became the dominant way of narrowing the pool of applicants for jobs. The problem, of course, is those credentials are hugely expensive to earn these days, so the information costs associated with hiring workers is astronomical. Employers, however, feel that they have little incentive to change the system because it is the employee (college student) who seemingly bears those costs, not the employer. In reality, however, employers ultimately pay, inasmuch as they must pay big wage premiums to get college graduates. Those wage premiums are the way college graduates recoup the expense of becoming credentialed.

Enter the CLA + examination. This is a new way to bring what should be legally permissible testing back into personnel decisions. Moreover, the beauty of the test is that, at least in theory, it could be taken anytime -after high school, in the middle of the pursuit of a degree, or as a mature adult.

Could we do even better than the CLA+? I think ideally, students need to demonstrate that they know how to think and reason correctly, but also that they have a basic stock of cultural capital that allows them to communicate and navigate well in our society. That means a bit of knowledge about our political system and its evolution, our historical heritage, the major consequences of scarcity (economics), basic mathematical skills, and even a little bit about the great writers and philosophers who have informed and strengthened our civilization. How about 3 hours of testing, the first 90 minutes a written essay examining for critical thinking skills (the CLA + would work), and the second 90 minutes test of general knowledge over material a college graduate should know? This could be largely a multiple choice test of perhaps 80 or so questions.

As something becomes costly, people look for substitutes. Although the CLA + is not being advertised as a substitute for college degree certification (rather, as a supplement to it), discerning employers might find it is at least a good a predictor of employee potential as the degree, leading them to be less interested in degrees and more interested in test results. If and when that happens, colleges will indeed be in trouble and the face of higher education likely will change significantly.

(Photo credit: Straighter Line.)

Is the University of Virginia Going Private?

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It was bound to happen sooner or later: an important committee at the University of Virginia (UVA) has recommended the de facto privatization of the institution. Specifically, “The University of Virginia and its supporters should initiate a process designed to change the status of the University from a state controlled…and supported entity to a state affiliated or state associated institution.”  This is what the “Public University Working Group” is proposing as part of a strategic planning initiative.

In 2005, Virginia began a modest but real partial privatization, and the law school and Darden School of Business consider themselves essentially independent of state control now. And the University’s demographics more resemble those of an elite private school than a typical state university. The percent of students receiving Pell Grants is the same as at Yale and Dartmouth -UVA is, to a considerable extent, already a school for relatively affluent kids. The four-year graduation rate at UVA is 87 percent, identical to the Ivy League average, compared with, say, 26 percent rate at Virginia Commonwealth University.  The school gets roughly a tenth of its income from the state now, so the financial consequences of a gradual privatization need not be dire. And, as the report clearly hints, the school hopes and expects more private control will enhance philanthropic donations.

Seems Private Already

Virginia’s endowment already approaches $5 billion, or $250,000 a student. On a per student basis, this is about as high as it gets in public higher education (the University of Texas has a much larger endowment, and the University of Michigan a modestly higher one, but both have much larger enrollments.) It is similar to that at Ivy-League Cornell University.  UVA looks like a private school, acts like a private school, so why shouldn’t it be a private school, albeit one with a bow to its historic mission as a public institution serving Virginia residents?

As part of the deal, UVA would give up receiving direct appropriations from the state, in return for a lot of freedom from state imposed constraints. It would ask the state to appropriate funds for tuition discounts for Virginia residents. But it wants to abolish the in-state tuition fee, going to a single tuition charge (with maybe some increments in certain academic areas). It wants the right to expand significantly out-of-state admissions.  It would propose ending the currently rather dysfunctional arrangement for selecting members of the governing body, the Board of Visitors, to having a significant proportion of them NOT selected by the governor.  It suggests that criteria be established for board member selection. I personally would hope the current short (four-year terms) might be extended a bit, to say six years, to give the board greater institutional memory and stability.

The Problem of Elitism

On the whole, this is a good proposal. The single most potent legitimate objection would be that it expands an already troublesome elitism that the institution’s founder, Thomas Jefferson might find abhorrent and is contrary to the historic mission.  I think if properly constructed, the opposite would be the case.  Instead of merely paying part of the tuition of in-state residents in lieu of direct institutional appropriations (the apparent committee proposal), give “University of Virginia Commonwealth Scholarships” that would be a voucher varying with income.  Suppose the average scholarship is $12,000 and is given to 10,000 in state students. Give poor kids who are accepted perhaps $25,000, which, with Pell Grants would make UVA virtually tuition free, but give kids from families with incomes above $150,000 (I suspect a majority), maybe only $5,000 in tuition remission.  This would probably further the Jeffersonian vision of accessible higher education for able but relatively poor students more than the current system, and would still provide some tangible support for bright, able kids from affluent Virginia families.

Will this plan be adopted in, say, the next couple of years? I wouldn’t bet on it. The political obstacles are substantial at two levels -within the UVA community and in the state capital (and I would give even money that President Obama would weigh in against it given his aversion to privatization). Universities are notoriously slow to react, and faculty members, even at UVA, are predominantly liberal and thus suspicious of privatization. Frankly, I think it would be a good deal for the UVA community -they would end up with more money long term and an even more selective student body, enhancing their ratings which are the most obvious “bottom line” in higher education. But rationality and common sense are often short commodities at even the best of schools. The Board of Visitors might be alarmed at proposals on their board’s composition, although given rapid turnover and long time to implementation, those self-serving fears are likewise mostly unwarranted.

William & Mary Next?

What about the broader Virginia politics? At one time, I would say this would be a non-starter; the public nature of UVA is too engrained to allow this seriously discussed. However, I am not so sure now. The possible egalitarian possibilities discussed above might quell some opposition from the left. Generally folks on the right prefer private to public institutions.  Would schools like William & Mary object? My guess is they would not protest too vigorously, because this is model might be adaptable for them too in a few years (if not simultaneously).

University committees seldom have anything worthwhile to say. This is a notable exception. Just as Thomas Jefferson advanced republican government and democracy so eloquently with his Declaration of Independence, this  more bureaucratic and self-serving Declaration of Independence could form a model for other possible candidates of privatization, such as the universities of Michigan (high endowment) or Colorado (huge out of state enrollment).

The Tsunami of Change—Has It Begun?

The great transformation of higher education may be under way. Two indicators: First, the U.S. Census Bureau reported that enrollments at America’s universities in 2012 fell for the first time in years. What the Census did not stress was that the decline was fairly substantial, about 500,000 students, or roughly three percent. Rather the Census, obsessed with personal attributes such as skin color and ethnicity, emphasized how enrollments held up among Hispanics. Second, a survey of more than a hundred higher-education administrators drew a fairly startling result. Asked by the well-known accounting and consulting firm KPMG if they had concerns about maintaining current enrollment levels, 37 percent said yes. This was up from 23 percent last year, itself a rise from the conventional response of just a relative few administrators saying yes.

Continue reading The Tsunami of Change—Has It Begun?