Who Should Be Ashamed?

Congress is jazzed about plan to embarrass colleges with above-average tuition increases. But will the "watch list" identify profligate spenders -- or discriminate against colleges with working class students?
November 15, 2007

Even as they scramble for positions on some lists ("best colleges," "top grant recipients" and so forth) colleges have lots of lists they want to stay off of: AAUP censure, NCAA probation, and others.

The idea that colleges would take steps to avoid being on bad lists is behind a measure drawing bipartisan support in Congress -- and infuriating many college officials. A measure in the bill to reauthorize the Higher Education Act would create "watch lists" of institutions with tuition increases above the average for their sector. The hope is that colleges may moderate increases to avoid ending up on the list -- or be exposed for faulty management if they do. Rep. Howard P. (Buck) McKeon, a California Republican who has been pushing the idea for some time, issued a press release that said the watch lists will "shine a spotlight on excessive tuition increases."

The legislation comes at a time that many in Congress are also raising questions about large college endowments and asking if the wealthiest colleges couldn't somehow spend more of their endowment or other funds and minimize tuition increases. But a review of existing data suggests that the colleges that would end up on the watch list aren't terribly wealthy. Rather, they seem to fall into two groups: public institutions in states where appropriations are tight, and private colleges whose operating budgets are tuition driven because endowments are small.

In fact, while many experts believe that colleges -- and especially the wealthiest ones -- can do more to control their own costs and, in turn, what they charge to students, they point to lots of problems with the dividing lines this bill would draw.

Take the colleges with mega-endowments -- the places some think could afford to be free. Of the wealthiest 10 private universities (a club you need about $5 billion to join), not a single one of them would end up on the watch list. The average tuition and fee increase for private, four-year colleges this year was 6.3 percent and the top 10 in endowment wealth didn't have a tuition rate that hit even 6 percent (five were in the mid-5 percents, and the rest were lower still).

Among the institutions that would certainly not need to worry about ending up on the watch list is Princeton University, which this year froze tuition (although it had a healthy increase in room and board charges, which don't count for getting an institution on the watch list).

But if Princeton has nothing to worry about it with regard to the watch list, Saint Peter's College, in Jersey City, does. Its tuition increase this year is about 6 percent, just below average, and some years the college is above average. So in theory, this is the kind of institution that might be motivated by a watch list and want to stay off of it.

But Eugene J. Cornacchia, the president, says flat out that the watch list would by necessity have no impact on decision making -- although it could hurt the college. Like many of the private colleges that would end up on the list, Saint Peter's is tuition driven. About 90 percent of its budget comes from tuition. So the idea that the college could decide to go down a bit to avoid being on some federal list just isn't realistic, Cornacchia said.

"Our 6 percent tuition increase does not give us any latitude," he said. "It was the minimum amount needed to accomplish what we need to do. It's not like we could do away with even .1 percent of it," he said. Cut the budget, "and it would mean layoffs or reductions to students."

Comparing Princeton and Saint Peter's illustrates the latter's president's frustration. As far as the legislation is concerned, they are in the same category.

But by endowment, Princeton had $13 billion (a year ago) while Saint Peter's has $32 million. Full professors at Princeton earn more than twice what those at Saint Peter's are paid. About 7 percent of Princeton students are eligible for Pell Grants (a good proxy for low-income students) while about 40 percent of Saint Peter's students are. In fact, only 1 percent of Saint Peter's students don't receive aid of some form from the college. (And even with the fact that Saint Peter's had an increase this year, its tuition and fees total of just over $24,000 is much less than Princeton's total of $33,000.)

Cornacchia stressed that he doesn't begrudge Princeton its success and wishes it well at achieving its mission. But that Princeton's ability to skip a tuition increase could set up Saint Peter's for looking bad by comparison in some federal formula is a flaw, he said.

"That's the problem with these kinds of lists that come out. I think of the No Child Left Behind disaster, and we're again developing all sorts of lists based on data which may or may not be related to anything based on education, and it stigmatizes institutions," Cornacchia said.

The gap between Princeton and Jersey City isn't by any means unique. Go to other states known for wealthy private colleges and the situation is the same -- the famous institutions with large endowments will not turn up on the list. In Massachusetts, there is no danger of Amherst, Mount Holyoke, Smith or Williams ending up on the watch list. Harvard University and the Massachusetts Institute of Technology are safe, too. The colleges close to the average or above it (those that would make the list) are the colleges whose endowments are small by comparison and in many cases they are colleges that educate many first generation students -- places like Pine Manor and Emmanuel Colleges or Suffolk University.

Richard Doherty, president of the Association of Independent Colleges and Universities in Massachusetts, said that his state shows the flaws in basing a watch list on percentages. "The smaller schools will get hurt," he said, because they are more dependent on tuition, and more vulnerable to sudden increases in expenses, such as energy costs. It is the colleges with the smaller endowments (which are more likely to end up on the watch list) that have the least flexibility, Doherty said.

"The notion that there are efficiencies that colleges are not trying to pursue currently is just a fallacy," he said.

Some colleges with much larger endowments say that there are other flaws in the percentage approach. Grinnell College, with a billion-plus endowment that tops all other liberal arts colleges, added 15 percent last year to the regular tuition increase and imposed the higher expense on this year's freshmen only (although it will carry on as more classes enroll). The extra funds are being used to forgive more student debt, to change financial aid formulas that students said previously didn't cover the real costs of books and other expenses, to add new scholarships and so forth.

The question for the college as students arrived in the fall was whether the changes -- and the higher sticker price -- would scare off low-income students. Russell K. Osgood, Grinnell's president, said that the striking thing was that the class didn't change at all -- more than 85 percent qualifying for some kind of aid, just as in previous years. To Osgood this suggests that students and parents look beyond sticker price and realize what a small share of students and families pay full price and the percentage increase associated with it.

"What I conclude from the whole thing is that parents and students are quite sophisticated about the net cost of a college," he said. The idea that Congress is somehow saving students from colleges with high percentage increases doesn't make sense when students realize they might be getting something valuable as a result, he added. "All I would say is that I think Congress should take into account that there are all different sorts and kinds of colleges and to identify a watch list based on a single criterion strikes me as unwise or unjustified."

The Picture for Public Colleges

If the key factor private college leaders predict would keep a college off the watch list is wealth, the key factor public college leaders predict is the wealth of a state in a given year. If the watch list existed this year, there would be plenty of Michigan public colleges on it -- with a collapsing state budget and significant cuts, colleges have imposed tuition increases, some of them double digit.

Michigan State University, which took pride a few years back in multiple years of minimal tuition increases, is up nearly 10 percent for state residents.

Terry Denbow, vice president of university relations at Michigan State, noted that trustees at Michigan State are elected in statewide votes and decide on tuition in open meetings. "The transparency and accountability of pure democracy, quite literally, are alive each time tuition is set."

Denbow said that the university's record makes clear that when state appropriations are available, tuition increases are minimal. And when tuition increases are needed, the university has increased financial aid budgets by an average of 4.5 percentage points above the tuition increase.

Putting Michigan State (and most of the rest of public higher education in the state) on a watch list wouldn't really accomplish much, he said. "This would impose an unnecessary burden, administratively and otherwise, built upon a flawed process and homogeneous scorecard for declaring winners and losers," he said.

Similarly, California State University could be headed toward a tuition increase in the 10 percent magnitude -- the kind of percentage that might land an institution on the watch list.

Patrick Lenz, assistant vice chancellor of the system, said that in recent years, Cal State has had increases in the 10 percent range and years of no increases at all. In the latter, the state finds itself taking in more money than projected and "buys out" any tuition increase that would be needed. In years like this one, when reports of the depths of California's deficit continue to increase, the opposite happens, he said.

"I'm really not sure the point of this watch list," he said.

California State's tuition and fees for a year (many Californians who believe in the state's no-tuition philosophy insist on calling the total entirely fees, but it is similar to tuition and fees elsewhere) are well under $4,000 for a year (a figure that is well under the $6,185 average for public four-year institutions). Lenz said that it is legitimate to compare universities on costs, and that Cal State maintains a list of 15 institutions it looks at for comparison purposes -- a group that includes University of Nevada at Reno, Arizona State University, Georgia State University and George Mason University. Cal State costs $500 less than anyone else in the group, Lenz said.

Part of the concern is that colleges wouldn't just get branded was institutions that need to be watched, but would have to spend more money as a result. Each institution would have to create a “quality efficiency task force” that would have to analyze the ways in which the institution is operating “more expensively to produce a similar result” as its peers. Institutions whose percentage increases would place them on the list would be exempt if they are in the bottom quartile for their sector or if their dollar increases don't top $500 over three years, an exemption expected to help many community colleges, where the average increase in actual dollars this year was just $95.

Sandy Baum, a Skidmore College economist and senior policy analyst at the College Board, said that there are many types of colleges that would not change behavior because of the watch list. The wealthiest colleges -- those seen by some as contributing to an "arms race" in which new programs and fancier facilities multiply -- will be able to continue that arms race without getting on the list, she said. And colleges without much money (either private institutions or publics in tight budget cycles) have real constraints on their prices.

There may, however, be a group of private colleges that are in between -- not totally tuition dependent, but not with billion-dollar endowments either. Some of those institutions, she said, might be motivated to try to carve a bit out of tuition increases to stay below average on price. But Baum said it was hard to predict.

Ronald G. Ehrenberg, director of the Cornell University Higher Education Research Institute and editor of What’s Happening to Public Higher Education (Praeger, 2006), said the key question for colleges would be whether being on the watch list had an impact on the behavior of potential students. For colleges that have desirable qualities, he doubts that it will.

"If you the student are trying to make a decision to go to X vs.Y, and X is a shamed institution on the list and Y is not, is that going to affect your decision at all, if X promises you more in terms of educational opportunities and potential for earnings and graduate school education. In a way, I don't think it's any different from the way continuing raising high tuitions have not kept the number of applications to selective institutions from going up," Ehrenberg said.

The potential benefit of the watch list may be rhetorical, he added. "If this is just a way of calling attention to higher education about trying to be efficient and hold down costs, maybe it will serve some useful function," he said.

Just about everybody interviewed for this article -- including several who didn't want to be quoted for fear of attracting attention to their institutions' rates -- said that there are colleges, public and private, charging too much and deserving of more scrutiny. The problem, they said, was that the proposal advancing in Congress appears likely to point fingers in the wrong direction.

Baum said that the proposal reflected the wide consensus that the problem is real. "I'm sympathetic to the idea we have to do something to slow this down," she said. "I don't know that anybody has a good answer to what the best approach is."


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