Student debt has emerged as a major focus of the protests. Some worry that prospective students are hearing the wrong message -- while others see important shifts in the political debate about borrowing.
Submitted by Lynn Adler on March 28, 2005 - 4:00am
Many parents ask about the differential benefit their children might get by attending an expensive private college or university. Prestigious private institutions have elaborate facilities, luxurious appointments, constant attention to student needs and desires, and small classes. They also carry high sticker prices.
Other private colleges struggle to stay afloat financially, unable to charge enough in tuition and fees and too poor in endowment to subsidize the kind of elite-style education often associated with the words "private college." Public universities also vary dramatically in what they charge, what students actually pay, and what amenities and services they provide.
Consumers, the parents and students, struggle with the data, which are never clear, and seek to find the best possible match between a student’s abilities, temperament and style and an institution's capabilities and charges. Any reasonable judgment becomes difficult because we have no reliable method for determining the value of the educational product generated by either public or private, large or small, rich or poor institutions.
Parents and students in the marketplace for higher education seek a prestige, luxury education for a bargain price, and work to identify subsidies that will offset the real cost of a luxury education. These subsidies come in many different forms, and while much attention focuses on merit scholarships and need-based financial aid, institutions manipulate their prices and costs in other ways that disguise the full subsidy involved.
Private institutions, whose discount rates among the most prestigious institutions reach an average of perhaps 40 percent, but fall to much lower rates among less wealthy colleges, subsidize educational costs through payments from the earnings on their endowments. As a result, the price a student pays at a wealthy private institution, even at the sticker price, is less to much less than the actual cost of instruction.
Public universities also subsidize the cost of higher education. Their legislatures will subsidize tuition, providing a low rate for in-state and a high rate for out-of-state students, clearly reflecting the subsidy. Big public universities have other subsidies as well, some of which they share with their private elite counterparts. Their research enterprise supports faculty, graduate programs and facilities available to undergraduates who choose to take advantage of them. Their endowments bring better faculty and better facilities than the revenue generated from students and state could afford, and the size of the big publics and the larger private institutions allows them to cross-subsidize a wide range of niche academic specialties that smaller institutions cannot support.
Prestige public and private institutions also subsidize non-academic enterprises such as major sports programs and a wide range of cultural enterprises from theaters to rock concerts to art galleries.
What about quality? Quality in higher education at the undergraduate level is an elusive measurement. Some measure undergraduate quality by focusing on variables that measure how much is spent per student, how many students are in a class room, how high the quality of the participating student are, or similar items that speak to the nature of the process that moves the student through the system rather than to a direct measure of the value of the education delivered. The evidence to support this relies more on faith than any science.
What we do know is that like all luxury goods, small classes in elegant surroundings are surely more comfortable, more graceful, more convenient and more personalized. Like a luxury Mercedes, the expensive education, whether purchased from an elite private or out-of-state at elite public institution, may be more costly, more comfortable, more elegant, and more prestigious than an educational Chevrolet, but the luxury features contribute little to the effectiveness of moving passengers to the supermarket.
Many studies have attempted to identify a major difference in the outcomes from attending expensive private institutions or attending high quality public universities in-state at half the price. Few of these find any significant difference in the outcomes, and in most cases the differences that do exist usually appear to reflect the differences in the wealth and opportunity provided by the students’ family circumstances before they enter college rather than any particular enhancement that comes from the luxury process of education.
Universities and colleges have no magical power. The value of the education acquired at most middle to upper ranked schools (by any criteria) is mostly dependent on the commitment and focus of the student rather than on the miraculous power or luxury characteristics of the institutional process. Moreover, most colleges and universities sell a commodity product, an education that at its core is fundamentally similar between institutions. The amenities may differ -- luxury dorms, elaborate student centers, complex and fully equipped recreational facilities -- but the chemistry and English classes are pretty much the same.
Luxury is a good thing if you want it and can afford it. If someone will deliver a Mercedes for the price of a Geo, why not ride for the four years in style? Nonetheless, if you find yourself in a Geo, you will get to the supermarket at almost exactly the same time as your friends in the Mercedes. What you do when you get out of the car, however, depends almost entirely on you, not on the luxury of your ride.
Last week, the College Board released its annual Trends in College Pricing report, finding that tuition at the nation’s public four-year colleges and universities had risen 6.6 percent, which is roughly equivalent to previous years but continues to far outstrip inflation and increases in family income.
Media coverage of college affordability almost invariably takes its cues from this report, focusing on the “sticker price” that colleges and universities charge students. But tuition alone is a relatively superficial measure that hides as much as it reveals, since it responds to changes in state allocations, political factors and fund raising success.
What has gone mostly undiscussed is escalating spending on college campuses across the country. A public discussion focused on tuition – the price of the education – gives institutions a free pass on how they spend the money they raise. Furthermore, this discussion reinforces the assumption that spending increases follow some sort of natural progression. But this is not the case. Spending can and must be contained if the price of college is to be brought under control.
This message is falling on deaf ears today in part because last year was a good state appropriations year for colleges and universities. But even in bad years, public institutions are raising spending. Today, higher education is a “seller’s market.” Demand for college has never been higher, and families are willing to take on dangerous amounts of debt to get their children through.
However, the willingness of families to reach deeper into their pockets is reaching a breaking point. Recent polling by my organization, the National Center for Public Policy and Higher Education, and Public Agenda shows that the public is concerned about how colleges and universities spend their money. Most Americans (83 percent) believe that today’s colleges should be doing a much better job of keeping their costs down. More than two out of three (68 percent) believe that colleges and universities could reduce their costs without hurting the quality of the institutions.
The American public is onto something. But many institutional leaders have not been willing to look under the hood of higher education expenditures. Typically, leaders have used a range of excuses to deflect questions about spending. Some common excuses, and my responses to them, follow:
Increases in tuition reflect the high demand for postsecondary education and financial aid keeps the net cost to families under control. Public college and university leaders think there is no crisis in higher education so long as there are students and families willing to pay. But tuitions at four-year public institutions have risen 22 percent in the past five years, after adjusting for inflation, while family incomes have increased only 8 percent. What’s more, need-based financial aid is not keeping up with increases in tuition, pricing many poor families out of higher education. Continual price hikes may respond to market forces, but do not honor the public mission of state colleges and universities.
Higher education is a labor-intensive industry and faculty salaries and health care costs are behind most of the recent run-up in spending. Because institutions use humans to pass on knowledge, historically a greater proportion of their budgets have gone to salaries and benefits than in other industries. But this is not where most of the spending growth is occurring. Faculty salaries have barely kept up with inflation for the past 10 years. Last year, faculty salaries rose on average 1.3 percent after adjusting for inflation – the first inflation-adjusted increase since 2003-2004. In addition, the use of cheaper part-time faculty is growing fast, now making up 48 percent of all faculty, according to the American Association of University Professors. On the other hand, universities are spending huge amounts of money on construction – for new dorms, new athletic facilities, and new student centers– as part of an “amenities arms race.” And administrative overhead at many universities has ballooned, due to an explosion in niche student services and fund raising apparatuses. It is doubtful that these developments have improved student learning.
There is great competition for applicants nowadays, and we have to spend to compete for the best students. This is probably the most common excuse offered by leaders at state flagship universities, but they are not referring to competition with other state institutions. Rather, leaders at public research universities are increasingly viewing themselves as competitors with private research universities such as Duke and Stanford, or even Ivy League institutions. These leaders feel that they can only “compete” if they offer the same amenities and practice the same aggressive recruitment tactics, including lavish merit aid for high performing students, which takes resources away from low-income students. Instead, they should refocus on their educational mission, and the advantage that public institutions have always had: the availability of need-based financial aid and the opportunity for a great education. Prospective students seeking high quality education at low cost will be smart enough to know the difference between style and substance.
There’s no political incentive to take on cost containment. Most institutional leaders don’t want to touch this issue because it almost inevitably leads to faculty concerns that they will be expected to do more for less. Faculty will revolt, if “cost containment” means across-the-board budget cuts. In cases where institutional leaders have contained spending and reinvested savings in teaching and learning, faculty have been very supportive. The University System of Maryland is a case in point. Chancellor William E. (Brit) Kirwan got faculty support for the Effectiveness and Efficiency Initiative, which identified areas for cost savings and redirected those savings toward priorities such as increasing enrollment capacity, containing tuition increases, and improving academic programs and services for students. Even though faculty teaching loads increased 10 percent, faculty largely supported the measure, because it was focused on improving student learning.
At the state level, lawmakers and system heads don’t want to engage cost because it requires a restructuring of higher education finance. States base appropriations on students enrolled, which encourages spending on amenities and recruitment -- not students graduating.
Where there have been incentives, universities have proven capable of cost management. In the 1990s, the Illinois Board of Higher Education established the Priorities, Quality, and Productivity initiative, which re-evaluated all academic programs with an eye to institutional priorities. Elimination of duplicative programs, technology enhancements, and administrative streamlining resulted in savings averaging $36 million annually. As at Maryland, faculty came to support PQP because the savings generated were reinvested in instruction. These funds were most often used to reduce class size and reliance on graduate teaching assistants; support minority student achievement; improve technology; and expand need-based financial aid.
My hands are tied, because the biggest decisions are made at the state level. Big decisions about allocations are made at the state level, but institutional leaders have a lot of discretion about how that money is spent. While there aren’t many incentives for cost containment now, there also isn’t much oversight of spending requests. Institutional leaders have lots of room to maneuver on this issue.
Cutting spending hits disadvantaged students hardest. Cutting spending only hits disadvantaged students hardest if need-based financial aid is the first target. In fact, cost containment, if it focuses (as it should) on increasing instructional spending, boosting degree completion, and streamlining administrative processes, can make public higher education work much better for disadvantaged students. That is because these are the students most likely to have trouble completing degrees and to have the most interaction with administrative offices.
There is another major reason why colleges are not acting on this agenda. There is too little data about how spending impacts learning. In contrast to business or the military, how inputs affect outputs is poorly understood in higher education. New research being conducted by the Delta Project for Postsecondary Costs to be released next year will set the basis for looking at the relationship between spending and student success.
But the lack of data is no barrier for action. We don’t need to wait for longitudinal studies to know that more spending on full-time faculty and need-based financial aid will impact student learning more than a glitzy new dorm.
Taking a hard look at the evidence shows that it is time to focus on college spending patterns and that there is a lot college leaders can do right now to contain the spending that drives up college prices. Many of the problems originate at the state level, but bold leaders will take action regardless of incentive structures and political rewards. It is time to expect more of college and university leaders than we do now.
Patrick M. Callan
Patrick M. Callan is president of the National Center for Public Policy and Higher Education.