Academics have historically balked when confronted with suggestions that the education system is a business and should be treated as such. They speculate that placing a monetary value on an entity with a deep, intellectual purpose diminishes the overall significance of learning. They claim that you cannot quantify the positive benefits of a degree.
But this is not the case. Education, particularly higher education, is a business, and one of the few left in this country that guarantees a positive return. To call education a business isn’t to undermine its importance to our country and citizens — it provides the proof that our higher education systems should be a top priority, if not the top priority, for government spending.
Quite simply, the future of our economy depends on well-educated workers. More than 59 percent of jobs today require some postsecondary education, yet these degrees are becoming increasingly difficult to attain. We must evaluate higher education based on the return institutions generate for the country both in terms of absolute dollars and competitiveness.
Public higher education depends on state and federal budget allocations. We have a choice as to how we distribute these public funds. By continually prioritizing Social Security, health care, and defense spending over education, the government is indirectly hindering an increase of college graduates that our economy so desperately needs. By 2018, 63 percent of jobs will require a college degree, but we are likely to fall 3 million graduates short of what the market demands, according to a recent study.
Today, the federal government spends approximately $30 billion annually subsidizing enrollment in higher education institutions, with most of the money spent on financial aid, and roughly 8 percent going to grants to institutions. According to a Cato Institute Study, the federal government also provides approximately $30 billion to U.S. universities to fund research projects. While these are certainly hefty investments, combined it means the government only contributes 14 percent of the total dollars — $420 billion — that flow into higher education institutions.
Higher education is the best investment we can make for our country’s future. But are we doing enough to support educational institutions and students? Higher education provides annuity-like returns for 40 years — the working years of most graduates. Over the course of an average lifetime, a holder of a four-year-equivalent degree (the weighted average of associate’s, bachelor’s, master’s, professional, and doctorate degrees) gives the government $471,000 in income, payroll, property, and sales tax revenue. You certainly can quantify the value of a degree: that’s more than twice what it would collect in lifetime taxes from a high school graduate lacking a college degree, according to a University of Maine study.
In California, for instance, every dollar the state invests in higher education leads to a $3 net return on investment. The University of California System (UC) contributes more than $14 billion in California economic activity and more than $4 billion in tax revenues each year, not to mention the impact from UC-related spinoffs. Further, the California State System (CSU) ensures businesses get the trained workforce they require — CSUs graduate 45 percent of the state’s computer and electrical engineers. Despite this, the UC and CSU schools have seen a 28 percent decline in state support between fiscal years 2007-2008 and 2011-2012, according to a study done by the Stanford Institute for Economic Policy Research.
Higher education graduates help fuel innovation that creates new jobs. Research universities contribute new technologies — from Internet search algorithms to genetic coding — and file thousands of patents annually. The American Recovery and Reinvestment Act (ARRA) of February 2009 provided some funds for higher education (mainly to prevent states from reallocating education dollars for other purposes). However, these funds are miniscule — less than a percent — in comparison to the total funding for research universities, according to the Washington Higher Education Coordinating Board.
If the government should plateau on its investment in higher education, we’ve raised the risk level of our current investment. When endowments are down and state governments cut funding to state universities, tuition rates rise and the likelihood of students not graduating increases. According to the American Institutes for Research, students who started bachelor degree programs in the fall of 2002 but failed to graduate in six years cost the students approximately $3.8 billion in lost income in 2010 alone.
A recent Inside Higher Edblog post discusses an interesting approach to lowering tuition costs while increasing the numbers of students able to enroll in universities and earn degrees, using a simple supply and demand model. Approaching the problem from an economic standpoint does not undermine the importance of receiving an education; it highlights its very necessity, and makes it more accessible.
As taxpayers, we need to be asking about our tax dollars’ return on investment. From 1987 to 2006, we doubled federal support for Medicaid in state budgets — increasing these funds from 10.2 percent to 21.5 percent — but decreased federal expenditures for higher education from 12.3 percent of state budgets to 10.4 percent, according to a University of California study.
We need to have a conversation about education similar to the national debate we had about the automotive and financial industries. We should not view education expenditures as discretionary dollars that we can increase and decrease at will, but rather as the most dependable, profitable, and ultimately, important investment our government can make.
Mehdi Maghsoodnia (@mmaghsoodnia) is CEO of Rafter, which provides software tools for cloud-based distribution of course materials. Rafter is also the parent company of textbook rental service Bookrenter.com.
The Committee for Economic Development’s (CED) new report, “Boosting Postsecondary Education Performance,” was not written in the spirit of Warren Buffett. Nor of Paul Volcker. More’s the pity. For if the report’s authors had acknowledged that trying to substantially boost performance without boosting investment is an unrealistic business plan, they would have seized the opportunity to change the national conversation to stimulate genuine growth and affordable, quality higher education.
Nevertheless, the CED has performed an important service in three regards. First, the report focuses on “broad access institutions,” which means “less-selective, less-expensive regional public and private colleges [and universities], community and technical colleges, and for-profit colleges.”
Too often, policy makers feature flagship publics, as if our future depends only on them. Research universities are important, particularly in graduate and professional education, creating new knowledge, and in the generally overlooked but essential role of preparing professors, the academy’s producers of value. But too much public policy privileges the already advantaged (compared to access institutions) flagships. Even the Obama administration, which has focused on community colleges, has overlooked four-year access institutions. Yet our success hinges on them.
Unfortunately, the CED report continues some policy makers’ misconstruction of for-profit universities as efficient. It is a false efficiency. As a sector, these institutions are VERY expensive to students and to the government. They have high tuition and they live largely off massive infusions of federal student aid. Disproportionate numbers of their students default on their loans at the government’s, not the corporations’ expense. That is a Wall Street bust model: high fees to average consumers, high defaults on loans for which the government and taxpayers pick up the tab.
A second contribution of the report is in emphasizing the importance of a system focus in state policy making, moving “beyond a one-institution-at-a-time approach to state policy.” Part of that focus is grounded in understanding, in contrast to too many state policy makers, that higher education is a valuable asset, pivotal to our future, not merely a cost to be minimized. With some important exceptions, most states have failed to develop policies that provide an integrated strategy for fostering affordable access to a quality higher education and ensuring a rational division of labor among institutions (a conclusion shared by Laura Perna and Joni Finney’s state policy project). The report could have extended that integration to include K-12 education, and it could have spoken more to articulation/transfer. In calling on business leaders, it could have focused on medium/small business leaders. But at least it got the systemic focus and higher education’s value as a public good right.
A third contribution, though it likely will be lost in the rush to performance measures and “dashboards,” is the report’s recognition that “There are no proven models of state success in addressing these issues; and for that matter, one size does not fit all.” If state policymakers latch on to that phrase, internalizing the recommendation that “the strategic plan should provide wide latitude for institutional innovation through initiative and implementation,” this will be a major benefit.
More likely, state policy makers will interpret the report to embrace a simplistic outcome measures-gone-wild approach that leads postsecondary education further down the path of the narrow numbers-blinded, short-term productivity/profit-margin-minded thinking that plagues some sectors of the corporate economy. That approach characterized Wall Street as it sought innovations (e.g., derivatives, subprime mortgages) to boost “productivity.”
That sort of net-tuition-revenue-maximizing thinking is moving many colleges and universities away from the lower income students who are the country’s growth demographic, in pursuit of students able to pay more, with less financial aid. The CED critiqued this mentality in business, in its report, “Built to Last: Focusing Corporations on Long-Term Performance.” But it offers no cautionary note for higher education.
The new CED report misses a major opportunity to seize the historical moment. The country desperately needs enlightened business, academic, and government leaders to acknowledge that doing considerably more with no more resources is an emperor that has no clothes.
Instead, the report offers “new normal,” magical thinking as realism: “Realistically, however, given the severe budget pressures facing the states, the prospects of significantly greater public funding of postsecondary education in the short to medium term are poor.” It recommends that: “It is critical, therefore, that postsecondary institutions strive to boost their performance through productivity gains and innovation without relying heavily on new money to underwrite improvements.”
New normal thinking is provided despite noting that “public colleges and universities in some states are turning away large numbers of applicants because they cannot provide enough classrooms and instructors to handle them.” The number (about 400,000) in community colleges alone is staggering (see report of Center for the Future of Higher Education). It is provided despite the acknowledged value created by higher education that would justify increased investment. And it is provided despite the fact that the historical higher education transformations it identifies (e.g., land grant colleges, and post-WWII G.I. bill and building community colleges and four-year access colleges) required significant public investment
Although state support is at historic lows, the report suggests the U.S. already spends enough on postsecondary education, citing high average expenditures as a percentage of GDP compared to OECD countries. Yet this average ignores the steeply stratified U.S. pattern, with access universities getting the short end of the stick). The issue is inequity and “growing imbalance,” not inefficiency. The CED report could have called for redistributing appropriations on the margins to favor access institutions. It could have called on states to maintain their level of investment, rather than continuing to hack away at postsecondary budgets in an austerity strategy that undercuts our future. And it could have called on businesses to invest in the limited/nonexistent endowments of access institutions, instead of further feathering the endowment nests of the elites.
Such new-normal advice is ironic coming from a group including corporate leaders from the financial sector and companies serving it. Three-plus years ago, the nation boosted, or stimulated, Wall Street with a bailout that had no strings. Yet the CED’s CEOs’ formula to boost performance on College Street entails no infusion of monies while tightly attaching strings to colleges, though, unlike Wall Street (or Detroit), they have increased their productivity amid, in relative terms, declining state appropriations, downsized full-time faculty, and high demand from students/customers.
Increased productivity trends are particularly evident in broad access institutions. They have re-engineered their production of education: hiring increased proportions of part-time, contingent faculty; extensively using on-line distance education; experiencing record student demand and enrolling most of the national increase in student population, thereby significantly increasing student/faculty ratios. All with less public investment. Access institutions are already doing a lot more with a lot less.
What would Buffett say to the boost-performance-with-less-investment advice? Or Volcker? The time is ripe for an enlightened set of business leaders to take up the mantles of these elder business statesmen. Both have put on the agenda the need for more revenues. Buffett proposes that additional monies should come from the wealthiest Americans paying their fair share of taxes. Volcker has also supported new taxes, but also proposed the “Volcker rule,” restructuring and regulating the financial sector.
The CED could have proposed two sets of measures. One would increase the tax rate on the wealthy and close tax loopholes benefiting the largest corporations. The U.S. individual income tax rate for the wealthy is historically low, lower than for middle and working class Americans. Collected corporate taxes (versus the formal tax rate) are also low. Indeed, reports have highlighted the “Dirty Thirty” Fortune 500 companies that pay no taxes (or get refunds), contributing to federal and state budget deficits. The CED could have called for closing tax loopholes that enable companies to pay little or nothing despite increased profits. That might have been hard given that “Dirty Thirty” companies such as G.E., Wells Fargo, Fed Ex, Honeywell, American Electric Power, and Tenet Health Care, are on its board and committees. But it would have been fair.
A second set of measures would restructure the financial sector and higher education’s priorities. In the former, a financial transactions tax could serve as a disincentive to the proprietary trading activities that led to the collapse. Some revenues could be directed to schools and access institutions. In higher education, just as the Volcker rule separates proprietary trading from the traditional functions of banks to protect the core and the customers, colleges and universities should refocus monies on their core, academic functions, to the benefit of students, reversing 30 years of reduced shares of expenditures going to non-educational programs and personnel.
In not proposing such “disruptive innovations,” the CED report guarantees that the system will continue to operate on a C.O.D. basis -- collecting on the delivery of education, from students. That will further shift the burden to middle- and lower-income families, rather than requiring the wealthy and large corporations to bear their fair share of investing to boost access to affordable, quality higher education, for the public good.
Gary Rhoades is professor of higher education at the University of Arizona’s Center for the Study of Higher Education. He also directs a virtual think tank, the Center for the Future of Higher Education.
Kentucky's restrictions on university debt, at a time when many public universities are turning to bonds in lieu of state funding for capital projects, further hinder construction at state institutions.
Submitted by Tim Bishop on March 15, 2012 - 3:00am
America’s leadership in the global economy depends on a highly skilled, highly educated workforce. That’s why taxpayers support aid for higher education. But taxpayers rightly demand that their dollars be spent only on bona fide educational programs, and students deserve the opportunity to be educated, not just enrolled.
The Department of Education has a fundamental responsibility to taxpayers and students to make sure aid dollars are spent appropriately. Therefore, I and many of my colleagues have deep concerns about legislation passed last month in the House of Representatives that would limit effective oversight of the nearly $200 billion in student financial aid granted or guaranteed each academic year by the federal government.
Known as the “Protecting Academic Freedom in Higher Education Act” (H.R. 2117), the bill takes aim at the federal minimum standard for a “credit hour,” the basic unit for evaluating instructional programs. This bill would not only repeal the current regulations on what constitutes a credit hour, which are eminently reasonable, but also prohibit the Secretary of Education from ever promulgating a regulation in the future.
I am also concerned by the bill's repeal of the Department of Education's state authorization regulations, including vital consumer protections. The federal government has always required that colleges and universities be authorized by their states in order to receive federal aid funds, and current regulations stipulate that States must have a process in place to evaluate student complaints. Both of these common-sense requirements would be repealed by the bill.
Under the bill, for example, my home state of New York would have no recourse if a university based in a state with less stringent quality and curriculum requirements began operating a distance learning program that enrolled New York students. In short, the bill would make it impossible for states to guarantee the quality of programs operating inside their borders.
Federal regulations define an academic year as consisting of 24 to 36 credit hours and mandate that a student must carry at least 6 credit hours to be minimally eligible for financial aid. So if this bill became law, the government would determine eligibility for financial aid using a unit that is completely and permanently undefined. That situation is not only nonsensical, it also represents a threat to the government’s ability to police institutional fraud in the higher education industry.
Two years ago, the Department of Education's inspector general found that some colleges were awarding students more credits than they had actually earned, which allowed the institutions to collect more financial aid than they deserved. In response, the Department of Education formulated a reasonable minimum standard for the credit hour based on the so-called “Carnegie Definition” of instructional units, which has been widely used for decades. The federal regulation is also virtually identical to a regulation in place in New York State since 1976.
The regulation defines a credit hour as the amount of work represented in intended learning outcomes and verified by evidence of student achievement that is an institutionally established equivalency reasonably approximating not less than one hour of classroom instruction for 15 weeks per credit hour. The regulation’s use of the phrase “institutionally established equivalency” places the responsibility for determining what a credit hour is, within the context of a broad federal framework, where it belongs — with the faculty and with the accreditor of that particular institution.
I am very familiar with New York’s regulation, as I administered a college in Long Island for many years before I was elected to Congress.
Our cost of compliance with the credit-hour regulation was exactly zero, and we were able to create innovative programs including a semester at sea, cooperative education, internships, and courses that met in compacted time formats for 4 and 5 weeks -- all because we established an institutional equivalency that was sanctioned by our faculty, our accreditors, and -- for that matter -- the regulators in the State of New York.
The contention that this regulation stifles academic freedom and innovation is disproved by the record of New York’s internationally prominent colleges and universities over the past 35 years. The argument that it adds to the length of time students must spend in their degree program is simply not true.
What the regulation actually does is protect students and taxpayers from bad actors in the higher education industry who seek to profit from federal student aid funding while providing a substandard education to students. Furthermore, the permanent prohibition on regulating credit hours is effectively an invitation to future waste, fraud and abuse in aid programs.
The explosive growth in recent years of for-profit colleges, distance and online learning programs, and other nontraditional means of providing instruction educational services demand stronger oversight, not weaker. I am hopeful the Senate will reject this bill.