Felix Salmon

America’s broken colleges

By Felix Salmon
December 9, 2009

Kevin Carey has a must-read and very sobering article on US higher education in the latest issue of Democracy. Basically, it isn’t working, for the vast majority of people who consume it, especially if they’re poor.

Throwing money at the problem won’t help and will probably hurt. Already the Pell grant program has ballooned from $2 billion to $20 billion since 1980, yet the proportion of the typical college’s tuition costs that it covers has dropped from 70% to 33%, thanks to a 500% rise in tuition rates. On top of that, most of the poor kids who go to college don’t graduate, and a very large proportion of the ones who do graduate are neither literate nor numerate to anything approaching what most of us would consider college-graduate (or even college-entry) standards.

Insofar as college exists to educate, then, it’s failing. Writes Carey:

After decades of inaction, some recent efforts have been undertaken to collect that information: It now exists, but colleges and their powerful (and virtually unknown) lobbies will not permit the public to see it. As a result, colleges are far less focused on student learning than they should be, and consumers haven’t a clue what to do and have come to believe, mistakenly, that the most expensive colleges are also the best.

I’ve said many times that education is the most expensive thing that people regularly buy without asking whether they’re getting value for money — but the problem, as Carey pinpoints, is that colleges make it impossible for anybody to make that determination. Instead, they trade on their reputation, and that is not helpful:

The influence of reputation is exacerbated by the fact that most colleges are non-profit. For-profit institutions succeed by maximizing the difference between revenues and expenditures. While they have strong incentives to get more money, they also have strong incentives to spend less money, by operating in the most efficient manner possible. Non-profit colleges aren’t profit-maximizing; they are reputation-maximizing. And reputations are expensive to buy.

The economist Howard Bowen wrote the classic treatise on how reputation-seeking influences university behavior. He called it the “revenue-to-cost” phenomenon. Essentially, colleges don’t figure out how much money they need to spend and then go get it. Instead, they get as much money as they can and then spend it.

At the same time, colleges have lots of incentives to raise costs, and precious few to lower them:

The information deficit rewards and sustains these inclinations. In the absence of independent information about quality, consumers assume that price and quality are the same thing…

Colleges all want to become more important, and they all know how to get there–spend and charge more.

Indeed, they have little choice. Ten percent of the U.S. News rankings are based on spending per student, with additional points for high faculty salaries and other costly items. If an innovative college found a way to become more efficient and charge less while maintaining academic quality, its U.S. News ranking would actually go down.

All of this can be fixed — all that’s really needed is a bit of sunlight on data which is already being collected, but largely kept secret. The problem is a higher-education lobby which is secretive, powerful, and which won’t let change happen. Here’s just one example:

In 2006, Mark Schneider, the commissioner of the Department of Education’s National Center for Education Statistics, proposed adding some new questions to the annual survey all colleges are required to fill out in exchange for federal funds. Colleges would be asked if they participated in surveys and tests like NSSE and the CLA. If the college answered “yes,” and had already chosen to make the data public, it would be asked to provide a link to the appropriate Web address. It would not be required to participate in any test or survey not of its choosing, or disclose any new information. It would just have to tell people where to find the information it had already, voluntarily, disclosed. One Dupont Circle rose up in anger and the proposal was summarily squashed. For his temerity, Schneider was nearly fired.

Individuals can’t do any kind of cost-benefit analysis on college educations, which means that the government must: this country simply cannot afford a system where hundreds of billions of dollars are spent and wasted on subpar higher education every year. Education is a very good thing, but only if it works — and many graduates, along with most of those who fail to graduate, would have been better off both individually and societally had they never gone to college at all. That’s got to change, and if the colleges won’t move in the right direction, the government’s job is to step in and force the issue.

9 comments so far | RSS Comments RSS

In the language of Mancur Olson, the country today suffers from three big distributional coalitions: the financial sector, the healthcare industry and much of higher education. There is at least some pressure on the first two and pressure on the third is bound to come.

Posted by flevy | Report as abusive

The fact that many would have been better off not having gone to college is not going to change. And that’s not a bad thing. Unless one intends to enter a professional field requiring rigorous training, one should examine other avenues, such as technical or trade schools. Once a license is obtained, one has a portable, exchangeable skill, with the option of off-the-books work (not that I’m advocating tax evasion).

As for the allegedly mind-expanding value of liberal arts curricula, try a good community college program, or simply teach yourself.

Should college attendance be indicated, due diligence should include visiting the schools themselves and talking to students, as well as availing oneself of all online resources. There’s a lot one can do without getting the government involved.

Posted by Mega | Report as abusive

Can any college explain why tuition is 6x what it was in 1980? Salaries haven’t risen 500%, and you would think that’s the biggest expense.

I can appreciate that a lot of basic research has shifted from publicly owned corporations to colleges, but that would affect only the more research-intensive schools. And if those schools are inventing things, they tend to receive patents that they earn royalties on, which should offset some of the cost of the extra research.

So what is all that money being spent on?

Posted by OnTheTimes | Report as abusive

OnTheTimes –

I would note that 1980 was a time when the baby boomers were going to college. Their parents, a frugal lot to begin with, had several children to send through college. They were doubtless cost-conscious.

What has happened since? Family sizes have decreased, meaning there is more income per child. Also every mediocre student applies to college and the supply and demand dynamic shifted hard in colleges’ favor. Second tier schools that most have not even heard of are competitive these days.

Is this a bubble? I don’t think it is. The US manufacturing sector has been gutted by both automation and outsourcing. Those with only a high school education earn perhaps a million dollars less on average, over their careers.

I believe college costs would have to go far higher still before returns on investment go negative. The average person may probably work 40 years or more after college, after all. Forty years of increased earnings.

Posted by DanHess | Report as abusive

I think you have missed the point Dan. Felix’s observations are correct. If overall literacy has declined significantly amongst college grads, then it is possible job performance by graduates is declining as well. Perhaps the cost of labor, taxes and health care are not the only things a board of directors considers when the contemplate moving operations out of the U.S.?

Posted by eddieblack | Report as abusive

I am a recovering college professor. My last year teaching, my administration announced a 10 percent increase in tuition. The stated reason (have to applaud their honestly at least) was to give the college more cachet among applicants and parents because it cost more.

Posted by Curmudgeon | Report as abusive

Tuition also continues to increase because the amount of aid for students continues to increase. Schools raise tuition, and the government increases the amount given out in scholarships. Until government assistance stops increaseing and enrollment drops because families can’t afford it, tuition will not come down.

That won’t happen, however, because no one wants to tell a generation “sorry, you’re the one that has to suffer to fix this.” So it’ll keep going up.

Posted by drewbie | Report as abusive

Drewbie – I’d go back and read the post. “Already the Pell grant program has ballooned from $2 billion to $20 billion since 1980, yet the proportion of the typical college’s tuition costs that it covers has dropped from 70% to 33%.”

Funding may have increased, but costs have increased more. Proportionally the government covers fewer costs than ever.

Posted by strawman | Report as abusive

Kevin Carey’s article is highly misleading. The poor results he refers to simply reflect, among other factors, the strong demand from various levels of government, parents of students, and the students themselves, not to have students held to serious standards. Ask a random sample of university/college professors if they feel they have the degrees of freedom to truly challenge their students and hold them accountable, and my guess is that the fraction that says “yes” would be considerably less than 10%, and they most likely would be lying. In many ways, this is just a continuation of the poor state of US secondary, middle school, and primary education systems. At the university/college level, because costs are born far more directly by individual students and families, a higher number of students get “filtered out.”

Posted by uprof | Report as abusive

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