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.

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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.

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