Tuesday, December 10, 2013

 

Freeze!



Yesterday in a meeting, a colleague referred to fractions as “fractures,” without realizing she had done it.  I liked the mistake, since it captured the experience that some students have with fractions.  Now I need a similar term for percentages.

Apparently, the two youngest members of the United States Senate, Chris Murphy (40, D-CT) and Brian Schatz (41, D-HI), have decided to tackle college costs through price controls.  They”re co-sponsoring legislation to reduce or eliminate federal funding to colleges that increase their tuition by too high a percentage.  The article quotes Senator Murphy:

“If a school is raising tuition at 8 percent a year and 50 percent of their students are defaulting on their loans, they probably shouldn’t continue to get Stafford loans and Pell grants,” Murphy said.

*headdesk*

Where to start?

It probably wouldn’t be sporting to point out that colleges lose eligibility for federal student loans now at a much lower threshold than that.  (It gets a little complicated, but the maximum before losing eligibility now is 25 percent for three years under the old “two years out” rules, or 30 percent for three years under the new “three years out” rules, or 40 percent for one year.)  In other words, the hypothetical case he’s trying to solve is already solved under existing rules.   But let’s write this one off to hyperbole and let it slide for now.

One could also argue that reducing Pell grants will invariably drive up reliance on private loans, which are far more expensive than Stafford loans.  If one is truly concerned about student debt, the last thing to do would be to cut off the “best” aid and drive students to the worst aid.  

Or, one could point out that in the public sector, one of the primary drivers of tuition increases has been state disinvestment.  Punishing a college for trying to offset some of what its state legislature has done to it is quite literally adding insult to injury.  Without a robust “maintenance of effort” requirement -- actually, a robust “step up your efforts” requirement -- a focus on “list price” increases merely compounds the error.

But never mind that.  That’s just basic.

Take, instead, the use of a percentage.  “If a school is raising tuition at 8 percent a year…”  

8 percent of what?  

A name-brand college that charges $50,000 per year raises its sticker price by four percent.  A community college that charges $5,000 per year raises its sticker price by eight percent.  Which is worse?

The name-brand college, by a long shot.  A four percent increase off a base of 50k is $2,000.  An eight percent increase off a base of $5000 is $400.  If you look at percentages, you would praise the name-brand college.  But if you actually do the math, the name-brand college increased costs by five times more than the community college.  Without some sort of intervention, setting percentage-based ceilings across the board will simply increase the gaps between the well-funded and the rest.  In this example, in one year the gap went from $45,000 per student to $46,600.  And that’s assuming that the community college was aggressive!

If you set a maximum percentage -- in the case of a “freeze,” it would be zero -- then you are assuming that the existing base rates are correct.  I know of no reason to assume that.  Those who overcharge now can keep overcharging.  Those who have made a point of keeping costs down will be consigned to penury for having failed to get while the getting was good.  That’s not just counterproductive; it’s perverse.  “No good deed goes unpunished” should not be a guiding principle for public policy.

Community colleges fly so far below the radar of national discussion that policies like these get dropped on us because somebody is angry at what Yale charges.  I would hope that Senators Murphy and Schatz figure that out before they do real and lasting damage.  Fractions may hurt, but percentages can be poisonous.

Comments:
The actual cost per student at my CC has gone down since the Depression of 2008, but tuition has gone up because the state contribution has plummeted. You can't discuss college costs without looking at that part of the problem and they way state governments no longer support the main way the middle class gets educated.

Your main point is quite valid. They can't possibly really understand college costs for the typical student, based on their personal educational histories.

LMGTFY: Both have been in politics since age 26, that is, for most of their adult life. Parents are, respectively, a managing partner in a law firm and a cardiologist so not exactly median income (middle class). One has a degree from Williams followed by UConn Law, the other a BA in philosophy from Pomona College, so there is a good chance they could do percentage problems on the SAT.

However, that elite college background suggests that they do see skyrocketing costs in the tuition rates where they went to school, now each at about 58 grand a year. Hard to afford that for their respective two kids on a Senator's salary.
 
Congratulations, you've discovered the folly of higher marginal tax rates for higher incomes.
 
How about "percent ills" for "percentiles"? It isn't quite percentages, but still...

When I worked at Big American Company (you've heard of it), salary raises were initially done by percentage. There was an uproar when the formula was tweaked so raises were discussed instead in terms of dollar amounts.

The salary issue doesn't arise at my university. 0% and $0 are the same raise across the board for everyone.

Tuition raises are discussed on a percentage basis. Once when I estimated future tuition rates for a grant proposal, the research office assumed that the tuition estimates must have been wrong because the numbers became so big (i.e. the power of compound interest, but on the cost side).

Nice concise post about the risks of percentages. Hopefully the message gets through.
 
DD, you understand math better than the average Democrat.
 
Apropos the 9:19PM comment, what do you think of even higher marginal rates for lower incomes, those trying to enter the lower middle class? Consider this graphic

http://www.newyorker.com/online/blogs/currency/vara_05.jpg

from a recent article in The New Yorker, which also shows the education levels across the boundary to the lower middle class. FYI, the FPL ranges from $15,510 for a family of two to $23,550 for a family of four under the current guidelines.

As you might now guess, this graph includes the effect of indirect taxes such as the loss of benefits tied to income and the EIC, costs that are just as important as paying higher marginal income tax rates while no longer paying FICA taxes and also discourage economic growth in the US.
 
Sigh. This post is bizarrely self-righteous, given its willful blindness. The point of the bill is to target for-profit diploma mills. That is why there are TWO requirements (hey, can everyone here count to two? Awesome!). Schwartz wants the government to be in the business of helping students get educations that help them move forward in life, not helping hucksters trick students into funneling money into useless degree mills.

If your tuition keeps going up, but you have a sane default rate, congrats. You are providing value for money. If you have a huge default rate but aren't trying to gouge your students, perhaps you are a victim of circumstance.

But if you have both, you are a damned con artist and can do without federal assistance in perpetuating your con.

Protip: if Dantes unambiguously endorses your post, reconsider your premise.

 
Schatz is probably basing his bill on Hawai'i Pacific University, which is an unapologetic degree mill scam.

 
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