Wednesday, January 25, 2012

On Notice?

President Obama has put higher education “on notice” that if we keep raising tuition, we’ll get our public funding cut.

To which I say, huh?

We’ve had our public funding cut already.  Since 2008, an uninterrupted series of cuts has been the direct cause of severe tuition increases for public higher ed.  If you want to stop the tuition increases, the first thing to do is to require the states to restore and then maintain realistic funding levels.  (When referring to a point in time, the usual term is a “maintenance of effort” requirement.  Otherwise, it can be set as a “grant in aid.”)  When the states have cut back, colleges have turned to the Feds through the indirect means of raising tuition, much of which is funded by Federal financial aid.

That would be the Federal financial aid that is coming under attack, by the way.  This summer the six-month graduation payment deferment is supposed to go away, the interest rate on Federal student loans is supposed to double, and students who place into college through the “ability to benefit” rules won’t be eligible for aid at all.  Why on earth you’d want to start dunning new grads for loan payments in the midst of a recession is beyond me, but there it is.  

So the “on notice” thing strikes me as a bit late.  

If they want to do something intelligent and effective about cost control, on the other hand, I have a few suggestions.  Plagiarize at will, folks.

First, don’t make the classic mistake of looking at tuition increases as percentages.  Loan payments are dollar amounts, so we should look at tuition increases in dollar amounts.  For example, let’s compare Rich Kid U with Eastern Podunk Community College.  RKU charges forty thousand a year, and EPCC charges four thousand a year.  RKU announces that it feels the pain of its graduates struggling with student loan debt, so it holds the tuition increase to three percent this year.  EPCC continues to reel from state cuts, so it raises tuition six percent.  In percentage terms, it looks like EPCC is the problem.

But it isn’t.  That three percent at RKU amounts to $1200.  The six percent at EPCC amounts to $240.  RKU is the problem.  EPCC is part of the solution.

Second, kill the credit hour dead.  I’ve addressed this many times before, so I’ll keep it short here.  If you define your product in units of time, then you will never -- by definition -- increase productivity.  Ever.  Without productivity gains, cost increases in excess of inflation aren’t just predictable; they’re mathematically inevitable.  (Economists call it “Baumol’s cost disease.”)

Third, resist the temptation to replace tuition with tithes.  Out in California, Mark Yudof has generated some sympathetic press by proposing that students pay after the fact, using a set percentage of their post-graduation salaries.  The humanitarian appeal is based on the fact that new grads usually don’t make much money, so using a percentage cuts some slack in the early years.

But the tithe model has serious flaws.  First, and most basically, it decouples the amount of aid received from the amount paid back.  Over time, that’ll start to smell like welfare, and we know what happens to welfare programs.  Second, it assumes -- falsely -- that everyone who gets loans actually graduates.  As annoying as loan payments are a decade down the line, they’re that much worse if you don’t even have a degree to show for them.  Finally, Americans’ credit card habits suggest that “buy now, pay later” leads to overspending now.  In the moment, the tithe model can resemble a blank check.  This does not bode well for cost control.

The way to control costs is to cap aid upfront, and to require colleges that charge above that to make up the difference themselves whenever there’s demonstrated need.  If aid is capped at, say, ten thousand a year for a full-time student, then EPCC can do its six percent increase without much issue, but RKU has to ask itself some hard questions.  

Finally, we need to make a decision as a polity.  Do we want to direct resources to students to use as free agents, accreting credits wherever and however they see fit?  Or do we want high-quality, low-cost institutions?  Because it’s one or the other.

The consumerist, “DIY U” model suggests funneling aid through students, and letting them choose what they want.  As a consequence, institutions lose their own funding.  They make up the difference through a combination of service cuts and cost increases.  

If we want high-quality, low-cost institutions, we have to subsidize them.  This is just a basic fact of life.  

For evidence, look at the for-profits.  They charge considerably more than the publics, and offer a good bit less.  That’s what the absence of a subsidy forces.  The ideologically-driven fantasy that the market will magically make everything better simply doesn’t work for public goods, like having an educated workforce and citizenry.  That’s because they capture too little of the positive externalities they generate.

You want quality colleges at affordable tuition levels?  Me, too.  It’s not that hard.  Break the credit hour, abandon the fantasies of market-driven bounty and/or titheing, and commit to subsidies that actually meet the need.  Yes, there are some basic structural reforms within higher ed that would help -- longtime readers know a few of my favorites -- but first things first.  If you want affordability, you have to spread costs around.  

What you absolutely do NOT do is move to a consumer model.  The last thirty years provide ample evidence of that.  I know this isn’t popular in the culture right now, but institutions matter.  Resorting to the quasi-libertarian fantasy of the almighty empowered consumer will result, inevitably, in systematically underfunded public goods.  There’s a philosophical position that says “and a good thing, too...” -- let’s have that debate.  But let’s have the debate that acknowledges the costs, rather than one presuming some sort of magical harmony of interest.  If you tell public colleges to act like businesses, don’t complain when they act like the colleges that actually are.