Washington
Is there any way to make colleges charge less?
That's the question a panel of policy analysts tackled at the Cato Institute here on Tuesday.
Two higher-education experts argued that greater openness from colleges about how they spend money would be sufficient to slow the climbing price of tuition. Others said a more radical solution—cutting off all federal student financial aid—would be necessary.
"Colleges are able to raise their prices because it's not the consumers paying that cost," said Neal McCluskey, associate director of the Center for Educational Freedom at the libertarian Cato Institute, in a presentation called "Student Aid Explains the Pain." Average tuition rates have gone up hundreds of dollars every year, he said, but the actual price students pay after grants and loans are subtracted has barely increased in the past decade.
The solution, he said, is to phase out federal student aid, including subsidized loans and grants, to "make colleges reliant on people who are paying with their own money." Prices would drop as a result, he said, so college would not become a privilege of only the rich.
A few other panelists argued that Mr. McCluskey's idea was politically impossible and unnecessary. Requiring colleges to disclose more information, such as measures of how much students are learning, would be enough to drive prices down, those panelists said.
Because there is little information available on how much students learn at any particular college, institutions' reputations have come to stand in for actual quality, said Robert E. Martin, a retired economics professor at Centre College and the author of the report "The Revenue-to-Cost Spiral in Higher Education." Money, including endowments and research spending, plays a major role in how colleges are regarded, leading institutions to charge more so they can spend more, he said.
Kevin Carey, policy director for Education Sector, an independent think tank, said discontinuing student aid would be "problematic and very unrealistic." He called for federal regulations that would require colleges to disclose more information, saying such an approach would avoid federal price controls and make the college-selection process more efficient.
"A transparent, market-based approach could be a bipartisan solution," he said.
Comments
1. chguk - October 07, 2009 at 09:17 am
Classic Cato. Stop subsidizing the poor to go to college, and prices will drop by X amount (waves hands in intentionally vague manner), meaning that poor people can afford to go to college anyway.
Or (what would actually happen): stop subsidizing the poor to go to college, and prices will drop, making it cheaper for rich people to go to college. Unfortunately the prices won't drop far enough for poor people to go, but hey, they're poor. IT'S THEIR OWN FAULT!
2. atana09 - October 07, 2009 at 09:31 am
M. McCluskey and Cato touched onto a aymptom, but missed the problem. Quite true that college costs have escalated an average of 6% yearly, but it is not the whole of federal aid which is causing the trouble, rather a select aspect.
When the federals began to emphasize loans, especially after the shift to corporate subsidized loans that ensured tuition would balloon. First this shift, removed the direct consequence of costs from academe. Rather than having a set amount of money via student or support grants, academe had a seemingly floating amount of money. But the effect of that balloon was transferred down onto students and families. And once that happened, and the student got a dangling rear view mirror ornament it often was out of sight insofar as academe's awareness of the consequences. Granted many of us on the professorial end, do know because ofttimes students come back and once the loan bills come due 'its oh my God what have I (or you) done". But higher echelon administration rarely sees the worried former students when an education goes amiss, or the bills come in even when that education did succeed.
And McCluskey's and Martin's vaunted capitalist market is in this case the core of the problem rather than the solution. Once our government handed over students to corporate America the profit motive turned these students and families into lambs for the slaughter. And as powerful corporations will do soon enough sweetheart regulations intended to protect a cabal soon made any pretense of free market forces a sham.
Granted Cato does tend to have a almost fetishist relation with various Ayn Randisms, which seems to have willfully blinded them to the incontrovertible truth that some government programs for student aid had been quite successful. For example, the GI Bill played an instrumental role in the economic successes of the 1950's and 1960's.
And perhaps it is time for another such initiative, this time having a GI Bill which includes the soldiers but also would be extended to those intending to work in the sciences, education, and other core fields needed to turn our troubled economy around. It may be that having government programs directed very specifically at those who need them, with clear guidelines and no middlemen might be the solution to educational costs rather than the cause.
3. mvclibrary - October 07, 2009 at 11:01 am
Does any of this sound like healthcare: vauge outcomes, increasing prices paid by other parties, and a mentality that "everyone needs it these days"?
4. wjprice - October 07, 2009 at 11:55 am
Like it or not, third party payers are the main reason that an education costs as much as it does now. They are also one reason that health costs are high.
We got ourselves into this mess by looking only at the social aspects of a college education or health care and ignoring the underlying economics. We're now paying for this tunnel vision.
5. colek - October 07, 2009 at 12:51 pm
It is clear that Mr. Neal McCluskey has never had to balance a budget for a non-profit public school which receives the majority of its revenue, not from the bills the students pay, but from the tax payers. In most public schools the tuition and fees paid by the students are only a part of the equation. The rising costs have little or nothing to do with an increasing profit margin, but rather the increased cost of services. As inflation increases, the costs increase, and likewise employees must see an increase in their pay to keep them on par with inflation. Expanding programs require additional faculty and staff, which means hiring, which costs more. Increased expectations of electronic functionality also increases costs. Inevitably the costs of education will increase with each of these expenses. In most public schools, the increased tuition and fees rarely keep up with the increased costs. What more, with state budgets on the line we are seeing a dramatic cut to our state funding, which inevitably leads to either reducing services or increasing costs.
Yes, Financial Aid does create a means to allow for an increase in tuition and fees. When the Pell Grant goes up, the expectation that low income students can pay more goes up. Increasing Loan Limits is much worse, as it simply creates more income stream for students, and thus even middle income students can be expected to pay more. However, at non-profit schools these numbers are rarely considered when determining if Tuition and Fees should be considered. The real reasons for tuition increases are legitimate in most cases. Cutting Financial Aid progams entirely, though, would not in any reasonable way increase access to education. Rather, it will penalize those students who can't find a means to pay for college. The college can only cut costs so far, and after that the students will be stuck paying the bill. Federal Student Aid is there to assist those who are impoverished in paying that expense. Take away that opportunity and you take away any chance of an education. There simply aren't enough scholarships to support an education for the neediest. Only those who can afford to pay the bill will go, especially in this time when loans are hard to come by. You will make education, once again, only available to the wealthy.
Is there, though, any way to use Financial Aid to restrict the increases in Tuition and Fees? The answer is "Yes". Here's what should be proposed:
The Maximum Federal Pell Grant (under the current tier system), should account for at least 80% of an institutions standard Tuition and Fees for an In-State student. This should be a requirement for participation in the Title IV programs. If an institution wishes to charge more than that, then they must meet meet that difference for Pell Grant recipients with Institutional Grants (tuition waivers). Currently the Pell Grant is $5350. Thus, any Tuition and Fees above $6687 would have to be met by the school for all Pell Recipients.
If a school charged $8000 in Tuition and Fees, all Pell Grant recipients (no matter how small the Pell Grant) would have to receive $1313 in Institutional Grants (tuition waivers).
At a less expensive school a student might not get any Institutional Grants. For example, a school that charges $6000 a year would not have to come up with any Tuition Grants for a Pell recipient.
Those who would pay the real costs would be those who don't qualify for Pell. They would then drive the market by choosing less expensive schools. Those who receive partial Pell would still be part of this equation, though, as their personal expense would still vary depending on what the school charges.
By this means, the D.O.E. could regulate Tution and Fees by controlling the Pell Grant. When the Pell Grant goes up, Tuition and Fees could increase. Schools who are reliant on a lower income base of students, though, will realize that increasing Tuition and Fees every time Pell goes up will only make it more difficult for students to attend. If Pell Grant doesn't go up, they will have to compensate for any increase above the 80% rule.
This will create a easily managed increase tuition cap, and yet still allow schools who have the a high reputation and income base to increase tuition and fees with only some consideration to the grants they give out.
Statistically most of these schools already offer some form of grant to their Pell recipients as it is. What more, most public schools already charge close to or even less than this 80% rule also.
Schools who depend on a lower income base would be hard pressed to charge more than the $6667 limit, since they would then be coming up with a lot institutional grants.
Here's an example of how this would work:
The Maximum Pell Grant is $5350 currently.
Therefore the Maximum Tuition and Fees should be $6687.
Any Tuition and Fees charged over and above that amount should be met with Institutional Grants for Pell Grant Recipients.
Student A has a 0 EFC and receives $5350 in Pell Grant.
He choose to attend a school that charges $8000 in Tuition and Fees.
The school must grant this Pell Grant recipient $1313 in Institutional Grants (or tuition reduction).
Thus, the total grant aid is $6663, and the student must come up with $1337.
Student B has a 4600 EFC and receives $976 in Pell Grant. He chooses to attend the same school, charging $8000 in Tuition and Fees. The insitutition must grant the student the same Institutional Grant of $1313. Thus, the total grant aid is $2289, and the student must come up with $5711. Obviously that student may want to consider a less expensive school.
Student B then changes his mind and attends a school that charges $6000 in Tuition and Fees. The school doesn't need to come up with any funding. The student gets $976 in Pell and must come up with $5024. This is a little cheaper for the student.
If Student Be found a school charging the maximum of $6667, then he would have to come up with $5691. That is still cheaper than the $8000 school.
Just my thoughts,
Kenneth Cole
6. salrosario - October 07, 2009 at 01:03 pm
Actually, shutting down all universities will cost less. To extend this logic, to make governments reduce their own spending, we should consider not paying as many taxes, or not paying taxes all together. Actually, shutting down all government institutions will cost less. This is insane.
7. 11132507 - October 07, 2009 at 02:07 pm
This argument has raged for years, that if it weren't for all these government handouts, we wouldn't have these tuition increases. Except that those presenting that argument inevitably disregard the simplest proof against it; that tuition has gone up at a faster and steadier pace than financial aid has (and look at individual awards, not aggregate spending, which only shows a nationwide increase in eligible recipients). Pell Grants have only really gone up during the Clinton Administration and the last 2 years or so. Awards were even decreased at times during the Reagan years, yet tuition continued to climb. Federal loan limits also remained at a constant level for a very long time and have only crept up a little; it took over 20 years for the freshman subsidized Stafford limit to be increased from $2,625 to $3,500.
So where have these tuition hikes come from if aid has never come close to keeping up? If this correlation were accurate, how do you explain the explosion of private education loans, which people wouldn't need if aid kept up with tuition increases?
8. kurtz1rs - October 07, 2009 at 02:38 pm
For many public universities the primary culprit in student tuition increases can be easily identified. Quite simply state appropriations as a percentage of many public universities budgets has experienced significant drops in recent years. At our institution the state appropriation--in actual dollars not indexed for inflation--is $10 million a year less than it was in 2001.
Our current recession has caused many states to make further cuts in the budget allocation provided to public universities. In response many universities have squeezed operational and human resources to the point of optimal efficiency. Meeting continued student and other stakeholder demands for levels of service has necessitated tuition increases.
9. mkant69 - October 07, 2009 at 05:23 pm
Net cost (cost of attendance minus loans and grants) might have been stable over the last decade, but out-of-pocket costs (cost of attendance minus just grants) has gone up. Loans need to be repaid, and most students recognize this.
Total federal grants in 2007-08 were roughly $21 billion. That compares with total costs of $364 billion. Colleges would most likely increase tuition by an additional 6% to permit them to replace the federal grants. If they didn't, that would mean millions of low income students would be unable to afford college since the price drop would be a drop in the bucket.
Eliminating federal loans would have a similar impact, since federal student loans are available without regard to credit history, while private student loans are subject to credit underwriting. This would lock out millions of low and moderate income students.
Student aid is necessary to enable low income students to enroll in and graduate from college.
There is a lot of proof that cuts in government support of higher education leads to tuition increases, not decreases. For example, there is a very strong and inverse correlation between state support of higher education and public college tuitions. When state governments cut their support as often happens during and after a recession, public college tuitions increase at double-digit rates.
There is no proof that this Cato Institute hypothesis has any validity. College tuition rates at colleges that are ineligible for federal student aid or which have opted out of the system increase at about the same rate as Title IV participants when confounding factors (such as differences in level and control and programs) are eliminated. The dozens of colleges that have instituted one-time tuition cuts (along with corresponding cuts to student aid) were only able to do this because of excess capacity sufficient, and tuition inflation continued at a slightly higher rate after the cuts. Market forces don't always lead to lower prices, and the factors that drive tuition increases will still be present.
Mark Kantrowitz
Publisher of FinAid.org and FastWeb.com