Thursday, April 21, 2011

Is the government to thank for our high tuition fees?

14 comments:

PBM said...

I'd like to see this writer use some economic data to prove their point. Their claims seem plausible, but they don't really back up their claims with anything. A lot of the aid that students get to pay for college (which this author attributes to rising costs) is not from the government, but rather, is from private sector scholarships/grants and schools' endowments, which I also think can be classified as private sector. Do you have anything else on this subject Megan? I'm willing to give the argument a chance, but this article doesn't convince me.

Megan said...

http://washingtonpolicywatch.org/2009/07/29/high-tuition-high-aid-college-financing-sticker-shock-reduces-access-for-low-income-students/

Megan said...

I don't know that much about this, but it seems plausible that aid from the government or schools themselves could increase the tuition price in colleges. This would be fine if wealthier students are subsidizing low income students, but the article I just posted points out that this may not be the case. Also, some middle income students may receive some aid through Pell grants or private aid, but will still not be able to pay because of growing tuition rates.

I'm sure there are other factors at play. People are willing to pay a lot for college, and colleges don't necessarily compete on price, but rather reputations. Also I hear TJE is making millions.

PBM said...

I believe the author in your second site mentions only public institutions. Isn't it kindof hard/contradictory to try to privatize something that is already so involved in government? Do they have any info on private institutions?

Patrick_L said...

1) The title of the article barely matches the actual points it makes. He never tries to describe how government activities are driving the rising costs, just pointing out how he thinks the recently proposed Obama changes aren’t going to help. (Caveat: I know some conservative groups argue that government financial aid programs have contributed to the rising costs of college. Their case is weak at best for even explaining a portion of the rapidly rising costs in American higher-ed).

2) The Obama “reform” he DOESN’T actually describe is a good thing in several ways. One, it lowers the government cost of providing certain forms of financial assistance. Two, it helps low-income students by moderating the rising costs of attending college- which is far more linked to the market structure of American higher-education than government financial assistance designed to help low-income students afford college (and in the conservative argument, fueling those rising prices). Obama has also proposed simplifying the Pell Grant application process, per the recommendations of many education scholars, to address the major problem with Pell Grants and other forms of government assistance- the complicated nature and limited awareness that prevents many students from taking advantage of the programs.

3) McGurn contrasts the U.S. with other countries on a variety of issues where we do well, but then points out how we do worse on higher-education in terms of wasting talent. Although his article complains about government assistance, he ignores the fact that other countries do better on these areas in part because they provide more government assistance.

4) Washington is not responding to the howls of students trying to attend those schools costing over $50k a year. Washington is responding to the need to make higher-education affordable for low-income families anywhere’s, particularly at the types of schools they are most likely to attend as a pathway to a future middle-class job (hopefully). Schools like Sarah Lawrence or Hamilton are not in the deck of cards for the vast majority of students who qualify for Pell Grants or other forms of government assistance.

5) Pell grants and their impact have little relationship to the rising costs of Sarah Lawrence or Hamilton. The Pell Grant is a few thousand dollars for the 13% of Hamilton students who are eligible for them. It is not explaining the dramatically rising education costs for elite institutions like Hamilton or Sarah Lawrence. If the WSJ wants to complain about the impact and unintended consequences of government financial assistance, they should be looking at community colleges, for-profit colleges, and to a lesser extent, state public schools. Unfortunately for the WSJ, few of its readers care or have any connection to those types of schools, so they have to rope in the elite institutions their readers might be familiar with- like Sarah Lawrence or Hamilton. The problem is that these are the most removed schools from any discussion about the impact of federal financial aid, so it weakens any attempt to make a point.

6) Why wasn’t there any discussion of the House Republican proposal, as part of the FY2011 CR debate, to cut the total maximum award for academic year 2011-2012 by 15% percent. That’s a prominent example of a reform to the government financial assistance programs that contrasts with Obama’s approach.

Patrick_L said...

7) The “massive increase” in financial aid does not explain the drop in low-income students attending college in recent decades. It has mitigated the impact of external factors like declining school systems, concentrated pockets of poverty (partly interacting with the War on Drugs), stagnant wage growth for most of the country, and various other factors.

8) I’m extremely annoyed that McGurn is attacking the current payment structuring of elite institutions (once again: a separate issue from government financial aid). The current structure is essential, as it always has been, to allowing students from low and middle-income backgrounds to attend the nation’s best schools. There is no government program or sufficiently coordinated private market mechanism to compensate for the current structuring. For instance, approximately 95% of all American families- if they sent a student to Hamilton- would qualify for government financial assistance and/or Hamilton assistance. Any attack on elite schools’ current tuition payments structures (the major way these lower-income students receive assistance) would inevitably lead to low and middle-income students from transferring from these schools in droves.

9) Structuring Pell Grants to respond to student academic performance in the way McGurn describes is about one of the most awful ideas I can imagine. All it would do is eliminate financial assistance for the many low-income students who struggle to attend college, come from very disadvantaged economic and education backgrounds, struggle to pay the other costs of living (housing, food, transportation, etc.) and are often simultaneously supporting to some degree their families. The performance problems of low-income students in higher-education has nothing to do with them not wanting to succeed bad enough. But apparently McGurn disagrees, so if students don’t meet his expectations (for underlying reasons he does nothing to address), then they should be punished?!? Awful, awful solution- but hey, it “incentivizes” people- so it uses a market mechanism so it must be a great idea!

10) McGurn quotes the idea of having accreditation agencies measure outputs like “what a university spends on instruction versus administration, what its graduation rate is, how its graduates fare in employment.” First of all, instruction versus administration spending is an input, not an output. Graduation rates are already a hugely competitive measure that schools jack up by manipulating the system so they don’t look bad. This proposal would encourage even worse problems in this area, similar to how high schools try to inflate graduation rates by lowering standards. How does that help the students? Lastly, how do you measure how graduates fare in employment? If they get a job? Because colleges already manipulate those figures to look better. The problem with incentive responses to outputs is that it also encourages cheating to look like you’re doing better on outputs. This is what’s happened so far in many cases with test-driven education practices in elementary and secondary education.

11) The Washington Policy Watch link suffers from the common problem of saying Event A occurred, followed by Negative Outcome B so clearly A was a bad idea. They do nothing to control for trends affecting all higher-education institutions. One of the solutions is better government financial aid, not less government financial aid.

Ian Thresher said...

PBM, I think that while many students do get private sector scholarships independent from the Government, many of those private scholarships (as least those that go towards demonstrated need) are given on the condition that a student take out a FAFSA student loan. The government does, therefore, end up paying a sizable fee for every student. I thought this article was very interesting because I am usually all in favor of more education funding, but it looks as though Colleges are simply taking advantage of the system and paying more. Perhaps the only solution is to do need blind admission and charge whatever a student can afford. Still, it is important to note that the actual cost of a Hamilton education is more than $70,000 per year and Hamilton spends a good deal of money heavily subsidizing the cost ($20,000 at least and usually more).

TJE said...

http://blogs.forbes.com/ccap/2011/04/05/the-higher-education-bubble/

Megan said...

Patrick, you don't think cheap loans and and aid have anything to do with the price of college? Did we not learn anything from the housing bubble?

TJE said...

http://www.heritage.org/Research/Lecture/The-Real-Costs-of-Federal-Aid-to-Higher-Education

Patrick_L said...

I wondered how quickly it would take Professor Eismeier to post a Heritage article, although I have to admit I was expecting a Cato one since they often write about this subject. (Hence my allusion to
conservative groups’ arguments in this area).

Now more generally, all of these posts are negligibly related to the actual starting point of discussion. They frequently describe how our country might be overinvesting in education, or how do make schools care about results or have less market power that allows them to dictate the terms of what education they’re going to provide.

Here’s the basic problem: higher education is an expensive good we value and think everyone should have equal opportunity to succeed with. Education is a good, just like cars for instance. (ignoring the fact for now that education has positive externalities which might justify additional government investment up to a point for all of the social benefits.) With cars, we don’t mind that wealthy people can afford more expensive cars than poor people. However, with education we don’t think ability to pay should determine what education someone gets. We think merit should have an impact. We want the smartest people, the ones who will be best able to convert their education into positive outputs like cancer cures and value-added products, to get the most education. We want the people who will work hard and take advantage of their education. Unfortunately, there is no market mechanism to accomplish this kind of goal. A market will mostly respond and shape itself to ability to pay, regardless of trying to provide equal opportunity to everyone. Schools only capture some of the benefits from student outcomes, they can struggle to predict them, etc. Without regulation, access to education would largely be determined by ability to pay. Ian proposed one of the ideal solutions to achieve this kind-of goal (ignoring what it may or may not take to ensure everyone has equal educational opportunities before college). The ideal is to cap everyone’s cost of education based on their ability to pay, so that the “cost” of higher education is equal to everyone. Then schools have much greater incentives to concentrate more on trying to maximize their “benefit potential” by getting the best student pool possible (students who then add to the school’s reputation giving it institutional superiority, give money back to the school to allow it to expand, etc.). Without this kind of scheme, schools would have the incentives to care less about the benefits or outputs from their student pool (an uncertain proposition) and instead concentrate heavily on the certain funding stream- determined by the ability of their customers to pay. Schools, as we see them do, would place a high premium on student’s ability to pay over the value of giving a certain student additional education opportunities.

Patrick_L said...

The current system is mixed- it’s trying to achieve this social goal through an improperly-modified market structure that still cares heavily about students’ ability to pay. Government financial aid is designed to increase the ability of lower-income students to pay. But schools still have the incentive to maximize their relative position compared to other schools, so they have the incentive to invest more in resources, so they have the incentive to acquire more funding by getting the best student pool possible while taking into consideration families’ ability to pay. The problem is that education, as expensive as it is, is still well below the maximum ability to pay for many Americans- American families who are convinced or hopeful that their $200k investment in undergraduate education at an elite school will result in enough lifelong benefits to outweigh the $200k human capital investment. Schools feed into this idea that the education investment will pay off for these students and their families. Thus schools (suppliers) have considerable influence and ability to inflate demand, and some students/families are minimally price sensitive- at least at the points the current market has reached. Government financial aid could almost be thought of as running on a treadmill, trying to keep up with this market and it’s steadily increasing to try to maintain something approaching equality of opportunity. It’s hard for it to make significant gains, but it is the most important thing allowing low-income students to maintain their relative position. Otherwise, the market would quickly beyond their ability to pay and in aggregate- their access to education opportunities would decline.

There’s just a huge conflict here between what we as a country want and what a free market structure can reasonably provide. Both of these elements are important and valuable to the field of higher education and the country, but to some extent they are always going to be opposing- or least not reinforcing- forces. You are always going to have problems trying to achieve this social goal- the point is to minimize them. One of the most important steps is to simplify government financial aid programs and publicize them so all eligible students can take advantage of them with minimal hassle. The solution is not the House Republican proposal to cut maximum Pell Grant amounts by 15%.

On a separate note, the housing sector’s problem was the lowering of standards. Requiring no income, no job, no assets for giving out housing loans is a bad idea. Doing that means you are handing out loans to people more likely to default. Shocking, I know.

Megan said...

Easy loans increase the demand for a college education, which will drive up the price. Do you think that easier loans for students will not result in people defaulting on their debt?

I'm not arguing for a free market approach. I like the need blind idea. I would love it if a need blind, color blind system of admissions came about (maybe one that emphasized giving more leeway to students who go to bad public schools and live in bad neighborhoods).

I just think it's a little counter intuitive that the low income students who qualify for loans will leave school with enormous debt because of the high tuitions that are caused in part by the loans, and that even with loans and aid some students are still not able to afford a college education because of the high tuition prices. I don't really have a solution, but I'm not crazy about the current system, and I'm not convinced that my education is worth 200k.

TJE said...

Mr. L, some would challenge your premise-- education is good (sounds almost like the motto of Faber College)

http://www.american.com/archive/2008/september-october-magazine/are-too-many-people-going-to-college