Monday, May 30, 2011

Paying for College

May 30, 2011, 8:00 a.m.

Allocating Costs; Setting the Price

The Sunday Des Moines Register of May 22, 2011, had a major, page one spread about the rising costs of a college education. Except it wasn't about the cost of education. It was about the rising price of that education, comparing the increase in the share of those costs allocated to tuition with the rising price of peanut butter, milk and eggs. More on the Register's piece on down the blog.

First, here is my 300-word-limit response in the next week's Sunday Register, May 29:

Legislature shifted the cost of education
Nicholas Johnson
Des Moines Register
May 29, 2011, p. P20

"The Challenge for Students, Parents and Schools: Runaway Tuition" (May 22), helped focus attention on the rising price of a college education.

Unfortunately, it conflated the "price" (to the student and parents) with the "cost" (to the universities) of that education.

Can universities do more to reduce the costs of education? Can they increase the quality and utility of that education? Absolutely.

However, it's both unfair and inaccurate to suggest that the sole cause of rising tuition is the increase in costs resulting from poor management by the Iowa Board of Regents and administrators.

A major reason for the increase in tuition is not the cost of education, but the allocation of those costs between taxpayers (who receive a public benefit from a well educated workforce) and the private beneficiaries (the students who go on to better jobs and lives).

When California universities charged no tuition, that didn't mean they had no costs. It meant taxpayers paid those costs.

The most appropriate allocation? That's a debate worth having.

But for now, let's recognize that it is the Iowa Legislature that has chosen to allocate an ever-increasing share of the costs to students' tuition; not
the Iowa Board of Regents, universities' administrators or faculty members.
Here are some early excerpts from the Register story the week before, followed by some comments.

Iowa's two largest universities expect to pocket millions of dollars in extra tuition revenue next fiscal year, with the vast majority going to pay for
additional faculty, programs aimed at lowering dropout rates and other student services, officials said.

That decision comes as the cost of earning a four-year degree in Iowa at a public university continues a steep march upward and pushes students to take on more debt, which, at $26,066 per graduating student, is the fourth-highest average in the country.

In the past 30 years, the average cost of tuition and fees at an Iowa public university has jumped 707 percent, more than four times the rate of inflation. College costs have increased each of the past 30 years for students and their families.

Meanwhile, a new survey shows families and students saddled with rising tuition and debt, stagnant wages and an uncertain job market are questioning whether a traditional college education is their ticket to the American dream.

Some universities are trying to respond to the converging forces with innovative classroom approaches and three-year degree programs. . . .

Americans are reassessing what they get for their tuition dollars.

Fifty-seven percent of those surveyed by the Pew Research Center say the higher education system does not provide a good value for the money they spend, and 75 percent say college is too expensive for most Americans to afford, according to findings released last week.
Jens Manuel Krogstad, "Runaway tuition: A challenge for students, parents and schools," Des Moines Register, May 22, 2011, p. A1.

I acknowledge in the response to the Register's report, "Can universities do more to reduce the costs of education? . . . Absolutely." Frankly, I don't know enough to support that "absolutely" judgment. It's based simply on the intuition and experience that virtually every individual, business, government agency, and institution that is willing to address in detail its systems and processes, goals and operations, can probably come up with ways to reduce costs, at least a little -- often while improving quality and outputs.

It may well be that the salaries of universities' personnel, and the other costs of education (as distinguished from the price of education, tuition), have increased significantly further and faster than inflation in the costs of producing other goods and services. If so, that's a matter well worth investigating. If the increases represent necessary costs, held to the minimum, wise investments, and other consequences of skilled, creative and attentive management, that's one thing. If not, if alternative decisions could have produced greater quantity and quality of service at lower cost, that's another.

The point, for purposes of critiquing this Register story, is that it only addresses the increases in the price of education, not the costs of providing that education.

Beyond that, there was another opinion piece in the Sunday paper [May 29] of even greater relevance to America's future than my 300 words.

Robert Reich, the former U.S. secretary of labor, is now an author, columnist, blogger, and professor of public policy at the University of California at Berkley, testifies before Congress from time to time. The Register published as an essay an excerpt from his May 12 testimony before the U.S. Senate Committee on Health, Education, Labor and Pensions. It's vey much worth reading in its entirety; indeed it could be characterized as must reading for every American and public official.

To give you an idea of his subject, and thesis, here is is lead paragraph:

How did we go from the Great Depression to 30 years of Great Prosperity? And from there, to 30 years of stagnant incomes and widening inequality, culminating in the Great Recession? And from the Great Recession into such an anemic recovery?
Robert Reich, "How Our Prosperity Became Stagnation," Des Moines Register, May 29, 2011, p. OP1.

In the course of answering those questions, here's what he had to say about the role of higher education:

Government also widened access to higher education. The GI Bill paid college costs for those who returned from war. The expansion of public universities made higher education affordable to the American middle class. . . .

Starting more than three decades ago, trade and technology began driving a wedge between the earnings of people at the top and everyone else. The pay of well-connected graduates of prestigious colleges and MBA programs has soared. But the pay and benefits of most other workers has either flattened or dropped. And the ensuing division has also made most middle-class American families less economically secure.

Government could have enforced the basic bargain. But it did the opposite. It slashed public goods and investments -- whacking school budgets, increasing the cost of public higher education, reducing job training, cutting public transportation and allowing bridges, ports and highways to corrode. . . .

Coping mechanism No. 3: Draw down savings and borrow to the hilt. After exhausting the first two coping mechanisms, the only way Americans could keep consuming as before was to save less and go deeper into debt. During the Great Prosperity the American middle class saved about 9 percent of their after-tax incomes each year. By the late 1980s and early 1990s, that portion had been whittled down to about 7 percent. The savings rate then dropped to 6 percent in 1994, and on down to 3 percent in 1999. By 2008, Americans saved nothing. Meanwhile, household debt exploded. By 2007, the typical American owed 138 percent of their after-tax income.
He concludes:

The fundamental economic challenge ahead is to restore the vast American middle class. That requires resurrecting the basic bargain linking wages to overall gains, and providing the middle class a share of economic gains sufficient to allow them to purchase more of what the economy can produce. As we should have learned from the Great Prosperity -- the 30 years after World War II when America grew because most Americans shared in the nation's prosperity -- we cannot have a growing and vibrant economy without a growing and vibrant middle class.
"To restore the vast American middle class" is going to require, among many other things discussed by Reich, a restoration of affordable post-high school college education -- as well as a reduction in the price of community college education, and skills training in the trades.

Had we been hell-bent on deliberately evolving into a third world country's population, with a statistically insignificant percentage of super-wealthy at one extreme, and 90 percent or more struggling just to get by, we would have adopted almost precisely the policies we have. That's not to say that it was deliberate. Others can explore the conspiracy theories. But that is the result.

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