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Restoring the Promise
Higher Education in America
By Richard K. Vedder


Highlights | Synopsis


Highlights

  • America’s colleges and universities are increasingly expensive—far more costly than 25 or 50 years ago—causing graduates to defer buying a home, starting a family, saving for retirement, and pursuing the American Dream. While growing incomes and wealth have made almost everything else more affordable, it now takes a larger portion of income for most Americans to pay for college compared to one or two generations ago. The increased cost reflects many factors—some tied to the labor-intensive nature of teaching—but the main fault lies with misguided government policies, especially federal student financial assistance programs that artificially boost demand and enable schools to exploit students through price discrimination. For example, data from the New York Federal Reserve Bank and the National Bureau of Economic Research suggest every one dollar per student in federal financial aid leads to about a 60 cent increase in tuition fees.

  • The saddest truth about higher education is that most college students learn relatively little while in school. Although colleges are supposed to be in the information and knowledge business, they know shockingly little about the educational “value added” they impart to students during their collegiate years. For example, the evidence of Richard Arum and Josipa Roksa after surveying over 2,300 students on diverse campuses suggests that students gain little important knowledge, with some exceptions in technical areas such as engineering, nursing, architecture, or accounting, where colleges teach vocationally useful material. Low levels of learning are not surprising, because students spend little time in classrooms or studying—on average less than 30 hours weekly for about 32 weeks a year.

  • Higher education often confers surprisingly little advantage in the job market, making college a risky investment for many. An October 2018 report by Federal Reserve Bank of New York finds that around 40 percent of recent college graduates are “underemployed,” filling jobs traditionally filled by high school graduates—Uber drivers, baristas, big box store cashiers, and other jobs not requiring a degree. Some 40 percent or more of students fail to graduate from college in even six years. To be sure, for many Americans, going to college is worthwhile financially, but there are significant risks involved.

  • Colleges are notoriously inefficient, with few incentives to lower costs or improve quality. Often the incentives they face create perverse outcomes, such as a growing ratio of employees to students over the past half century. Colleges are swarming with administrators—more than faculty. Buildings lie empty much of the year. Professors at even teaching-oriented schools rarely teach even 400 hours a year, down at least one-third over the past half century.

  • Making matters worse, academic debate on campus has increasingly yielded to intellectual conformity. Despite exceptions, many prominent campuses have become bastions of a progressive leftish monoculture: the faculty espouse overwhelmingly similar views on political and cultural issues, tolerance of alternative viewpoints is stifled, and original research demonstrates that outside speakers also tend to have a strong leftish orientation. Reasoned debate among alternative viewpoints is too often limited.

  • Too many faculty limit their research output to little-read academic papers that do little or nothing to advance civilization. Teachers write many scholarly papers to get tenure, but typically they say little that is new or important. Today’s academic culture disincentivizes engagement with the broader educated community—or even communication with scholars working outside the confines of a narrow subdiscipline. Hyperspecialization, jargon-heavy prose, and academic self-exile run counter to the university’s traditional mission of advancing the frontiers of knowledge to benefit the community at large.

  • Higher education has been diverted from its main task—creating and disseminating knowledge—by intercollegiate athletics, “sustainability,” “diversity,” and other fashionable trends and distractions. Too many resources go for non-academic pursuits unrelated to teaching students or expanding the frontiers of knowledge. Intercollegiate athletics is costly and often scandalous, and administrations are excessively obsessed with “sustainability” and group characteristics of students and faculty, such as race, gender, sexual orientation—at the expense of cultivating intellectual curiosity, appreciation of diverse viewpoints, and the life of the mind.

  • Schools routinely come up short on metrics and strategies for improving efficiency, academic instruction and performance, and sound governance. Three “I” words are often missing: information, incentives, and innovation. Transparency and meaningful accountability are missing in regards who actually runs or even “owns” our colleges and universities.


Synopsis

American universities are facing unprecedented challenges: falling enrollments and declining public support are causing more schools to close their doors. In a half of a century, they have gone from a Golden Age of expansion and affluence to a drearier era of decline. What’s troubling academia—and what can be done to spark renewal?

The answers are complex. But at the heart of the problem, according to economist Richard K. Vedder, is that higher education lacks incentives to change, to innovate, to operate efficiently. It often even lacks vital information measuring the problems it faces. Much of the difficulty arises because of the fact that third parties, especially government, help finance the enterprise, so the discipline that markets impose on businesses does not exert its salutatory effects in the academy.

In Restoring the Promise: Higher Education in America, Vedder offers a probing analysis of the many problems facing higher education, particularly its triple crisis: excessive costs, inadequate classroom performance (as measured by student academic achievement), and the failure to prepare graduates for success in life beyond the academy. More than a diagnosis of what ails American academia and why, Restoring the Promise offers powerful prescriptions to cure the underlying problems and foster a renaissance in higher education.

Higher Education’s Triple Crisis

Restoring the Promise begins by examining the competing objectives that America’s colleges and universities are supposed to meet.

To grasp that higher education is failing to adequately serve many students, it’s first necessary to appreciate that the collective student body has diverse expectations and needs, Vedder explains. For many, college provides a ticket to a comfortable life—it allegedly leads to higher incomes and wealth. For others, college provides immediate enjoyment in many forms—intellectual, social or hedonistic. For still others, colleges are mechanisms for putting the disadvantaged on the path to economic opportunity and the American Dream. Historically, colleges were also considered instruments promoting high morality, the Ten Commandments, and effective civic participation.

Higher education is said to have positive externalities: it benefits not only its consumers but the broader society. But does it really? How is this best measured? Universities also do other things besides teach, such as research. By what standard can we determine whether any spillover benefits accruing to society exceed the costs?

Yet many Americans—some polls say a majority—complain that colleges are too costly. College prices have risen roughly three percent more annually than the overall inflation rate in the past 40 years, although that increase is now slowing. What is troubling is that costs have risen faster than incomes, which themselves are growing slowly because of declining economic growth. Moreover, per student spending in the United States is high relative to other industrialized nations like Britain, Germany, or Japan.

Rising costs might be warranted if this were accompanied by qualitative improvements in educational services. But are students actually learning more? The evidence suggests otherwise. The most comprehensive study, by Richard Arum and Josipa Roksa, shows little improvement in critical thinking or writing abilities during college. Additionally, inputs used to achieve educational outcomes are declining: professors are teaching much less than their counterparts of the 1960s, while the students are studying a lot less—but getting much higher grades. Students are doing less for more.

Rising costs might also make sense if they conferred growing advantages in the job market. But this appears not to be the case. While college graduates earn more than high school diploma holders, that differential is not growing, and there are far more college graduate workers than jobs requiring a bachelor’s degree. Moreover, at some non-elite schools, starting pay on average is low, and many fail to graduate.

How Did We Get Here?

To put these trends in historical perspective, it’s important to note that for much of U.S. history, higher education has been a growth industry. At the time of the American Revolution, there were 774 students at nine American colleges. The numbers grew rapidly and fairly consistently until recent years, when enrollments actually started declining. Early schools were private and many had religious orientation. The Morrill Act of 1862, which helped finance colleges devoted to instruction for agriculture and industry, was less important than many imagine. The growth in the research university concept dates from the late 19th century. Up from 5 percent in 1940, the proportion of adult Americans with college degrees now exceeds 30 percent.

Rising incomes, population, and job skill requirements contributed to rising demand, as did a greater college-high school earnings differential. Another factor that increased demand for college is of particular importance: the surge in federal student loan and grant programs after 1965. Some blame the labor-intensity of teaching for rising costs, others, declining state support. Of major importance as demonstrated through research, however, is the Bennett Hypothesis: greater federal student loan availability largely explains higher tuition fees. The huge rise in federal student debt (to $1.5 trillion today) created a myriad of unintended problems, including reduced fertility and homeownership for debt-laden young adults.

Some schools depend heavily on endowments. The evidence shows that while endowment money goes for many things, little is spent to make college more affordable to students. Instead, the staff benefit from higher compensation, lower teaching loads, and other perks. Indeed, despite rising federal financial assistance and growing endowments, the proportion of recent college graduates from the bottom quintile of the income distribution has actually declined since 1970. So much for the notion that higher education is a ladder for the poorest Americans to climb toward social advancement and the American Dream.

Where Does All the Money Go?

As a thought experiment, we can imagine a situation in which nearly every penny spent on education goes toward instruction: a tutor uses student fees almost exclusively to pay his or her salary. In reality, however, a much smaller share of education spending goes toward instruction. At most modern universities, somewhere between 25 and 40 percent of spending is not even directly related to the academic mission; it is spent on things like food services, medical clinics, or intercollegiate athletics.

But even within spending on core activities, less than half goes directly for instruction. Spending for “research,” “academic support,” “student services” and “institutional support” each consume typically over 10 percent of university budgets. Instructional and research spending as a share of budgets has fallen over time. Administrative staffs have soared in size and importance, while the faculty has lost some clout, although they have been bribed (figuratively) with lower teaching loads. In the 1970s, there were typically more than two faculty members per bureaucrat; now there is less than one.

The rise in tuition fees is duplicated by soaring prices of university-provided food and housing, which have risen faster than in the non-university private economy. University costs have increased also because of an “edifice complex,” huge outlays for elaborate buildings and sports facilities with climbing walls, atriums, and “lazy rivers.” Buildings can’t talk and lobby for funds, however, so they lose out in maintenance spending, which typically is woefully inadequate on most campuses. This construction boom has led to a sometimes dangerous increase in debt obligations, as credit rating agencies like Moody’s and Fitch have warned.

Some would argue that the biggest collegiate scandal of all is intercollegiate athletics. It is increasingly highly costly, with good athletic performance lining the pockets of plutocratic coaches at the expense of athletes who are underpaid but often scarred with debilitating long-term health issues. Scandals abound.

Is Educating Students a Top Priority?

As universities deemphasize teaching, they have put much emphasis on research. At many schools, research dollars are a big revenue source. Yet much non-STEM research is not even read much or cited by other scholars. Federal research overhead policies make little sense and mainly benefit university bureaucracies. Non-university research organizations, especially think tanks, provide some needed competition.

Academic accreditation is highly ineffective—complex, costly, secretive, provides little consumer information, emphasizes inputs rather than outcomes, stands as a barrier to entry and innovation, and promotes excessive federal control. Is also is riddled with conflicts of interests.

Another challenge to traditional aim of higher education can be heard in the top buzz word on today’s campuses: “diversity.” By any criterion, universities are far more “diverse” than ever. They are now dominated by females, and participation by racial minorities has also grown markedly (white students have declined from 82% to 57% of the total from 1976 to 2013). Yet performance among minorities is often disappointing, in part because of mismatching—pushing minorities to attend schools for which they are academically unprepared. While demographic diversity has increased, another sort has declined: diversity of the mind. Campuses are increasingly dominated by left-oriented faculty, sometimes to the exclusion of many of alternative perspectives.

More fundamental is the problem of governance: who runs the universities? Indeed, who even “owns” them? So-called shared governance is often exceedingly inefficient and leads to politically based compromises that are not optimal policies. Governing boards are often rubber stamps for administrations, often ignorant of key facts needed to make objective decisions.

Where Do We Go from Here?

It is relatively easy to identify characteristics and problems with American higher education today, but more difficult to identify realistic solutions. Three words beginning with the letter “I” are critical to constructive change: information, incentives, and innovation. We have sketchy information about key statistics—how much do students learn, for example. Inefficiencies persist because staff have little reason to improve. And new better ways of doing things are often ignored for too long.

In a major way, higher education is a poster child for government failure, especially at the federal level, but also at the state level. Governments have contributed importantly to the huge increase in the costs of attending universities, providing instead “economic rents” (unnecessary income/compensation payments) to faculty and staff. From the standpoint of higher education, we would have been better off if the U.S. Department of Education had not been created.

What to do? The most radical reforms involve ending university monopolies on certifying educational and vocational competence. Alternatives could include external examination. For example, non-college packagers of academic courses could award degrees whose quality is verified by external examination. Especially key is ending or radically revising federal student financial aid programs—perhaps by promoting new private ways of funding, such as Income Share Agreements, and by insisting that colleges share in covering loan defaults (“have skin in the game.”) Many smaller but useful reforms are possible, such as downsizing university bureaucracies, offering three-year bachelor degrees, ending grade inflation, and prohibiting race-centered admissions. If changes are not made either from within or through outside pressure, markets will force some much needed Schumpeterian “creative destruction” upon American higher education.


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