Monday, August 26, 2013

Richard Vedder: The Real Reason College Costs So Much

 The expert on the economics of higher education explains how subsidies fuel rising prices and why there's a 'bubble' in student loans and college enrollment.

Another school year beckons, which means it's time for President Obama to go on another college retreat. "He loves college tours," says Ohio University's Richard Vedder, who directs the Center for College Affordability and Productivity. "Colleges are an escape from reality. Believe me, I've lived in one for half a century. It's like living in Disneyland. They're these little isolated enclaves of nonreality."

Mr. Vedder, age 72, has taught college economics since 1965 and published papers on the likes of Scandinavian migration, racial disparities in unemployment and tax reform. Over the last decade he's made himself America's foremost expert on the economics of higher education, which he distilled in his 2004 book "Going Broke by Degree: Why College Costs Too Much." His analysis isn't the same as President Obama's.

This week on his back-to-school tour of New York and Pennsylvania colleges, Mr. Obama presented a new plan to make college more affordable. "If the federal government keeps on putting more and more money in the system," he noted at the State University of New York at Buffalo on Thursday, and "if the cost is going up by 250%" and "tax revenues aren't going up 250%," at "some point, the government will run out of money."

Note that for the record: Mr. Obama has admitted some theoretical limit to how much the federal government can spend.

His solution consists of tieing financial aid to college performance, using government funds as a "catalyst to innovation," and making it easier for borrowers to discharge their debts. "In fairness to the president, some of his ideas make some decent, even good sense," Mr. Vedder says, such as providing students with more information about college costs and graduation rates. But his plan addresses just "the tip of the iceberg. He's not dealing with the fundamental problems."

College costs have continued to explode despite 50 years of ostensibly benevolent government interventions, according to Mr. Vedder, and the president's new plan could exacerbate the trend. By Mr. Vedder's lights, the cost conundrum started with the Higher Education Act of 1965, a Great Society program that created federal scholarships and low-interest loans aimed at making college more accessible.

In 1964, federal student aid was a mere $231 million. By 1981, the feds were spending $7 billion on loans alone, an amount that doubled during the 1980s and nearly tripled in each of the following two decades, and is about $105 billion today. Taxpayers now stand behind nearly $1 trillion in student loans.

Meanwhile, grants have increased to $49 billion from $6.4 billion in 1981. By expanding eligibility and boosting the maximum Pell Grant by $500 to $5,350, the 2009 stimulus bill accelerated higher ed's evolution into a middle-class entitlement. Fewer than 2% of Pell Grant recipients came from families making between $60,000 and $80,000 a year in 2007. Now roughly 18% do.

This growth in subsidies, Mr. Vedder argues, has fueled rising prices: "It gives every incentive and every opportunity for colleges to raise their fees."

Many colleges, he notes, are using federal largess to finance Hilton-like dorms and Club Med amenities. Stanford offers more classes in yoga than Shakespeare. A warning to parents whose kids sign up for "Core Training": The course isn't a rigorous study of the classics, but rather involves rigorous exercise to strengthen the glutes and abs.

Or consider Princeton, which recently built a resplendent $136 million student residence with leaded glass windows and a cavernous oak dining hall (paid for in part with a $30 million tax-deductible donation by Hewlett-Packard CEO Meg Whitman). The dorm's cost approached $300,000 per bed.

Universities, Mr. Vedder says, "are in the housing business, the entertainment business; they're in the lodging business; they're in the food business. Hell, my university runs a travel agency which ordinary people off the street can use."

Meanwhile, university endowments don't pay taxes on their income. Harvard's $31 billion endowment, which has been financed by tax-deductible donations, may be America's largest tax shelter.

Some college officials are also compensated more handsomely than CEOs. Since 2000, New York University has provided $90 million in loans, many of them zero-interest and forgivable, to administrators and faculty to buy houses and summer homes on Fire Island and the Hamptons.

Former Ohio State President Gordon Gee (who resigned in June after making defamatory remarks about Catholics) earned nearly $2 million in compensation last year while living in a 9,630 square-foot Tudor mansion on a 1.3-acre estate. The Columbus Camelot includes $673,000 in art decor and a $532 shower curtain in a guest bathroom. Ohio State also paid roughly $23,000 per month for Mr. Gee's soirees and half a million for him to travel the country on a private jet. Such taxpayer-funded extravagance has not made its way into Mr. Obama's speeches.

Colleges have also used the gusher of taxpayer dollars to hire more administrators to manage their bloated bureaucracies and proliferating multicultural programs. The University of California system employs 2,358 administrative staff in just its president's office.

"Every college today practically has a secretary of state, a vice provost for international studies, a zillion public relations specialists," Mr. Vedder says. "My university has a sustainability coordinator whose main message, as far as I can tell, is to go out and tell people to buy food grown locally. . . . Why? What's bad about tomatoes from Pennsylvania as opposed to Ohio?"

Mr. Vedder notes that, by contrast, "you don't have to worry about this at the University of Phoenix. One thing about the for-profits is that they are laser-like devoted to instruction." Although for-profits like the University of Phoenix and DeVry spend more money on marketing, they don't contain as much administrative overhead.

'The Obama administration has been beating up on [for-profits] pretty hard for the past two to three years," Mr. Vedder says. "It's true that drop-out rates are disproportionately higher at the for-profits, but it's also true that the for-profits are reaching the exact audience that Obama wants to reach"—low-income minorities, many of whom are the first in their family to attend college.

Today, only about 7% of recent college grads come from the bottom-income quartile compared with 12% in 1970 when federal aid was scarce. All the government subsidies intended to make college more accessible haven't done much for this population, says Mr. Vedder. They also haven't much improved student outcomes or graduation rates, which are around 55% at most universities (over six years).

Mr. Vedder is skeptical about the president's proposal to tie federal aid to graduation rates, among other performance metrics. "I can tell you right now, having taught at universities forever, that universities will do everything they can to get students to graduate," he chuckles. "If you think we have grade inflation now, you ought to think what will happen. If you breathe into a mirror and it fogs up, you'll get an A."

A better idea, Mr. Vedder suggests, would be to implement a national exam like the GRE (Graduate Record Examination) to measure how much students learn in college. This is not on Mr. Obama's list.

Nor is the president addressing what Mr. Vedder believes is a fundamental problem: too many kids going to college. "Thirty-percent of the adult population has college degrees," he notes. "The Department of Labor tells us that only 20% or so of jobs require college degrees. We have 115,520 janitors in the United States with bachelor's degrees or more. Why are we encouraging more kids to go to college?"

Mr. Vedder sees similarities between the government's higher education and housing policies, which created a bubble and precipitated the last financial crisis. "In housing, we had artificially low interest rates. The government encouraged people with low qualifications to buy a house. Today, we have low interest rates on student loans. The government is encouraging kids to go to school who are unqualified just as it encouraged people to buy a home who are unqualified."

The higher-ed bubble, he says, is "already in the process of bursting," which is reflected by all of the "unemployed or underemployed college graduates with big debts." The average student loan debt is $26,000, but many graduates, especially those with professional degrees, have six-figure balances.

Mr. Obama wants to help more students discharge their debts by capping their monthly payments at 10% of their discretionary income and forgiving their outstanding balances after 20 years. Grads who take jobs in government or at nonprofits already can discharge their debt after a decade.

"Somehow working for the private sector is bad and working for the public sector is good? I don't see on what basis one would make that conclusion," Mr. Veder says. "If I had to make some judgment, I would do just the opposite."

He adds that the president's approach "creates a moral hazard problem. What it signals to current and future loan borrowers is that I don't have to take these repayment of loans very seriously. . . . I don't have to worry too much about getting a high-paying job." It encourages "sociology and anthropology majors compared with math and engineering majors."

Can online education, which is being pioneered in some science disciplines, substantially reduce costs? Mr. Vedder says it can, but government won't do the innovating. "First of all, the Department of Education, to use K-12 as an example, has been littered with demonstration projects, innovation projects, proposals for new ways to do things for decades. And what has come out? Are American students learning any more today than a generation ago? Are they doing so at lower cost than a generation ago? No."

Innovation, he says, is being driven by entrepreneurs like Stanford computer science Prof. Sebastian Thrun, who founded the for-profit company Udacity that offers "massive open online courses" (MOOCs). Mr. Thrun began teaching artificial intelligence, first at Stanford and then at Udacity. Mr. Vedder notes that he quickly got "200,000 people to sign up for it. And it's a great course and people are learning like crazy."

Where the government can help, Mr. Vedder says, is to get out of the way of progress and encourage slow-moving accreditors to allow innovations to move forward more rapidly. But ultimately, the way to improve college affordability is for the government to disinvest in higher ed and wean students from subsidies.

Mr. Obama is dead set against that. "He wants to maintain that world" of nonreality in which demand is impervious to cost, Mr. Vedder sighs. "That world has to change."


For many young British university graduates, the jobs just aren't there

No 'grit’? After drawing fire from a top Tory, graduates frustrated by a lack of career opportunities.  But many don't help themselves by the courses they choose  -- "classical art"??

As figures reveal that more than a million 16 to 24-year-olds are not in work, and half never have been, Hurd says he believes young people aren’t getting jobs because they lack the required confidence, self-control and grit. He also criticised schools for focusing solely on education and ignoring the social skills sought by employers.

Some business leaders from the CBI and Federation of Small Businesses have since appeared to back his comments. But many of those million-plus young people not in education, employment or training (Neets) are not simply lazing goggle-eyed and hopeless behind games consoles. Instead, they have won places at top universities, graduated with good degrees – and then stalled.

The Treasury may have heralded news yesterday of a revised 0.1 per cent rise in growth by claiming that Britain is “moving from rescue to recovery”. But for many top graduates fighting to get into a career, meaningful paid work has simply dried up.

“I’ve applied for about 30 jobs in the past month and you definitely start to lose motivation pretty quickly,” says Sophie Bradford, 23, (below) who has a 2:1 degree in classical studies from Royal Holloway University and an MA in classical art and archaeology from King’s College London.

“I thought Hurd’s comments were very easy for a well-educated gentleman to say, somebody who didn’t have to go out and get a job when they were young, but fell into something that was probably lined up for him.

“Some people are lazy and some just assume that they deserve a job. But I’m quite a proactive person. I ring companies and speak to people and try to keep them on the phone asking questions. It can get a bit depressing. I’m applying for lots of jobs for which I’m over-qualified. With every one I go for, I now assume that they already have somebody else in mind.”

After graduating in September 2012, Sophie, who has worked in PR and retail since she was 15, moved to Newcastle where her boyfriend had been offered a recruitment job.

“What was available was very limited,” she says. “In London, there are jobs, but the problem is the number of people you are up against. In Newcastle, there aren’t that many opportunities.”

She plugged away working for free for weeks and eventually got a job at a PR firm on an initial £12,500-a-year contract (rising to only £13,500 after a three-month probation). She has now moved back to London in the hope of better prospects. “I’m a bit stuck,” Sophie admits.

She is not alone. Figures published by the Higher Education Statistics Agency last month revealed that 9.2 per cent of graduates – almost 26,000 – were not in work or further study six months after leaving university last summer. The data showed that graduates from Derby and Northampton universities were more likely to be in work than Oxbridge graduates, although thousands were opting for menial work rather than what they had trained to do.

More than a third of new graduates working in the UK were found to be in these “non-professional” jobs, which don’t necessarily require a degree. Around 9,695 people were working in “elementary occupations” such as office juniors, hospital porters, waiters, road-sweepers, window-cleaners, shelf-stackers and lollipop men and women.

Alexander Bower, 22, who graduated from University College of London this year with a First in modern history, is aiming to get into advertising. He says many of the jobs available are either unpaid internships or at small, start-up digital firms.

“I’ve had three interviews and I’m waiting to hear back from two,” he said. “The third is work experience. I could do an internship with a London museum but that would be for free. The problem then is: how do I support myself when I’m getting no wages and have no prospect of a job at the end of it?

“The last month has been psychologically difficult. You are just sitting at home looking for jobs on the internet. But claiming Jobseeker’s Allowance is not something I want to do at the moment. I don’t feel like I’m at that point yet.”

Murad Saidov, 23, could be a poster boy for youthful grit. He graduated from Keble College, Oxford in 2012, with a degree in Philosophy, Politics and Economics and joined Goldman Sachs as an analyst in the commodities team. Seeing so many of his friends struggle to get into careers, he decided to leave the bank and set up his own graduate recruitment firm, Seed Jobs.

“Too many bright young people I knew were either still looking for a job or in one that they really wanted to leave. I’ve spoken to more than a thousand young people and recent graduates looking for work in the past few months alone,” he says.

“In most cases, they don’t lack the confidence or people-skills needed to get work, as politicians such as Nick Hurd suggest. If anything, they have lots of self-belief, but little idea of where to channel it.”

Saidov says he feels career services for students are not providing the right support in how to write CVs and prepare them for interviews. Meanwhile, too much emphasis is placed on top graduate schemes that only one in 10 students will ever make it on to. He advises students to send out as many applications as they can and not to be afraid of trying out different options during their twenties, as there is time to settle on a career later on.

Good news, perhaps, for fellow Oxford University graduate Vivian Le Vavasseur, who in the past year has worked as a life-drawing model and a dog walker while attempting to get into commercial law. The 23-year-old, who graduated with a 2:1 in music, says he has submitted 14 applications and completed two internships, but has had no lasting success.

“The climate is difficult and I’ve done quite a few random jobs,” he says. “I’m just going to carry on plugging away and hopefully something will come out of it.”

Many of today’s bright young things are well aware of how tough the situation is, but are still determined. They will sweep roads, clean windows, stack shelves, or shiver in the nude for community art studios while putting up with endless rejection emails and the constant battle to get on the career ladder. Just don’t say they lack grit.


Australia: The cost of waiting for education can be $4500 for parents wanting their children to attend private schools

What does that tell you about "free" government schools?

PARENTS spend up to $4500 to secure a private school place in Queensland, with many putting their children's names on multiple waiting lists.  Some schools send out bills of more than $1500 years in advance.

An investigation of enrolment application, confirmation and advance school fees shows parents pay the most, between $4000 and $4500, to secure and keep a spot at Brisbane Grammar School, the state's most consistent top academic performer in NAPLAN and OPs.

The $4000-$4500 includes a $400 application fee, which does not guarantee a place, and a $1600 confirmation fee, which confirms enrolment and is payable up to three years before a student starts. The fees are non-refundable.

Parents are asked to pay an advance fee of $2500 for Years 8 to 12, or $2000 for Years 6 and 7, depending on when they start.

The fee, which is charged once and is non-refundable, apart from exceptional circumstances, comes off a student's first year of school fees.

Brisbane Girls Grammar School (BGGS), another consistent top academic performer, also charges a $2000 advance fee, which comes off the first year of fees, but is refunded if the school finds a replacement.

Families of girls starting Year 7 in 2016 at BGGS have received an invoice already for their $1600 confirmation fee, while the advance fee for students starting next year had to be paid by June 10 this year.

Most Independent schools analysed charge non-refundable application or confirmation fees.  But some did not charge any. 

In the Catholic sector, application and confirmation fees range from $0 to more than $2000, with St Joseph's College, Gregory Terrace, charging an enrolment bond of $2200 for Year 8.

Most state schools do not charge fees before a student starts.

An Independent Schools Queensland (ISQ) survey What Parents Want in 2011 found just over one-third of parents had their child's their name on a waiting list for more than one school, with about 13 per cent choosing three or more.

ISQ executive director David Robertson said enrolment fees were fair given schools' administration costs and to ensure parents were serious about enrolment and "actually making a commitment".

"In proper planning terms, a school plans their forward enrolments by several years ... So I think, in that respect, it is justifiable," he said.

Mr Robertson said the fees were also small in comparison to what parents would pay overall during their child's time at the school.


Australia:  Former water polo champ adds daughters' names to private school waiting list at eight weeks of age

HARPER Miller is only 10 weeks old but she is already on a high school waiting list.

For some parents, deciding where to send their child to school is a vexed process but not for Carly Miller.  The former Australian women's water polo squad member and Brisbane Girls Grammar School (BGGS) student has fond memories of inter-school sports carnivals and of camaraderie and competition among every girl, every day to be their best, whether it be in the classroom or on the sporting field.

"I do think that everybody strives to be the best that they can be," she said of students at her former school.

"I think that there is a healthy competition at Grammar, so you are encouraged to give it your best shot and, obviously because your parents are paying a lot of money for you to be there, you want to do the best you can.

"I revelled in the sporting side of things at Grammar and made some really good friends that I am still in contact with today and I also think it is just a great school. It offers something to everybody, I believe."

The mother-of-three put her two daughters' names down on the BGGS waiting list within eight weeks of their birth "just to ensure that we didn't miss out".

"I would hate them to miss out on the opportunity if that is where we can afford to send them one day," she said.

"I had such a great time there. It's just a great environment to be in."

She said a good education was extremely important, providing a great foundation in life, which opened up doors and she wanted that for her children.


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