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Higher Ed Spending: Another Phony Stimulus?

December 10, 2008

By Steven Malanga

Legislators, opinion makers and the public at large have been rightfully skeptical of appeals by American automakers for a bailout. Now maybe it's time to apply that same skepticism to the growing calls for government to send billions of dollars to bail out public higher education—the stimulus du jour.

Behind this latest rush to spend more of our tax dollars is a spate of stories last week (generated, predictably, by reports from advocacy groups) declaring that college is becoming unaffordable for more and more students as states cut funding to public universities amidst the economic downturn. The reports prompted everything from outrage to compassionate outpourings from editorialists, columnists, advocates, legislators and university administrators, who warned us that we are in danger of killing the American dream for many kids and making our economy uncompetitive unless we 'invest' quickly in our higher education system.

"Send federal money to the states, but make sure a lot of it goes to state universities," wrote New York Times columnist David Brooks, channeling Harvard's Michael Porter. "Higher education should not be left out...as lawmakers and other leaders debate stimulus plans for the economy," a spokesman for the New Jersey Association of State Colleges and Universities told a local newspaper. "Making college affordable benefits everyone," a spokesman for a nonprofit that "promotes access to college" told that same newspaper. "Public higher education should be at the center of any 'new deal' created to address the current economic situation," the California Faculty Association (a typical disinterested group consulted by the media) declared to approving nods from the press, while a West Coast newspaper editorial assured us that "every $1 invested in the [California State University] returns nearly $5 to the state's economy." Without new investments in public education in Florida, an advocacy group quoted by the Wall Street Journal declared, some 40,000 kids might be denied access to college by 2012 alone. There's much, much more, all pretty much along the same lines.

What was missing in this media barrage, however, was any evidence that investing substantially in public universities actually pays off economically for a state, or that expanding access to college really results in more people getting degrees (and better jobs), or that state universities use their public subsidies wisely in the first place. No doubt all of this seems so self-evident that not one journalist I can find bothered asking whether any of it was true.

A few researchers, however, have asked these questions, and the answers aren't always pretty, nor are they part of the conventional wisdom. One of the skeptics is Richard Vedder, distinguished professor of economics at Ohio State University and head of the Center for College Affordability and Productivity. He's spent years observing the upward spiral of tuition at American colleges and universities and the increase in government's subsidies for higher education. His research suggests we are already over investing in our public universities.

For one thing, Vedder has found little evidence that government spending on higher education stimulates an economy. He has run hundreds of regression analyses trying to understand the relationship between subsidies for public universities and local economic growth, and what he's found is that at best the spending produces no gains, while at worse, "the more states spend on higher education, the lower the growth" over time. Vedder suspects this is because the "growth-impeding effects of taxes that finance higher education spending are greater than the growth-enhancing effects of that spending." Thus the argument many public university administrators are making in the midst of state budget crunches, that maintaining subsidies to universities will pay off, is without much substance.

Still, shouldn't we be taxing people who can afford to pay a little more (the rich? corporations?) in order to expand access to college? And doesn't public funding of universities accomplish that? Not necessarily. For one thing, state universities devote a small proportion of incremental public financing to keeping tuition low. In one study, the Center for College Affordability determined that on average public universities use only 30 percent of public funding increases to hold down tuition costs. Instead, public universities have been pouring more money into intercollegiate athletics and student services, raising salaries rapidly and increasing hiring of non-instruction personnel. In 1975, for instance, the ratio of non-instructional staff to instructors at America's colleges and universities was about 4.5-to-10. Today, it's about 8-to-10.

But even devoting the money to lowering tuitions doesn't necessarily pay off. While the press worries about whether rising tuition at state universities will deny some students the opportunity to attend college ("New Barriers to Entry" read a recent headline in the Wall Street Journal about higher tuition), few in the media wonder whether expanded access actually leads to more college graduates.

As Vedder points out, many of our public universities have a high attrition rate, where well under 50 percent—and in some cases, under 40 percent—of those who enroll earn a degree. Those stats aren't particularly surprising if you examine college readiness rates in the United States. Education researchers Jay Greene and Greg Forrester did that back in 2003, and they judged that while only 32 percent of all high school seniors had the necessary skills and coursework to be college-ready, about 34 percent of all young adults are enrolled in college. Vedder's conclusion from such data is that incremental government funding is encouraging some relatively unqualified students to pursue college, and that the attrition rate among those students is very high.

Still, access to college has become part of the narrative of how to make America a more just society. Higher education can do this by closing the income gap between the rich and everyone else, so the idea goes, because college graduates earn substantially more than those who don’t graduate from college.

The problem with this reasoning is that it confuses correlation (those who graduate from college earn more) with causation (graduating from college means one will earn more). In fact, there may be any number of reasons why those who graduate from college earn more that have little to do with a degree. For one thing, college graduates have higher IQs, on average, than those who don't have degrees, and maybe IQ is what's behind the income differential, not a college degree.

There is a message in the financial woes of state universities, but it's not the one that we're hearing from the Academy itself, or its advocates, or the press. The current economic and fiscal mess represent an opportunity to reassess and reform our state university systems. That means targeting savings by reducing administrative personnel and increasing course loads for instructors. It also means taking a hard look at public institutions with low graduation rates. Some probably need to be closed. And it means focusing assistance on needy students who are academically qualified to attend college while eliminating aid, like low-cost loans, for affluent students. This is the real opportunity before us.

Original Source: http://www.realclearmarkets.com/articles/2008/12/higher_ed_spending_another_pho.html

 

 
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