Miserly Colleges

Lynne Munson of the Center for College Affordability and Productivity turns in a thought-provoking op-ed at Inside Higher Ed today. She takes colleges to task for hoarding vast sums of money in endowments while still charging students high tuition rates:

Stanford University spends $76 million on undergraduate financial aid, a sum that sounds generous but amounts to a mere 0.5 percent of the value of its endowment. The university spends just 4 percent of its $14 billion endowment toward operating expenses. If the 5 percent payout rule required Stanford to spend another 1 percent of its endowment, and that money was directed toward financial aid, students would enjoy $211 million in additional support. That is precisely the cost of letting all 6,600 Stanford undergraduates attend tuition-free.

With all the talk in Congress about how much money loan companies (including “non-profit” loan companies) are making off of student loans, it might be worth also taking a look at how colleges spend their endowments. As Munson points out, taxpayers are helping to fund the federal grants and subsidized loans that allow many students to afford the high tuitions at these institutions (and allow these institutions to charge such high tuitions). Meanwhile, donors receive tax breaks for adding to these large endowments. It’s worth asking what the public is really getting out of this deal.

The Onion, Predictably, Sees the Truth

From a story in this week's Onion (Interestingly, not on-line yet, another reason to be psyched they're publishing the print edition in DC now):

New Theories Suggest Kennedy Wasn't Shot - A controversial new book about the assassination of President John F. Kennedy has raised questions not about the role of a lone gunman or a conspiracy of shooters, but about whether the late president was even shot at all.
While the book, Outside the Crosshair, does not dispute the fact that a massive portion of Kennedy's skull was separated from his head during the 1963 Dallas visit, it maintains that the president suffered fatal explosive-cranial trauma through means completely unrelated to gunshots.
"Certain extreme force was involved in this tragic death," said Dr. Horace Musashi, the book's author and professor of computer science at Mount Union College in Alliance, OH. However...Musashi favors an explanation known as the single-massive-spike-in-blood pressure-theory. After 11 years of painstaking research, Musashi uncovered testimony from anonymous eyewitnesses who claimed that unopened packets of duck sauce and soy sauce were hastily removed from Air Force One..."

The crucial detail is that Musashi is a college professor. Despite the democratization of access to information and expertise, it's still the case that society bestows considerable--albeit undifferentiated--intellectual status on university faculty. As long you have a PhD in something and faculty appointment somewhere, you get a significant added presumption of knowing what the heck you're talking about--if even if what you're talking about has nothing whatsoever to do with your training and field of study.

Not that this is altogether a bad thing, it's good to maintain academic standards and credentials in era where simple assertion of expertise is easier than ever before.

But it has the negative byproduct of lending undue credence to Harvard psychologists who believe in alien abduction, BYU physics professors promoting wacky 9/11 conspiracy theories , University of Minnesota philosophers who see sinister government plots behind the Kennedy assassination and 9/11 and the death of Paul Wellstone, etc. etc.

Churchillian Speech

Ward Churchill was fired by the University of Colorado yesterday because he said that the maintenance workers and secretaries who were burned and buried alive in the World Trade Center on 9/11 were a bunch of Nazis who had it coming. The official reason for the firing was academic misconduct, which has the ACLU in a snit. Churchill's speech, they said was "protected by the First Amendment and cannot serve as a legal basis for any adverse employment action."

I'm a card-carrying member of the ACLU and close to a free speech absolutist, but in this case I don't buy it.

For various reasons including limited resources and the need to maintain an atmosphere of collegiality and trust, universities can't go around conducting in-depth investigations into the scholarly conduct of every professor on campus. But they certainly have the right to do so on a case-by-base basis, and it seems more than fair to assume that a person so deranged that he can't see the distinction between the perpetrators and victims of monstrous crimes against humanity might also be a less-than-scrupulous scholar. Sure enough, that's what they found.

The ACLU seems to be saying that liars and plagiarists can innoculate themselves against the consequences of their actions if they can manage to offend enough people to bring scorn and infamy upon themselves and the university that employs them. Plus, who thinks that if Churchill had, for example, been publicly espousing the principles of Nazism--rather than simply ascribing them to innocent victims of terrorism--he'd still have a job? Of course not, because he never would have gotten his job in the first place. Nobody is saying Ward Churchill should be arrested for saying what he said, just that no decent institution of higher education should pay him to do so.

All Competition is Not the Same

Ezra Klein critiques a recent WSJ op-ed$ about income inequality and the return on human capital from Cato's Brink Lindsey, which concludes:

Those interested in reducing meaningful economic inequality would thus be well advised to focus on education reform. And forget about adding new layers of bureaucracy and top-down controls. Real improvements will come from challenging the moribund state-school monopoly with greater competition.

Ezra says:

Responding to that sort of despair by trying to break the teacher's unions is truly an astonishingly narrow and inadequate solution

I don't put any stock in Cato's voucher-mania, but it's a mistake to assume that every call for more competition in education, challenging the monopoly, etc., is necessarily about breaking teachers unions. For an example, look no further than today's front-page New York Times story about former Democratic fundraiser and Rock the Vote founder Steve Barr, who's challenging urban school districts by opening new charter schools with unionized teachers. Barr says, "If the district doesn’t work with me, I’ll compete with them and take their kids."

The point being, while one could probably accurately surmise that Lindsey wouldn't mind breaking teachers unions, its perfectly possible to accomplish what he advocated for in a pro-union context. Not all attempts to introduce competition into the education system mask a dastardly anti-labor agenda. Plus, given that most serious education observers--left and right--agree that many school systems suffer from moribund bureaucracies in need of reform, implicitly putting unions on the wrong side of that argument isn't doing them any favors.

Doing the Math on Borrower Benefits

As the financial aid legislation in both the House and Senate have moved forward over the past couple of weeks, lobbyists for loan companies have been going full throttle trying to derail efforts to cut subsidies to lenders. They are even using the new legislation to intimidate borrowers into consolidating their loans—my mailbox has been inundated with letters from loan companies threatening rising student loan costs because of the proposed legislation (there have been plenty more since this).*

A recent advertisement in The Politico by the “Campaign to Reform Student Loans” highlights one of their most popular arguments, that the proposed subsidy cuts will “wipe out the interest rate discounts currently available to borrowers.” And then they give some scary calculations: a student with a $20,000 loan will pay an additional $5,000 over 20 years as a result of this legislation, and a student with a $60,000 loan will pay an additional $38,000 over 30 years.

And this is true. A very, very small percent of students would end up paying more on their loan over the course of repayment without these borrower benefits. But, according to FinAid.org—a great source of independent information on financial aid—less than 1 in 29 borrowers will see the full discount from these borrower benefits.

The most common benefits are a .25 percent discount on the interest rate for automatic debit payments and a 2 percent interest rate discount for 48 on-time payments. But less than 15 percent of students sign up for the direct debit, and less than 10 percent qualify for the on-time payment discount for the entirety of their loan. It is not easy to make 48 consecutive on-time payments, and if a borrower misses just one, he or she loses the benefit for the life of the loan.

FinAid writes:

A review of lender SEC filings reveals that the combined cost of all the discounts, including the direct debit and prompt payment discounts, averaged less than 10 basis points (0.10%) over the past decade. That's less than 5% of the nominal "full" 2.25% discount and less than $50 per borrower on average.

Using FinAid’s handy loan discount analyzer, a student with a $20,000 loan that gets the direct debit discount and has a 1 in 36 chance of being late with a payment (a much more realistic expectation) could expect to save $592. For the student with $60,000 in loans, it would be around $1,700. A much lower benefit than loan company lobbyists advertise.

Beyond the mathematics of loan discounts, it’s worthwhile to think about the lenders’ argument: that they should receive more in subsidies so that they can then pass some of the money along to some students as discounts. In essence, lenders are asking for a smaller cut to their subsidies because they want to act as middlemen for this money.

But wouldn’t it make more sense for Congress to just give this money directly to students, either in the form of interest rate cuts or increased grant aid?

* Lenders are interested in getting students to consolidate before the legislation takes effect because, if this legislation works like past changes to subsidy rates, lenders will be able to collect the old, higher subsidy rate for the life of the loan on any loans consolidated before the new subsidy rate takes effect.

Maverick Leads Charge

For those of you intrigued by today's front-page NYTimes story on Steve Barr, the guys who's shaking things up out in L.A., Education Sector was on the story a year ago with this report.

Compacts & Contracts: A Colorado Case

The National Governor’s Association released a report over the weekend calling on states to implement compacts with colleges and universities. It’s a growing trend in higher education, and it deserves a closer look.

The most innovative higher education funding scheme comes from Colorado. In 2005, the state began allocating higher education money based on a student-stipend program called the College Opportunity Fund. Money follows in-state undergraduates to their chosen institution. Students complete a short application in order to be eligible, and the stipend is good for only 145 credits. All stipends to public institutions are equal, and privates get about half that amount. Every institution that opts to participate must agree to a performance contract with the state. The state may purchase fee-for-service contracts for graduate schools, rural education, economic development services, and dual enrollment programs.

Advocates argued the stipend program would increase college attendance for traditionally underserved populations. They argued these students and families suffered more from lack of information about the affordability of higher education than from actual financial limitations. Publicizing the stipend as a use-or-lose system would theoretically address this problem. Accountability schemes in higher education struggle with the principal-agent problem--who exactly is the “client,” students or the state? By setting all stipends equal and allocating funding entirely based on student enrollment, the state has effectively said students are.

National CrossTalk published an in-depth look on Colorado’s stipend program last winter, and they found some things working and some not: the 145 credit limit appeared to be pressuring students to complete college quicker, colleges had almost immediately raised tuition levels to compensate for years of inadequate funding, and the fee-for-service measure had been implemented in such a way that state funding levels remained almost exactly constant. Most important to the program’s success, although current students failed to comprehend the reason for the change, students as young as eighth grade are already registering for the stipends.

Choice requires information, and there will not be symmetry in who has it. Part of the state’s role, then, should be to inform the consumers of their options, or mandate the producers (universities) provide enough data for real choices. That doesn’t appear to be happening. Another gaping hole in this design is that it is entirely state-based. Institutions have no incentive to attract international scholars or high-caliber students from other states, because they’ll receive $0 for enrolling these “clients.”

Before switching to performance contracts with individual institutions, Colorado had a performance-based funding mechanism in place. About 2% of the total general funds in FY2001 were allocated to the governing boards based on performance results. Moving away from this funding scheme to a contractual system means the accountability mechanism has shifted from (admittedly limited) financial consequences to legal ones. The devil is in the details, and we’ll have to wait and see how enforceable the four-year contracts turn out to be.

Contracts are not a panacea. More states should experiment with various accountability tools to better manage this country’s higher education institutions. Kudos to the NGA for featuring various state attempts to do so.

The Box Theory

I am a product of the blue box theory of American History. Flipping through my 10th grade U.S. history text book, it is impossible to ignore the takeover of the special interest box: little blue boxes, outlined and shaded, each one condensing minority perspectives and contributions into half a page or less: Women in the civil war, Immigrants and the railroad.

This weekend, the blue box theory struck again.

The Israeli Education ministry announced Sunday that Israel’s war of independence will now be referred to as a “catastrophe” for the state’s Arab population. A New York Times article notes:

Ms. Fenig, who is the national supervisor of homeland, society and citizenship studies, said, “Pedagogically, it is not right to hide facts and ignore Arab sensitivities if we want to live together and build something in common.”

Though applaud Ms. Fenig’s commitment to marginalized views, I cannot help but wonder if this is an impossible task. Can history text books ever succeeded in incorporating all sides into a coherent narrative, or will minority history never encroach further than boxes?

Flexing Our Way Towards Reform?

Just like during NCLB’s creation, the issue of local control over federal dollars is brimming to the surface again. While far less sexy than highly effective teachers or growth models, flexibility may be another looming battle in the fight over if/when/how to reauthorize NCLB. Recently, Representative Howard “Buck” McKeon introduced the State and Local Flexibility Improvement Act, designed to give state and local officials more authority over federal dollars. In describing the legislation, McKeon used the ever-popular federal-government-ruins-everything refrain in advocating “removing Washington constraints on federal dollars.” The bill proposes expanding flexibility authority for states and local school districts to use federal funding in ways that better match their needs.

Sound familiar? NCLB had four new provisions that provide for this exact type of flexibility. What’s happened since? A new series of reports from the U.S. Department of Education looks at participation rates in each program and how and why districts use (and don’t use) the various provisions.* The newest Education Sector Chart You Can Trust analyzes how these provisions have been used and why participation has been lower than expected.

Interestingly, rural districts have the highest participation rates. These small districts get very small allocations under some Title programs and pooling those funds for other purposes makes a lot of sense for them. Other districts are not quite as enthused with flexibility. Only 16% of districts report using Transferability, a flexibility provision available to all districts. And even fewer districts—one to be exact—used the new Local-Flex program, which was intended to provide even more flexibility to districts.

The reasons that participation isn’t higher vary-and some have to do with uneven implementation and a lack of information. Some districts also reported being frustrated with the small amount of money eligible to transfer—a problem that McKeon’s proposal aims to address. However, a sizeable percent of districts (44%) that didn’t use the program reported choosing not to participate because they already had sufficient existing flexibility in how to use funds.

None of this is to suggest that flexibility isn’t a good idea that could use some tweaking, or that local control isn’t important. It does provide a caution however, that like many education catch-phrases, just “removing Washington,” doesn’t necessarily lead to the kind of dramatic change we all want.

*Full disclosure: I recently left the Department of Education, where I served as the contracting officer’s representative on the contract that produced this evaluation, but an independent contractor conducted all analyses and wrote these reports.