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June 17, 2012

Federal Student Aid Linked to Rising Tuition Costs — in For-Profit Colleges

Recently the Wall Street Journal reported on findings about federal college aid that no one will like:

Studies of the relationship between increasing aid and climbing prices at nonprofit four-year colleges found mixed results, ranging from no link to a strong causal connection. But fresh academic research supports the idea that student aid in the form of grants leads to higher prices at for-profit schools, a small segment of postsecondary education.

The new study found that tuition at for-profit schools where students receive federal aid was 75% higher than at comparable for-profit schools whose students don’t receive any aid.

This is the sort of research that challenges the assumptions on both sides of the political debate. On the one hand, the findings support the conservative idea that federal aid to students ends up boosting tuition costs rather than actually helping people. On the other, they only show this when it comes to the for-profit colleges that liberals hate and conservatives tend to support.

The Via Meadia take remains that for-profit institutions can and should be part of an effective mix in higher education, but–as research like this shows–we clearly haven’t developed the appropriate framework for it.

Overall, making education and training much cheaper is a top item on the country’s to do list. This task forms an essential part of both a social justice agenda to make it easier for poor people, immigrants and working parents to get ahead, and is also a necessary element of any serious approach to enabling long term growth in this country.

To make that happen, bringing private money into education and bringing the creativity and innovation that the private sector at its best can offer into the mix is necessary. But that doesn’t happen in a vacuum. The United States doesn’t need waves of fly-by-night diploma mills and student loan processing centers to rip off a new generation of students.

While there are problems with using standardized test scores to assess the value of the liberal arts degrees conferred by traditional colleges, it’s much easier and more rational to set up licensing exams and other objective measures for students enrolled in training and skill development programs. Those tests are not only valuable because they give employers some assurance that applicants really have the skills the employer wants; information about graduation rates and costs can provide consumers and regulators alike with the kind of information needed to make smart decisions.

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  • thibaud

    “the conservative idea that federal aid to students ends up boosting tuition costs rather than actually helping people”

    As with the noise and confusion surrounding underfunded public pensions, “conservatives” are botching the causal analysis, mistaking simple self-dealing and corruption by insiders for government failure generally.

    The real driver of rising tuition is the growth in administrative expenditures, which per the Goldwater Institute, is rising at 3x the sky-high rate of increase for research and instruction at private universities and 1.6x higher for universities overall.

    Administrative cost now averages $8k per student nationwide, and $18k per student for private universities – about 30% of the total spend.

    This is an absurd level of admin spend for any organization, profit or non-profit.

    Administrative expense increased between 1993-2007 of 61% (all universities) and 110% for private universities, or about 2x and 4x the inflation rate during that period.

    The solution is not to slash tuition aid, as per the knee-jerk nutty TP program, but to mandate that tuition aid actually, you know, be used to LOWER TUITION.

    Presumably the feds could simply force recipients of federal funding to maintain administrative costs at some pre-1990 level, or more in line with 15% of total spend.

  • thibaud

    correction to above – admin cost should be less than 10% of total spend. Universities are supposed to be dedicated to teaching and research. Neither of these requires armies of administrators.

  • JKB

    “The study’s authors warned their findings don’t apply to public colleges and private nonprofit schools, which they say are different because they aren’t motivated by profits and because their prices are largely determined by state funding and donations.”

    That statement hardly give assurances that the non-profit schools don’t increase costs, although not tuition, due to student aids. It is very indicative of bias.

    In any case, across the board certifications would be better to balance the educational outcomes and development of ability. The liberal arts, whose specific knowledge base has little direct economic value, could be tested for improvements in ability to extract, integrate and communicate complex topics. The much touted “critical thinking” and writing skills. Skills increasing absent in the modern liberal arts education.

    In regards to the economic value of the liberal arts knowledge base, such “facts” may prove extremely valuable at some unforeseeable juncture if the student has developed the skills to extract, integrate and use complex concepts. Could anyone have foreseen the economic return of Steve Jobs learning calligraphy. But the learning of calligraphy was not in itself valuable, but rather his ability to integrate that knowledge with the technical knowledge of computer development.

  • TJM

    I went to school with a lot of kids whose parents claimed them as dependents and owned multiple homes. Those kids still managed to take jobs on federal work study and take out federally-subsidized student loans. They also had enough cash to spend a lot of time at bars and clubs.

    Why does the federal government subsidize loans and offer aid to kids (aged 18 to 22, but in this case dependents) whose upper-middle class (or higher) parents are capable of paying? This wasn’t just in undergrad. This was in law school, too.

    There is far too much given, to far too many people who don’t need it, for far too little in return.

  • Corlyss

    Just a stray thought related to college education, but if children are carried on their parents’ insurance policies until they graduate, what’s the deal with college insurance programs? Why are they necessary? Isn’t it double coverage?

  • Walter Sobchak

    “… public colleges and private nonprofit schools, … are different because they aren’t motivated by profits and because their prices are largely determined by state funding and donations.”

    Excuse me. I live in a town where the president of the “Public” university makes $2 million /yr. Clearly, he is only motivated by his desire to serve.

    Tibaud is not going to talk about his squadrons of $750,000/yr Vice presidents, because there isn’t an evil conservative among them, or anywhere else in the sacred precincts, for that matter.

    Don’t tell me that these people are not motivated by money and power just like every other hairless ape on this planet.

    And why should state funding and public donations have any effect on the cost of running these institutions or on the prices (tuition) they charge for their wares.

    My guess is that if we were to triple the money that legislatures and donors poured into these pits tomorrow at 6 am, we would have $4 million presidents, $1 million VPs, and $500,000/yr tenured professors, before they issued a press release at 4 pm that explained they had to raise tuition another 5%, just because.

    We are having a number run on us by completely unaccountable institutions.

    They must be brought to heel. They must be brought to account.

  • Jim.

    “On the one hand, the findings support the conservative idea that federal aid to students ends up boosting tuition costs rather than actually helping people. On the other, they only show this when it comes to the for-profit colleges that liberals hate and conservatives tend to support.”

    This statement is not supported by the quoted text:

    “Studies of the relationship between increasing aid and climbing prices at nonprofit four-year colleges found mixed results, ranging from no link to a strong causal connection.”

    These studies do not “only” show a causal link in the case of for-profit institutions; for some nonprofit four-year colleges there is “a strong causal connection” between increasing aid and climbing prices.

    Intern floggings should continue until their logic improves, Professor.

  • JD

    As one who is a current student at a local, well-established, private, (claimed) non-profit university, I can say with a clear mind that the greedy, capitalistic mindset is not much different from a “for profit” university. I do believe that the greater the amount of available aid, the more justified the university feels in raising tuition, without raising the quality of the education. I have been dismayed and disappointed by the lack of value for my tuition and required material dollars. With much experience in life and in business, I can see right through the veil that they try to hide behind. There certainly does need to be more regulation, to give universities pause, and start shifting focus back to quality and cost-effective education. Excuse me, but I am a paying student, so they are working for me. Not the other way around, as they seem to think. Time to establish the new standard. Look at retention rates, graduation rates, etc. The evidence of recklessness and irresponsibility it there. BTW – I am switching schools. I also have a 4.0 GPA. I am committed, but they don’t seem to be.