Posted by: Jonathan Bydlak | June 15, 2009

The College Bubble

A recent post on the popular blog Freakonomics echos many of the same sentiments that we have discussed here:

For years, colleges have treated their students as consumers, building ever more elaborate facilities and hiring ever more dazzling star scholars to lure applicants. They did this regardless of how high these investments drove tuition, since easy credit meant families could stretch to cover the costs. But with the credit crisis come signs that the college bubble is bursting, as “consumers who have questioned whether it is worth spending $1,000 a square foot for a home are now asking whether it is worth spending $1,000 a week to send their kids to college,” the Chronicle of Higher Education suggests. (Emphasis is ours.)

This past Freakonomics post is also a must-read.

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Posted by: Haris H. | June 6, 2009

Division of the Spoils

Daniel Bennett recently analyzed the educational subsidies in the proposed federal budget for the 2009-2010 fiscal year. Bennett focuses on programs aimed at particular minorities and, using demographic statistics and poverty rates, compares the funding of various groups. His methodology finds large disparities in funding, with some groups receiving more than 400% more funding than others, adjusted per child living in poverty.

While Bennett focuses on racial and ethnic groups, his post demonstrates a larger and more important point: government aid goes to the politically powerful. We have already blogged about wasteful subsidies to banks. A different kind of distortion occurs when government funds are distributed: even well-intentioned government aid will not always reach those who need it most or who would use it best, and too much of it will go to those with the strongest lobby. The process is at best inaccurate and at worst corrupt.

The DiscoverScholars model offers an alternative to government distribution of aid: a direct line from the donors to the students they prefer. Donor choice eliminates the misallocation endemic to government funding, as donors can choose exactly where their money goes and what it is used for. Given all the other problems of government aid, we find the donor-driven model the clearly superior alternative.

Donors: Who do you want to support? Make a tax-deductible contribution to students today!

Students: Click here to apply.

Posted by: Haris H. | June 2, 2009

Loan Forgiveness, Recession, and Career Choice

The New York Times reports on cutbacks made to loan forgiveness programs:

From Kentucky to Iowa to California, loan forgiveness programs are on the chopping block. Typically founded by their states to help students pay for college, the state agencies and nonprofit organizations that make student loans and sponsor these programs are getting less money from the federal government and are having difficulty raising money elsewhere as a result of the financial crisis.

Loan forgiveness programs are meant to enable students with significant debt to enter high-value but low-paying fields, such as teaching in inner cities, public interest law, or nursing in low-income areas. There is little argument that those positions create more value than their salaries reflect, but those salaries make it difficult to recruit quality employees This is especially true for graduates burdened by student loan debt, whose monthly payments make it difficult or impossible for them to consider such lower-paying jobs. Loan forgiveness has provided a valuable service by allowing indebted students to enter such important fields.

The current financial crisis has slashed funding for such programs  – the Kentucky Higher Education Student Loan Corporation has gone so far as to cut payments midstream for graduates who are working and repaying, though most states and organization have simply ceased offering the option to current students. Cutting payments midstream seems like an extreme step, and one that will likely deter current and future students from relying on loan forgiveness, forcing more and more people out of such key fields like teaching and nursing.

A better alternative to unreliable future loan forgiveness would be a system that permits students to gauge their debt load ahead of time. Loan forgiveness programs that commit to payments if conditions are met would reduce uncertainty about their future availability. Better yet, DiscoverScholars permits donors to choose recipients based on major and intended field. Donors can simply fund current students planning to enter valuable fields. Students could plan for their future without having to account for the uncertainty of loan forgiveness programs. Current funding would also give students more flexibility in the future, rather than committing them to whatever conditions loan forgiveness programs entail.

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Posted by: Haris H. | May 29, 2009

Reinventing the University

Last month, we blogged about the ways the recession is accelerating positive changes in higher education, specifically by forcing universities to become more efficient and accountable in light of falling financial support. It didn’t take long for schools to come to the same realization. Hamid Shirvani, president of California State University – Stanislaus, writes about his school’s need to adapt to changing conditions:

The university must continue to depend on all of its employees — faculty, staff, and managers — to function efficiently and to fully serve our students. Nevertheless, there is a new reality that we cannot continue to ignore based on the false hope that things will return to the status quo. We must reinvent ourselves by re-engineering what we do and how we do it. As a public institution of higher education, if we cannot refocus and break free of our old ways of thinking to redefine our place in society, then we’ve already failed. As society changes, so must we also readjust, re-evaluate, re-engineer, and implement new ways of doing things that will enable us to be more efficient and accountable, while also preserving the quality of our academic programs and student services. Public universities can remain true to their diverse educational missions by sustaining the best parts of their past, but we must also boldly reshape and reinvigorate our institutions for the future. If we don’t, someone else will.

The whole piece is worth reading for it sketches the choice facing many schools across the country: adapt or die. Cuts in public funding and tighter family budgets are forcing schools to cut costs. Nowhere is this choice more starkly presented than in California, where the budget shortfall for the University of California system alone amounts to over half a billion dollars.

While Shirvani makes no concrete proposals, it’s encouraging to see colleges recognizing the reality of the situation and adjusting accordingly. We hope that this spirit of increased efficiency and accountability continues beyond the economic crisis. Since the past offers us little hope for that, DiscoverScholars will continue to empower students and donors to hold schools accountable.

Posted by: Discover Scholars | May 19, 2009

Rise in Financial Aid and Tuition

We’ve been writing recently about secular trends that are impacting higher education. The following analysis further explores some of the data that underlie the rise in tuition prices and increase in financial aid.

by Heidi Taylor, Guest Contributor

The decision to attend Ivy League schools has remained surprisingly unhindered by the recent economic downturn.  Most schools in the East have not seen a dramatic drop in admissions, and have remained at a rate consistent with last year’s.  Many colleges are offering more merit-based scholarships, but even schools like Yale that have not upped their scholarship funds continue to draw in thousands of applicants.  While demand for schools like Yale and Harvard is less elastic than than that of other schools, even the Ivies were preparing for a smaller applicant pool.

Many Ivy League schools have also increased the amount of need-based scholarships they offer to incoming students, with Harvard boasting an 8 percent increase in the amount of scholarships as compared to last year. Harvard has also instated a policy since 2007 that allows families with incomes under $180,000 to put no more than 10 percent of their income toward tuition, with the rest covered by the school. In the short term, this has resulted in an increase in their financial aid budget, but it’s likely that these increased costs — coupled with substantial endowment declines — will put upward pressure on Harvard’s future tuition price.   Already, Harvard’s tuition has increased by 3.5 percent from last year, while financial aid increased by 18 percent — bringing the school’s budget to $147 million, according to the Harvard Gazette.

On the other side of the spectrum, many public schools were anticipating a rise in admissions due to the economy (or at least a larger rise than private schools), though there has been little fluctuation in this regard.  Applications for financial aid, however, have seen a significant increase, with many public schools’ financial aid offices reporting upticks of several percentage points.  Additionally, most public schools have been forced to raise their tuition rates because of cuts in state funding; this has resulted in fewer course options, larger class sizes, and even the laying off of professors. Incoming Texas A&M students, for example, have witnessed a tuition increase of 26% in just the past year.

From the perspective of lawmakers, cutting education spending can yield significant cost savings to already strapped state budgets, because parents of college-bound students have little choice but to cover the difference between tuition charged and financial aid received. There’s no question that it is going to be difficult for many high school students to think about the future when they see eye-popping rises in tuition rates with few options to help pay for it. For this reason alone, alternative means of student financing will be all the more important.

The post was contributed by Heidi Taylor, who writes about online graduate degree programs for GraduateDegree.org.  She welcomes your feedback at HeidiLTaylor006 at gmail.com.

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Posted by: Haris H. | May 12, 2009

Cutting Out Middlemen

USA Today recently editorialized on plans to scrap the Federal Family Education Loan Program (FEEL) and replace it with direct government loans. (For more information on FEEL, read this short blog post.) Though we agree with eliminating FFEL, we disagree with the editorial’s prescription for higher education financing:

A government-run student loan program could also help Washington deal with tuition. By going through intermediaries, the government loses much of the leverage it could have over universities to control costs. … As the saying goes, if you want something done right, do it yourself. Sometimes that even applies to government.

One obvious oversight that the editorialists forget is that the government is itself an intermediary. If the best prescription is to cut out all middlemen, wouldn’t the most logical conclusion be to eliminate the government’s role in education altogether?

More to the point, though, the authors’ proposal for a government-run student loan program runs counter to what makes America’s colleges and universities among the best in the worldcompetition and innovation. While we are firm believers that the world of higher education could be much improved, it’s obvious that competition between colleges has helped produce innovative teaching techniques, better uses of technology in the classroom, and leading academic research.

These gains have been possible in large part because schools are free to experiment with new approaches, keeping those that work and discarding those that don’t. Differentiation among colleges has allowed the U.S. to more adequately meet the diverse needs of its students. Whereas some schools succeed by specializing in certain fields, others find success by offering a breadth of options. Some schools exist as low-tuition commuter schools for working students, while others have expansive campuses with dorms and hundreds of amenities. These differences ensure that all students can tailor their education to their wants and needs. Though competition can be problematic, it also has motivated U.S. schools to improve their final product.

In contrast, government approaches tend to be “one size fits all,” and allowing government to use its “leverage” as USA Today suggests may stifle competition and innovation that makes colleges better. Rather than relying on a universal government policy to reduce costs and improve product, we think it makes more sense to empower those who foot the bill – students and donors. Let colleges continue to compete and innovate as they seek to attract students who, funded by donor contributions, can choose just the right education experience for them.

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Posted by: Jonathan Bydlak | May 6, 2009

Some trends to think about

We talk a lot on this blog about the changes we’d like to see in the world of higher education. In particular, we frequently discuss our view that spiraling college costs stem in part from the availability of aid without accountability. Naturally, Discover Scholars is our attempt to remedy this problem.

Nonetheless, while we care about how higher education should change, we often gloss over the many ways in which it already is changing. During the last few months, Tamar Lewin of the New York Times has written multiple articles about the ongoing evolution of college education in America. We’d like to highlight a few of Mr. Lewin’s observations, because many of them represent attempts by colleges and students to economize in response to rising costs.

Consider just a few of these trends in higher education (our emphasis is in italics):

  1. Community colleges in 17 states are now offering bachelor’s degrees. (HT: Mark Perry)
  2. [N]owadays, Miami Dade College … offers bachelor’s degrees in teaching and nursing and public safety management, and will soon add engineering technology, film production and others.Ms. Coleman now recommends the college to family members. “It’s much cheaper, the teachers are good, you can do it in the evening while you work, and everyone’s very helpful,” she said.

  3. More colleges are offering students the option to graduate in 3 years.
  4. Here’s one way of cutting college costs: get a degree in three years, instead of four.

    This fall, Hartwick College, a small liberal arts college in Oneonta, N.Y., will offer students the option of doing just that, at a savings of more than $40,000.

  5. More American students are heading overseas for their full degree program.
  6. [U]niversities worldwide — many of them in Canada and England — are competing for the same pool of affluent, well-qualified students, and more American students are heading overseas not just for a semester abroad, but for their full degree program.

    For American students, a university like St. Andrews offers international experience and prestige, at a cost well below the tuition at a top private university in the United States.

What do each of these trends have in common? The answer should be relatively obvious based on our italicizing: all represent responses by colleges and students to deal with the increasing cost of education. While there are definitely many reasons to be worried about decreasing college affordability, it’s also somewhat comforting to know that market participants are already developing solutions. And fortunately, these trends are likely to continue, even if they are just the tip of the iceberg for how higher education could look.

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Posted by: Haris H. | May 4, 2009

Subsidies to Students — and to Bank Profits

Economist Uwe Reinhardt* writes in the New York Times about changes being proposed to the system of federally subsidized student loans. In particular, he highlights the unsettling fact that Congress’s attempts to help students have also helped guarantee the profits of big banks. For this reason, many commentators have been calling for the elimination of the current system.

According to Reinhardt:

The options before Congress seem clear. For the same burden on American taxpayers or on the federal deficit, Congress could either

(A) provide more loans and scholarships to students by eliminating the more expensive F.F.E.L. program, or

(B) provide fewer loans and scholarships to students, but continue what really amounts to an income-maintenance program shoring up employment and profits for private lenders — an income-maintenance program to which these private lenders somehow feel entitled.

Eliminating this wasteful program is a great idea. While it’s true that government-subsidized student loans are a major contributor to the rapid increase in tuition costs, so long as they exist, they should be administered as efficiently as possible — rather than used as de facto gifts to powerful special interests.

One of the main arguments for subsidizing education is that it’s a public good — one that benefits not just the recipient, but the rest of us as well. Discover Scholars was founded in part to allow donors to fund such public goods directly and voluntarily, rather than indirectly through taxation. Regardless of whether you accept education’s claim to public good status, the logic surely doesn’t apply to bank profits.

UPDATE: Reinhardt responds to a reader.

*Full disclosure: Uwe Reinhardt was my undergraduate economics professor. We once had lunch together to discuss the movie Memento.

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Posted by: Haris H. | April 29, 2009

A Glimpse Into The Future?

Our goal at Discover Scholars is to empower students and donors relative to institutions. By increasing accountability and encouraging competition between schools, we believe that higher education will become both more responsive and more affordable.

Ironically, the current economic recession offers us some insight as to how the educational world might look when we succeed. With family budgets squeezed and many college endowments decimated by recent market movements, many colleges are coming to the realization that they cannot rely on tuition increases to pay for existing and new expenses. Naturally, they’re cutting costs and becoming more efficient – exactly what we want them to do.

Marty Solomon sketches how colleges might have to change in order to remain viable and competitive:

[T]uitions are now so high as to be unaffordable and will not be allowed to go much higher. So the question is: How can universities possibly cope with smaller budgets and limits on tuitions? The answer is that, as painful as past budget cuts have been, even larger cuts will now be required.

The article proposes some interesting potential responses, such as the merging of small departments, elimination of unpopular programs, and increased teaching loads. Many of these changes are probably desirable, but none of them are likely to result in lower tuition and higher affordability.

However, to extend Solomon’s argument, what if colleges remained economical not just during this downturn, but in the long run? What if students became empowered shoppers, unconstrained by school-restricted financial aid, willing and able to take their business to the provider who best meets their needs? And what if donors didn’t just give unrestricted grants to colleges, but targeted their contributions through organizations that more concretely allow them to measure their impact?

In this world, competition between schools would be the norm, not the exception, and an emphasis on efficiency would bring about quality improvements and ultimately lower prices. This recession might just be giving us a glimpse into that world.

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Posted by: Jonathan Bydlak | April 27, 2009

Donor Choice Matters

The Wall Street Journal ran a much talked about article last Friday about the increasing tension between donors and college administrators. To give the one-sentence summary:

As schools struggle more than they have in decades to fund their core operations, many are looking to a rich pool of so-called restricted gifts — held in endowments whose donors often provide firm instructions on how their money should be spent.

The article is well worth a read, if just for the numerous examples of colleges that are ignoring donor wishes when deciding how to spend contributions. More interesting from our perspective, though, is the picture that it paints of the college-donor relationship. While rarely discussed, there is an inherent tension that exists in the world of higher educational giving between donors and the schools receiving financial support. To quote the article directly:

College presidents have long felt tension over the responsibility to honor “donor intent.” While schools appreciate the generosity, narrow restrictions on gifts made decades ago can tie their hands when times are tight.

Not surprisingly, the recent turn-down in the economy — and the associated fundraising difficulties for colleges — has made this tension more pronounced. As Marion Fremont-Smith of Harvard’s Hauser Center for Nonprofit Organizations puts it, there now is “much greater interest among donors in enforcing gifts than there ever was.”

Yet while this article illustrates well the conflict between the wishes of donors and recipients, in our view, it fails to draw the most logical conclusion. Even though “restricted gifts can account for as much as three-quarters of a university’s endowment,” it seems reasonable that colleges are poorly structured to honor such donor requests.

There’s no question that many donors contribute with a specific purpose in mind, whether that be promoting research in a particular field or helping fund a new athletic stadium. For many of these donors, their specific goals can only be accomplished by giving directly to a college. But for donors whose intention is to support student educational opportunity, why should they give to a college when they could give to students more directly?

Help us continue to grow:

Donors: Who do you want to support? Make a tax-deductible contribution to students today!

Students: Click here to apply.

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