Universities and $

In this article about college funding, Kevin Carey says something that I’ve long believed, which is that government-supported financial aid doesn’t quite work how you might imagine: colleges can just raise their prices along with any aid packages that come along. The price tag for college is not fixed, and so what looks like a subsidy for low-income students can just end up being a way for universities to jack up their prices by a corresponding amount.

But Carey also says some things that don’t convince me so much. My impression is that he just threw in all sorts of negative attitudes about universities, without thinking about how they all fit together.

In discussing this, I’m not trying to pick on Kevin Carey, who makes excellent points about the desirability of publicly available information on what students actually learn in college. My point here is to use this generally fine article to highlight some ways in which people get confused when talking about higher education.

Carey writes:

Essentially, colleges don’t figure out how much money they need to spend and then go get it. Instead, they get as much money as they can and then spend it. Since reputations are relational-the goal is to be better than the other guy-there is no practical limit on how much colleges can spend in pursuit of self-glorification. As former Harvard President Derek Bok wrote, “Universities share one characteristic with compulsive gamblers and exiled royalty: There is never enough money to satisfy their desires.”

I agree that this describes colleges, and I’ll take Bok’s word for it that it describes compulsive gamblers and exiled royalty too. But doesn’t it really describe almost anybody? I mean, who among us, Ubs excepted, figures out how much money they needs to spend and then goes and gets it? The much much more common pattern, I think, is that people get what jobs they can do and, ideally, want to do, and then if they need more money, sure, they try to get more. But when people make more, they tend to spend more and feel the need for even more, etc. I don’t see at all what’s special about universities here–this just seems like a cheap shot to me. Universities are like other organizations: they’re happy to take money that people are willing to give to them. I mean, I don’t see Apple saying, “Hey, we have enough money–we’re gonna give out i-pods for free.”

Carey also writes:

Public colleges, which most students attend, also get direct government subsidies to keep prices artificially low. So even community colleges and less selective universities that aren’t fighting tooth and claw for students can jack up tuition to do things like reduce faculty workload and increase administrative pay.

Huh? College tuition is “artificially low” but it’s also being “jacked up.” Maybe it would help if Carey could specify what is the “natural price” of college, so we can decide whether he’s complaining that the current prices are too high or too low.

Just to be clear: I agree with Carey’s main points, which are: (a) focusing on financial aid ignores that colleges can use the aid to raise their prices, (b) we don’t have good measures of how much students are learning in college. And I also agree with his point that not much effort is put into improving the quality of college teaching. I think this isn’t such an issue for me–I put lots of effort into things such as research, blogging, and the writing of journal articles and books–all of which benefit the larger community (I hope) and also have a direct impact on the Columbia University undergraduates who work on projects with me or my collaborators or happen to take courses out of my books. This is only a minority of Columbia students, but the ones who don’t work with me might work with a similarly-situated professor in the biology department or the English department or whatever. But, as Carey would be correct to point out, most college professors don’t do lots of research, book-writing, etc., so one would hope they would be doing a good job in the classroom. (Carey explicitly states that he’s discussing the bulk of the college education in the U.S., not the elite universities such as Columbia.)

In summary, I liked Carey’s article and just think he should be a bit more careful with the “Profscam”-style rhetoric, which is so easy to indulge in if we’re not careful.

7 thoughts on “Universities and $

  1. The way I read that last blockquote, the intent of government subsidies — to keep prices low — is being thwarted by their "jacking up" prices. I don't think it's internally inconsistent, though it's written in a way that makes me a bit knee-jerk skeptical.

  2. Andrew, you wrote, "But when people make more, they tend to spend more and feel the need for even more, etc."

    One of the things I try to encourage in my students is the meme of "you've got to save and invest if you expect goals 20-40 years in the future to be fulfilled…college for the kids, retirement for you." Thus, it is unwise to increase spending too much just because your paycheck has gone up. Spending should be the last item on your monthly list. The mantra I encourage is "Insure against losses you can't afford to take, save & invest for the future, and spend the rest."

    I agree that people tend to spend more when they have more, but it's not necessarily the wisest course. And, people who take my advice will often find themselves living a simpler, more frugal (but still fulfilling) lifestyle, so not necessarily spending more as more is available.

  3. Bill: Yes, I agree. My point above was descriptive rather than normative; I was saying that the behavior that Carey attributes to colleges, compulsive gamblers, and exiled royalty also describes most of us, I think. Even those of us who spend within our means tend to be on the lookout for ways to get more.

  4. "I agree that people tend to spend more when they have more, but it's not necessarily the wisest course."

    Why not? Without changed expectations, intertemporal maximization always leads to more spending with more income

  5. I agree that universities are not unique in their inefficiencies or their desire to avoid accountability. I think Carey's harsh criticism is a reaction to the common idealized vision of higher education.

    While I definitely favor reporting more data and trying to measure learning, there is one serious concern… some goals of education are harder to measure than others, and the things we measure will inevitably be emphasized over the things that we cannot.

    You can find this perspective in the following blog post, and me arguing against it in the comments:

  6. Why not?

    Because when you no longer have a salary (i.e., you are retired), as in my case, you will be glad you have savings/investments to fall back on.

    I know personally people who didn't do this, and they are in a difficult situation now.

  7. There's always going to be a point where diminishing returns set in, and money would be better spent elsewhere. If the question is do Universities accept cash after this point, I absolutely agree with Andrew: just about everyone does.

    A totally separate question is whether Universities are spending dollars that would have higher utility if saved for the future. You're more likely to find a valid critique here: particularly, does the current setup encourage excess spending? In particular with public universities, does having a savings fund for bad times mean that you'll have funding slashed in budget crises because you can afford it? Would spending everything now mean the state needs to keep your funding levels more stable in bad times? I expect you can find solutions to improve the latter problem, but that the former is inherent in any remotely capitalistic system.

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