On April 14th the Future Trends Forum explored higher education economics, in discussion with one of the leading experts on the subject. Professor Robert Archibald broke down the complex problem elegantly, while giving us a sneak peak at his forthcoming research, offering a first masterclass in post-secondary education finance.
What follows are my notes and some observations.
Bob Archibald began by referencing two co-authored books, his well known Why Does College Cost So Much? and his new project, Turbulent Waters (under contract with Oxford University Press). Turbulent looks at the future of higher education, so I’m very excited about it.
Based on that work, Archibald identified several major drivers of economic change in higher education:
- The disinvestment by states in public higher education, on a per student basis. The current worst case is Illinois (as my readers know).
What caused this development? Tax revolts play a key role, dating back to California’s famous 1978 vote. The rise of a pro-privatization or neoliberal ideology also plays a role, as that often leads to a reduction in public sector support. Additionally public higher education has been in heavy competition with other state-supported services, including K-12 education, Medicare and Medicaid, prisons, and state pensions.
- The stagnation in household income. Archibald stated that median income rose only one percent (1%) from 1967-2010 (still a staggering figure).
The typical American family is now responsible for paying the majority of college costs.
- Increasingly income inequality. American incomes are “fanning out” across financial levels, with gaps widening between economic levels, making it harder to have an economically diverse student body.Those in the 1% (whose incomes are too high to fit into the preceding chart!) are starting to complain about bearing higher college costs, which go to making prices lower for the remaining 99%.
- The perception of price and debt is dire, actually worse than the reality. For-profits are much worse on debt, for example. Media coverage also plays a part, emphasizing worst-case scenarios. There is also the power of anecdotes over data. For example, the average price (actually paid, after financial aid) has declined at private institutions. About two-thirds of students graduate with debt, and the average amount is roughly $29,000.
Question from Michael Berman: how did education move from being considered a social benefit to a private good?
Answer: the content and tone of rhetoric changed. Also, now that parents and students are now majority payers, higher ed certainly feels like a private good.
Answer: there was a much longer period when prices and enrollments were both rising. The enrollment drop of recent years – Bob didn’t want to peg too much to that. For price data, Archibald recommended the College Board’s Trends in College Prices.
Question from Michael Berman: can you say more about the difference between net price actually paid, and what it costs to educate a student?
Answer: economics 101 models a firm’s profit margin by the gap between sales and the cost to make goods or services. Nonprofit education is different, being subsidized by private gifts, state support, etc. So college price is actually expressed by cost minus subsidy. Reductions in subsidies then change this equation, causing price to rise.
I mentioned Berkeley’s recent decision to cut staff as an example of this dynamic. Professor Archibald agreed, but added that Berkeley also suffered from bad forecasting of its revenue.
Question from Ray: do colleges need a public relations overhaul for this perception gap between their published sticker price versus the actual cost?
Answer: there’s a problem with this, as colleges are often not being completely up front about scholarships, especially different net prices. Being up front about this would be a worst PR problem.
Question from Vanessa Vaile: can you speak to cost differences across institutional types?
Answer: cost differences are huge. Archibald cited research by Gordon Winston (Williams College), which showed that the top 10% of four year schools, had a cost per student six times (6x!) as much as at other institutions… *not* including community colleges. However, some of those campuses allocate some of their budget to research apart from teaching, so the comparison isn’t exact.
At this point professor Archibald and I dove off the Shindig stage, so that everyone could converse in small groups.
We returned with queries from participants.
Question from Peter Hess: why is his experience of higher ed financing so different? His daughter attended a public institution, paying in-state (Massachusetts) tuition, and nevertheless exited with very high debt.
Answer: that is above the norm. Now, tuition varies across states. New England has very high in-state tuition levels. I cite Vermont’s extremely low levels of support and very high in-state costs.
I asked about the impact of technology on higher education over the next five years. Professor Archibald described one non-economic change that he’s seen, based on teaching for the past forty years. No longer does class begin with the buzz of students talking; instead, dead silence reigns, as the students are all busy on mobiles devices.
In economic terms, there is now a very strong split in the student body based on technology. Archibald displayed the following slide to identify divergent characteristics between online and face-to-face students:
Online students tend to be older. They already have had some academic experience. They have a job and family responsibilities.
In contrast, online courses haven’t cracked the traditional age college model at all: that bundle of college experience items which appeal to 18-year-olds. On face-to-face campuses, technology enhances, but does not replace education. I wondered if traditional campuses will resemble those of the 1950s.
I ask about academic labor, specifically the massive reduction in the proportion of tenure-track faculty in favor of part-time and full-time, non-tenured academics. Bob responded by positing an institution whose revenue base is eroding (many state institutions, some privates), and you’re primarily a wage payer (80% of costs at most), and you have to cut costs, adjunctification makes sense. In many cases, that’s been forced on colleges when a tenured professor retirement occurs; brute force economics drives the decision to hire 3-4 adjuncts instead of a single new tenure-track professor. This can impoverish campus life – not in classroom, but outside of it in terms of office hours, on demand advice, etc.
Question from Sam Anderson: are “disruptive” education industries/interests driving the bad college myth?
Answer: for-profit institutions are the major debt-loading institutions. They also get large amounts of federal aid (up to 90% in some cases!). They are very effective lobbyists, which may well drive that bad perception of higher education.
Thanks to everyone who contributed to this master class on higher education financing: professor Archibald, who shared his new research; participants, with a bounty of good questions; Shindig, for yeoman-like support.