With the price of college and student debt on the rise, President Obama wants to hold universities more accountable. Will doing so improve higher education?
In August 2013, President Barack Obama announced a series of proposals focused on holding the nation’s approximately 6,000 higher education institutions more accountable in their use of public- and student-provided funds. The rising price of college, along with concerns over the $1 trillion in outstanding student loan debt and questions regarding the employability of recent college graduates, spurred the president to propose more stringent federal controls over colleges and universities.
Data from the College Board show that average tuition prices across the country have far outpaced inflation over the last three decades.1 Average tuition prices at public four-year universities, like Michigan State, have increased 644 percent since 1984, while prices at private four-year universities have increased 462 percent. The Consumer Price Index has increased only 129 percent during this period (see chart below).
The primary reason why tuition prices in public institutions have risen more rapidly than in private colleges over the last dozen years is the states’ disinvestment in public higher education. Historically, the states have provided major subsidies to public colleges and universities that have allowed them to hold down their prices. But going back to the last recession, in the early 2000s, states began to reduce the growth rate of funding for public higher education, or in some cases such as here in Michigan, actually cut funding. Between 2002 and 2013 (the most recent data available), funding for higher education from the states declined 29 percent in real dollars, after discounting for inflation, on a per-student basis. This means that public colleges and universities have had to turn to students and their families, their primary other source of revenue, to make up the difference.
In Michigan, the picture is even bleaker. Between 2002 and 2015, state funding for higher education has been cut 26 percent in current dollars. Taking into account inflation and a 7 percent increase in enrollment over the dozen years, funding per student has declined 48 percent in real dollars. Michigan’s colleges and universities, like their counterparts in the rest of the nation, have had to increase tuition prices to make up the difference. In-state tuition for entering students here at Michigan State has gone up 145 percent during this period, from $179.75 per credit hour to $440 per credit hour. In 2002, state appropriations provided MSU with 50 percent of its general fund revenues, and tuition made up 42 percent. This year, appropriations provide only 22 percent, and tuition provides 70 percent.
Public colleges and universities have worked hard to cut costs as well, and not just rely on increased tuition revenue. In recent years, Michigan State has held back on salary increases for faculty and staff, worked to make the campus more energy efficient, worked to control the growth in health care costs and eliminated some academic programs (including two here in the College of Education).
Besides concerns over the increase in tuition prices, students and their families, the media and policymakers have also been focusing on the issue of student loan debt. The Federal Reserve Bank of New York, which tracks debt carried by consumers, reported that in 2012, student loan debt pushed past the $1 trillion mark for the first time, exceeding both credit card and auto loan debt.2 Pushing through this level caught the eye of the media, which published numerous reports on the rapid rise in borrowing by students.3
Graduate earnings as a gauge?
These concerns over college prices and debt helped spur President Obama to address the problem, and he charged the U.S. Department of Education with coming up with a way to do so. When the president first suggested this action, he said, “Bottom line is this: We’ve got a crisis in terms of college affordability and student debt … It is time to stop subsidizing schools that are not producing good results and reward schools that deliver for American students and our future.” 4 Last December, 16 months after the idea was first proposed by the president, the department released a draft plan.
The plan—and it truly is just a plan, not a fully formed program—focuses on metrics such as average net price of college (after taking into account financial aid), the net price paid by students from families of different income levels, proportion of students receiving Pell Grants (the primary federal need-based grant program, an indicator of how many low- and moderate-income students a college enrolls), proportion of first-generation college students, graduation rates and loan repayment rates.
None of these metrics are revolutionary; the Department of Education already collects and publishes these measures for colleges, albeit not in the most consumer-friendly fashion. Some third-party websites, such as those from the College Board and the Institute for College Access and Success (see the end of this article), present these data in a manner that is easier for students and parents to understand.
There is one measure the department has proposed to publish that does represent a new venture: the earnings of graduates of each college or university. The government does not collect these data for each school now, and any attempts to do so are fraught with challenges and traps that potentially render the effort dead on arrival.
There are numerous problems with using earnings of graduates as a measure of institutional effectiveness, beyond the most obvious one, which is how the department will collect these data. First, as I and others have written in the past, the greatest variation in earnings of college graduates is not across colleges, but within colleges—across the majors in each college.
The important measure, and what is most valuable to consumers making decisions about what college to attend, is not to compare the average earnings of graduates of Michigan State University to those of Ohio State University. The more relevant information is to compare the average earnings of political science majors to those of chemical engineering majors, for example, and it is unclear whether the government’s ratings plan will do this.
Using earnings as the primary outcome measure of college also diminishes what we expect for those graduating from college. While preparing students for the world of work is important, two or four years of college also provides them with skills for life that are not well measured through wages alone. This includes things such as civic engagement, volunteerism, improved health status and lower levels of dependency on public services. There are also many unintended consequences of using earnings data to rate colleges, which I have detailed in blog posts on my website.
Rating colleges like Ritz crackers?
As noted above, the federal government has published data about colleges for some time. What is new in this plan is the idea of using the data to provide a rating for colleges. We do not know how the government will do this, as the outline of the plan released so far does not give details about the ratings. But the mere fact that the Department of Education proposes to put its stamp of approval or disapproval on individual institutions has raised the hackles of colleges, their lobbying organizations and members of Congress.
Even critics of the ratings plan acknowledge that the federal government mandates the disclosure of information across many industries. For example, the Food and Drug Administration (FDA) requires that most commercially sold foods have nutritional labels, and that drugs are packaged with information about proper use and side effects. The Environmental Protection Agency (EPA) requires that automobile manufacturers publish the federally tested fuel economy of cars they sell.
But critics point out that in none of these other domains does the federal government provide a rating for one commercial good over another; it leaves this to the private sector. The EPA does not rate one car better than another, but Consumer Reports uses the fuel economy data when it does rate them. The FDA does not compare Ritz Crackers to Wheat Thins, but many consumer websites weigh in on which one is better.
It is important to acknowledge that investing in an undergraduate degree program—which is what the ratings plan will be focused on—is different from the purchase of most other goods or services. First, for many people, a college degree will be the most expensive thing they purchase in their lifetime outside of a home, so the stakes are very high. Second, most people only purchase an undergraduate degree once, so they do not have the ability to try different ones—as they may with crackers or pain relievers—and settle on which one is right for them. Third, the federal government invests over $150 billion per year in student loans and grants for college students, so it has a stake in ensuring the money is used wisely. So given the magnitude of the decision, one could argue that perhaps the government has a role in putting its stamp of approval on some colleges over others.
Members of Congress have been raising concerns about the department’s ratings plan ever since the president first proposed it. Many prominent members—including Republican Lamar Alexander of Tennessee, chair of the Senate Committee on Health, Education, Labor and Pensions—have been very vocal in objecting to any such plan. Republicans in Congress in particular are opposed to the Obama administration’s plan to eventually tie the ratings to institutions’ eligibility for federal student aid funds. In February, Rep. Virginia Foxx (R-NC), chair of the Subcommittee on Higher Education and Workforce Training of the House Committee on Education and the Workforce, introduced legislation that would prohibit the Department of Education from implementing any form of college ratings system. (Sen. Richard Burr, also a Republican from North Carolina, has introduced similar legislation in the Senate.) While at the time of this writing the legislation has not yet been reported out of committee, many members in both chambers have voiced support.
The primary problem with determining whether the Department of Education will be able to rate colleges in any reliable and defensible fashion is that the information it has provided is just too sparse to understand exactly what the plan will look like. Until more information is provided, it is difficult to determine what impact the college ratings plan would have on higher education. And it is even more difficult to support it.
Colleges and universities like Michigan State are willing to be held accountable, but the metrics used to evaluate us must be reasonable, aligned with our missions and not be overly burdensome to implement. A ratings system itself will not necessarily improve college affordability; more funding for higher education institutions from the states, and more funding for financial aid from the federal government, will help accomplish this more. In addition, and especially until these other parties step forward on funding, we will continue to rely on donors to help replace what we previously received in the form of government support.
The content of this article reflects the views of the author and not necessarily those of Michigan State University or the MSU College of Education.
About the author
Along with his duties as dean of the MSU College of Education, Donald Heller remains one of the nation’s most noted experts on higher education policy and finance. His research has focused on issues of college access and choice for low-income and minority students. He is also a professor of Higher, Adult and Lifelong Education (HALE).
References
1. http://trends.collegeboard.org/college-pricing
2. http://www.newyorkfed.org/microeconomics/hhdc.html
3. For a counterpoint to the media frenzy, see Heller’s blog post in response: “The Truth About Student Loans,” http://edwp.educ.msu.edu/dean/2012/the-truth-about-student-loans/
4. Remarks by the President on college affordability – Buffalo, NY: http://www.whitehouse.gov/the-press-office/2013/08/22/remarks-president-college-affordability-buffalo-ny
On the web
College Board, Trends in College Pricing: trends.collegeboard.org/college-pricing
College Board, BigFuture: bigfuture.collegeboard.org
Institute for College Access and Success, CollegeInSight: college-insight.org
Dean Heller’s website and blog: education.msu.edu/dean