The Obama administration has doled out a record amount of college loans this year to help students cope with the affordability crisis in college tuitions. Meanwhile, college tuitions have become yet more unaffordable. Gee, could there be a connection?
Uncle Sam handed out $28.2 billion in Pell grants to students in the 2009-10 school year, almost $10 billion more than the previous year. Since taking office, President Obama has increased spending on student aid by nearly 50 percent, to $145 billion, the Wall Street Journal reports.
Despite the helicopter drop of billions of dollars over college campuses, pundits marvel, affordability remains a problem. Really? From 2000 to 2010, tuition and fees at four-year institutions increased an average of 5.6 percent faster than inflation. Apologists for higher education blame cutbacks in state appropriations, which declined 5 percent in 2009-10. “There’s only so much cutting you can do before institutions suffer in fundamental ways,” weeps Terry Hartle, an official with the American Council on Education, a higher-ed lobbying group.
Cutting? Did the man say “cutting”? Higher education has been one of the great growth industries of the 2000s. According to the 2009 Digest of Education Statistics, published by the National Center for Education Statistics, which lists data from the 2003-04 to 2006-07 school years, operating expenditures for all U.S. institutions of higher education increased 16 percent (in real, inflation-adjusted dollars) over that three-year span. (Undoubtedly, the rate of increase has been tempered since then by the recession, but any slowdown follows a spectacular run-up earlier.)
Where did the money go? Here are the spending categories that enjoyed the largest rates of increase:
c Instructional wages and salaries: 16.8 percent.
c Auxiliary enterprises: 17.8 percent.
c Institutional support: 19.0 percent.
c Academic support: 19.9 percent.
c Student services: 20.6 percent.
c Operations and maintenance: 25.4 percent.
Here were the laggards:
c Public service: 13.5 percent.
c Research: 11.7 percent.
c Scholarships and fellowships: 9.6 percent.
In other words, Obama’s expanded college loans are paying for the growth of higher-ed bureaucracies. The most administration-intensive categories - institutional support, academic support, student services, operations and maintenance - saw the biggest expenditure increases. Faculty wages and salaries appeared to hold their own. But making college more affordable through scholarships and fellowships was the lowest priority of all. Why bother if the federal government will take up the slack?
Higher-ed faculty and administrators make up one of the most protected classes in the American economy. They are the beneficiaries of one of the most expansive income-transfer schemes in the nation - all paid for by chump parents and the nation’s newest exploited class, college graduates, most of whom now enter the work force weighed under by debt.
Mr. Obama’s “solution” for higher education - shoveling out more money in student loans and grants - is a typical liberal remedy that treats symptoms, not causes. The only way to make higher education more affordable over the long haul is to demand greater cost efficiency from our colleges and universities. But as long as the federal government keeps the money spigot flowing, higher education can evade accountability.
In “The Revenue-to-Cost Spiral in Higher Education,” Robert E. Martin brilliantly explains the inflationary bias. Higher ed is dominated by not-for-profits, he says. Instead of maximizing profits, they exist to maximize institutional prestige, which they accomplish by recruiting star faculty, admitting students with the highest SAT scores, building championship athletic programs, erecting magnificent new buildings and the like - all of which require spending more money.
Because colleges do not generate profits, there are no financial metrics such as return on equity or return on investment by which to measure performance. Even if such metrics existed, it wouldn’t matter. There are no outside parties, as there are in the for-profit economy, to discipline underperforming management teams via buyouts or takeovers. Accountable to no one, university managements pursue their own agendas.
Colleges and universities allocate resources largely on the basis of internal politics, in which the interests of administrators prevail over those of the faculty, boards of trustees, alumni and students. “The incentives in higher education … lead to a bias against reform and a bias toward increasing revenues,” Mr. Martin writes. Enacting painful cuts to underperforming programs leads to controversy and unpleasantness. It’s far easier to fund new initiatives by seeking money from outside sources. Universities, unlike private companies, feel very little pressure to reallocate resources to uses that generate a higher return.
And so, college loans and grants are another example of well-intentioned government programs that has been captured by an organized political constituency, the higher-ed lobby, and punishes those whom it is intended to benefit. Shame on us. We should restructure higher ed, not indenture our youth.
James A. Bacon is author of “Boomergeddon” (Oaklea Press, 2010) and publisher of the blog of the same name.