By John C. Goodman
Saturday, September 07, 2013
We spend about twice as much as other developed countries
as a fraction of national output. Yet our results are mediocre. Public and
private spending is growing much faster than our income, putting us on a
course that is clearly unsustainable. It appears we are buying quantity instead
of value. Outcomes vary wildly from state to state. And programs that target
the poor seem to be backfiring instead.
I could easily be talking about health care. Instead, I'm
speaking about higher education, making some of the same points that President
Obama made the other day. Unfortunately, both fields have the same problem. The
entity paying for the service all too often tends to be different from the
person who is supposed to be benefiting.
Spending on higher education as a percent of GDP in the
United States is about twice the OECD average (3.1% versus 1.5%). Yet our
results are far from the top:
The U.S. once led the world in college graduates. As an example of this, Americans age 55-to-64 still lead their peers in other nations in the portion with college degrees (41 percent). But this number has flat-lined for Americans. In 2008, the same percentage of Americans age 25-to-34 and age 55-to-64 were college graduates.Meanwhile, other nations have caught up, and some have pulled ahead. Among this younger age group, 25- to 34-year-olds, all of the following nations now have a larger percent of college graduates than the U.S.: Australia, Belgium, Canada, Denmark, France, Ireland, Israel, Japan, South Korea, Luxembourg, New Zealand, Norway, Sweden and the United Kingdom.
Our mediocre ranking is not for lack of funds. According
to Richard Vedder in the Wall Street Journal on Saturday, the explosion in
college costs began about the same time as the cost explosion in health care,
with the Higher Education Act of 1965:
In 1964, federal student aid was a mere $231 million. By 1981, the feds were spending $7 billion on loans alone, an amount that doubled during the 1980s and nearly tripled in each of the following two decades, and is about $105 billion today. Taxpayers now stand behind nearly $1 trillion in student loans.
And the trend is ominous. According to President Obama,
over the last three decades, fees at public universities have risen 250%,
compared with a 16% rise in average family incomes.
So where is all the money going? Again from Vedder:
• Princeton [University] recently built a resplendent
$136 million student residence with leaded glass windows and a cavernous oak
dining hall (paid for in part with a $30 million tax-deductible donation by
Hewlett-Packard CEO Meg Whitman). The dorm's cost approaches $300,000 per bed.
• Harvard's $31 billion endowment, financed by
tax-deductible donations, may be America's largest tax shelter.
• The University of California system employs 2,358
administrative staff in the president's office alone.
• Since 2000, New York University has provided $90
million in loans, many of them zero-interest and forgivable, to administrators
and faculty to buy houses and summer homes on Fire Island and the Hamptons.
• Former Ohio State President Gordon Gee (who resigned in
June after making defamatory remarks about Catholics) earned nearly $2 million
in compensation last year while living in a 9,630 square-foot Tudor mansion on
a 1.3-acre estate. This Columbus Camelot includes $673,000 in art decor and a
$532 shower curtain in a guest bathroom. Ohio State also paid roughly $23,000
per month for Mr. Gee's soirees and half a million for him to travel the
country on a private jet.
So what is all this spending doing for the students? As
President Obama pointed out, the average borrower now graduates with more than
$26,000 of debt, loan default rates are rising and only about half of those who
start college graduate within six years. What about low-income students? We
seem to be going backwards: only about 7% of recent college graduates come from
the bottom-income quartile, compared with 12% in 1970 when federal aid was
scarce.
Reflecting his unquenchable desire to tell everybody what
to do, President Obama's solution to all of this is top down all the way. He
has already decided law school should be two years instead of three. You can
think of his basic approach as pay-for-performance. It didn't work in health
care, but what the hell? Why waste all the money we've invested in the idea
without first trying it out in a few other fields.
My proposal is similar to what I've recommended for
health care: a fixed sum voucher. Give students a bundle of money and let the
colleges compete to see what they can provide for that sum. And give all the
money to the students. The universities' income will depend exclusively on how
well they compete. I would also get rid of all the tax breaks for donors ? but
as part of overall tax reform. The money we would save by eliminating those tax
breaks is a potential new source of funds for the student voucher.
I would also insist on some pretty strict standards for
the voucher. It appears that we are sending too many people to college these
days. (There are 115,520 janitors in the United States with bachelor's
degrees?)
As for the pricing of the voucher, I would look carefully
at fees charged for high quality, online courses. We certainly want the
students to be able to afford those. Maybe we don't have to spend much more,
however. And with technological improvements, the value of the voucher may not
need to increase over time.
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