The Irascible ProfessorSM

Irreverent Commentary on the State of Education in America Today

by Dr. Mark H. Shapiro
"If we keep treating our most important values as meaningless relics, that's exactly what they'll become. "...  ...Michael Josephson.

Commentary of the Day - January 10, 2010:  Higher Education in California - Time for a New Master Plan I?

In a recent op-ed article in the Los Angeles Times William Tierney, professor of higher education at the University of Southern California and Director of the USC Center for Higher Education Policy Analysis, suggested that the current Master Plan for Public Higher Education in California is obsolete and needs to be replaced with a master plan that "better reflects the times."

Tierney argued in his op-ed piece that the current Master Plan, which was adopted in 1960 was based on four assumptions that reflected the conditions of that era; namely,

* High school education was separate from the higher education system, an end in itself.

* UC, Cal State and community colleges were largely funded by taxpayers.

* Accumulating credits and fulfilling credit requirements, regardless of their relevance, was equated with learning.

* Degree requirements and course content varied significantly across UC, Cal State and the community colleges.

He goes on to argue that owing to the exigencies of the California budget crisis and the largely dysfunction status of state government, the current Master Plan should be replaced by one based on the following assumptions:

* High school and higher education must be linked to ensure that when students graduate from high school, they are prepared for college.

* Students, not institutions, are funded.

* Classes are offered in a variety of settings and times, and at the students' pace.

* Course content, and what students are expected to know to acquire a specific degree, is standardized or closely related across the system. Meeting those expectations, rather than acquiring credits, would be the key to getting a degree.

The IP would argue that Tierney substantially mischaracterizes the current Master Plan in order to set up a "straw man" argument that favors his underlying precept about how public higher education in California should be funded.  Basically, Tierney wants to replace the current funding model that uses taxpayer funds to keep the immediate costs of attending a University of California, California State University, or California Community College campus as low as possible with a "high-cost - high-aid" model similar to that found in the realm of private higher education.  He argues in his piece that those who can afford it should pay the "market cost" of their education, while those who can't afford to pay the "market-cost" should receive enough financial aid to allow them to attend.  Presumably, under Tierney's funding model the taxpayer would fund only a portion of student financial aid, and the public universities and colleges in the state would be on their own to raise the funds necessary to cover their operating costs.

In subsequent commentaries the Irascible Professor will examine the remainder of the assumptions, both old and new, that Tierney makes.  This article will focus on the fallacies that are inherent in Tierney's funding model.

First Tierney doesn't make clear what he means by "market cost."  Does he mean the actual cost of education for each individual student who can afford to pay?  In that version of "every student on his own" funding tuitions charges would vary from student to student depending on the costs to offer the actual courses a student takes, where they are offered, and how they are offered.  Presumably, an engineering student would pay much higher costs than an English major.  (Unfortunately, differential fees already are being charged in the University of California system for several "high-cost" programs.)  Or, does Tierney suggest that the "market cost" simply reflect the tuition charges of comparable private universities?  This would raise the "market cost" for UC and CSU undergraduates to something like the nearly $38,000 per year for tuition and fees that universities like USC and Stanford charge for those who can afford to pay.

More than likely, the market cost that Tierney intends is closer to the tuition and fee levels of the private colleges and universities, which is roughly four times the tuition and fees that University of California students pay and roughly eight times what California State University students now pay.  It's a little more difficult to determine the "market cost" for community college courses.  Currently, community colleges in California charge roughly $20 per semester unit.  Some "for-profit" vocational colleges that offer comparable courses charge as much as $550 per semester unit, though a rough figure of about $300 per semester unit can be used for comparison.  That's about 15 times what community college students now pay.

But, the problem with using private college tuition charges as a proxy for the "market cost" of education is that it captures only a fraction of what it actually costs to run a large college or university.  Substantial contributions to the costs of educating students at large private colleges and universities comes from earnings on endowments, grants, and overhead charged to outside agencies like the federal government.  Even the sons and daughters of the wealthy who pay the full tuition rates are being subsidized to some extent.

Most importantly, even at the most prestigious private colleges and universities the majority of students do not pay full tuition.  The majority receive some form of student aid.  In the high-cost - high-aid model that is typical for large private colleges and universities aid comes in four forms; grants and scholarships, work-study funds, tax credits, and loans.  The first three of these do not have to be paid back, while loans must be paid off.  According to the College Board's Trends in Student Aid (2007) about half of student aid is in the form of government and private loans that must be repaid.  Thus, the majority of graduates (and parents of graduates) from large private colleges and universities accumulate substantial amounts of debt that must be paid off with interest following graduation.

In contrast, in the low-tuition - low-to-moderate aid model that is typical of California's public institutions of higher education student aid comes in five forms.  The first, and perhaps most significant, is the indirect tax-payer subsidy that covers a significant fraction of the cost of education.  The other four forms of student aid in the public colleges are the same as for private college students; grants and scholarships, work-study funds, tax credits, and loans.  However, the proportions typically are different.  The fastest rising component of student-aid in recent years for both private and public college students is the loan component.  But, because overall costs are much lower in the public institutions, student indebtedness upon graduation usually is much more manageable.

If California were to adopt a high-cost - high-aid model to fund its three systems of public higher education, low- and moderate-income students surely would find it much more difficult to afford a college education.  The reasons for this outcome should be obvious to even the most casual observer of higher education funding.  First, the impetus to adopt such a funding system would have to come from political pressures to reduce the cost of these institutions to the taxpayer.  The change would be sold quite cynically as a way to lower taxes using the usual, but fallacious, claim that Californians are overtaxed (in fact some 35 states have higher state and local taxes than California).  Clearly, if such a change were to come about the Legislature would hardly turn around and spend an equivalent amount of tax dollars on student aid.

Second, it's highly unlikely that collecting "market cost" tuition from the minority of U.C., CSU, and community college students who might be able to afford such high tuition rates would come close to covering the cost of operations.  Thus, little of that money would be available for student aid for the majority of students who would need it.  The only hope for the three systems would be to recover "market cost" tuition from those receiving student-aid; and, that would happen only if those students are willing to take on much higher levels of student loan indebtedness.  There are some who might be willing to chance that.  Others, will choose to reduce the number of units that they take so that they can work more hours to obtain the funds they need to pay the much higher tuition.  In the process this group will take much longer to complete their degrees, raising the likelihood that they will drop out before graduating.

But many students from the poorest families will find the prospect of a lifetime of indebtedness to pay for a college education so daunting that they simply would give up any hope for obtaining a college degree.

Perhaps the weakest aspect of Tierney's proposal to radically change the way in which public higher education is funded in California is that it considers only the costs to the taxpayer of funding the U.C., CSU, and community college system and does not consider the value that taxpayers receive in return for their support.  In addition, Tierney's proposal does not take into account the possible unintended consequences of moving entirely to a high-cost - high-aid model.

From a purely financial standpoint taxpayer support of public higher education is an investment, not a cost.  It has been well established that for every tax dollar spent on public higher education the state receives more than three dollars in increased tax revenues.  It is no secret that college graduates generally earn more money than those who do not go to college.  As a consequence, they pay more in taxes.  However, the increased tax revenues are only a part of the picture.  The public systems of higher education produce a wide range of educated people who are needed to help make society function -- teachers, nurses, social workers and the like.  These are not the highest paid of professions, but they are necessary nevertheless.  The most severe unintended consequence of moving to a high-cost - high-aid model would be to deter students from choosing careers such as these.  After all, when a student graduates from college with tens of thousands of dollars of loans to pay off, he or she is going to look for the best paying job available.

It seems to the IP that biggest losers under Tierney's funding proposal will be students from low- and middle-income families; and, the biggest winners will be the money lenders who would stand to collect thousands of dollars in interest payments from each student who is forced to use large loans to fund his or her education.

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