The Irascible ProfessorSM

Irreverent Commentary on the State of Education in America Today

by Dr. Mark H. Shapiro
"The hopes of the Republic cannot forever tolerate either undeserved poverty or self-serving wealth."...  ...Franklin D. Roosevelt.

Commentary of the Day - January 28, 2009: Economic Crisis Hits Higher Education Hard.

Colleges and universities across the country have been hit hard by the toxic effects of the economic meltdown that has affected just about every aspect of American life.  Private colleges and universities have seen their endowments shrink precipitously.  By early December of 2008 the Harvard University endowment had shrunk by some $8 billion -- a loss of 22%, and Harvard officials predicted that the loss could be as much as 30% by the end of the fiscal year in June.  Here in California, as across the nation, most private colleges had seen their endowments shrink by 20% to 30% by the end of 2008.

Public colleges and universities are in even worse shape.  State budgets across the country are reeling from the effects of an economy that has gone south.  As unemployment and underemployment accelerates in almost every part of the country and business slows down, state and local governments have seen tax revenues plummet.  A recent Wall Street Journal article reports that nationwide sales taxes were down some 6.5% in the fourth quarter of 2008 compared to the fourth quarter of 2007.  Even more worrying was a 22% drop in corporate income taxes.  As state and local governments scramble to meet their most critical needs, higher education becomes an attractive target for budget cuts.  Higher education is one of the few areas where state and local governments have some budgetary flexibility.  Legislators may be reluctant to make those cuts, but they know that their public colleges and universities can cope to some extent by raising tuition and fees.

Here in California, where the recession hit earlier and harder than in most other states, the Governor slashed the University of California and California State University budgets by 10% before 2008 was half over, and more cuts are on the way as the state sinks deeper into the red every day.  At the same time students have been hit with yet another 10% increase in tuition.

Most aspects of college and university operations have been hit hard by reduced income.  Building projects have been put on hold, library hours have been reduced, part-time faculty have been laid off, and class sizes have been increased.  At Stanford University, one of the country's wealthiest private universities, top administrators even have voluntarily taken a 10% pay cut.  When that happens, you know that this is no ordinary economic slowdown!

However, those hit the hardest by the hard times that have befallen America's institutions of higher education have been the students and their parents.  The costs to attend America's colleges and universities, both private and public, have been rising at a rate that has far outpaced inflation for many years.  According to a report published by the National Center for Public Policy and Higher Education entitled "Measuring Up 2008: The National Report Card on Higher Education," college and university tuition and fees have been rising some three times faster than median family income (adjusted for inflation) since 1982.  As David S. Broder noted in a recent Washington Post article, "In the past decade, there has been a 50 percent increase in the number of undergraduate borrowers and a doubling in the inflation-adjusted total of students' debts."  He further noted that we now rank 15th out of 25 nations surveyed in our college completion rate.  In no small part, the drop in our college completion rate can be traced to the increased costs of higher education here in the United States.

This would be bad enough, but the economic crisis now makes it impossible for many students to continue their college studies.  Some have had to drop out because their family's income has cratered owing to layoffs, others have been unable to borrow the money that they need to cover college costs because the private student loan market has dried up, others have been frozen out by the tuition and fee increases at public colleges and universities, and other students who depended on part-time jobs to make ends meet are seeing those opportunities disappear as the economy continues its free fall.  Here in California, the once golden state, the Governor is even proposing to cut the meager assistance provided by the Cal-Grant program, while at the same time asking University of California and California State University to adsorb that 10% tuition increase.

All of this argues for taking a close, hard look at making our colleges and universities more efficient; and, for changing the way that we finance higher education.  College and university administrations have become bloated to the point where they make the federal government look downright efficient.  Many campuses now have as many administrators as they have teaching faculty members.  Surely, some savings could be obtained by trimming the bloated administrative ranks.  And, over the past decade or so colleges and university have been engaged in something of an "arms race" intended to attract students by providing ever more opulent student recreation centers, and dormitory facilities that would give many luxury hotels a run for their money.  Perhaps, more Spartan digs could save a few shekels here and there.  Salaries for top administrations also are worthy of examination.  While not in the same league as Wall Street salaries and bonuses, salaries for top college administrators frequently exceed the $400,000 that Barack Obama pulls down as President of the United States (he does get a nicer house than most college presidents).  Perhaps we could limit the top college and university salaries to no more than that earned by the President of the United States.  And, the IP is sure that upon close examination plenty of other savings could be made on the nation's college and university campuses.

But, while we look closely at college costs, we also need to revamp substantially how students and their parents pay for college.  The private student loan industry has developed into an octopus whose tentacles are designed to squeeze every last dime out of the poor students who have been forced to go into outrageous debt to cover their college costs.  Interest rates for non-subsidized student loans are high, and any drop in a person's credit rating following graduation often leads to increases in rates.  A missed payment brings late fees and penalties that give usury a bad name.  And, regardless of a person's financial misfortunes, bankruptcy cannot be used to discharge these debts.  When it comes to private student loans, the banks and other lenders often behave more like loan sharks than financial institutions.

The new Administration's financial stimulus package promises some relief in the form of increased Pell Grants and more money for subsidized student loans.  However, what is really needed is a complete overhaul of the financial aid system for college and university students.  The bulk of student loans should be provided directly by the federal government.  Interest rates, late fees, and penalties should be kept reasonable; and those graduates who make their student loan payments regularly should be rewarded with a discount on their interest rate.  Likewise, those graduates who are willing to take jobs that meet critical national needs and who stay in those positions for five or more years should be able to have part of their student loan debt forgiven.  The IP knows that some will scream out that the federal government can't do anything right, and that all government programs are inherently inefficient.  But, the events of the past year have shown that people who have been running the banks and other financial institutions haven't been exactly paragons of wisdom, virtue, or efficiency either.

Finally, for those college and university students whose family incomes fall in the lowest quartile, we need to offer much more in the way of outright tuition grants.  Right now, a smaller percentage of the brightest (top 25%) of high school graduates whose family incomes fall in the bottom quartile go on to college than below average (second 25%) high school graduates whose family incomes fall in the top quartile.  According to recent data from the U.S. Department of Education (ELS 2002/2006), 85% of rich high school students whose performance puts them in the second quartile go on to college, while only 80% of poor high school students who are in the top performance quartile go on to college.  We can do better!

These kinds of public investments pay off in spades.  Students from low-income families who earn college degrees will pay far more in taxes over their lifetimes than they would have without the college degree.  In the process they will more than repay the cost of their education.

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