Diary

Addressing College Debt, Part 2: The Broad Solutions

Soaring college debt is attributable to two factors- one that feeds off the other.  The primary cause is the proliferation of college aid programs that although intended to help low and middle income families with costs has only steered undeserving people into college, and into fields with little post-graduation demand.  This, in turn, fueled the inflation in college costs, especially tuition.  If the rate of inflation in tuition was equal to pre-1978 levels, tuition would be one half their current levels and we would be talking about a more manageable $500 billion in debt rather than more than $1 trillion.

The solution lies in three broad categories to be discussed here and in my next entries- information to the consumer (students and families), innovation in approaching higher education, and incentives (some from the government and some from the colleges themselves).  A perfect example of innovation and incentives at work is Mitch Daniels at Purdue where deans are financially rewarded for decreasing costs while improving academic outcomes.

Knowing this, the all-to-easy solution is to simply end the financial aid system as we know it.  This would do nothing to deal with the current debt and would likely hurt more people rather than solve the problem.  However, it is a fact that a well-meaning program designed to assist lower-income qualified students has failed.  We know for a fact that as a percentage of the overall college population, low income students has decreased.  While we cannot go cold turkey and eliminate student financial aid altogether, we can downsize it by at least 40%.  Half of that 40% can be achieved by eliminating the PLUS loan program.  More can be achieved by eliminating the federal tuition tax credit  which disproportionately aids higher income students.  And access to any financial aid must be tied to academic performance and timely completion of study.

Room and board is another area in need of reform.  Many colleges make it mandatory that freshmen live on campus.  There are studies that show this actually enhances the learning environment and students do better.  But, room and board often exceeds the price of tuition.  Today’s dorm rooms and food services are considerably better than days gone by which accounts for some of the costs.  But, colleges are in the business of educating, not housing and feeding.  The college monopoly in these areas needs to cease.  Towards those ends, housing and food services should be strictly privatized  since the private sector is more efficient in these areas.

For anyone who has ever attended college, they know that the college bookstore is one of the biggest rackets going.  That is because textbook publishers have a monopoly on the market.  These same publishers also produce comparable books outside the college bookstore for 50% less.  The problem is that professors require that a particular book by a particular author be purchased.  They do so without an eye towards price; it simply is or else.  Rewarding professors who actually price compare textbooks is a program worth pursuing.  Purdue (again) has worked out a deal with Amazon where books are sold at a cost lower than the bookstore (and the student does not have to stand in a long line).  The used book option is always there but getting fair value back for an almost unused book is not.  It needs to be to help defray costs.  In the area of information, there is a burgeoning free textbook movement out there.  Advertising the free textbook movement (provided by philanthropic organizations) should be mandatory.

College buildings are some of the most notoriously under-utilized pieces of real estate in the country.  The college must maintain largely empty buildings on weekends and at night.  Friday classes are almost a thing of the past.  Rarely are classes scheduled in the late afternoon or early morning.  Establishing a voucher system of “play” money for professors to schedule classes on a fake “rental system” and rewarding those who save the most “money” is something worth trying.  High demand times and locations would be priced higher with those periods listed above priced lower.  And in terms of using space, professor offices are rarely actually used by professors.  Decreasing professor office space would save money.

Speaking of saving money, what about economy of scale?  Why can’t nearby colleges share libraries and other facilities?  For example, Georgetown and GWU are a mile apart in Washington DC, yet both have their own libraries, their own athletic centers, their own student unions, etc.  Five major universities are within easy travelling disance in the Detroit area, yet they all have their own facilities.  A perfect example of how it should work is Claremont College in California where five different colleges near one another share the lone library an other facilities.  Sharing of facilities of nearby colleges should be mandatory.

The purpose of higher education is twofold: (1) create knowledge and (2) disseminate knowledge.  They achieve (1) via research and (2) via teaching.  Everything else is “frivolous,” but oddly important to some degree.  Public support for higher education meets an important public policy goal.  But what are the public policy goals of fancy stadiums, arenas, student unions and performing arts centers?  These are non-educational entities.  They are socialization entities.  It is inherently unfair.  Therefore, eliminate the federal tax exemption status for these facilities and socialization activities.  On the local and state level, eliminate property tax exemptions or deductions for non-academic buildings.

Before ending this article, one would be remiss if college athletics was not addressed.  The United States is the only country where intercollegiate sports is commercialized.  This writer has no doubt that a college sports team(s) helps foster a sense of community among students.  But, consider the costs.  Most second tier Division I teams are “wannabes.”  To get there, these institutions subsidize collegiate sports an average of $15-$20 million annually.  That money does not come from sports booster organizations but from the college’s operating budget.  That is a perverse system.  We need to partially divorce colleges from active involvement in sports and force them to get back to their core mission.  Towards those ends, salary caps on coaches should be mandatory.  The size of squads should be capped.  Coaches should be rewarded not with guaranteed contracts, but ones tied to academic performance.  In this perverse system, the college is paying a “tax” to the athletics department.  Successful athletic programs should pay a “tax” to the college.

While some will argue that booster programs help defray costs (and this is somewhat true), not all booster programs are created equal.  Furthermore, consider this perversity: the athletic department at the University of Oregon in 2014 took in $196 million in revenue and had $110 million in expenses.  In the real world, that is a hefty profit of $86 million!  And although it is only 1.1% of their expenses, why does the University of Oregon subsidize their athletic department to the tune of over $2 million?  Conversely, the University of Texas offers no subsidy and the athletic department still turns a $7 million profit.  Successful programs on the field (ice, court, etc.) and on the balance ledger like Florida State, Wisconsin and North Carolina have annual subsidies from the college exceeding $7 million annually (OK- UNC turns only a $300,000 profit, but you get the point).  Rutgers University holds the record with an astounding $36 million in annual subsidies to its athletic department.  Clearly, something is amiss here that cries out for reform.