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Is Competition Really Killing Higher Ed?

In a recent piece at Bloomberg, Mark C. Taylor makes a provocative argument that cuts against the grain of the usual thinking about college reform: Competition is killing higher education, he says.

This is certainly a controversial position, but Taylor has amassed considerable evidence for his conclusion. An atmosphere of intense competition for new applicants, he argues, is accelerating three of the main issues bankrupting colleges today: excessive building construction, unhealthy obsession with school rankings, and the proliferation of unnecessary degree programs. The construction boom is particularly problematic. As well-endowed private schools construct lavish new facilities, smaller, less wealthy schools over-leverage themselves to keep up, lest they fail to attract top students. The resulting “construction arms race” has spawned billions of dollars in unnecessary costs, pushing many universities to the brink of bankruptcy—and pushing tuition bills into the stratosphere.

But the proliferation of new degree programs is an even worse problem, says Taylor:

Second- and third-tier universities often create unneeded doctoral programs to become eligible for additional federal support and to increase their global profile. For example, the University of North Texas has 36,000 students and advertises itself as “a student-focused public research university” offering “97 bachelor’s, 82 master’s and 35 doctoral degree programs.”

Even this is not enough. Although severe budget shortfalls have led to cuts of as much as 90 percent for some programs, the university is adding new doctoral programs in a quest for the elusive top-tier status. This makes no educational sense and violates basic market principles. If successful, the University of North Texas will join too many other schools that are spending large amounts for unneeded programs that turn out products—doctoral graduates—for which the supply far outweighs the demand. This is a national issue, as pointed out in an article this month in the Chronicle of Higher Education titled “The Ph.D. Now Comes With Food Stamps.”

Read the whole thing.

We should take the issues Taylor raises seriously; certain kinds of competition are indeed problematic. But that doesn’t mean that all forms of competition are problematic. The problem with modern universities is that they are aiming to compete on everything except the core issues of price and educational quality, focusing instead on areas that are tangential to their core mission. Quality facilities and high rankings in international surveys are nice (especially because they’ll bring in lots of students and their government-subsidized loans and grants). But if they widen the already sizable gap between the cost of a degree and its value to prospective employers, then they are getting in the way of an important part of a university’s core mission.

Rather than touting their pristine facilities and small class sizes, colleges should be boasting that they offer the best education at the lowest price. This is the competition we need.

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  • vbounded

    These criticisms are all off-target. The crux of the problem is government subsidies encouraging overspending on tuition and the professionalization of the education bureaucracy. Most of the spending wouldn’t have been supported without government subsidized loans, and tax deductions. And most of the spending increases have gone into pay and headcount increases for non-teaching staff and management at schools, plus reduced teaching loads by professors.

    You have the same problems in the other most inflated sector of the economy: medicine. Government subsidies and third-party payor system confuse consumers and get them to overspend, thinking the care is “free” instead of a substitute for wages. And that this overconsumption has lead to the bulk of most worker’s wage increases going into health care benefits

  • j lindsey

    A more likely explanation, for the straits in which higher ed finds itself, is that the entire sector is overbuilt. Years of investment under the premise of “college degrees for all” has left just too much product with too few real (paying) customers.

  • Eurydice

    It doesn’t violate market principles – you’re just looking at the wrong carrot. Higher Ed isn’t competing for students, it’s competing for federal money and private donations, and that money is predicated on different values. If these institutions had only tuition to work with, every additional student would be a money loser – and then you’d see a whole other kind of business model.

  • Andrew Allison

    I think that Cuban has it right at
    There are way too many college students, and the “college business” wants their (borrowed) money.

  • thibaud

    re #1: wrong focus.

    This is not a bubble so long as the marginal returns for a particular degree exceed the marginal cost to the student and his parents.

    For most degrees from most schools, that remains the case because the returns for a degree are set by employers, nearly all of whom require the credential.

    Until/unless employers start moving to certification-based hiring – along the lines of, say, the Microsoft or Cisco technical certifications – you will have strong demand for the higher ed product.

  • thibaud

    One could easily slash higher ed budgets by 15-20%, and tuition by a similar amount, merely by reducing administrative bloat to the % of school budgets that prevailed 20 years ago.

    I’m not a lawyer or an academic, but I don’t see why the fed couldn’t require such cuts as a condition for receiving federal subsidies.

  • Snorri Godhi

    “Second- and third-tier universities often create unneeded doctoral programs to become eligible for additional federal support”

    This quote seems to support the claims made by Eurydice and vbounded, #1 and #3 above.
    Or, to quote Reagan: government is not the solution to your problems; government is the problem.

  • dearieme

    Why compete like mad for “top students” and then desist from teaching them anything worthy of their intellects?

    It’s all bonkers. As I am wont to say on this topic: Dissolution of the Monasteries.

  • Jacksonian Libertarian

    Why is it that education seems to end with graduation? Shouldn’t learning be less formal, more open, and on going? In game terminology shouldn’t we all be leveling up throughout our lives?

    Access is restricted

    The first University that can provide a certified degree totally online at a fraction of the cost of a normal degree will be the biggest winner. 1 million or more students worldwide paying $1,000 a year in tuition would be $1 Billion a year in income for the University.

    Many people would be interested in taking classes if they were open to everyone willing to pay, and if the price was only $100 or less for a class by a world renowned Professor (I would pay for a class by WRM, wouldn’t you?) many more people would spend their lives always taking classes. Without the gate keeper mentality of your average University, student consumers would increase many fold from what they are now.

    Our culture would evolve, and normal small talk would include what class you were taking now, people would compete for how many degrees they could earn, and the average level of education for mankind would skyrocket.

    The greater the number of minds looking to push forward mankind’s knowledge, the faster mankind will advance.

  • Mark Michael

    Vbounded@1 is mostly correct IMO. Organizations focus on where the money comes from that fund them. When the feds and the state governments subsidize them in a big way, plus students/parents pay part of the cost with their tuition & loans, the schools balance among these two major sources of funding, their desires and wants.

    Then, throw in the employees of the school: the faculty wanting higher wages, job security (tenure), fewer students, more status (research grants, pubs), and the administration wanting higher wages, more aides, better buildings, etc. The students like nice dorms, gyms, student unions, and may look for those when shopping for a school.

    If one could (magically) eliminate all of the government funding, replace the “stakeholders” serving on the board of trustees, alumni groups, donors with a profit-making set of owners and Board of Directors, then the school would focus on satisfying paying customers (tuition-paying students/parents), since they’d be the primary source of funding.

    The practical problem is how we get from where we are today to independent, self-sustaining, market-driven bunch of universities. The current “stakeholders” will try mightily to preserve the status quo mostly. Although, it’s not as bad as what we confront in the K-12 public school system, since today 95% of K-12 students attend traditional public schools. That’s a serious monopoly.

    The customers of universities are much more mobile: they can choose to go to lots of different schools, so universities understand competition in that sense, unlike the K-12 teachers unions & administrators, and employees. (The school choice movement has been around for decades and still has only made a small dent in the K-12 public school monopoly.)

    My thought is a conceptually straightforward first step: Block grant all federal aid to colleges & universities to the 50 states, and then reduce the amount by a fixed percentage every year until it hits zero. Do it over (maybe) 4 years. (It’s not that large amount, actually.)

    Let each state decide how much they want to subsidize their own colleges & U’s with their taxpayer funds. Would apply to tuition aid, research grants, etc.

    There’s nothing that says that Washington pols and bureaucrats know better how to ladle out those taxpayer funds than the statehouses. Both sets of governments have the same taxpayer base. Plus, the states have balanced-budget amendments. The feds have a $1.3 trillion annual budget deficit. For me, that’s the overriding fact that drives things.

  • thibaud

    Employers in this country want to see the sheepskin. Unlike, say, German employers, US companies no longer take much of an interest in vocational education at the secondary level and are unwilling to fund apprenticeships of the sort that would make a college degree irrelevant.

    In addition, for fear of litigation, employers typically are gunshy about putting first-time job applicants through standardized tests, be it of intelligence, specific skills, subject matter knowledge etc. It’s much easier for them to effectively outsource this to the diploma industry aka undergraduate colleges. This is in no small part due to affirmative action, which allows colleges to meet their quotas/targets without actually testing anyone.

    For all these reasons, it’s unlikely that the value of a college degree will diminish anytime soon. It’s a ticket of entrance to corporate America.

  • Lorenz Gude

    I think it is also possible that corporate America will diminish sometime soon and the value of a sheepskin with it.

    Ac couple of things struck me from this discussion. One is that universities seem to some extent to be competing the way cruise ships do – by having nice facilities. And two that they have double trouble because both faculty and administration are running the institutions primarily for their own benefit. None of these things are core.

    When someone finds a way to disintermediate all that obsolete brick and mortar and featherbedding administrators and profs and focuses on quality and price things will change. I would expect such a model is much easier to create in the third world where you don’t have to get rid of all that entrenched institutional fat. Some of the third world OLPC (One Laptop Per Child) collaborations with national ministries of education perhaps will evolve into high quality low cost technology based education systems that will blow the doors off Overstuffed U. Maybe. maybe not, but I think our higher ed sector has drifted way off its core mission.

  • Eurydice

    @9 – Jacksonian Libertarian – You’re quite right, education should be continuous over a lifetime. There’s no use in treating young people like veal, putting them in a pen and forcefeeding them in the hope that those few years of education will be relevant over the next half century of their lives.

  • Mark Michael

    Jennifer Rubin at the Washington Post “Right Turn” blog has a useful discussion of the issue of federal subsidizing of college loans. Both Obama and Romney support extending below-market interest rates for these loans. Her post:

    A few quotes:

    “The burden – and risk – is passed along to taxpayers, including the three-quarters of Americans who don’t hold a college degree (and likely earn less than those who do hold a degree). Taxpayers will be on the hook for $6 billion if the rates are kept low.”

    ME: Government intervention often transfers wealth from ordinary Americans to upper-income Americans, thus exacerbating income inequality. Special interest groups who get heard in Washington seldom are in the bottom quintiles of the income scale. FDR’s New Deal policies had the perverse affect of doing exactly this: holding the unemployment rate very high and keeping the incomes of the employed higher than they would be in a more free-market environment.

    More of the same:

    “Keeping interest rates artificially low will fail to drive down college costs in the long run. Colleges will once again be able to increase costs, and students with easy access to low-interest loans will once again be able to pay. The Obama administration has significantly increased federal involvement in the student loan industry, effectively nationalizing student lending through language buried in Obamacare, by continuing to increase federal subsidies, and by ‘forgiving’ student loans altogether after 20 years on the backs of taxpayers. But these policies only exacerbate the college cost crisis, continuing a vicious cycle whereby college costs rise in tandem with ever-increasing federal subsidies.”

    ME: Politicians focus intently on the next election. They might rationalize by saying, “Okay, once I’m elected, I’ll do the right thing.” But then there’s getting reelected, so they delay “doing the right thing” again…and again.

    Another quote:

    “Why are colleges allowed to keep tax-exempt status while sitting on mounds of endowment money?

    “BURKE: It’s an interesting question, particularly when one considers the increase in non-instructional staff at universities over the years. The Goldwater Institute found that administrative positions at colleges increased 39 percent since 1993. But ever-increasing federal subsidies give colleges little incentive to cut costs.”

    You get the idea. There’s lots more at the post.

  • raf

    @#12Lorenz Gude: faculty and administration are running the institutions primarily for their own benefit

    A president of a second-tier university who achieves the first tier has built a resume which will put him in consideration for much more prestigious positions. Students are really an unavoidable inconvenience on the path to professional advancement.

  • Kris

    Lorenz@12: “both faculty and administration are running the institutions primarily for their own benefit”

    Cf Pournelle’s Iron Law of Bureaucracy.

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