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Thursday, August 22, 2013

Reform, Not Rankings?

Should Princeton Review be alarmed?  The federal government is getting into the college ratings business.  The President yesterday announced a proposed system for rating colleges’ cost-effectiveness, and tying federal loan subsidies to the resulting rankings.  If you think the problem is that colleges have no incentive to cut costs, it makes some sense.  But the implementation has serious question marks, not the least of which is that someone in the government will have to decide how much more expensive it ought to be to train, say, engineers vs. poets.

What about nonprofit governance reform instead, or maybe also?  In my last few posts, I’ve sketched our findings that university dependence on donations tends to restrain executive compensation.  We also find a strong correlation between pay and tuition.  By itself, that correlation doesn’t really tell us anything about causation.  But in combination with our detailed findings about donor influence, it begins to seem more likely that presidents may prefer to emphasize tuition in order to reduce their dependence on donors.      

That isn’t exactly iron-clad proof.  But it’s at least suggestive.  Reforming executive compensation might not give colleges incentives to hold down student costs, but it at least could diminish their executives’ interest in letting costs rise.     

Could we tell the same story about law schools?  It’s possible---we don’t have much data about private law school deans---but keep in mind the environment is different.  Only a handful of law schools get any significant fraction of their operating budget from donations.  So I don’t think the story we tell quite translates.  That’s not to say there aren’t agency problems in law schools, just that they probably take a different form.   

Posted by BDG on August 22, 2013 at 09:46 PM in Corporate | Permalink

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Comments

The "outputs rather than inputs" rhetoric is excellent: who could disagree that what really matters is outcomes?

But when we measure the "value for money" based on things like graduate salaries, we devalue any other set of values that cannot be measured in that manner. The university system is special precisely because it is not quiet bound by the logic of for profit businesses and it can pursue goals of educational and social enrichment, of pursuit of greater knowledge and understanding without needing to be driven by what can be profitable.

Viewing university as a means of achieving the ends of a higher salary - as basically a private financial investment by the student - completely misses the point of its value. Universities get people to think critically and with novelty and explore intellectually. This is a value added beyond the financial benefits which are obtainable other ways. If it was just about making money it might make more sense to just give everyone federal loans to invest in businesses.

I think its very likely that humanities and social sciences will measure poorly on scales designed to measure what other fields do well, but this would only prove the biases of people designing the rating...but when tied to federal funding it will further incentivize universities to devalue the fields that most encourage people to challenge established norms.

I also think that beginning from a premise that universities should offer "value for money" and then measuring that value in terms of money, will almost certainly lead to a self-fulling conclusion that they aren't worth it and funding should be reduced.

Posted by: Anon PhD Student | Aug 22, 2013 10:23:40 PM

@Anon PhD Student/10:23 p.m.:

I think you are far more concerned about this than circumstances actually warrant. On a bus tour, Obama announces his intent to shut the barn door slowly (and only partially at present, but with great resolve, let me be clear, blah blah blah) behind the trillion-dollar student loan horse roaming free in the yard. At least one Republican senator and the chairman of the House subcommittee on education are not rushing to join him in calling for these ratings and attendant restrictions on lending. How many years do you think it will be before this turns into anything like a restriction that prevents students from borrowing as much as their universities want them to?

Posted by: Morse Code for J | Aug 23, 2013 7:48:44 AM

"Viewing university as a means of achieving the ends of a higher salary - as basically a private financial investment by the student - completely misses the point of its value. Universities get people to think critically and with novelty and explore intellectually. This is a value added beyond the financial benefits which are obtainable other ways. If it was just about making money it might make more sense to just give everyone federal loans to invest in businesses."

But it's the universities that are responsible for the idea of education as a personal financial investment. Law schools are particularly bad offenders, but even the undergrad programs now push this idea. How many times have we heard some version of the following: BA holders earn X more than people with a diploma (usually in the seven-figures), all the good jobs require college degrees, "look at all our successful graduates!", or education debt is good debt.

Now maybe this is just the marketing department saying one thing and the faculty another, but but from the perspective of a student going to college to get a job (an expectation fueled by the universities) its frustrating to be told that they shouldn't have expected one in the first place (only after they've paid in full).

Posted by: BoredJD | Aug 23, 2013 10:36:15 AM

Anon PhD Student:

The powers that be in academia seem to want to have it both ways. On the one hand they are noble institutions that shouldn't be tied down by delivering market outcomes, but on the other hand anyone who questions tuition pricing being the full measure of what the market will bear is is naively ignoring market realities. Ditto with anyone that questions compensation for senior administrators and professors.

Posted by: brad | Aug 23, 2013 10:38:42 AM

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