January 11 2012
by John Backus

Part 2 – Busting up the College Cartel

In my last piece, I pointed out how for more than a generation – 35 years and counting – that the costs of attending college have increased at three times the rate of inflation – almost twice the rate that health care costs have increased over the same period. Yet our children are receiving the same basic liberal arts education, taught in classrooms at 2,041 colleges, that they were 50-100 years ago.

Students, Colleges and the Federal Government need to each take action to reign in spiraling college costs. On top of these three groups, I expect Adam Smith’s invisible hand of the private sector to play a major role in transforming this industry in the next 25 years.

The revolution has begun. Just look at a few recent headlines:

January 10, 2012: UC Salary Criticisms Fuel Student Protests

January 10, 2012: California State Universities Offer up Lame Excuses for High Salaries

November 21, 2011: Debt by Degrees

November 14, 2011: Some UNC Chapel Hill Students Outraged by Another Tuition Increase

What can (or should) students, the Federal Government, and colleges and universities do to fix this problem? Some practical suggestions:

For students:

Before you enroll at a 4-year college, ask yourself if you are ready. Do you know what you want to do after college? Are you going to college to be with friends, because your parents expect you to go, because you really don’t want to start working full time, or because you have a plan and college is the first step of that plan?

Start by taking some accountability for your program of studies. If you really want to be an Art History major and pursue your passion at college, don’t complain if your first job is outside the field of Art History, has a lower starting salary than other jobs, and may be harder to find than jobs for graduates with different degrees. Know the market for the skills you are acquiring at school. Ask your career placement office. Who is hiring people with degrees you aspire to, and for what positions and at what salaries. And take some STEM courses, even though they are probably hard for you and may lower your GPA.

Think about the cost of college. Not only to your parents, but also the student loan debt you will graduate with. Do everything you can to graduate in 4 years. Not 5 or 6. Take some AP classes in high school and place out of some required courses your freshman year. Take a community class or two during the summer before your senior year to add a few more credits to your transcript. Consider State 2+2 programs, which let you start at a community college and then, with good grades, get a guaranteed transfer to a top State school.

For Colleges and Universities:

Offer your curriculum online. Encourage students to take one year of classes online, perhaps living off campus and saving on room and board. Offer them a discount for going to school online. It costs you less. Plus you can backfill that slot with another on-campus student.

Broaden your distribution requirements to require students to graduate with greater technical proficiency. Make computer programming courses, advanced math, and engineering a much part of the required curriculum. Consider requiring that everyone not majoring in a STEM degree have a minor or at the very least a concentration in a STEM program.

Agree to cap any further increases in college costs to the rate of inflation. You can do it. Commit to it and make the hard choices.

Reduce the tuition cost for students who graduate in more than four years. Sure, maybe they were immature and failed a few courses. But you also failed them by not keeping them on track. Consider offering half or all of that 5th year tuition free – just charge for room and board. Students and Colleges succeed and fail together. Own up to your failures.

For the Federal Government:

You control the purse strings for every College and University in the United States through student loans, tax policy, and Research and Development grant money. You can effect change immediately. Failing to make hard choices is a failure to lead. A few ideas, all of which University Presidents will hate – but which will force them to be accountable for 35 years of cost and price mismanagement:

Restrict the amount of student aid available to students attending schools where tuition plus room and board rises faster than the rate of inflation. Federal student loans are important. Colleges will hate the message you are sending, but they will abide by your demands.

Make Colleges share in the cost of student loan defaults. Perhaps have them bear the burden of 25% of the costs of loans taken out. This would be great for taxpayers. It might also make colleges focus more on career placement, and appropriate coursework upon graduate so that students can land jobs that will help them pay back their loans.

Force colleges to help kids graduate in four years. Let them know that the federal government will only provide loans for the first four years of college (for a bachelors degree.) And for colleges to participate in the federal student loan program, the colleges themselves must agree to provide an equal amount of loan money to students requiring a fifth year or more to graduate.

Many schools have nice endowments, and they are focusing on growing them. Lets make sure that Colleges first use at least 5% of their endowments each year to fund operating expenses, including student aid (not new buildings.) If Colleges fail to make annual 5% distributions, then their income should be subject to federal taxes just as it would be for any other foundation-like entity.

Think like a business. You are giving hundreds of billions of dollars each year to US Colleges and Universities for research. Yet when that research is commercialized, the university receives all of the royalties. Shouldn’t the Federal Government earn a rate of return on the research dollars given to the Universities? 25% – 50% of the royalties perhaps? As a taxpayer, I want a return on this money.

Finally, use student loan forgiveness to encourage more STEM graduates. The student loan program now rewards (through debt forgiveness) college graduates who join the Military, the Peace Corps or other lower paying, non-profit jobs. Why not also encourage people to become STEM graduates and offer them the same debt forgiveness incentives?

Follow me on Twitter @jcbackus


January 11 2012
by Todd Hixon

A couple of thoughts.

I’d advise against the feds trying to recoup value from funded research; here’s why. Most universities charge too much for their patents in negotiations with investors who want to commercialize technology. They have the “academic” view that most of the value is in the intellectual property, and they don’t understand how much work is required to build a business. As a result, not much gets commercialized, and the U.S. economy loses. The most experienced universities, notably MIT, charge reasonable and predictable licensing fees. That is a big reason for MIT’s success in technology commercialization. If the feds claim some of this income, the universities, especially the naive ones, will raise licensing fees further, and that will dampen innovation.

Rather than loan forgiveness for STEM graduates, I suggest that the federal government make more money available to those pursuing STEM degrees, and less to others. The STEM graduates are actually able to repay their loans. The others often cannot. This is rational resource allocation, much as a business would do.

January 25 2012
by Harry V. Lalor

Corporations can do their part as well. Corporations should not require a four year BA/BS degree for an entry level position. If young people have the same skill sets without a four year college, either learned through online courses, community colleges, etc. why require a four year degree?

Once a college degree is removed as an absolute requirement for hiring corporations, colleges and universities will not be able to justify the prices they are currently charging.

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