The final chapter of The Big Questions is called “What to Study”. This post is about where to study it.
Stanford professor Carolyn Hoxby reports that in the college admissions market, the big change over the past 40 years is students’ increased willingness to travel far from home—not surprising since the costs of long distance travel and communication have fallen dramatically over that time. The main effects are these:
- The top colleges (meaning the top 10%) have gotten far more selective, because they’re now drawing from a far broader base of applicants.
- Most other colleges (well over half) have gotten far less selective, because the pool of local applicants is shopping elsewhere.
- This change in students’ willingness to travel provides a complete explanation for the increased selectivity of top colleges; in fact, without it, they’d have become slightly less selective.
- As a result of these trends, the student bodies at the best colleges have gotten much stronger and the student bodies at the weaker colleges have gotten much weaker.
- Strong student bodies demand and receive a lot more resources—better faculty, better courses, better facilities, better living arrangements. This is partly because stronger students are more willing to pay for such amenities in the first place and partly because stronger students graduate, earn higher incomes, and make bigger donations.
- Therefore students at the best schools, in addition to being much stronger than they used to be, are also getting a much better deal. Tuition has risen, but not by nearly as much as the value of the college experience. The difference is huge: At the very top schools, student-oriented expenditures exceed tuition by almost $80,000 per student per year.
- All that student-oriented expenditure pays off for students, and it pays off most for the very best students, who learn a lot more and ultimately earn a lot more as a result.
Here’s a (rather startling) graph (taken from Hoxby’s paper) to show what a great deal students at the top schools are getting, and how much it’s changed since 1970. The bottom line is that getting into the very best schools is both a lot harder and a lot more valuable than it used to be.
The full paper is here. Hat tip to Tyler Cowen, who found this before I did. Arnold Kling has a slightly different take.
This intersects with Richard Florida’s observations about US immigration policy hurting us. Most of the top universities in the world – including 8 of the generally recognized top 10 – are in the US. They’ve benefited greatly from this trend, leading to a concentration of the best higher-education students in the world, here in the US, which has made up for the fact that we’re investing a lot less than many other countries in basic education for our own population. We remain tech & innovation leaders partly because of this trend of concentrating talent at our top universities.
But, in this decade we’ve also placed much greater barriers that turn away a lot of foreign students – some because of the expense, some because of the hassle, some because they can’t get permission, and some because of our tarnished national image. This may turn out to be good for the world, if some of the other universities picking up more of these students actually develop the kinds of concentrations of talent that today’s top universities already have; or, it may turn out to be bad for the world, if its effect is to disperse talent such that fewer concentrations (which lead to greater innovation and discovery) arise, or those that do are weaker. Either way, though, it hurts the US, at least in the long and medium term.
I’ll ask the two obvious questions.
1. If they’re subsidizing each student to the tune of
$80K, where’s the money coming from?
2. If, at current prices, they have to turn lots of
potential students away, why haven’t they raised
prices?
Ron—The answer to (1) is that it’s coming from the endowment, which is presumably coming from some combination of grants and gifts. The answer to (2) is a little mysterious; I don’t know what universities maximize. But it’s at least possible that enormous subsidies to students are part of a profit maximizing strategy, if those students attract better professors who in turn attract large grants.
How can a University effectively allocate resources and costs across departments if they are not maximizing anything? Doesn’t every department ask for as much money as possible? It seems like there is no way to determine what is fair.
Josh W.: Surely they are maximizing something; I’m just not sure what.
Here is another hypothesis about the data provided by Dr. Hoxby:
A. top universities have been subsidizing students by an increasing amount, not because they are trying to attract top students, but because they have had more money to spend (subsidiary hypothesis: that is thanks to the stock market … until recently);
B. students are willing to pay more tuition, not because they get better education or better facilities than they used to (though they do get better facilities), but because a degree is worth more in the job market than it used to.
A prediction of part B is that, if income disparities stop increasing, tuition fees will also have to stop increasing. Unless endowments grow fast enough to compensate for that, top universities would then have to learn to control costs.
It’s kind of amazing to see anyone talking about students at private universities getting a good deal. Most of the press about college tuition is about how the costs have skyrocketed.
Harvard and other schools have been introducing substantial grants for students from middle-income families: http://www.businessweek.com/bschools/content/feb2008/bs2008023_374181.htm
I know you said you don’t know what universities maximize, but I’m curious about your take on that trend. If it’s such a good deal, why are they moving towards giving it away for free?
Raising prices because of strong demand is at odds with attracting the top students. The top students are not necessarily the ones who have a lot of extra money to put into education. Charging them more money will drive some of those away, replacing them with wealthier but less academically talented students. Thus, if top universities and colleges have a some weighting on high-performing students, they will choose a price that does not maximize tuition revenue.
I’m curious what you think they are maximizing Steve. Do you think a lack of clarity on that issue contributes to budgeting disputes?
I graduated from Rochester a couple of years ago and both as a student and now believe we were treated very poorly. Without getting into specifics, the school treated us very badly in terms of quality of life on campus and what would be called customer service, if it were a business. I am sort of surprised to hear that top colleges spend so much beyond what the average student pays for the whole package and this raises some general and specific questions.
First of all, was my experience one that is normal for colleges? It was definitely common to Rochester students, but things such as meal plans and housing issues certainly have been complaints at other schools. Could it be that academics and research are such a focus that quality of life for the undergraduates isn’t really a concern?
Professor Landsburg:
Do you know what Rochester pays to subsidize our education? The total of fees, room and board, and tuition was about $50K when I left, but the average student must have paid significantly less than that. Even if the average only paid half, another $80K on top of that would come to over $100,000 per year per student. Could it really have cost anywhere near that for what I got?
Here is what really confuses me though:
The University of Rochester got my money while I went there. Even if they don’t subsidize their students at all and actually make some off of us, that was peanuts compared to the hundreds of thousands of dollars that the average graduate will have at his discretion over the rest of his life. Why not spend a bit more on competent management, on raising our quality of life, on whatever it takes to have us leaving happy and grateful, rather than bitter?
Maybe I’m overestimating the dependency on alumni contributions. Maybe a few years out, people forget the problems they had and only remember the good. I know, however, that the school got its last cent from me just before my senior year began when I paid my last bill and it would not have taken much money on their part to have kept me a happy potential donor.
Sierra: I think in this case “good deal” refers to a higher ratio of money the University spends per student, vs. money the student puts in. If the top universities are spending a lot more, they could still provide a “better” deal by this measure even as tuitions go up and become harder for students to afford, as long as the top universities’ spending goes up even faster. It’s also not clear that this is necessarily actually better for the students.
When you discuss higher education economics and decision making, it is important to remember that finance is only one of the areas to be reviewed. That is, there is no such thing as a purely monetary decision in higher ed.
In fact, at the highest levels of decision making, it is au courant for administrators to declaim that money is the least important issue under discussion, that the only real consideration is the effect on the “mission”. At the wealthiest institutions, that is, actually, the case.
Pricing, then, is affected by numerous factors. For top private institutions, which really could charge almost anything they wanted, constraints are more a matter of public perception than anything else. If Harvard were to hit $200K, it is likely that there would be almost as much public outcry as Goldman Sachs bankers taking home $17B this year.
For top public institutions, this is an even stronger incentive to maintain reasonable annual tuition increases. Although they typically receive just a small percentage of their funding from the state, the state often is often quite influential in pricing setting discussions.
Also, below, say, the top 5 most popular schools, there is a modest price elasticity. It can be shown that when one institution’s price rises substantially above it’s peers, relative application activity slows. The market is competitive at some (high) level.
Pricing is not really an issue to consider when attempting to attract the best students. The best students get a free ride, no matter what their background. The less talented pay the price.
Finally, when you talk about optimization, the most important asset of any university is its reputation. _That_ is what is being optimized. And that is what enables the Harvards to charge whatever they will.
I was going to say exactly what University Admin says above: What (quality) universities maximize is reputation. That is really pretty evident at the faculty level: It’s virtually all we talk about when debating policy. Of course, faculty seldom have a decisive voice in university policy; but we form the articulating portion of university consensus, and that is felt in the administration. Whether that consensus is heeded at the decision-making levels is another question; but if it is not felt by the faculty to be heeded in the long run, the university will lose its ability to hold and attract faculty, starting a downslide that most administrative bodies are strongly at pains to prevent.
All schools have their mission. It may be making money; it may educating the top (or the middle or the bottom) third of the state’s high school graduates; it may be making students “men and women for others” (the Jesuit mission at my school, Saint Louis University). It is crucial to observe these strong differences in mission among schools, as they greatly influence the sources of support for the school, the students they attract, and the policies the schools follow.
Steve, I have to say that I cannot agree with the comment about non-top schools becoming less selective. I don’t have anything more than anecdotal evidence, so I may be out of my reckoning; but the anecdotes include a fairish number of schools (including my own) that are decidedly middle-tier but are experiencing an increase in academic standards for incoming classes. My suspicion is that there is a complex dynamic among levels of schools, with significant numbers of students shifting down from, say, the second dectile (i.e., students who never had a shot at the top 10% but could have got in the second 10%) down to lower-tuition schools in the fourth or fifth dectile, schools that are still respectable enough to attract these students–and which thereby *become* better schools, as better students encourage more rigorous teaching in the classroom, and graduating students then report greater satisfaction with the school.
There’s a lot of dynamics going on here. I’ve seen very strong increase in the size and quality of SLU’s student body and in SLU’s quality of education (and in its grant-getting ability) in the two decades I’ve been here, and at the same time I’ve been reading about the increased fortunes at some of Missouri’s second-tier system of state schools. I also think that I’m likely to see only the positive news, so there’s probably a lot of backsliding at other places that I’ve just not heard about. It also has to be noted that there is not a fixed pool of candidates for entering schools: We have strong increases in attracting foreign undergraduates, and the percentage of people (and not only recent high school graduates) deciding to attend 4-year schools, and to finish 4-year programs, has been increasing. Simple models are going to be strongly out of whack.
A cursory look at the article shows me no evidence at all for the chief conclusion:
” The reason that initially selective colleges are much more
selective today is that, in the past, students’ choices were very sensitive to the
distance of a college from their home, but today, students, especially high-aptitude
students, are far more sensitive to a college’s resources and student body.”
That is to say, while there’s lots of data about schools, there’s no data I can see about whether highly qualified students are more apt to go farther from home than they used to. Indeed, my experience is that this is not wholly true: Back in 1969, at my high school (an extremely high-performance one, with 90% of graduates going on to college and 50% being NQMST-qualified), it was routine for the better students (say, the top quarter, constituting a hefty fraction of the best students in the St. Louis region) to seek to attend nationally ranked schools all over the nation. There was some pressure not to go too far away (for instance, I applied to two midwest schools and one east coast, rather than one midwest and one on either coast, on that account); but applying to local schools was seen as the lazy way out, not what most of us “elites” were interested in doing.
Even way back then, there was a lot of compensation available (including substantial amounts from the national government) to make up for the extra expense in going away from home; in fact, I think there was more of it then, and that the 1970s showed a decrease in the amount of aid students typically received. A proper study of the effects on student college decisions would include careful review of monetary aid available from all sources.
Steve,
You should never say, “They are maximizing something, but I just don’t know what.” You are way too smart not to recognize the epistemological implications of that statement.
I think that good universities may be satisficing on two dimension: (1) a vague sense of social justice held by some admissions officers; and (2) keeping their faculty happy. When I was on the faculty senate at Cornell, we had perennial discussions about the fact that raising tuition brought in almost no extra money because of the financial aid policy. So do not even begin to think of tuition as the price of going to college for the typical kid in the Ivy League.
For example, Brown’s endowment gives its administrators the luxury of producing a substandard education. The real question is why mediocre universities don’t compete on the quality dimension by offering serious undergraduate educations. The answer is probably that professional incentives mitigate against excellent teaching at the expense of a mediocre research. Also, an excellent education is not based upon a democratic vision of society, since not all students stand to benefit from it.
This leaves the question about why there are not more good technical trade schools. My guess is that the future belongs to high schools that train plumbers well.
Eric
Eric,
I have never seen any conflict between research and quality education. There is conflict between research and giving faculty more students to teach; but assigning higher course-loads or more students per section is *not* aiding quality education. I’ve taught at an Ivy League (Brown, 2 years), at top-tier state schools (Oregon State, 6 years; University of Missouri, 1 year), at a low-tier state (Coastal Carolina College–now University–1 year) and at a mid-ranked private school (Saint Louis University, going on 20 years); so i think i have a pretty wide perspective on things. Quality education flows from the commitment of the administration as communicated to the faculty. Generally, it’s faculty-driven, to the extent the faculty can get commitment from the administration.
All faculty, generally without exception, want to improve the quality of education, and that manifestly includes the top researchers, the vast middling group of researchers, and those without much of a research agenda.
I have been wondering about the effects of the financial meltdown over the past year on the quality of colleges and universities. In particular, if some — but not all schools — were fully reliant on the income from their endownments prior to the financial crisis, now that this source of budget revenue is greatly diminished, those schools must either cut back on “discretionary” spending (e.g., make available fewer tenure-track positions, spend less on physical plant) or raise revenues elsewhere (e.g., admit more students). Either way, the quality of the student experience will likely fall the most wherever income from the endowment was a significant contributor to the annual operating budget. But if the schools that now face the biggest budget challenges are the ones who had the biggest endowments up until last year, it is the premium-brand private institutions that now may suffer the biggest decline in quality. If so, there might be a kind of regression to the mean across higher education. Is this reasoning sensible?