2007 March 12 Monday
Pell Grants Drive Up College Tuition Prices

Why have tuition costs risen faster than the rate of inflation for decades? Rising demand fueled by tax money increases the cost of higher education.

Undergraduates at in-state institutions were not significantly affected by tuition increases linked to rises in Pell grants between 1989 and 1996, economists Larry D. Singell Jr. and Joe A. Stone report in a paper to appear in the journal Economics of Education Review. The study is available online.

“For private colleges, the response to Pell grants is no different from their approach to tuition pricing and awarding of differential scholarships to students based on need,” said Singell, head of the UO department of economics. “So we are not much surprised by our findings. We were also not surprised to find no significant effect for Pell grants on residential tuition at public colleges.”

Some students, whose families’ incomes make them ineligible for Pell, have faced tuition hikes that sometimes match almost one-to-one any dollar increases in Pell grants when they enroll at out-of-state public institutions or private schools. However, rather than having the effect of turning away the poorer students with Pell grants, tuition redistribution allows these institutions to accommodate lower-income Pell recipients, said Stone, the W.E. Miner Professor of Economics at the UO.

“A lot of people have looked at the Bennett hypothesis,” Stone said. “I think our study is the most comprehensive one in terms of the types and numbers of schools and the long time period we examined. We found that Pell increases do expand the opportunities for students entering their in-state public schools without seeing a directly related increase in tuition. For students going to private schools and non-residents going to public schools, we found that access to those schools increases, too, but it comes at the expense of higher overall tuition paid by wealthier students.”

So the government spends more on education and people too affluent to qualify for student aid pay higher tuition as well.

Most people think colleges ask for financial information from parents so they can identify parents whose kids deserve price breaks. No, that is not it. The colleges use the financial information to identify parents who they can soak with higher tuitions. The official public tuition level is what they'll charge you if you can afford to get milked. If they had no way to tell how much each parent can afford to pay they'd have to offer lower official tuition levels.

Some of the Pell grant money goes toward allowing poorer students to attend more expensive schools.

Bottom-line results were that in-state public tuition has risen nationally, especially in the Midwest and Northeast. It rose by $359 per $1,000 of Pell awards in a standard statistical analysis but by just $130 per $1,000 when other effects were considered. The researchers theorized that the difference suggests that Pell grants tend to assist recipients in attending the more costly public institutions within their own states.

At public universities, out-of-state tuition went up the most in the West and Northeast, increasing at $804 per $1,000 of Pell grants. Tuition at private institutions, which get very little state support and rely more heavily on endowments, also rose, with the sharpest increases in the same regions. The rise related to Pell grants was $863 per $1,000, approaching a one-to-one effect. Stone and Singell also conclude that students who obtained larger Pell grants are drawn more to private schools with lower tuition rather than those with higher tuition.

These numbers above are a sign that colleges operate like oligopolies. Competition ought to drive down costs. But the main goal of colleges is not to provide the best education for the dollar. The main goal is to allow people to show how high their IQs are by saying which college they graduated from.

In practice the smartest kids have to pay the most to demonstrate how smart they are. The elite schools charge the most. The smarter kids tend to have smarter and more affluent parents. So the elite schools have customers who both are smarter and whose parents have deep pockets.

If employers could easily test for IQ then the need for smarter kids to spend more on expensive schools would go away. This would save them money by allowing them to go to cheaper schools. This would also drive down tuitions at the most expensive schools.

Another way to introduce more price competition: Have standard tests for major subjects with many sites offering the tests. If, for example, one could earn a degree in chemistry by taking all the standard tests of the American Chemical Society for undergraduate chemistry then a person could buy their prerecorded college chemistry lectures separately from their tests and earn a degree for a small fraction of current costs. No need for lots of expensive lecture labor and buildings with lecture halls. Watch lectures any time of night and day and go through a course as fast as you can push yourself.

Share |      By Randall Parker at 2007 March 12 07:08 PM  Education


Comments
birch barlow said at March 12, 2007 7:56 PM:

If employers could easily test for IQ then the need for smarter kids to spend more on expensive schools would go away. This would save them money by allowing them to go to cheaper schools. This would also drive down tuitions at the most expensive schools.

I'm not so sure about that. SAT and GRE test scores are close proxies for IQ, and most employers don't give a flying f*** about them (I got a 1430 on my SATs and a 1480 combined GRE verbal+math score)--my impression is that most employers would rather have good workerbees who can do countless hours of busywork, and who know how to schmooze, than someone with a high IQ. Employers have effective measures of IQ at their fingertips that are probably better than "I got a degree from elite university X", and my impression is that they aren't too eager to use them. Like the political class and much of the public at large, I think most employers are too enamored with Political Correctness and/or old-fashioned morality* to be able to think rationally about the value of intelligence.

*old fashioned morality: e.g. real value in an employee is their reputation (thus emphasis on references), ability to schmooze, and willingness to break their backs [or numb their minds] (thus emphasis on having a college degree and/or specific experience) rather than ability or intelligence.

birch barlow said at March 12, 2007 8:00 PM:

I got a 1430 on my SATs and a 1480 combined GRE verbal+math score
...and I can barely get a job at Wal-Mart

tommy said at March 12, 2007 8:31 PM:

Another way to introduce more price competition: Have standard tests for major subjects with many sites offering the tests. If, for example, one could earn a degree in chemistry by taking all the standard tests of the American Chemical Society for undergraduate chemistry then a person could buy their prerecorded college chemistry lectures separately from their tests and earn a degree for a small fraction of current costs. No need for lots of expensive lecture labor and buildings with lecture halls. Watch lectures any time of night and day and go through a course as fast as you can push yourself.

A fine idea overall. As a chemistry student myself, I can only see one hitch; namely, the fact that chemistry, as well as some other subjects (including most sciences), possess a hands-on aspect in the form of lab work. There would have be accommodations made for the completion of such work at a local institution.

Many other subjects require no such work and we have the technology available these days to create very sophisticated learning materials. I mean, do you really need to sit a classroom for several thousand dollars a semester in order to learn accounting? I think many students would sacrifice the "college experience" (huge debt) for a chance to work at their own pace, even if certification tests were more challenging than standard college tests over the same subjects.

Mensarefugee said at March 12, 2007 10:00 PM:

Fine common sense ideas... that will never be implemented.
SNAFU.

Randall Parker said at March 12, 2007 10:30 PM:

Guys,

My ideas will be implemented.

When I was a kid growing up I figured that the federal regulatory agencies that regulated prices and market entry in aviation, trucking, trains, and other industries would be with us forever. Starting under the Carter Administration (and he a liberal Democrat) the whole system started getting dismantled. It is now history.

I used to think the elite consensus on the USSR was right and it would last much longer. Nope.

I never expected systematic prosecution of illegal alien border crossers in Texas. Bush is still trying for a big amnesty. But the prosecutions are happening.

If few people publically take some position that's a reason to start arguing it. The very fact that few take a position means there's room to push ideas that otherwise few would hear.

As for getting people to accept ideas: Lots of them will wildly reject ideas that violate the reining taboos or that go up against entrenched interests who have been telling their lies steadily. Some will reject the ideas because they see their interests or myths threatened. But others will eventually accept and embrace the ideas if they hear them repeated often enough. Still others will be immediately convinced.

This change in American education toward video feeds and online tests for cheap probably won't come from the elite universities because those universities have big vested interests in how things work now. But remember Ted Turner's "Super Station" in Atlanta that became a means to make video content for cable TV and how that eventually developed into CNN and his other channels? Some institutions with far less to lose will embrace electronic education.

Just start telling people repeatedly that this is the way to go. Take every major change you want in policy and tell people confidently that it will happen.

For example, Reagan's former domestic policy advisor James Pinkerton says we will have a wall along the entire border with Mexico. He's right. The people will continue to demand better border control. Congress will keep appropriating more money for building structures on the border. It will get built.

Education will speed up for the smarties. Advocate it. It will benefit you as smarter people become more productive and invent and discover more things with their better training that they get sooner and at every point in their lives when they want to learn something new.

Ned said at March 13, 2007 5:49 AM:

RP -

Maybe you're right, and I hope you are, but I still have my doubts. The major impediments to innovation and change in American education today are the education bureaucracies and the teachers' unions. They are very powerful and will fight tooth and nail against any attempt to reduce their fiefdoms. I think their stultifying, lock-step approach to education does more than even the low salaries to keep bright, innovative people out of teaching.

Mensarefugee said at March 13, 2007 12:37 PM:

I wonder (slightly OT) where it will start. Probably some outside competition will perk things up.

We know the Chinese dont have much of this self esteem molly-coddle the underperforming minorites jazz. So whats the educational system like in China? More meritocratic? More flexible allowing for High-IQ types to race ahead? Any chinese immigrants reading Parapundit who knows? How about Koreans? Japanese?

birch barlow said at March 13, 2007 12:53 PM:

I get the impression that some of the left-wing criticisms of business, such as "It's not what you know, but who you know" and "Money talks and bulls*** walks" and such are spot on. I think conservatives and libertarians often overestimate the homo economicus nature of businesspeople--they do discriminate irrationally. Those in business are not immune from the irrationality, superstitiousness, and "my gang yay, your gang boo" mentality that infect humanity. For example, I would guess is that there is considerable discrimination against those with autism spectrum disorders such as Asperger's Syndrome because many business/management types don't understand these types of people very well.

birch barlow said at March 13, 2007 1:10 PM:

This is getting somewhat off-topic here, but I think it is at least somewhat relevant to the idea of employment and IQ, and the relative lack of value employers place on IQ:

The below passage fits me almost to a "T" (except my problem with "higher ordered thinking" didn't really come until advanced physics courses, organic chemistry, and doing an "Honors Thesis" research project):

Children with AS often display advanced abilities for their age in language, reading, mathematics, spatial skills, and/or music—sometimes into the "gifted" range—but this may be counterbalanced by considerable delays in other developmental areas. This may be especially evident when the children hit middle school where the educational philosophy switches from rote tasks and memorization (i.e.sight words, Math Facts) to higher ordered thinking that is often difficult with children with AS. This combination of traits can lead to problems with teachers and other authority figures. A child with AS might be regarded by teachers as a "problem child" or a "poor performer." The child’s extremely low tolerance for what they perceive to be ordinary and mediocre tasks, such as typical homework assignments, can easily become frustrating; a teacher may well consider the child arrogant, spiteful, and insubordinate. Lack of support and understanding, in combination with the child's anxieties, can result in problematic behavior (such as severe tantrums, violent and angry outbursts, and withdrawal).[91]

Jerry Martinson said at March 13, 2007 9:47 PM:

In the past 2 weeks in California, the newspapers have been reporting that community colleges are considering raising tuition fees for an odd reason: The reason is so that students can get more federal financial aid such as Pell grands. The arugment goes like this:
1. Compared to the rest of the nation, California has very low tuition costs for its UC schools, Cal-State schools, and especially community colleges with the idea being that the state wants to equalize access to students of all financial backgrounds
2. However, because of the unusually low cost of community colleges and public colleges in general in California, the state does not receive "its share" of federal financial aid money, giving the state a raw deal.
3. At the community-college level, the tuition fees are so cheap that the real costs of college that limit access to poor students are strongly dominated by:
A. Room/board (in some cases even at the community college level living with parents is either not possible, practical, or strongly disliked due to young-adult lifestyle clashing with parents)
B. Opportunity cost from lost work
C. Day care expenses from students with young children
D. Textbooks
4. The argument goes that getting and applying for financial aid for tuition is easy but for the factors of #2 requires substantial institutional counseling support to get financial aid.
5. Ergo the espoused best way to pay for the institutional guidance/financial aid support at community colleges so that the state gets its fair share and poor students get better access is to paradoxically increase tuition.

The Mercury News, the "grey lady" of the left coast, had a glowing editorial on the concept last week.


Jerry Martinson said at March 13, 2007 11:51 PM:

I agree that much of the value of an education is an IQ screen and it is unfortunate that we live with the legacy of the unintended side effects of the well-intentioned Griggs doctrine (Griggs v. Duke Power) which effectively prohibits employers from using formal IQ tests.

However, most true professions require more than just IQ + reading some books. I work in a profession that requires not only a solid understanding of specific technical matter, but also interacting collective community of professionals that have each covered a variety of related technical matter from different perspectives. How those perspectives get set and the decision of what constitutes the proper technical matter is an important function of the university system today. The basal preparatory classes for professionals could certainly see some productivity and efficiency improvements and I agree with Randall that this phase of an education costs much, much more than the value than the students are getting. However by the junior year in a BS program, a substantial part of the education involves a lot of lab work and, depending on the level, also involves substantial personal interaction with those who are the thought leaders in that discipline. This is what is really expensive to provide. So the first few years of tuition effectively subsidizes the last few years of education.

Even a bachelors in something as fluffy as history usually requires several courses around the senior that require examining primary sources and this requires access to a large archival library or faculty-directed campaigns of interviews. And most students need quite a bit of faculty interaction to do an acceptable senior's thesis.

I also think it is a lot better for my profession if every BS and MS from my profession has been, outside of the basal work, has been taught completely different stuff rather than similar stuff. Too much professional homogeneity is very dangerous in high-tech. This is the danger of having a professional society (especially a standards centric one) or even worse a state licensing or GRE subject test set the curriculum for anything higher than a limited professional base for disciplines developing new technology. However homogeneity is probably desirable in fields that aren't developing new technology but rather applying it (i.e. doctor, dentist, structural engineer) where you don't want creativity.

As far as reluctance of elite university to do the on-line course thing, I'm not sure that this is fully true of engineering schools:

1. MIT has many of its classes on http://ocw.mit.edu/index.html. You'll get no credit, but the materials are available.
2. Stanford On-line has been around for a while, but it ain't cheap

I personally can say I got a lot out of interacting with the professors at my school to the point where I'm not sure that I like the idea of "video professor" for me personally but I think from 95% of the students in the lower-level classes, their interactions with faculty are primarily to get a re-explanation the material so they can merely get a better grade. I went to a very large public university with a very good overall system. Since TAs covered the mundane questions and the tenured professors were downright demeaning to students who would foolishly approach them with course material questions, the professors were essentially free during office hours. It was pretty fun to go into the office hours of professors that were teaching huge 500+ student classes. After 1 round of hero-worship flattery, I got to ask all sorts of interesting things like:
1. What was it like to sit on the Federal Reserve Board? How do you decide which way to go? Are there politics? How much science is behind the board's decisions?
2. When you were a DA, how did priorities get set for criminal prosecution of white collar crime? Which people/companies were going to get singled out and why?
3. What was it like to have to dress up as a man during the Cultural Revolution so that you would avoid being beaten to death in your town when people discovered you with advanced western statistics textbooks? Was it worth it? How does this compare with what people call the "sexist" barriers to women-in-science over here? How much better is it there now?
4. How did you get into America after growing up in a labor camp from age 7 on after your western-educated parents were imprisoned and executed after they were caught meeting with what turned out to be CIA agents?

You'll never get this stuff out of a book or on-line video.

The elite colleges are places where the smartest kids are mixed with the brats with money and this isn't a bad thing as these relationship sometimes eventually flower into very productive ways that those brats end up investing that money in the people that they met in college.

Also learning to schmooze is a very valuable thing that students teach each other on campus. From a grown-up perspective, it seems like an insane ritual of largely stupid and dangerous binge drinking. However, social drinkers actually end up making more money than those who aren't, and in my experience (excluding those I know with strict religious objections to alcohol) tend to be more productive. Even the most demanding technical work requires interacting with quite a few people. Actually "managing" a team of nerds is damn near impossible if by managing you mean directing and coordinating the work. They have to do it themselves as organizing the work is too complicated. Those nerds who can't schmooze tend to do work that is duplicative, irrelevant, or fail to anticipate the 90% of a project, agreement, or interface that isn't written down. Another problem is that if your organization's nerds can't schmooze, your organization will be dominated by the schmoozers who aren't nerds.

Then there is also the "gates" test of the value of US college education. If it isn't a good value, then why to people from all over the world come here to go to school here? In many industries, the US isn't considered in the lead but in college education, the US dominates big time.

Kurt9 said at March 14, 2007 1:24 PM:

Someone here asked if the schools in the various Asian countries (Japan, S. Korea, China) were more merit-oriented than ours. Sad to say, mostly they are not. In Japan, the public school system is just as commie-oriented as ours. Japan also has a teachers' union that is even more left wing than our NEA (hard to believe, isn't it?). They teach and promote the same egalitarian over achievement as we do in the U.S. The only difference is that the egalitarian standand that all of the kids are expected to meet is higher than ours and they do not teach self-esteem over eveything else like they do here. This is one of the reasons why kids going to college are enrolled in juku (cram) schools following their daily public school classes.

Japanese employers know the kids do not learn anything in school and, thusly, do not expect them to know anything when they first hire them for employment. Freshman employees are expected to learn their work through on the job training.

South Korea and Taiwan are similiar and, remember, China used to be (still is?) a communist country in which many of the government institutions (like the school system) still promote socialism and egalitarianism over all else. Like the other Asian countries, the kids emerge from social indoctrination with the understanding that they have to learn anything useful (like starting and running a business) on their own.

I think the purpose of the elite schools in America is to take a bunch of bright kids and teach them the proper schoozing skills so that they can network and learn to fit into an upper class society. Thus, the elite schools act as much as a social filter as they do an intellectual filter. Teaching the kids useful subject matter is very secondary to the purposes of these institutions.

What I find entertaining to think about is if anything like drexlerian nanotech gets developed, what will happen to all of these elite social networks once they are no longer necessary for the production of material wealth?

tommy said at March 14, 2007 3:40 PM:

Even a bachelors in something as fluffy as history usually requires several courses around the senior that require examining primary sources and this requires access to a large archival library or faculty-directed campaigns of interviews. And most students need quite a bit of faculty interaction to do an acceptable senior's thesis.

Then create bodies of professionals to administer such requirements. If a student has to submit theses or complete similar requirements (in addition to all the regular certification tests and the like) to get a degree, then let an association of professionals set such standards. Let them make the standards more rigorous than the standards that colleges currently impose. I still think there would be plenty of takers. Even if somebody had to pay a substantial fee (say $500-$2,500) to get their final research paper(s) needed for completion of a degree reviewed and judged by such an association, it would be much cheaper than paying for a college education.

I don't think it would be unfair to require students to attend a few years of college if they want a doctorate, if only for the more in-depth lectures and other advanced coursework that tends to be covered in high-level courses. (For example, cutting-edge research in the physical sciences, often being conducted by professors themselves, that you cannot pick up a book and read about. Science students who will continue on as postdocs will need to get accommodated with ongoing research anyway.) Still, I think we need to make it easier for people to obtain lesser degrees without incurring tremendous debt.

We could divert a lot of the money the government spends on higher education currently to research instead, which is exactly what many professors would rather be doing instead of teaching students. We could create a lot more postdoc students with the money we would save.

crush41 said at March 14, 2007 4:35 PM:

Randall's optimism is justified.

Online courses are growing at a rate five times that of traditional post-secondary enrollment. Eventually universities will see a competitive advantage in offering online courses to out-of-state residents for in-state rates as a means of bringing them in, since the cost is lower (although the rates charged are comparable with traditional brick-and-mortar courses). But that will change--currently, lukewarm professors are paid big bonuses to take their acts online. The Apollo Group (the parent of the University of Phoenix) is almost half a billion in the black. While only one-third of students feel an online education is equivalent to or better than a traditional lecture hall education, 63% of the business world does. The change is coming.

birch barlow said at March 14, 2007 4:40 PM:

I think the purpose of the elite schools in America is to take a bunch of bright kids and teach them the proper schoozing skills so that they can network and learn to fit into an upper class society. Thus, the elite schools act as much as a social filter as they do an intellectual filter. Teaching the kids useful subject matter is very secondary to the purposes of these institutions.

This is one issue of concern I have. I really f***ing hate the snobbery that seems all too common at elite universities. It seems to me that at least some college professors are crypto-fascist, and I'm not just talking about the ones who are openly preaching moralistic, over-the-top social constructionist BS. I am at an elite university in SoCal, and boy, the professor I have to deal with for my upper division writing requirement is a fascist jerk...I mean f***ing fascist to the core--violent video games, sitcoms, sugar, fat, nicotine, caffeine=evil...and that's for starters. I mean, this dude would fit in well in f***ing Singapore where they hang people for smoking pot, or possessing r0b1tuss1n or v1c0d-N [1] without a valid Singaporean doctor's prescription.

[1] Sorry for the weird spellings; those names trigger anti-spam software.

Randall Parker said at March 14, 2007 6:21 PM:

Jerry Martinson,

Elite schools, by their nature, are only open to the few. You might have gotten a great upper division learning experience. But the vast majority of college students do to get to have that. To them the ability to watch videos of the best professors lecture on a variety of topics would be a big step up from what they get and less prestigious universities and colleges.

Also, if you go to Harvard or Yale or Stanford you only go to one of them. You do not get to attend the lectures at Cornell or CalTech or MIT. The availability of tens of thousands of courses on high res video would let you watch many more people at the top of their games and to compare them to each other.

Think about it for economics for example. Take up senior level economics course. You could watch 3 different Nobels lecture the same course and see how they differ.

Also, think of the convenience. You can watch videos at any hour of the day or night.

Plus, most only get to attend college at one point in their lives. What about all the people in their mid 20s and beyond who want to learn about some topic. Video lectures and online tests will open up all that course material to those who develop a sudden interest after the age of 22.

Video courses would also open up learning to very bright youths who are bored out of their skulls attending grade schools and high schools where the material is pitched to the dumber masses. I found grade school and high school exercises in day dreaming as teachers taught material for 90 and 100 IQ kids. I wish I could have been born decades later and in the 2020s learn as a kid watching videos and doing searches on artifically intelligent search engines.

Our current college structure is a relic of a previous era when a small number of upper class kids got to go to colleges as a sort rite of passage into adulthood where they could network and play for a few years. The structure is very inconvenient for people who want to learn what they want to learn, when they want to learn it, and cheaply.

Randall Parker said at March 14, 2007 6:35 PM:

tommy,

Yes, people who would no longer need to teach and grade tests could spend their time researching or doing other more productive activities.

We have a lot of brain power tied up in universities and colleges. We could free that brain power up and get a big economic boost as those fairly smart people spend their time doing research and developing new goods and services.

As crush41 points out, what I'm advocating is already happening. But if we could elevate this into a political issue we could accelerate the trend by getting the state universities to record and make available lectures for all courses and to start making automated testing available to earn credits toward degrees. If just a single state legislature passed legislation to make its state universities do this we'd see a much more rapid shift in how people get college degrees. Others would copy them.

Mensarefugee said at March 15, 2007 4:32 PM:

The reply about the Japanese etc school system is depressing. They are doing the same thing we are - playing to the common denominator, instead of optimizing the experience for everyone. Obviously they have higher standards because of their higher average IQ (and perhaps even less variance).

But that is a good indication that the forces against a classical liberal attitude to optimizing education are deep rooted in human nature itself. Not a force anyone can stand against.

We might see improvements piecemeal, but I am pessimistically certain that anything short of competition will not see an opening up of education.

Randall Parker said at March 15, 2007 11:35 PM:

Mensarefugee,

I agree about the deep-rooted human nature playing a role here. People deceive themselves and others instinctively. They oppose less egalitarian and more meritocratic systems out of self interest. This is why I see libertarianism as incompatible with human nature. People really do not want the libertarian ideal.

Maseno B cleophas said at February 28, 2008 3:11 AM:

If wishes were Horses then a begger like me could get a sponser/ free scholarship to earn a degree in copmter information systemes that might enhance my poor pay and improve a living


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