BIG PROPOSALS BASED ON LITTLE DATA

Academe, Jul/Aug 2006 by Heller, Donald E

BIG PROPOSALS BASED ON LITTLE DATA Going Broke by Degree: Why College Costs Too Much Richard Vedder. Washington, D.C.: American Enterprise Institute Press, 2004.

DONALD E. HELLER

Going Broke by Degree: Why College Costs Too Much is another in a recent list of books that have focused on the rising cost of college. Others have included Charles Clotfelter's 1996 Buying the Best: Cost Escalation in Elite Higher Education and Ronald Ehrenberg's 2000 Tuition Rising: Why College Costs So Much. I do not know whether the subtitle of the new volume by Richard Vedder is intended to play on that of Ehrenberg's book, but Going Broke by Degree certainly tries to make the case for why college costs not just so much, but too much.

Like Clotfelter and Ehrenberg, Vedder is an economist (at Ohio University) who presents much data to support his thesis regarding college costs. All three authors focus on college costs, but they also discuss how those rising costs translate into increases in the tuition prices paid by students. The problem with this book, which its two predecessors did not have, is that Vedder's assessment of the reasons behind the rapid increases in college costs are at best weakly established and at worst largely unbelievable-and he provides little evidence for how his proposed solution would solve the problem.

Vedder uses two overarching themes to explain why college costs have increased at approximately twice the rate of inflation over the past two decades. The first is student financial aid, or what Vedder calls "third-party payments [that] make consumers relatively insensitive to costs." The second is the inefficient and costly nature of higher education institutions that are "subject to only muted competitive forces, and lacking marketimposed discipline to economize and innovate."

Vedder is correct in noting that student financial aid has grown rapidly, particularly in the last fifteen years. Data from the College Board indicate that from 1990 to 2004, total aid grew from approximately $29 billion to $122 billion, an increase of more than 300 percent. Tuition prices at public and private four-year institutions increased at well below half this rate during the same period. Yedder neglects to emphasize, though, that the largest growth in student aid is loans, which do not make consumers "relatively insensitive to costs," but simply allow students to postpone when they pay for college.

In pointing to the growth in student aid (approximately two-thirds of which is provided by the federal government), Vedder never provides a solid empirical analysis of how this growth has led to higher prices. He makes the mistake of confusing correlation and causation. The U.S. Department of Education in 2001 conducted a major study (not cited by Vedder) that concluded that there was no relationship between either federal or state financial aid and tuition price increases. This study concluded that the primary driver of tuition price increases in public colleges and universities was the level of appropriations received from the states; in states where appropriations grew slowly or, as happened recently, were cut, prices grew the fastest. In fact, the only link the study found between student aid and rising prices was among comprehensive institutions, those universities that award master's but not doctoral degrees. In these institutions, prices tended to rise somewhat faster as the proportion of students receiving institutional grants increased. But there was still no relationship between rising prices and federal or state aid.

In discussing his second reason for rising tuition prices, the inefficiency of higher education, Vedder provides what can charitably be described as "back of the envelope" explanations. Without reference to any source data, he concludes that faculty members on nine-month contracts at major universities work "a total of only 1,200 hours a year-at least one-third less than the typical full-time employee in other professions or in the labor force at large." Yet data from a 2004 national study conducted by the Department of Education show that professors at these universities work an average of fifty-eight hours a week, or a total of 2,100 hours during those nine months.

In another section, Vedder attempts to substantiate his claim of rising faculty compensation as the culprit of the productivity problem, He notes, "When I see how college professors live today compared with forty or fifty years ago . . . a larger proportion of senior professors live in what are considered the really nice homes . . . and assistant professors . . . are far more likely to have perfectly nice middle-class housing and two cars of fairly recent vintage." Again, Vedder provides no empirical basis for these conclusions other than his own observations of life in the college community of Athens, Ohio. Data on the proportion of faculty members today who are in families with two wage earners (as compared to "forty or fifty years ago") could help shed light on the causes behind the author's observations, even if those observations did prove to be correct.