Are College Costs Too High? Is Value Added Too Low? Robert E Martin

Why we cannot ignore costs any longer College costs rise faster than healthcare costs from 1980 to 2011.College costs rise faster than healthcare costs from 1980 to College Affordability is a bottleneck for economic mobility.College Affordability is a bottleneck for economic mobility. Student debt exceeds credit card debt.Student debt exceeds credit card debt. Debt delays household formations and lowers consumer spending.Debt delays household formations and lowers consumer spending. States face rising Medicaid costs, prison costs, and have significant unfunded pension liabilities.States face rising Medicaid costs, prison costs, and have significant unfunded pension liabilities. There is a global sovereign debt problem.There is a global sovereign debt problem.

Quality? 1.Graduation rates decline. 2.Grade inflation continues. 3.Student study time declines. 4.Proficiency tests get worse. 5.Deconstruction of the core curriculum.

Four Cost Drivers/Two Origins External Source:External Source: –Government Mandates –Baumol’s Cost Disease Internal Source:Internal Source: –Bundling Services –Bowen’s Rule Balanced BudgetsBalanced Budgets Experience GoodsExperience Goods Governance: Agency ProblemsGovernance: Agency Problems

Baumol and Bowen Effects in Research Universities (Martin/Hill) Costs are driven by both Baumol and Bowen effects.Costs are driven by both Baumol and Bowen effects. At least 2/3 of the increases in cost per student from 1987 to 2011 come from decisions taken inside higher education.At least 2/3 of the increases in cost per student from 1987 to 2011 come from decisions taken inside higher education. The cost problem is of our own making.The cost problem is of our own making.

Bureaucratic Entropy The tendency of non-profit institutions to increase the number of employees faster than the number of people served – cost per person served must increase.The tendency of non-profit institutions to increase the number of employees faster than the number of people served – cost per person served must increase. Parkinson’s Law.Parkinson’s Law. Economic theory of bureaucracy.Economic theory of bureaucracy.

Effects in Higher Education 1. Staffing patterns (1987 to 2011):1. Staffing patterns (1987 to 2011): –Rapid increase in the number of non-academic professional staff per 100 students; –Intensive use of contract and part time faculty; and –Significant decline in the number of nonprofessional staff per 100 students. 2. In 1987 the ratio of Full time non-academic Professional staff to tenure track faculty was about 1:1. By 2008 that ratio was over 1.5:12. In 1987 the ratio of Full time non-academic Professional staff to tenure track faculty was about 1:1. By 2008 that ratio was over 1.5:1

The Social Contract The current adult generation agrees to subsidize the education of young adults with the understanding they will pass those subsidies on to the next generation.The current adult generation agrees to subsidize the education of young adults with the understanding they will pass those subsidies on to the next generation. Higher education insiders are the stewards of this contract; we are responsible forHigher education insiders are the stewards of this contract; we are responsible for keeping the cost reasonable and maintaining quality.keeping the cost reasonable and maintaining quality.