By David W. Breneman
David W. Breneman is University Professor and Dean, Curry School of Education,
University of Virginia.
THE RECENTLY RELEASED REPORT of the National
Commission on the Cost of Higher Education is something of an odd document, attributable
perhaps to the circumstances that brought it into being.
For more than a decade critics have been attacking higher education for tuition
increases well in excess of inflation, and in the late 1980s the Justice Department
launched an investigation of potential price and wage collusion under the anti-trust
laws, sending shock waves throughout the enterprise.
In recent years, state governments have scaled back appropriations for higher
education in a fashion that appears to have been motivated in part by a desire to
punish profligate institutions. The specter of federal "cost containment"
has loomed ever-present, and the political jockeying around the composition of the
National Commission reflected the sense that this was a high-stakes game, with damaging
outcomes for the enterprise a danger.
The well-publicized fact that two of the Commission’s Congressional sponsors condemned
the first draft and forced the group to do a hasty revision, adopting a more severe
tone, makes it hard to read the final report simply as an analytical document—the
political overlay is omnipresent. That said, the report does contain much that is
sensible, coupled with curious omissions.
The report makes its most useful contribution in its early pages, where it does a
nice job of clarifying the meaning of such ordinary terms as cost, price and subsidy.
Our intuition about cost and price is based on the profit sector, where price
must cover cost, with any surplus on a unit basis being profit. In higher education,
however, price never covers cost, and the difference is made up by subsidy, either
from the state or from endowment and private giving. Thus, price + subsidy = cost.
If subsidy falls (when, for example, states reduce their appropriations), then either
cost must decline or price (tuition) must rise.
Because cost is viewed by most participants as an index of quality, it is easy
to see why administrators, faculty, and indeed students and families resist cost
reductions, for no one wants to see quality decline. This pattern also explains why
institutions aggressively seek private gifts as a way to enhance subsidies.
The dilemma occurs, however, when the nation is engaged in shifting a higher share
of the costs from the general taxpayer to students and families, as it has in recent
years, in the absence of a clear policy statement to that effect. Then the stage
is set for a disingenuous game in which governors and legislators condemn institutions
for raising prices at the same time that state subsidies are being cut.
In the private college sector, the dynamic is different, in that prices are largely
determined by the competitive market and by the relative attractiveness and prestige
of each institution. The dramatic development in this sector in the last decade has
been the explosion in tuition discounting in the form of both need-based and merit-based
grants, leading to a substantial gap between sticker price and net price for many
students.
This is an activity shrouded in a certain amount of mystique, if not secrecy,
and undoubtedly generates resentment and a sense of unfairness for families paying
full freight, but who learn that many students are not. The Commission urges colleges
and universities to be more forthcoming with financial data on costs and prices,
but this recommendation will cause discomfort for many private college leaders. They
are stuck in a difficult situation that is hard to defend on principled grounds,
even though the economic forces driving their behavior are compelling.
The balance of the Commission’s report is devoted to brief comments on candidates
for "Cost and Price Drivers," including financial aid, people, facilities,
technology, regulations and expectations. Some useful and accurate statements are
made, but little new ground is broken.
Oddly, the report ignores the two main theories of college cost increase. The
first argues that higher education is a handicraft industry unable to achieve productivity
increases, but as labor costs rise, the unit cost of production necessarily increases.
The second argues for a "revenue theory of cost," in that colleges and
universities raise all of the money they can, and spend it all, thus determining
the cost and quality of the activity. One would have expected a commission on college
costs to have discussed these two views, prominent for more than two decades.
The report concludes with five sets of recommendations, many of which are sensible,
but none of which is very striking. In essence, the report uses the bully pulpit
to urge all parties toward responsible and civic behavior; for the moment, however,
the threat of federal cost containment is held at bay. If that proves to be the outcome,
then the Commission will be viewed by official higher education as a success (and
on that point, I would join in that conclusion).
The report fails significantly, however, in that it does not tackle the hard and
complicated issues surrounding affordability of college for the next generation of
students. It is ironic to read in its final pages that "The Commission’s charge
from Congress was really quite simple: Develop a set of recommendations to help keep
college education affordable in the United States."
The reader does not find in the report a rich discussion of how student access,
choice and retention will be met in future years, no discussion of the need for a
new social contract that specifies how the cost of college will be shared among taxpayers,
students and families, and no analysis of the distinctive financial problems facing
families at different levels of income. In short, most of the serious issues of affordability
are not addressed.
Perhaps that is too much to expect from a short-lived commission operating under
severe political constraints, but we should not forget that those issues still face
us as a nation. If the true task of this Commission was to fend off federal cost
controls, then we should give the members our praise, and thank them for an important
job well done. But we dare not feel smug and self-satisfied with the Commission’s
effort while the true underlying issues of student access and college affordability
remain untouched.
