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Cost Commission Report Avoids Many Issues

By David W. Breneman

David W. Breneman is University Professor and Dean, Curry School of Education, University of Virginia.

David Breneman
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 Commissionís 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 documentóthe political overlay is omnipresent. That said, the report does contain much that is sensible, coupled with curious omissions.

  Related information
  A Short History of the Cost Commission
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 Commissionís 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.

  Related information
  Chart comparing Congressional Requests with the work of the National Commission on the Cost of Higher Education
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 Commissionís 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 Commissionís effort while the true underlying issues of student access and college affordability remain untouched.

Photo by Tom Cogill for CrossTalk

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