HESA

Higher Education Strategy Associates

September 12

Financing Canadian Universities: Are Administrators to Blame? (Part 4)

In yesterday’s post, I dismissed the idea that administration was to blame for academic salary mass falling as a percentage of operating budgets, noting that the big areas of spending increase over the last two decades were scholarships, benefits, and utilities.  But it is still true that salary mass of non-academics rose more quickly than it did for academics.  Total academic salary mass went from $4 billion in 1992, to $5.5 billion in 2010, while “administrative” salaries went from $3 billion to $5 billion (all figures in 2011 constant dollars).  So in a sense, one could argue that some crowding out occurred.

But who are all these administrators?  Are there more of them, or are they just getting paid better than they used to?

Unfortunately, we have no datasets on non-academic staff numbers in Canada (heck, thanks to budget cuts, as of last year we have no datasets on academic staff numbers either).  What we can do, though, is track dollars by category to get a sense of what kinds of functions are receiving non-academic salary dollars.

Figure 1 – Distribution of Non-Academic Salaries by Function, 2011

 

 

 

 

 

 

 

 

 

 

 

 

Of the $5 billion in non-academic salaries, the largest chunk (32%) is still spent under the rubric of instruction (e.g. lab technicians, departmental secretaries, teaching and learning centres, etc.).   Student services and physical plant (i.e. maintenance) employees make up another 11% each, or about $550 million apiece, per year.  IT workers are another 8%, library 7%, and non-credit instruction 3%.  Most of those salary categories are things that are relatively central to the process of education.  That leaves 28% – or about $1.3 billion – in what we think of as “classic” central administrators, the bogeymen/women of contemporary universities.

If we wanted to find “waste” in universities, we might look for it by looking at where non-academic salaries were growing the fastest.  This we do in Figure 2, below.  The left-hand column shows the share of the increase in non-academic salaries that each category received over the 1992-2010 period; the right-hand column shows the shares of spending each area had in 1992.

Figure 2 – Distribution of Increases in Non-Academic Salaries, by Function, 1992-2011

 

 

 

 

 

 

 

 

 

 

 

 

Figure 2 reinforces some traditional narratives; salary mass in central admin did indeed increase faster than for other non-academics.  But so too did salary mass in non-credit instruction, and in physical plant.  Total salaries in “instructional” areas (lab techs, etc.) fell relative to the total, but so too – and to a much greater extent – did salaries in student services.  Total non-academic salaries in libraries, meanwhile, literally did not increase at all.

Bottom line: There was “excess” growth in central admin salaries – that is, growth over-and-above its inflation-adjusted 1992 share, to the tune of $325 million.  Not nothing, to be sure, but a very long way from explaining the shortfall in academic salary mass.

September 11

Financing Canadian Universities: A Curious Story (Part 3)

Yesterday, we saw that Canadian student-faculty ratios rose by 24% between 1992 and 2010, even though operating grants per student went up by 20%.  The cause, it turned out, was a combination of individual academic salaries rising, while aggregate academic wages fell, as a proportion of operating grants.  What we didn’t do yesterday was ponder why academic salary mass didn’t keep up with operating grants, and where the money went as a result.

Figure 1 – Operating Expenditures by Category, 1992-2010, in Real 2011 Dollars

 

 

 

 

 

 

 

 

 

 

 

 

Figure 1 shows that the two biggest categories under operating expenditures are “academic salaries”, and “other salaries and wages”.  Throw in benefits – compensation under another name – and these three categories make up about two-thirds of total operating expenditures.

With so many categories, it’s a little difficult to see exactly how much each category increased over time in Figure 1, so in Figure 2 we simply show growth indexed to 1992 levels.

Figure 2 – Growth in Expenditure Categories, 1992=100

 

 

 

 

 

 

 

 

 

 

 

 

Of the six major expenditure categories, academic salaries increased the least, by some margin – just 37% in real dollars, not quite enough to keep up with growth in student numbers.  Non-academic salaries – the next largest category – increased by 70%.  But growth for benefits, “other instruction & research”, and “other” (a catch-all category including travel, utilities, and externally contracted services) was all over 100%.

For reasons of legibility, Figure 2 excludes two line items that were in Figure 1.  The first is library expenditures, which are actually pretty trivial in the big picture (1.7% of operating expenditures).  The other is scholarships, which are excluded because they would have broken the scale.  Here’s what happened to scholarships between 1992 and 2010:

Figure 3 – Total Scholarships Expenditures, 1992-2010, in 2011 Dollars

 

 

 

 

 

 

 

 

 

 

 

 

This is one of those things universities just don’t get credit for.  Scholarships (a term which here includes both need and merit-based aid) increased by more than seven-fold, after inflation.  Based on previous research HESA has conducted, I estimate that between 55 and 60% of this money went to graduate students, which is consistent with large institutions’ increasing emphasis on research and graduate studies.

Another way to look at this question is to look simply at changing shares of total operating income, which we do below in Figure 4.

Figure 4 – Change in Shares of Operating Budgets by Category, 1992-2010

 

 

 

 

 

 

 

 

 

 

 

 

Although spending in all categories rose between 1990-2012, some spending categories “gained share”, while others lost it.  The biggest losers were faculty, as academic salary mass fell by 9 percentage points as a share of the operating budget.  Had they kept their share constant, there would have been another $1.6 billion in money for academic salaries.

But the “culprits” were not the oft-scapegoated bogeymen of “administration”.   Rather, the line items that significantly gained share were actually scholarships, non-wage benefits, and “other” (mainly utilities and externally contracted services).  This is not a story often heard on campus.  But it’s the truth.

September 10

Financing Canadian Universities: A Curious Story (Part 2)

So yesterday we noted how universities’ per-student income had increased 40%.  But we also noted that it’s a universally acknowledged truth that pretty much everyone in higher ed will swear up and down that things are worse than ever, always doing more with less, etc.  Is there a way to reconcile these competing notions without simply coming to the conclusion that profs and administrators are delusional/greedy?

Well, sort of.  Let’s start with Figure 1.

Figure 1 – Income per FTE Student and Student-Teacher Ratio

 

 

 

 

 

 

 

 

 

 

 

 

The blue line (left axis) just highlights you what I showed you yesterday – that per-student expenditures jumped from $23,000 to $33,000 over the period in question.  The red line (right axis) shows something different: the ratio of FTE students to FT professors.  This, weirdly enough, also increased over our period.  In fact, the ratio went up by 24%, from just below 18:1 to a shade over 22:1.

This is, pretty much, bananas; indeed, it’s a pretty stunning indictment of higher education as a whole.  Per FTE student income rose by 40%, and not only was that money not used to reduce student-teacher ratios, but the ratio actually deteriorated by 25%.  How is this possible?

Well, one reason is that the operating budget grew more slowly than other types of income.  Operating funds were up 82% over our period; research money, on the other hand, increased 178%.

Figure 2 – University Income by Fund1992-2010

 

 

 

 

 

 

 

 

 

 

 

 

But that’s not really a full answer – even if you pull out all those other income sources, operating budgets per student still rose by 20%.  So why are student-teacher ratios going up?

There are basically two reasons.  The first is that professors cost more than they used to.  Just looking at the period 2001-2009 – the period for which I happen to have data handy – average faculty salaries jumped by about 24% in real terms.  Now, that’s after a decade in which salaries stayed roughly even, or dropped a little, so the increase for 2001-09 period should be pretty close to the increase for 1992-2010.  In other words, the cost of a professor rose more or less proportionately with income per student.

Everything else being equal, that means that student:faculty ratios should have stayed roughly  the same, rather than having risen.  But here’s the second reason: everything else wasn’t equal.  Operating budgets increased twice as fast as academic salary mass, and, as a result, the percentage of operating budgets going to academic salaries fell from about 39% to 30%, mostly in the 1990s.

Figure 3 – Academic Salaries as a Percentage of Operating Budgets

 

 

 

 

 

 

 

 

 

 

 

 

So it was the combination of rising salaries and changing spending priorities that caused the rise in student ratios.  But this just begs the question: what were these new priorities?  Where did the money go? Stay tuned.

September 09

Financing Canadian Universities: A Curious Story (Part 1)

if you pay attention to discussions of higher education funding, one of the memes that inevitably pops up revolves around the notion that higher education has been under some brutal, neo-liberal assault since… well, I’m not sure, but probably since 1995 at least, and everything is being defunded, laid on the backs of students, it’s the end of civilization, dark ages ahead, etc., etc.

Problem is, this yarn is utterly at odds with the data, which tells a very different story.  Starting today, I’d like to tell you that story.

Are you sitting comfortably?  Then I’ll begin.  Let’s jump right to Figure 1.

Figure 1 – Total University Income By Source, in Billions, 1992-2010

 

 

 

 

 

 

 

 

 

 

 

 

Now, the first time I saw Figure 1, I assumed it was in nominal dollars.  But it isn’t.  Those are real, constant dollars, folks.  And in real terms, university income more than doubled between 1998 and 2010.

Sure, the 1990s sucked – government expenditures fell in real terms, and the system only kept itself afloat through greater reliance on private income (mostly tuition).  But the 2000s were years of simply eye-popping growth.  Basically, every year, it was 6-7% growth after inflation.  If anyone in academia is puzzled as to why higher education is seen as spoiled by much of the rest of the public sector (and indeed the public-at-large), this graph is the answer.

One interesting thing about the 2000s is how the different revenue streams all went up at about the same pace.  That is, tuition income and income from private sources continued to rise after 1998, but they didn’t become a larger portion of the pie, because revenue from government was rising so quickly.  At the start and end of that period, the revenue split remained 54% government, 21% tuition, and 25% other revenue.  So much for “governments downloading costs to students”.  Student fees certainly went up, but government spending went up proportionately, too.

Ah, say the skeptics, but you’re only accounting for inflation.  What about that huge influx of students?  Surely, if we showed this data on a per-student basis, it would show the ever-deprived nature of our universities.  Well, no, as a matter of fact.  FTE numbers in universities did indeed rise, but only by about 50%.  So on a per-student basis the graph looks like this:

Figure 2 – Per-FTE University Income by Source, 1992-2000

 

 

 

 

 

 

 

 

 

 

 

 

Between 1997 and 2006, per-student funding rose by roughly 40%, from about $23,000 to $33,000 (again, this is in constant dollars).  For the rest of the decade, per student dollars remained reasonably consistent, give or take a huge hit on endowment revenue in ’08.  If I could extend that graph out to 2013 (which I can’t), you’d probably see a small drop in government funding offset by an increase in (mostly international) tuition dollars.

So why does everyone think universities are getting poorer when in fact they’re getting richer?  Tune in tomorrow.

September 06

Grants and Net Prices

Yesterday, we saw how tax credits lowered net prices by refunding students (or their families) roughly one out of every three dollars spent on tuition.  But that’s not the whole story, because there are a lot of university students who also get some form of non-repayable assistance (i.e. grants); for them, tuition is even lower.

Let’s start with Quebec, where net tuition after tax expenditures is a mere $1,555.  Data from the latest Aide Financiere aux Etudes annual reportadjusted for known changes in student aid expenditures, suggests that somewhere in the neighbourhood of 50-55,000 university students are receiving grants, which, on average, are worth $6,380 apiece.  Meaning that net tuition for grant recipients in Quebec is in fact negative $4,825.

In Ontario, net tuition after tax credits is $5,680.  Everyone with a family income under $160,000 is eligible for the Ontario Tuition Grant, which is (effectively) worth $1,730.  So that means that, in fact, for a considerable majority of the full-time undergraduate population, net tuition last year was is $3,950, which is lower than it’s been at any time since 1998-99.

Figure 1 – Net Real Tuition in Ontario, After Tax Credits and Tuition Rebate, 1995-96 to 2012-3

 

 

 

 

 

 

 

 

 

 

 

 

Here’s where the analysis gets tricky.  In the CSLP zone, many people receive more than one grant, mainly because of the overlap between federal and provincial aid.  But while we know the average size of each grant, there’s no method of working out how many of the 320,000 recipients of federal grants (who receive on average 1.18 federal grants each – you can get more than one) also receive one of the 250-300,000 provincial grants.

However, based on a little bit of policy analysis – and some phoning around to friends in provincial governments – I reckon that between half and 2/3 of all provincial grant recipients are getting federal aid, as well.  That would give us a ballpark of about around 430,000 total grant recipients, of which roughly two-thirds are in universities.  With roughly $1.2 billion being given out in the CSLP provinces, that suggests that the average grant recipient there receives about $2,800.

Taking that data and merging in the Quebec numbers gives us the picture we see in Figure 2: 

Figure 2 – Actual Net Costs, Canada, 2012-3

 

 

 

 

 

 

 

 

 

 

 

 

Across Canada, the sticker price of tuition and fees last year was $6,331.  As we saw yesterday, that falls to just over $4,300 when you take tax credits into account.  And that’s the real net cost for about two-thirds of the full-time student body.  But for the other third, the third that gets grants, real net tuition averages just over $1,000 – and it would appear that for a substantial proportion of these students, the actual cost is negative.

So, when the Statscan tuition numbers come out, just remember: no one actually pays the amounts Statscan reports.  Most students pay about 66% of the sticker price, and the neediest third (proportions may vary by province) pay about 17% of the sticker price.

September 05

Affordability

At some point in the next week or so, Statistics Canada will be releasing its annual statistics on tuition fees.  Hopefully it will be less of a fiasco than last year, when they released data a few days after the Quebec election, but didn’t bother to note that the planned tuition fee hike was being reversed.

What I want to do today is to put the inevitable “rising fees” stories that always accompany the Statscan release into some sort of context.  Students pay two types of fees – tuition and “ancillary fees”.  Statscan data on the latter is only marginally better than hopeless, so these fluctuating annual figures need to be treated with extreme caution; but they’re a non-negligible part of total tuition (15% or so), and so I include both in the graph below showing the evolution of total fees.

Figure 1 – Average Tuition, Canada, Nominal Dollars

 

 

 

 

 

 

 

 

 

 

 

 

Figure 1 is the graph that the zero-tuition crowd love to show: steady 5.1% annual tuition increases from 1995 to the present.  That’s actually a trick of scale – in fact, during the era of maximum government skintness (the 90s) tuition was going up about 9% per year to make up for cuts in government grants.  After 1999, the economy improved, public finances improved, and the rate of fee increase fell to just about 4%.

There is, however, a little thing called inflation.  It’s kind of important if you want to understand real prices over time.  Here’s what the tuition graph looks like if you take inflation into account.

Figure 2 – Average Nominal and Real ($2103) Tuition, Canada

 

 

 

 

 

 

 

 

 

 

 

 

This changes things a bit.  Those annual increases since 1999-2000?  Just two percent, after inflation.

But, as apparently nobody in the press or politics seems to understand, those increases in fees have been accompanied by increases in subsidies, too.  The most important of these are the increases of various forms of tax credits.  Say what you want about them – they reduce the actual cost of education by about a third.  Their value is eroding slightly at the moment due to inflation, but they are still worth $2,220 to the average Canadian student.

Figure 3 – Average Nominal and Real ($2013) Tuition plus Net Real Tuition Canada

 

 

 

 

 

 

 

 

 

 

 

 

Finally, if we’re looking at affordability, we also need to take into consideration a measure of ability-to-pay, because cost on its own is meaningless.  Televisions cost more than they did, say, 40 years ago, but no one thinks they’re “less affordable”, because incomes have risen even more quickly.  So to compare affordability across time, what we need to do is look at cost over time with respect to a measure of purchasing power, such as average family after-tax income.  Which I do, below.

Figure 4 – Real Net Tuition as a Percentage of Average After-Tax Family Income

 

 

 

 

 

 

 

 

 

 

 

 

So, is tuition less affordable than it was?  Well, a bit, yes.  Fifteen years ago, it took up 4.8% of average, after-tax income; now, it takes up 5.2%.  But calling it a crisis, the way the usual suspects routinely do, is a bit of a stretch.

And we haven’t even taken into account need-based student aid yet.  We’ll do that tomorrow.

September 04

The Impact of Tax Credits

One of the many ways that Canada stands out as unusual in its financing of higher education is the degree to which its subsidies to students and families runs not through loans or grants but through tax relief.  Well over $2 billion/year goes out to students that way; for full-time university students in Canada last year, tax credits on average amounted to $2,200, or almost a third of the sticker price.

But given how central tax credits are to our system, what’s incredibly puzzling is that no one seems to actually understand how they work.

These are what you call “universal subsidies” – everybody gets them, regardless of need.  Right-wingers should (and often do) like this because it’s a straight voucher-like mechanism.  Left-wingers should (and often do) dislike this because, sans need assessment, they are much more likely to end up in the hands of wealthier families than poorer families.

But while it’s true that, when it comes to tax credits, the political right usually lines-up in favour, and the left usually lines up against, the fact of the matter is that the distributional impact of these grants is absolutely no different from a tuition subsidy or rebate – as the NDP have implemented both in Manitoba and Nova Scotia.  There is not one iota of difference.  And yet, left and right line-up completely differently.  What is brilliant/heresy if done through the tax system becomes a waste of money/the epitome of progressiveness if done through tuition subsidies.

(Shorter version: most partisans are stupid.)

The other objection to tax credits is that, “they don’t deliver aid when students need it”.  And while that’s a cogent critique, I’m not sure it’s as powerful as some people think.  Thirty-five percent of credits get transferred to parents, and I’d guess their need for them come tax time is probably as acute as their need for them in September.  For the 45% which get claimed by students in the year they are issued (most of whom keep the credit because they need it to offset earnings), they actually see the benefit every single time they get a paycheque, via lower tax withholdings.  Pretty useful, no?  It’s really only the 20% that carry the credit forward who might really have a serious complaint, and even they probably find the bigger tax rebates handy for repaying student loans after graduation.

The point here is not that tax credits are ideal; their goofy distributional consequences alone are enough to put them outside the pale.  But they do help reduce costs – a lot.  Tax credits mean that every time tuition goes up by a dollar, governments effectively pay for $.33 of it themselves.  We should pay more attention to them when thinking about the real costs of education.

September 03

What The Heck Did You THINK Was Going to Happen?

I’m a bit bewildered by some of the recent commentary about declining returns to education, most notably last week’s paper from CIBC on the subject.  While the actual report was not nearly as stupid as the ream of press coverage that followed it, it still had a few howlers, and definitely lacked critical thinking.

First, the howlers.  1) The returns to Bachelor’s degrees are not declining; they are, in fact, growing at a slightly slower rate than at other levels of education, which isn’t the same thing.  2) The gap between college and university graduates is closing, but it’s because college grads are doing better, not because university grads are doing worse.  3) Yes, the difference in unemployment rates between university and high school graduates is, as the report says, only about 1.5 percentage points (which is down considerably over the last decade or so).  But why emphasize that fact when the gap in employment rates – which are presumably much more important, and yet were unmentioned by the report – remains over 12 percentage points?  There’s too much cherry-picking of data here for my taste.

But look, here’s the bigger picture: it really shouldn’t be a surprise if graduate wages are stagnating, and there’s one very simple reason for this: there are way more graduates than there used to be.  Between the late ‘90s and the late ‘00s, the country went from having 600,000 undergraduates to having 900,000 undergraduates.  That’s an extra 75,000-90,000 graduates hitting the labour market every year.  That’s a heck of a supply shock.

The surprise, frankly, isn’t that university graduates’ wages aren’t climbing as quickly as those of college and high school graduates.  The surprise is that they’re rising at all.  This suggests that there is, in fact, enormous labour market demand for the skills provided by university students; if there weren’t wages would have decreased.

I pointed this out on Twitter the day the CIBC paper came out only to learn that for many people – including people who would describe themselves as fiercely progressive – even the hint that relative rates of return might be falling turned them into foaming conservatives with respect to university admissions.  Too many students!  We need a labour market policy!  Etc., etc.

I mean, what exactly did everyone think was going to happen when we allowed enrolment to rise by 50%?  That there would be no change in returns?  And even if there was a slight fall in returns – who cares?  In a democracy, isn’t it better to have 150 people earning good returns than 100 people earning brilliant ones?

Yeesh.

August 30

So, This Obama Plan, Then (Part 2)

To recap yesterday’s blog: President Obama has a plan to make colleges reduce their costs, and deliver better value for money.  It involves having the government rate institutions on Accessibility, Affordability, and Outcomes; those which rate poorly risk losing eligibility for various forms of federal student aid (which, in total, is up around $150 billion/year these days).

While there’s no question that college costs do need to be reined in, this particular solution strikes me as odd.  Here’s what you have to believe in order to think that the President’s plan will work:

1)      That there exists a set of metrics, applicable to all institutions, which can measure Accessibility, Affordability, and Outcomes.  Forget data availability, institutions juking the stats, and whether one should judge institutions based on graduate salaries – can this stuff actually be measured in an equitable manner?  Will universities be judged on affordability without reference to the amount of state aid they receive?  Will those in rich states be penalized for the number of Pell-eligible students they enrol because there are fewer of them around than in, say, Alabama?  For employment rates or salaries, do tribal colleges or HCBUs get measured on the same scale as Princeton?  And if you’re looking at university-wide comparisons, rather than program-level ones, won’t mid-tier liberal arts colleges get completely blown out of the water?  There are probably work-arounds on most of these, but they aren’t simple.  Which leads to the next issue:

2)      Assuming the answer to 1) is yes, that the government is actually capable of finding and choosing the right measures.  I’m skeptical, let’s put it that way.

3)      That the Government, at the end of the day, is prepared to take students hostage to make this work.  Does anyone really believe that the government is going to reach the point where it says to a group of students: “we’re with you, your school isn’t delivering good value.  To show you our support, we’re going to cut off your student aid”?  The words “communications nightmare” don’t even begin to cover it.

This last one really speaks to a large problem with the Obama program.  The US federal government actually doesn’t have the tools to affect affordability because it doesn’t control the appropriations process.  At the end of the day, it’s a state issue, as it would be here in Canada.

So is this just an elaborate set-up to allow Obama to use the bully pulpit to jawbone institutions into line?  Or does the White House (and it is the White House – DOE appears to have had little to do with this) actually believe that there is a workable technocratic solution here? I’d like to think the former; I’m afraid it’s the latter.

August 29

So, This Obama Plan, Then (Part 1)

Canadians have few – if any – original ideas when it comes to education.  Generally speaking, we tend to reuse American ideas a few years after the’ve gone viral down south.  But what with all these interwebs and the Twitter these days, the lag time on this is getting shorter and shorter.  That’s why it’s definitely worth paying close attention to the recent Obama initiative on college costs: there are a lot of themes in that plan which have resonance here, and it’s likely that we’ll be hearing about them from both sides of the border soon enough.

Basically, Obama wants to keep the price of higher education down.  For years, Washington has tried to do this by increasing student aid, or providing tax credits, or what have you.  And they’ve actually been largely successful in doing so, at least for lower-income students, as the data from Matt Bruenig shows, here.  But this strategy is costing the US Government loadsadough, and it has started to dawn on them that Reagan-era Education Secretary, William Bennett, might have been right when he said that student aid just ends up raising tuition (as a side note, one of the most fascinating things in the US scene over the last two years has been the conversion of all the lefty education types into believers of the Bennett hypothesis).  So they’ve moved on to bigger fry.  They don’t just want to get prices down.  They want to get costs down.

This, as Joe Biden once almost said, is a big freaking deal.  No higher education system in the western world has ever succeeded in getting its costs down.  What with the cost disease and all, the only way costs go is up.  Unless of course you start reducing the price of labour.

So, how does he plan on getting costs down?  Well, he wants more experimentation with delivery methods.  MOOCs and Competency-based learning (CBL) are clearly big parts of that.  And he’s prepared to spend a quarter of a billion to fund this kind of experimentation in order to find out what works and what doesn’t (some governments still do believe in evidence-based policy, apparently).

That’s the easy bit.  The trickier stuff involves penalizing institutions that do not provide “value-for-money”.  The US Government plans to come up with a rating system for institutions, based on: Accessibility (the percentage of its students receiving Pell Grants), Affordability (some combination of tuition, scholarships, and financial aid), and Outcomes (graduation rates, advanced degrees, and the salaries earned by graduates).  Institutions that don’t score well on this rating will see federal funding reduced via a decrease in their students’ eligibility for student aid.

Sound crazy?  It kind of is.  More on this tomorrow.

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