HESA

Higher Education Strategy Associates

Category Archives: cost

June 23

The Effects of Tuition Fees (Part 1)

For the last eighteen months or so, I’ve been working on a project with colleagues Dominic Orr and Johannes Wespel of the Deutsche Zentrum für Hochschul- und Wissenschaftsforschung (DZHW) for the European Commission, looking at the effects of changes in tuition fees and fee policies on institutions and students.  The Commission published the results on Friday, and I want to tell you a little bit about them – this week I’ll be telling you about the effects on institutions, and next week I’ll summarize the results with respect to students.

The first question we answered had to do with whether or not a rise in tuition ultimately benefits higher education institutions.  Critics of fees sometimes suggest that extra fees do not in fact result in institutions receiving more money, because governments simply pull a fast one on the public and withdraw public money from the system, thus leaving institutions no better off.  Our examination of nine case studies revealed there were certainly some occasions where this was the case – Canada in the mid-90s, Austria in 2001, and the UK in 2012 – but that in the majority of cases fee increases were accompanied by stable or increased government funding.  Moreover, in all the cases where there was an accompanying decrease in public funding, it was signalled well in advance by governments, and indeed the increase in fees was deliberately designed to be a replacement for public funds. We did not find a case where a government “pulled a fast one”.

The second question we asked was how universities reacted to the introduction of fees: did they suddenly start chasing money and becoming much more sensitive to the demands of students and donors?  The answer, by and large, was no, for three reasons.  First, tuition isn’t the only financial incentive on offer to institutions; particularly if they are already funded on a per-student basis, the introduction or increase of fees isn’t likely to change behaviour.  Second, institutions won’t go after fees in ways that they think will negatively affect their prestige.  In Germany for instance, many universities have considerable latitude to raise income via teaching through continuing-education-like programs, but effectively they don’t do this, because they believe that engaging in that sort of activity isn’t prestige-enhancing.  And third, institutions often delay altering their behaviour too much because they don’t believe government policy will “stick”.  In Germany, specifically, the feeling was that the introduction of fees was unlikely to last and so there was no point in getting too invested in attracting new students to take advantage of it.

In fact, although fees in public institutions are often touted as a way to make universities more flexible and more responsive to business, the labour force, etc., this never actually works in reality, because universities are saddled with enormous legacy costs (you can close a program, but you still have to pay the profs), and have a particular self-image that means  they closely-tied to traditional ways.  What does seem to work – at least to some degree – is to allow the emergence of new types of higher education institutions altogether.  In Poland, it was only the emergence of private universities that allowed the system to take on the explosion of demand in the 1990s.  In Finland, an entirely new type of higher education institution (ammattikorkeakoulu or “Polytechnics”) was developed to take care of applied education, and accounted for 80% of all enrolment growth since 1995.

Next week: the effects on students.  See you then.

September 19

Cultural Determinants of Data Acquisition Costs

I saw a fascinating piece in the New York Times awhile back.  It was about a trend at American universities, asking applicants if they were gay or not.  Apparently, these institutions believe that by asking students this question, they are sending a message that they are a gay-positive environment.

Interesting.

Americans think that transparency about identity is the path to utopia.  Enrolment statistics by race?  They’ve got them.  Indeed, they are required to keep such statistics, because of a clutch of laws designed to monitor whether or not Blacks (and, to a lesser extent, Latinos and America Indians) are being discriminated against.

In Canada, the rule of thumb is simple: on forms used for administrative purposes, you can’t compel anyone to reveal data about identity, beyond what is strictly necessary to achieve the purpose for which the information is being collected.  So, on applications to universities and colleges, asking people’s names and addresses is about as far as you can go (provinces have different standards on whether you can ask gender – some say you can’t).  Asking about ethnicity, or aboriginal status?  Totally verboten.  Whereas in the US it’s mandatory.

What that means is that, in Canada, acquiring any data about students – other than raw numbers – requires voluntary surveys.  And those can get expensive: done centrally through StatsCan (and its levels of quality standards) they cost millions; even if you just get a decent-sized consortium together to do something, it will run into hundreds of thousands once you count everyone’s labour costs.  You can get it down into the tens of thousands if you go with an electronic survey, but then there are response bias issues (you can correct for them, but it requires someone to have already done a decent survey to begin with – and with the loss of the census long form, it’s not clear that we have such a survey).

Of course, even Canada is at least somewhat ahead of, say, France.  There, the local conception of nationalism means that state agencies are forbidden from classifying citizens as anything other than citizens.  Blanc, beur, noir: they’re all French according to the government, and its socially unacceptable to classify them as anything else.  A morally attractive stance, perhaps, but what it means is that the French have real trouble measuring social inequality in ways that matter.

All of this is simply to say, if you’ve ever wondered why we don’t have statistics on ethnicity the way the Americans do, it’s this: they assume racial bias exists and keep stats to measure it.  We assume that racial bias exists, and so try to mask parts of individuals’ identities to prevent it.

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.

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.

May 16

Think Big?

With all the chat recently about reducing unit costs through ever-larger instructional units (e.g. MOOCs), it occurred to me that the world already has a lot of models for this.  They just aren’t in the developed world.

University World News recently carried a very interesting article regarding a new higher education master plan in Nigeria.  One of the plan’s key elements is to construct a half-dozen “mega-universities” – each with 100-150,000 students – to soak up the rising demand for higher education.  On the one hand, this plan is self-evidently mad: large Nigerian universities are already a violent and lawless mess, plagued with cults such as the Black Axe and the Supreme Vikings (I wrote about them a couple of years ago: here); surely these new, even larger campuses will face even bigger gang problems.  On the other hand, you can sort of see where Nigeria’s coming from on this.  Thanks to some truly staggering levels of corruption, the ability of Nigeria to use public funds to meet demand for higher education is quite small – currently just $1.4 billion to cover expenses at 33 federal universities.  So the solution is simple – go big, and keep unit costs low.  Just like MOOCs.

Actually, the way access has been increased in much of the developing world is through strategies like this.  The world’s largest universities are Open Universities – Indira Gandhi in India (3.5 million), and Anadolu in Turkey (2 million).   The largest residential schools are ones with multiple constituent campuses.  The reigning world champion here is Islamic Azad University in Iran – a private school with 350 locations, 1.5 million students, and a very significant endowment of contested legality (I don’t buy the $200 billion number, but it’s substantial nonetheless).

What about single-campus institutions?  On the Indian subcontinent, there are a handful (e.g. Delhi, Pune) which boast enrolments of 400K plus, but most of those students are not residential – rather, they study at a college somewhere, and simply take the Delhi or Pune exams.  For really big schools, you need to go to places like the University of Buenos Aires (300K plus) or UNAM in Mexico City (250K plus).  The University of Cairo, at about 150K, is the biggest in Africa; it’s also generally considered the continent’s best school outside of South Africa, which may explain Nigeria’s attraction to the model.

William Gibson once said that the future is already here; it’s just unevenly distributed.  So it is.   These mega-institutions can provide some lessons about the perils and promises of uber-massification through mega-universities.  We probably shouldn’t ignore them just because they’re happening offline and in poor countries.

April 18

Students Aren’t Keen on “Disruption”

I don’t think there’s any doubt that the current proliferation of MOOCs is meeting an enormous demand for access to informal learning opportunities.  Millions of people are signing up for courses which interest them, picking a few bits they wish to consume, and, in a few cases, even completing them – all at the low, low, price (to the user) of zero.  Undoubtedly a great development.

But for MOOCs to be sustainable they have to eventually generate some revenue, and things aren’t going so well on that score.  Coursera made a fuss last week about the $220,000 they earned last quarter by issuing certificates of completion; but given that they’re on $22 million of VC money, that’s still pretty anemic.  At the end of the day, someone has to pay for this stuff.  This is why some ed tech types seem to be pinning their hopes on governments changing the rules and, in effect, forcing universities to accept MOOCs and other not-necessarily-accredited courses – as is currently taking place in California and Florida.

There’s an important realization here: quite apart from faculty resistance, there are real regulatory barriers to institutions joining the techno-fetishist higher education revolution.  And therefore, the debate about MOOCs is heading quite quickly from being casual banter within universities, to being an outright political fight.  But on whose side should students fight?

Conceivably, students in places where colleges have been so ravaged by cuts that they are turning away large numbers, might actually be supportive of MOOCs for credit. But what about in Canada, where that’s not the case?  We noted a little while ago that students didn’t seem to be banging down the doors to take MOOCs, but that’s not proof they’d actually oppose it.

We decided to test this proposition by asking our MyCanEd student panel members if they would feel moved to participate in public protests should their province or institution announce a plan requiring students to take half their courses in an online format.  To calibrate the response, we also asked them a question we were pretty sure would elicit a strong response; namely, whether they would protest if their province or university announced a plan to raise tuition by $1000 every year, for five years.  The results were… intriguing.

How Likely Would you be to Participate in a Protest in the Event of:

 

 

 

 

 

 

 

 

 

 

 

The short of it is that forcing students to take courses online is only slightly less unpopular than a $5000 tuition hike.  This is something governments need to consider before they get too excited about the cost-saving potential of MOOCs.  And it should be cold water in the face of anyone who thinks that there’s a demand among current students for this particular form of “disruption”.

January 14

Better, not Cheaper

If there is one clear meme concerning higher education coming out of America during this recession, it’s this: “higher education is too expensive and it’s delivering a sub-optimal product.”

Zeitgeist statements like this one have to be handled carefully.  Even if you don’t agree with this meme, failure to engage with it can expose one to charges of being “defensive,” or “part of the problem”.  So, for the moment, let’s accept this statement at face-value, and focus on how one might respond to it.

From a business perspective, there’s simply no question that in a quasi-monopolistic system like higher education, the choice between cheaper and better is obvious.  Only a chump gives up the revenue.  If consumers perceive that the quality – however that may be defined – isn’t there, that’s what needs to be fixed.

Given this, it’s absolutely astonishing to me how quickly the debate in America has focussed around cost.  Everywhere, the mantra is about “bending the cost-curve” (tellingly, a phrase consciously borrowed from the health-care debate), and states like Florida, Texas, and California are all making serious moves to implement so-called $10,000 degrees (that’s not the price, it’s the cost).   Faced with the proposition that, “higher education isn’t delivering the goods, and it costs too much”, the dominant reaction in America seems to be, “well, let’s make it cheaper, then”.  Now, obviously, this response is being driven by political actors rather than educational ones, but it’s stunning nonetheless.

Canada hasn’t quite seen the same level of disillusionment with higher education, mainly because youth unemployment hasn’t spiked in anything like the way it has in the US (the irritating but inevitable fact: higher education will take blame, and credit, for preparing young people for jobs in direct relation to the amplitude of the economic cycle, over which it has zero influence).  But the “cheaper-not-better” agenda could easily take root here, too; Lord knows, in Ontario, we’ve only recently escaped the clutches of a Minister who was in thrall to exactly that vision.

So, here’s a thought: let’s be proactive about this.  Instead of waiting for the next crisis to pop-up, let’s get ahead of the curve by improving the value proposition of undergraduate education.  As I’ve said before, what people really want are graduates who are effective, engaged, and innovative, so let’s find a way to deliver on that.

Put aside for awhile the pitches for more grad students and more research.  Winning the battle for public trust in the system is going to depend first and foremost on how our system delivers on undergraduate education.  Only by being better can the system avoid the call to be cheaper.

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