Just about everyday I come across the theory that the high rate of college tuition inflation is due to the provision of federal financial aid and loan guarantees.Even among colleagues within higher education.

If you actually bother to dig just a little bit though, you see that the theory is not backed up by actual research. In fact, research on the issue shows a number of fallacies, false assumptions, and lack of distinction between fundamental concepts such as stated tuition, net tuition, and cost.

If you only have time to read one article on this subject, check out the article pasted below.

Key excerpt:

Net tuition is the price students actually, which is declining on average, and cost is the expenditure incurred by universities. For each enrolled student, a university receives the sum of the subsidy (state and federal) and net tuition. These revenue sources allow the non-profit university to cover its expenditures. Costs per student are not increasing at extraordinary rates. The College Board reports that real instruction cost per student increased at slightly over one percent annually over the past decade.

It is the stated or full-price tuition levels that have gone up the most over the past few decades. Non-targeted students and their families who pay full tuition have been hit the hardest. Full tuition has been going up faster than inflation at public universities because state subsidies have been drastically reduced. At private universities full tuition has gone up for non-targeted students in order to subsidize targeted students (ie merit scholarships/aid/discounted tuition) and those with financial need.

Does the availability of guaranteed and subsidized student loans contribute to making students and families less price sensitive in their college selection decisions? Certainly. But it's not the only or primary factor that makes college tuition inelastic. The larger dynamic is the belief or faith that a college education will more than pay for itself. As more and more graduates and their families come to realize that there is no guarantee that it'll pay for itself, then perhaps they will start to be more price sensitive or at least try to get more information about metrics like the average time to job offer for graduates of institutions being considered.

Why college tuitions are rising: A contrarian view

By Valerie Strauss

This was written by Gary C. Fethke, professor and former dean of the Henry B. Tippie College of Business at the University of Iowa, and Andrew J. Policano, dean of the Paul Merage School of Business at the University of California, Irvine. Their new book, “Public No More: A New Path to Excellence for America’s Public Universities,” will be published this month by Stanford University Press.

By Gary C. Fethke and Andrew J. Policano

The “Path to Prosperity” report issued by House Budget Committee Chairman Rep. Paul Ryan calls for limiting the growth of financial aid to college students. The report claims that “increases in Pell Grants appear to be matched nearly one for one by increases in tuition at private universities.” The assertion that increased aid increases tuition, the “Bennett Hypothesis,” has been endorsed by President Obama (in a speech made last January at the University of Michigan). Also, Mark Zandi, chief economist at Moody’s Analytics, argues that government loans and subsidies are not cost-effective for taxpayers because “universities and college just raise their tuition.”

The Ryan Report refers to a 2007 paper in the Economics of Education Review, in which the authors (Larry Singell and Joe Stone) in fact conclude: “Based on a panel of 71 universities from 1983 to 1996, we find little evidence of the Bennett hypothesis among either public or lower-ranked private universities.” Their study does find an effect on the tuition of non-targeted students at top-ranked private universities.

Our conjecture for this result is that Pell Grants, by raising demand for some, put upward pressure on all costs in these institutions. Specifically, if elite private universities are capacity constrained, an increase in demand will elicit a rise in tuition. Since over 80 percent of all college students attend public and for-profit universities, where there is no general evidence of the Bennett hypothesis, should public policy be directed by a result attributed to a small percentage of the college population?

Published tuitions depend on demand, cost, and state-subsidy conditions. Net tuition is lower than published tuition by federal grants and loans, and private scholarship support. For 2011, the College Board reported that published tuition and fees for public four-year institutions averaged $8,240, while net tuition and fees averaged $2,490; so tuition discounting is important. Enrollment decisions are based on net tuition.
Does the Bennett Hypothesis make conceptual sense? Actually, it doesn’t.

No apparent tuition-setting approach leads to the conclusion that net tuition should be higher for the targeted group in response to a higher Pell Grant; in fact, net tuition should be lower if the intent is to increase net revenue. Indeed, when public universities face a policy-imposed break-even constraint, changes in net tuition should be matched one-for-one by offsetting changes in the per student Pell grant.

Why, then, are tuitions rising? The Path to Prosperity report also raises concerns about the cost of higher education, stating that “College costs have risen at twice the rate of inflation for about thirty years, but this year fees soared 8.3 percent -- more than double the inflation rate -- as federal subsidies have increased at a historic pace.” President Obama asserts repeatedly: “We can’t just keep subsidizing skyrocketing tuition.”

There appear to be at least two misperceptions. The first may involve confusion between the cost of education and tuition, and the second concerns the actual trend in total government support per student. Net tuition is the price students actually, which is declining on average, and cost is the expenditure incurred by universities. For each enrolled student, a university receives the sum of the subsidy (state and federal) and net tuition. These revenue sources allow the non-profit university to cover its expenditures. Costs per student are not increasing at extraordinary rates. The College Board reports that real instruction cost per student increased at slightly over one percent annually over the past decade.

The second misconception confuses totals with averages. With enrollment expanding, an increase in overall government support can still be associated with declining support per student. For well over a decade, especially following the Great Recession, the average of federal and state subsidies per student has decreased. Indeed, in many states, the total subsidy has decreased. Tuition revenue has become a more important revenue contributor, with students in the aggregate paying more and taxpayers paying less. What has been driving higher published tuitions is not higher per student cost of higher education, but rather who pays for it.

Somewhat paradoxically, as appropriations are cut, many legislators call for increased accountability and transparency. They assert that public universities are squandering taxpayer’s funds, for example, by spending egregious amounts on administrative and coaching salaries; they recommend that universities reduce expenditures and “eliminate waste” to stop tuition from increasing.

We agree there is the need for universities to improve operating efficiency and to examine all possible compensation excesses. However, there is also the need to recognize that demand patterns for public higher education have changed permanently. State legislators reveal by their budgetary decisions that public demand for higher education is permanently lower. This permanent decline in the level of public demand at the state level is the driving force behind the large increases in published tuition. The choice between supporting Medicaid or higher education seems to favor the former. Universities and legislators should accept this funding reality, tone down the blame game, and turn their attention to allocating resources to better align new demand patterns with rationalized program expenditures.

The major changes that need to take place are for public universities to become more: entrepreneurial, efficient in setting tuition, attentive to student preferences, and less dependent on taxpayer subsidies. Continued allocation of new tuition revenue to finance traditionally-subsidized programs that feature a limited willingness to pay by students, taxpayers and donors is unsustainable.

Nobody seeks to defer all judgment to market forces, but, rather, it is important to become focused on what programs are essential to providing a high-quality university education. As difficult as some adjustments will be, competing for better-informed and prepared students, respecting the social benefits of education, and providing responsive stewardship for declining levels of taxpayer support are good things to do.
Those public universities that follow the path toward becoming “public-no-more” can succeed. Those that do not change will face intense competitive pressure and may ultimately decline.

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The University of Wherever

By BILL KELLER

New York Times | October 2, 2011 | Link to original article

FOR more than a decade educators have been expecting the Internet to transform that bastion of tradition and authority, the university. Digital utopians have envisioned a world of virtual campuses and “distributed” learning. They imagine a business model in which online courses are consumer-rated like products on Amazon, tuition is set by auction services like eBay, and students are judged not by grades but by skills they have mastered, like levels of a videogame. Presumably, for the Friday kegger you go to the Genius Bar.

It’s true that online education has proliferated, from community colleges to the free OpenCourseWare lecture videos offered by M.I.T. (The New York Times Company is in the game, too, with its Knowledge Network.) But the Internet has so far scarcely disturbed the traditional practice or the economics at the high end, the great schools that are one of the few remaining advantages America has in a competitive world. Our top-rated universities and colleges have no want of customers willing to pay handsomely for the kind of education their parents got; thus elite schools have little incentive to dilute the value of the credentials they award.

Two recent events at Stanford University suggest that the day is growing nearer when quality higher education confronts the technological disruptions that have already upended the music and book industries, humbled enterprises from Kodak to the Postal Service (not to mention the newspaper business), and helped destabilize despots across the Middle East.

One development is a competition among prestige universities to open a branch campus in applied sciences in New York City. This is Mayor Michael Bloomberg’s attempt to create a locus of entrepreneurial education that would mate with venture capital to spawn new enterprises and enrich the city’s economy. Stanford, which has provided much of the info-tech Viagra for Silicon Valley, and Cornell, a biotechnology powerhouse, appear to be the main rivals.

But more interesting than the contest between Stanford and Cornell is the one between Stanford and Stanford.

The Stanford bid for a New York campus is a bet on the value of place. The premise is that Stanford can repeat the success it achieved by marrying itself to the Silicon Valley marketplace. The school’s proposal (unsubtly titled “Silicon Valley II”) envisions a bricks-and-mortar residential campus on an island in the East River, built around a community of 100 faculty members and 2,200 students and strategically situated to catalyze new businesses in the city.

Meanwhile, one of Stanford’s most inventive professors, Sebastian Thrun, is making an alternative claim on the future. Thrun, a German-born and largely self-taught expert in robotics, is famous for leading the team that built Google’s self-driving car. He is offering his “Introduction to Artificial Intelligence” course online and free of charge. His remote students will get the same lectures as students paying $50,000 a year, the same assignments, the same exams and, if they pass, a “statement of accomplishment” (though not Stanford credit). When The Times wrote about this last month, 58,000 students had signed up for the course. After the article, enrollment leapt to 130,000, from across the globe.
Thrun’s ultimate mission is a virtual university in which the best professors broadcast their lectures to tens of thousands of students. Testing, peer interaction and grading would happen online; a cadre of teaching assistants would provide some human supervision; and the price would be within reach of almost anyone. “Literally, we can probably get the same quality of education I teach in class for about 1 to 2 percent of the cost,” Thrun told me.
The traditional university, in his view, serves a fortunate few, inefficiently, with a business model built on exclusivity. “I’m not at all against the on-campus experience,” he said. “I love it. It’s great. It has a lot of things which cannot be replaced by anything online. But it’s also insanely uneconomical.”
Thrun acknowledges that there are still serious quality-control problems to be licked. How do you keep an invisible student from cheating? How do you even know who is sitting at that remote keyboard? Will the education really be as compelling — and will it last? Thrun believes there are technological answers to all of these questions, some of them being worked out already by other online frontiersmen.

“If we can solve this,” he said, “I think it will disrupt all of higher education.”

Disrupt is right. It would be an earthquake for the majority of colleges that depend on tuition income rather than big endowments and research grants. Many could go the way of local newspapers. There would be huge audiences and paychecks for superstar teachers, but dimmer prospects for those who are less charismatic.

It’s ironic — or maybe just fitting — that this is playing out at Stanford, which has served as midwife to many disruptive technologies. By forging a symbiotic relationship with venture capital and teaching students how to navigate markets, Stanford claims to have spawned an estimated 5,000 businesses. This is a campus where grad school applicants are routinely asked if they have done a startup, and some professors have gotten very, very rich.

John Hennessy, Stanford’s president, gave the university’s blessing to Thrun’s experiment, which he calls “an initial demonstration,” but he is cautious about the grander dream of a digitized university. He can imagine a virtual campus for some specialized programs and continuing education, and thinks the power of distributed learning can be incorporated in undergraduate education — for example, supplanting the large lecture that is often filled with students paying more attention to their laptops. He endorses online teaching as a way to educate students, in the developing world or our own, who cannot hope for the full campus experience.

But Hennessy is a passionate advocate for an actual campus, especially in undergraduate education. There is nothing quite like the give and take of a live community to hone critical thinking, writing and public speaking skills, he says. And it’s not at all clear that online students learn the most important lesson of all: how to keep learning.

As The Times’s Matt Richtel recently reported, there is remarkably little data showing that technology-centric schooling improves basic learning. It is quite possible that the infatuation with technology has diverted money from things known to work — training better teachers, giving kids more time in school.

THE Stanford president is hardly a technophobe. Hennessy came up through computer engineering, used his sabbatical to start a successful microprocessor company, and sits on the boards of Google and Cisco Systems.

“In the same way that a lot of things go into the cost of a newspaper that have nothing to do with the quality of the reporting — the cost of newsprint and delivery — we should ask the same thing about universities,” Hennessy told me. “When is the infrastructure of the university particularly valuable — as it is, I believe, for an undergraduate residential experience — and when is it secondary to the learning process?”

But, he notes, “One has to think about the sustainability of all these things. In the end, the content providers have to get paid.”

I see a larger point, familiar to all of us who have lived through digital-age disorder. There are disrupters, like Sebastian Thrun, or Napster, or the tweeting rebels in Tahrir Square. And there are adapters, like John Hennessy, or iTunes, or the novice statesmen trying to build a new Egypt. Progress depends on both.

Who could be against an experiment that promises the treasure of education to a vast, underserved world? But we should be careful, in our idealism, not to diminish something that is already a wonder of the world.

Coaching College Freshmen So They Don't Drop Out

By Alison Damast on April 19, 2012 | Link to original article at BusinessWeek.com

The odds were stacked against Selene Mendez when she enrolled at California State University’s Monterey Bay campus in 2010. She’d moved to the U.S. from Mexico when she was 7 and her father was a migrant farmworker. Her high school guidance counselor seemed to think she’d follow in the footsteps of her older sister and brother, who had dropped out of college in their freshman years. “She told me I wasn’t college material,” Mendez says. “It got me angry.”

Determined to prove the counselor wrong, Mendez participated in a program that helps freshmen stay focused on their studies. Once a week throughout her first year at Monterey, she spoke with a coach who gave her tips on managing her time as she balanced schoolwork with two part-time jobs and a long commute. “I was excited that there was someone who actually took the time to help me out and make sure I succeed,” says Mendez, 19, now a sophomore.
 

Photograph by Jason Hanasik for Bloomberg Businessweek

Mendez's high school counselor said she 'wasn't college material' because her siblings
had dropped out. 'It got me angry,' she says

Executive-style coaching is making its way onto campuses across the country as schools struggle to keep students from dropping out. Only 58 percent of full-time freshmen enrolled at four-year institutions in 2004 managed to graduate by 2010, up one percentage point from the year before, according to the latest available data from the Department of Education.

Coaching has helped Monterey Bay beat those odds, says Provost Kathy Cruz-Uribe. Last year 78 percent of freshmen returned to school as sophomores, up from 65 percent in 2006-07, the year before the school added its coaching program. “If you’re the first one in your family to go to college, you may not know how to navigate the university and take advantage of the resources in the best way,” Cruz-Uribe says. “Coaches can really work with us to ensure the success of our students.”

Photograph by Jason Hanasik for Bloomberg Businessweek

Mendez says her coach helped her keep up with class assignments and improve her note-taking

In much the same way career coaches help executives reflect on their job performance and goals, student coaches talk with freshmen about studying, financial challenges, family issues, and long-term planning. Eric Bettinger, an associate professor at Stanford University’s School of Education, compared the academic records of more than 13,500 students; half had received coaching and half hadn’t. He found that freshmen in the coached group were 15 percent more likely to still be in school 18 to 24 months later. Coaches “actually call the student and aggressively go after them, rather than expecting the students to come to a service,” Bettinger says. “The information the coach brings into that conversation is pretty dramatic.”

In the past decade a cottage industry of coaching has sprung up because many schools lack the staff to offer such services on their own. The biggest player is InsideTrack, a 12-year-old San Francisco company that employs 300 coaches and has worked with more than 350,000 students at 50-plus schools. InsideTrack charges colleges anywhere from $30 to $120 a month per student who receives coaching. Some of the company’s advice is simple, says InsideTrack President Kai Drekmeier: Visit professors during office hours, get involved in campus activities, and use services most freshmen might not think to take advantage of. “Coaches help students think through and articulate their goals, so they have some sense of direction,” Drekmeier says. “It sounds basic, but it is necessary and can have a profound impact.”

Many universities are starting to build their own coaching programs, says Luke Iorio, president of the Institute for Professional Excellence in Coaching, a training company. Iorio says his group is teaching counselors and career advisers to become coaches at four U.S. schools and is negotiating with about a dozen others. “We are seeing more schools move … to take these coaching services in-house,” he says. “Universities already have a significant investment in student counselors and services, so this is a way of adding on to what they are already doing.”

Carleton College, a private liberal arts school in Northfield, Minn., hired a coach four years ago after efforts to encourage successful students to coach their peers didn’t catch on. About 30 of Carleton’s 500 or so freshmen take advantage of the service each year, says Kathy Evertz, director of Carleton’s Academic Support Center. “We’ll get students who finally admit they have a problem and realize they are not getting the grades they should be getting,” Evertz says. “They come to the coach because they just want to get more out of school and out of their college life.”

Sundar Kumarasamy, vice president for enrollment management at the University of Dayton, has made coaching services available to the Ohio school’s 2,000 freshmen for the past two years. About 400 students signed up this year, and the school pays InsideTrack about $200,000 annually to work with them, he says. Since hiring the coaches, Dayton’s retention rate has gone from 87 percent to 89 percent, Kumarasamy says. Even a “1 percent increase in the retention rate can translate to multimillion dollars in revenue” for the university, he says. “It makes so much more sense to keep students rather than lose them. It is not only the right thing to do, but it is financially much more viable for the university.”

The bottom line: Coaching freshmen reduces undergraduate dropout rates and ultimately saves millions of dollars for colleges.

Damast is a staff writer for Bloomberg Businessweek.