The Only Thing Worse than a Tuition Cap… Is No Tuition Cap

A proposed cap on tuition & fees is a flawed solution for runaway college costs. But it has the virtue, like the sword of Damocles, of focusing the minds of college presidents on what should be their top concern.

In the previous post I published a position paper distributed by the Partners for College Affordability and Public Trust, a sponsor of this blog, making the case that the General Assembly should freeze tuition & fees at public Virginia universities.

I share the overall goals of Partners — long-time Bacon’s Rebellion readers know that I have crusaded against escalating college tuition for years. College affordability is one of the defining issues of this blog. Also, I fully support the Partners’ proposals for increased transparency and governance reform for Virginia’s higher-ed system. (See “The Reform Agenda of Virginia’s Higher-Ed Critics.“)

Escalating tuition & fees is creating a social crisis as ever-growing numbers of college graduates enter the working world encumbered with ever-growing piles of debt — not counting the college dropouts who fail to earn a degree and enter the workplace lacking the credential needed to find a job that will enable them to pay off their debt. The higher-ed system in this country is creating a generation of debt slaves (who cannot legally discharge their debt) in order to sustain out-of-control spending on administrative sinecures and star faculty who burnish institutional prestige but do little teaching.

So, yes, we have reached a crisis, and something drastic needs to be done. I’m just ambivalent about getting the General Assembly to cap tuition & fees. I see it as a necessary evil.

A strength of Virginia’s system of higher education is its institutional diversity arising from a decentralized system of governance. Virginia’s colleges and universities have been allowed to define their own identities and carve out their own niches in the highly competitive higher-ed marketplace. This has been particularly beneficial for the non-elite institutions. Thus, Mary Washington University has evolved as a college appealing to socially conscious kids with Peace Corps-like aspirations, Longwood University has positioned itself as a champion of the liberal arts (liberal in the traditional sense of the word), Norfolk State University is restructuring itself around faculty-student-alumni collaborations called PODS, and Christopher Newport University has evolved into that rarest of creatures, a college that is friendly to conservatives. These smaller institutions give Virginia’s higher-ed system bench strength that few other state systems possess.

Micro-managing tuition & fees is the antithesis of the decentralized management that has fostered this flowering of second-tier institutions.

Some public institutions have pushed tuition & fee increases more aggressively than others. As the Partners white paper notes, increases have varied widely from college to college, ranging from from 149.8% over the past 15 years at Old Dominion University to 344% at College of William & Mary. Imposing a uniform cap would penalize universities that have withstood the pressure to charge more in the past, depriving them of the ability to make necessary adjustments in the future. Outrage at William & Mary’s excesses do not justify punishing colleges like Virginia Tech, ODU, NSU, Longwood, Virginia State University, and the University of Virginia-Wise Campus, which have pursued more restrained tuition policies over the years.

We need more transparency — more openness into data and into the decision-making process inside colleges and universities — and better governance. Board appointees at public colleges and universities should be instructed that their primary responsibility is to the public and the students they serve, not to ambitious college presidents with dreams of institutional glory. The Partners’ recommendations on this score are excellent.

While I have yet to be persuaded that a freeze on tuition & fees would be a good thing if actually implemented, I do believe it is a useful “sword of Damocles” to hang over the heads of university presidents. Something needs to instill the fear of God in the top echelons of university administrations. University presidents are keenly attuned to the priorities of their internal constituencies. They need also to clearly understand the frustration and outrage of the parents and taxpayers who pay the bills. A credible threat of a tuition freeze should concentrate their minds wonderfully.

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12 responses to “The Only Thing Worse than a Tuition Cap… Is No Tuition Cap

  1. Didn’t Nixon implement wage and price freezes? I think I still have a W.I.N. – Whip Inflation Now button somewhere. We need a new program along with buttons – Let’s Implement Better Tuition Adjustment Reduction Decisions. Now that wasn’t so hard, was it?

  2. price freezes never work.. those subjected to them make changes to the quality, quantity of the product not the things people think are causing the
    higher prices..

    You’d see many more adjuncts and student teachers..more 100-200 student auditorium lectures, … less course offerings.. lite courses… etc.

    You want the opposite.. you want competition on both quality and price and let the institution figure out how to can provide that cost-effectively.

    A better approach might be to stop direct-funding of higher ed and instead go to a voucher system so that prospective attendees will decide what is a good value or not and over time competition will yield both lower price and quality .

  3. Good one DJ.

    You can always tell you have a complex problem when the allusions to classics and mythology like “Sword of Damocles” are trotted out. (This is not a shot at Jim.) I’m tempted to toss out “Gordian Knot” and “Tulip Fever” for this issue.

    I don’t support a tuition cap. Direct price controls have a pretty dismal record where they have been applied. The Nixon price controls DJ mentioned might have gotten him through the 1972 election, but in the end, as Milton Freedman predicted, it contributed to disastrous runaway inflation as the decade progressed. Price controls are a blunt force instrument that has huge unintended consequences and distracts from fixing the root causes or restoring market incentives.

    There was a study on state tuition policy and it actually found that tuition caps actually result in higher tuition growth. (In the UK, a cap on tuition resulted in many institutions that did not charge tuition previously introducing tuition and charging the maximum.) http://journals.sagepub.com/doi/abs/10.1177/0895904813518100

    What is interesting with William and Mary (which was cited for raising tuition the most) is that they are trying to act more like some private schools, charging high tuition to high income students but using part of the revenue to increase aid to lower cost and debt for lower and middle-class students. For these income groups, net costs may be close to the lowest in the state. UVA is doing this as well, although perhaps to a lesser extent.

  4. The mists of memory seem to include a recollection that Governor Allen (R-Wahoo) imposed a freeze on tuition increases, or limited them to the inflation rate. I also doubt it would have the long term impact you hope, but the debate on the proposal would be highly useful. Nothing wrong with a show cause hearing.

    Right now the economics are still in favor of extravagant spending, as the spiraling price doesn’t seem to be putting a dent in demand. I keep thinking the students will stop coming, will stop taking on the crippling debt loads, but not so far…..

    Perhaps what we need is true competition. I do think that if one of the state U’s adopted the philosophy of holding down cost and a serious price gap developed, that might create some economic pressure. How do the anti-trust laws apply in this area? If these were retail operations would the pattern imply price collusion? Can you bring an anti-trust action here? Now THAT is a bill that would get their attention.

  5. J. W. Gilley, a contributor to Bacon’s Rebellion, earned B.S., M.S. and PhD degrees in Engineering from Virginia Tech. He taught at Virginia Tech, Bluefield State College, George Mason University, and served as president of University of Tennessee system from 1999 to 2001, president of Marshall University from 1991 to 1999, and as Virginia’s Secretary of Education from 1977 to 1982.

    On the Jan. 16, post “American Higher Ed: Innovative, Adaptable, Transformative, Mr. Gilley recalled:

    “I can remember 15 years ago when some people made the case the everyone should own a home and debt will work itself out. We now know that we cannot afford as a nation to print money so everyone can own a home without any accountability.”

    Mr. Gilley’s comment referred the sub-prime mortgage default crisis that blew up the American economy in 2008, plunging the nation into a prolonged economic recession of historic proportions. And he went on to highlight similarities that drove that sub-prime mortgage crisis and today’s crisis in Higher Education.

    Specifically, and I quote:

    “These are some higher education facts: Student debt is approaching $2 trillion, and half of those who owe the money do not have a college degree or credential. And, it is hard to make the case that, because they tried to go to college and get a degree or credential, things are better off for millions who (now) owe billions.”

    Mr. Gilley next asked a key question:

    “And who has benefited from this debt? Not faculties. Not students. But administrations, (and) recreational activists like sports, (and) Administrators have benefited while students and former students have more than a trillion in debt.”

    Mr. Gilley next offered examples of where some of the money secured by student debt went:

    “(University) Presidents’ incomes have increased at a rate several times the rate of inflation. (From) the Internet, I found that the President of Wake Forest made $4 million lasts year…pretty good for a Baptist university. And Baylor had some ten administrators who made more than a million dollars including chief student affairs officer who made more than a million dollars. Another Baptist university. Wonder what Christ is thinking about that?

    And, in Virginia three university presidents were among the top ten nationally at more than a million a year in 2012. Those institutions were Virginia Tech, George Mason and the University of Virginia. Faculty salary increases over the past decades have increased about the same pace as the value of an undergraduate degree. But administrators and coaches have jumped ten times faster than faculty compensation. And, for the most part students have paid for that via loans.”

    Mr. Gilley next suggested that: “This is just the beginning of the challenges ahead. For example, the profile of the next generation of college aged citizens will be dramatically different than today. And, to assume that the next generation that is less well prepared for college will go and borrow billions to try to get a degree is wishful thinking. Change is coming.”

    I believe that Dr. Gilley has gone right to the core of why the rising costs of American higher education pose an existential threat to our system of higher education, the future of its students, past and present, and to our nation. We have a growing population of former students whose futures are hobbled by personal debt now totals nearly two trillion dollars. And good reason to fear that future students will increasing be unable to pay for their higher education at all, or service the debt that they are forced to assume if they do.

    Remember that the wealthiest generation in world history, the Baby Boomer Generation, has to date financed most of this higher education cost explosion, but no longer. Today, stagnant income growth, falling rates of savings and investments, alarming declines of family formations, and staggering cost escalations, each year combine to put college and university educations beyond of reach for ever more Americans.

    Each year, it becomes more difficult for those who drop out and graduates alike to pay off their student loans, not to mention realize the American dream: secure a stable long term job, buy a home, marry and build a family, and save and invest for the future, much less enjoy a rewarding quality of life.

    So this is far more than a financial threat posed by a real estate bubble. It’s an existential threat. On the basis of demographics alone, our system of higher education has launched our youth and our nation into a financial, cultural, and political fool’s errant.

    History shows that these sorts of artificially stimulated costs and demand scenarios that are financed by easy government funded money, whatever the product, have very fast burn rates that can easily collapse national industries and institutions that facilitate them, in a decade. This would be déjà vu, a repeat of events that triggered the 1991, 2000 and 2008 recessions, on steroids. (See my numerous posts on the Blog on this subject, most recently in comments to “Is It Time for a Son-of Restructuring Act for Higher Ed? Posted May 16, 1917.)

    But here the consequences of the cost explosion in Higher Education are proving far more tragic. This spending spree has been for decades, and is now, ruining the education of our kids and stripping them of their culture. This we detailed earlier on this blog, its many posts and comments.

    But here, right now, I mention one. This massive spending spree on the most privileged few within Academia, its bloated bureaucracies and spoiled students, has starved and abused most everyone else in our colleges and universities, most particularly those who teach, try to educate our children. At the same time, this spending spree on all the wrong things, has encouraged, indeed now forces, schools to cater to every whim, wish, and desire of their students. This undermines their chance for an education. And its undermines the profession of teaching, learning, and scholarship.

    Why the spoiling of students and their chance to learn?

    Because the students pay most all of higher educations’ bills, or create the means to finance those bills, and keep the school ratings high, and so these students are critically necessary to keep ever more money flooding in on the illusion of keeping many public institutions afloat and performing well, pretending to educate, while they only indulge the PRIVILEGED FEW.

    Now we have reached the point where it’s very hard to get off this Merry-go-Round. In our capitalist system this is typical of the over heated bubble scenario, and it is the typical plight of its financial addicts. But, on this particular merry go round, unlike any others before it, now our children’s educations along with their culture, heritage, institutions, and future are what is being burned at the stake of corrupt higher education.

    Far more than a freeze on spending and costs are needed to fix these problems we all face.

  6. tuition price escalation is not a problem unique to Virginia.. Our tuition prices are in line with other states peer colleges – and more than that – private sector colleges also seem to afflicted with the same malady.

    On the other hand – for-profit and Community Colleges do not seem to be as badly affected ( or perhaps I’m wrong and they have escalated also).

    The point is, again, that in the 21st Century, “Higher Ed” is not one thing. It’s a wide variety of things of which the traditional 4-yr is one option.

    It’s a very popular option and we also know there is competition to add amenities, add programs and courses of study, and sports.. all things that people do want and all things that do cost money.. and we have folks on the outside looking in – wanting themselves to micro-manage even as they strenuously deny they want the govt to do that – other than freezing prices of course.

    I don’t see cries for fixing prices of private colleges or even for-profits or Community colleges.. why not a cry to freeze prices – across the board for all of Higher ed?

    Let’s be honest.. this is not about the price of Higher Ed.. it’s about one particular traditional and popular option in a 21st century world where “education” if you want it to be .. is a Firehose !

    In the 21st Century – anyone who wants can TRULY be self-taught with all the resources that are now available for far less than traditional 4 yr options.

    Heckfire – some of the most successful tech companies these days were started by people who dropped out of College!

    So methinks this is really not about Higher Ed per se… which makes the calls for price freezes even more pernicious and I’m shocked.. SHOCKED .. that Jim Bacon is tap dancing on this.. instead of letting his inner self SHOUT how wrong this is!!!

    It always was a fool’s errand to give a pot of money to some institution with the “agreement” being that in return for that money that they’d “keep costs down”. Geeze.. I can just see folks going to WalMart and the first item on their check out is ” fee to keep costs down” . geeze.

  7. Reed’s post is a real contribution to this discussion in helping to cull out the key problems or issues which whatever solution should fix or ameliorate —
    I.e.
    1. where is the higher tuition money going or what is it funding?
    2. is the “product” or “value” increasing in some proportion to the increase in cost?
    3, Who really is paying?
    4. if the funding of these increases is debt, then the actual payment or real cost and its effects have not not yet been seen and their impact may not yet be known.

    Reed, can you add the link to Gilley’s writings?

  8. Government-imposed price caps don’t seem to work well, most especially when they are applied to the private sector. Whether application to quasi-state government entities such as colleges and universities might work better is uncertain to me. (I use the term “quasi-state” entities because I see a difference between VDOT and DEQ on one hand and UVA or ODU on the other.)

    But the private sector is full of quasi-price caps and other financial controls. For example, since the Great Recession, economic power to control prices in the provision of legal services has clearly shifted to clients. No editorial comment intended. Just a statement of fact. Flat-rate fees, fees with a collar, volume discounts, blended rates, etc. are very common and not always with just big clients.

    The firm where I am “Of Counsel” was just hired by the Maryland AG’s office to serve as approved outside counsel for several specialty issues. The State has given us a significant list of “dos” and “don’ts.” Some are financial; others go to control workplace behavior. E.g., no drinking of alcohol on the premises. This example is not unique.

    So if government agencies can impose tight economic conditions on vendors, why can’t they impose tight financial conditions on themselves, including state colleges and universities?

  9. Not sure if I fully understand this: ” So if government agencies can impose tight economic conditions on vendors, why can’t they impose tight financial conditions on themselves, including state colleges and universities?”

    If we’re talking about vendors that the government itself is getting then that’s no different than any business dealing with a supply and negotiating over price.

    So consider the VA – a govt agency negotiation to buy drugs from manufacturers.. yes… no different than perhaps Walmart negotiating with it’s suppliers on price or quality or quantity.

    but situations where the govt intervenes in the price that consumers are paying because the govt partially subsidizes the consumer in it’s purchases of things… consider the govt stipulating to WalMart – prices on stuff -that people with EBT cards are buying…. saying perhaps that EBT will cover only eggs at or below a certain price.

    Now look at College Tuition in that context except the Govt is actually providing some money to the colleges to “help” and there is no explicit quid-pro-quo for how much subsidy provided verses how much tuition or other fees can be.

    Perhaps there should be… that for X dollars of subsidy, tuition prices cannot be more than Y… and the dollars the colleges get increases if they keep tuition low and decreases if it inflates…

    but I don’t think the govt should any more dictate prices for tuition overall than they should prices at Walmart.

    If that’s what you actually wanted to accomplish – you would give the money as a voucher to students and stipulate it could not be spent for tuition higher than some number… so the voucher is only actually spendable at colleges that keep prices low.. something along those lines.. rather than the govt doing command and control at the college level for price freezes…

    I think the concept of controlling prices with vouchers actually is done with housing vouchers..

    You COULD do the same thing with student loans… with limiting the amount of the loan to some level associated with a tuition price range and if the student still wanted the higher priced college and was willing to pay out of their own pocket – then fine..

    the point is – you want to instill competition on the industry as opposed to freezing prices for the industry- which the disruptions are worse than the benefit…

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