University of California Great for Office Planners and Construction Companies, Not So Much for Students

Later this month I will move from my comfortable abode in San Diego to the (not currently) frozen tundra of Montreal.  What do California and Quebec have in common?  They are both suffering from a tumultuous crack-up in higher education.  Students in Quebec are protesting (or striking, as they like to call it) against proposed increases in tuition. 

Similarly, rising costs have irked California students, leading to smaller-scale protests over the last several years.  Yesterday, the San Francisco Chronicle ran an opinion piece with a proposed solution for rising tuitions:  cut the growth of middle management:

While the growth of the faculty and regular workforce of the University of California has kept pace with the growth of student enrollment over the past two decades (about 40 percent cumulative increase), the ranks of ‘management and senior professionals’ have swelled 220 percent in that period.

These educational institutions have some explaining to do, wouldn’t you say?  If higher tuition and fees are “unavoidable,” why have we been spending so much money on construction and office planners?   Customers, shareholders, and other inquiring minds deserve a convincing explanation about these outsized (and ongoing) expenses in the face of ballooning prices.  The article cautions against holding your breath:  "University administrators have yet to provide a compelling reason for why management growth is outpacing that of other employees by 5 to 1."

Administrators stumble over themselves to justify these extra-educational costs.  Universities must update facilities and a top-rate staff helps things run smoothly, they insist.  But nobody doubts the need for periodical renovations and office staffers.  One need only read the full report on which this article is based to see that the costs are extraordinary.  The question is:  do we need this much?  And can it be justified in this climate?

The answer is we don’t need it, and it should be stopped.  Nonetheless, university administrators insist on continuing all construction projects, despite rising costs that become more unaffordable each day, because, they say, so much money is already sunk into construction. 

Perhaps.  But California’s “universities and colleges are now paying a staggering $1.1 billion a year in interest on those construction bonds.”  It is like New Years Eve party-goers’ logic:  we’d be fools not to pay $750 for tickets to the open bar.  And now that we’re here and drunk, we might as well pay for an overpriced room for the night.  Sorry buddy, you could have stayed home, and you could have taken a taxi.  In 2010, the Legislative Analyst’s Office reported that campuses could make fuller use of existing facilities, but where's the excitement in that, right?

Higher-ed money was surely wasted over the past two decades.  The appropriate question ought to be:  why did this happen?  And how did schools get away with ballooning extra-educational costs while price spun further out of control? 

Administrators and their sympathizers offer up one plausible excuse for rising tuition: when public funding goes down, universities are forced to raise student tuition and fees.  Whenever schools announce tuition increases, they almost always link it to reduced state spending.  Should we take their word for it?  Probably not.  As former president of Harvard, Derek Bok, famously observed: “universities share one characteristic with compulsive gamblers and exiled royalty: there is never enough money to satisfy their desire.” 

The numbers presented by higher-ed administrators, unsurprisingly, belie their case.  Neil McCluskey, associate director at Cato's Center for Educational Freedom, examined a graph from the State Higher Education Executive Officers, and it shows that universities consistently raise tuition and fees when state funding goes down and when it goes up.  Trends such as this make Bok’s statement seem less and less hyperbolic.   

While funding matters, there must be something else driving the spikes in costs and tuition.  Enter the controversial Bennett Hypothesis.  The name comes from a 1987 op-ed in the New York Times written by Reagan Education Secretary William Bennett.  At the time, tuition was rising and schools were clamoring (dubiously) about the necessity of tuition hikes to offset cuts in government funding.  Bennett responded:

If anything, increases in financial aid in recent years have enabled colleges blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.

This sparked a whirlwind of studies, some discrediting and some supporting the Bennett Hypothesis.  Over the last two decades, the studies have kept apace.  One reason for the deluge of research is that both student aid and tuition have continued their upward march.  So, after two decades, has the Bennett Hypothesis scored a knock-out? 

Nope, no knock-out.  You see, most defenders of the Bennett Hypothesis also understand the lessons of FA Hayek and Karl Popper.  As in any social science, it is impossible to isolate the variables of aid and tuition.  McCluskey works with stacks of empirical studies and logical evidence strongly affirming Bennett’s claims, yet he freely admits that there is no “definitive proof”.  Modesty sure is refreshing.

Scholars from the other side, such as the Vice President of the American Council on Education, treat any variant of the Bennett Hypothesis as a “pernicious myth”.  Advocates bent on increasing the dollars spent on education shove pesky empirical studies, and simple economic logic, under the rug.  Acknowledging the Bennett Hypothesis disrupts their agenda.  Unfortunately, this approach keeps the media from examining what may appears to be a large piece of the puzzle.

And the missing puzzle piece may help answer our earlier question:  how do schools get away with ballooning extra-educational costs while hiking tuition at the same time? 

As Mr. McCluskey notes, “students are able to cover the incessantly rising prices" of college education.  How?  With an ever-increasing cheap bowl of taxpayer cash in the form of student aid.  Universities, keen to their consumers’ situation, operate with an understanding that this bowl will always get refilled.  This reveals a pretty logical explanation for the price inflation in higher-ed. 

Costly construction projects and explosive growth in middle management should give pause those willing to maintain the student aid status quo, regardless of their assent to the Bennet Hypothesis.  Any service provider who responds to problems of affordability in this manner is operating under a perverse system of incentives.   

But many people want Congress to double down on these incentives.  Nobody wants to argue for limiting students’ access to cheap government aid.  It is easier to blame the outsized costs of college on the picayune demands of skinflint taxpayers.  All I’d ask is that people remember this:  there is only so much money universities can put toward educational needs, but they can, and will, always find a reason to expand buildings and create unnecessary office jobs.  Saving students from their student loans will redouble our commitment to this damaged system, leaving society less wealth, less quality education, and more wasteful and fraudulent higher-ed expenditures.