This book makes the case for the liberal arts college as a critical and still relevant component of the higher educational universe, describes current challenges, and suggests way that this segment of higher education can survive and thrive in the years ahead.
The chapter for this week was an ambitious one, as it attempted to explain the economics of higher education in general, and liberal arts colleges in particular, and possible ways to address the challenges they face—all in the space of 14 pages. As a result it was, not surprisingly, a rather superficial treatment.
The authors claim, correctly it seems to me, that the American public does not understand the difference between cost, price, net price, discount rate, etc. and the pressures that liberal arts institutions are under. They see it as important for us to educate the public about why the cost of educating students, especially at high-quality, highly-selective institutions, and the price to attend them is so high and increase at rates higher than inflation and other like indices.
The factors that they identified as driving up costs are consistent with those in our other readings: high labor costs; technology; efforts to increase access to underserved populations via financial aid, declining governmental support, etc.
They emphasized the point that the price (tuition) does not cover the full cost, so that everyone, even those paying full tuition, receives a subsidy. Editorial comment: While true, I do not believe that most people who hear this find it compelling or satisfying. A quick aside: Our long-time VP for Finance once told an audience of parents and alums that, because of this subsidy, those attending Haverford and similar schools are actually getting a real bargain. Did not go over well…
The authors spend a portion of the chapter describing the economics of the wealthiest, most selective colleges, who are in the enviable position because of sizable endowments of being able to essentially set their own prices and provide need-based financial aid to enhance socio-economic and racial/ethnic diversity. By contrast, most schools use aid of various sorts as a way to fill beds on campus.
That said, the recent economic crisis has had a negative impact on endowments and so even at these schools the price subsidy it could support has been reduced, putting more of the cost burden on students and parents. The authors believe that liberal arts colleges, even the wealthiest institutions are, on an unsustainable path.
While wealthy schools may have the means to attempt innovations to increase productivity and restrain costs, they have had little incentive to do so. Another editorial comment: I personally have yet to come across any serious ideas for increasing productivity that would not decrease the quality of the educational experience, as was essentially argued in the Archibald and Feldman reading.
The authors close by making a few suggestions for controlling costs that would hopefully not have a negative impact on quality of the educational experience.
These include: improving graduation rates; reducing time to the degree (including enhanced use of summer school)—while this might not cost less than the current four year program, it would reduce the opportunity cost give back one year of earning potential—; colleges “colluding” with one another to agree to reduce costs or eliminate some services or frills so individual institutions would not be left out on a limb, as it were, with the risks associated with innovation; and, finally, insuring that faculty focus their energies and attention on core tasks, leaving less important ones (like monitoring progress towards the degree) to presumably lower paid administrative staff.
The authors closed the chapter with the assertion that institutions need to find creative ways to increase productivity or reduce costs before it is too late or the government steps in to mandate it, effectively taking the matter out of institutions’ hands altogether.