Synergies

y81, Kaplan depends quite heavily on the idea that everyone can, should, and probably must go to college, and that to fulfill this goal each student should buy as many Kaplan services and products as possible, so as to test well and get into college or into a better one. The subsidies for college education are therefore a critical part of Kaplan’s business model: even if none of the money goes directly to Kaplan, by making the goal of college seem accessible to people who could otherwise go they create more customers for Kaplan’s products and services. Mind you, I also think that college should be available to all (so long as the colleges are providing a good education, and ideally with provision of other opportunities for those who don’t want to go to college), but I don’t have any conflict of interest when I say that.

But once you start examining the conflict of interest, it actually gets worse. Kaplan has no institutional reason to care what happens to those students who aren’t likely to take the GRE or other pre-grad-school standardized tests once they’re actually at college and done spending money on Kaplan’s efforts to help them get into college – and those students who will invest in more Kaplan products as they apply to graduate or professional schools probably went to a decent college anyway. Indeed, fear of bad colleges – the so-called “dropout factories” – might actually spur people to invest more in Kaplan, so they can get into better schools.

Does anyone ever read anything about the history of the press any more? If they did, none of this would seem even slightly surprising. All the President’s Men casts a bizarrely long shadow…

“the Washington Post’s interesting editorial stance on colleges that make their money through hoovering up the proceeds of student loans rather than, like, actually trying to graduate students with useful degrees.”

The Kaplan case is indeed a very nasty case of exploiting government loans for a useless degree. But isn’t your generalizing summary just a little bit dangerous and non-reflective? Arguably quite a bit of the function of legitimate colleges is to hoover up the proceeds of student loans while leaving their students with useless degrees.

An excellent argument could be made along these lines:

A) Noticeable fact–the cost of attending university in the US has been going up at a fantastic clip. 1978 to 2008, inflation costs would suggest a 2.5x cost of living adjustment. High cost problem areas like health care went up at about 6x. College costs went up 10x.

B) College degrees have a noticeable element of positional good about them–people will bid them up as a status differentiator somewhat above their strict non-status utility.

D) For a positional good, if government loans aren’t very carefully employed, they can tend to fuel a price war much more than they actually make things more affordable. (This would happen if colleges can use the loans to jack up the price). This is especially seen at the higher cost universities (which have the largest element of status seeking about them).

E) It seems possible that colleges in general have hoovered up government loans to increase their prices rather than increase overall availability.

Note that statistics used to show the utility of financial aid by the colleges are usually expressed as “X large % of our students receive some form of financial aid [often government supported loans or Pell grants]”. This is used to support the idea that the financial aid is making things more affordable, but in fact it may just be using the financial aid to jack up the price such that the government subsidy is going almost entirely to the university, rather than to the student.

I’m not sure that the above is an entirely convincing case. But it is at least a bit suggestive. (And BTW well in line with quite a bit of leftist thought corporate strategy vis-a-via subsidies of home loans before the crisis, and well in line with quite a bit of public choice theory on regulatory capture.)

Sebastian is right, I think.

In general, the more inelastic is the supply a of a good, the larger will be the proportion of taxes/subsidies that fall on producers rather than consumers. in the extreme case, where the supply of a good is perfectly fixed, so will be the final price to consumers; all taxes will be paid, and all subsidies received, by producers. And while the supply of seats at elite colleges isn;t perfectly fixed, i’ts pretty close to it.

Now obviously college education is not a normal commodity, so it’s not quite that simple. For one thing, unlike most producers in the market, elite colleges ration by more than price. So they might use some part of a tuition subsidy to increase their applicant pool and the quality of their students, rather than to raise prices.

But overall, it seems a safe bet that most demand-side subsidies to higher education (i.e. payments to consumers) are simply going to increase the income of higher-ed providers. To increase access, you would need direct spending on expanding supply, which of course we are doing less and less of.

In other words, it’s probably true that spending on higher education in this country mainly benefits a concentrated, politically active group with substantial resources (higher ed institutions, especially for-profit and elite ones) and not the resourceless, disorganized mass of potential students. Is this surprising?

Dear Folks: I worked in American newspapers for 30 years. All of them, from the Times on down, have ALWAYS run editorials arguing for and slanted news reports regarding their owners’ business interests. Car dealers get away with consumer fraud on an ongoing basis largely because without car dealer ads, newspapers would vanish overnight.
The idea that the American press is some sort of arbiter of fair play and a tribune of the people is a myth created by some 1930s movies and “All the President’s Men.” And I should note you never see a publisher in any of those films.

So, the rise in collegiate costs is mostly about government loans and grants, and institution’s ability to capture same?

No mention of how public subsidies, state and federal, for higher education have gone down over the past 30 years or so?

Most public institutions get their money from 3 sources:

government support (state +federal)
tuition and fees
donations and other endowments

government support has been going down as a proportion of the overall income of public insitutions of higher education for almost 30 years. So, naturally, they must increase their proportion of income from the other two sources.

that’s why senior college administrators, especially presidents and chancellors, are now more and more consumed with fundraising. And why tuition and fees keep going up. If the state won’t pay, someone else must.

But the point is, the total number of dollars spent tells you little or nothing about the effect. The form of the subsidies makes all the difference. Payments to public institutions will lower costs, and increase supply. Payments to individuals attending college will raise costs, and may or may not increase supply.

Plus payments to individuals reinforce the idea that higher education is not a public good, since, on neoliberal logic, the only beneficiaries of higher education are those holding degrees. Whether individuals get loans to help pay fees, or, heaven forfend, grants, using individuals as the unit of analysis in higher ed economics is all part of the destruction of the idea of public goods.

The discussion here has been about the economics but you’re right, it’s just as important to point out that support for public institutions reinforces the idea of higher education as a kind of public good or commons, while subsidies to students imply that it’s a commodity like any other.

I know we’re on the same side here, and I also know that you know this better than I do, and I’m not playing “gotcha” about wording in a blog comment, but, saying that “the economics” is different from a discussion of public goods shows the way “economics” has become the term for the academic discipline (or “discursive field” or “ideological formation” or whatever), that is based on individualist assumptions , and something else, maybe “political economy” (or “lefty nostalgia”) talks about public goods.

Yes, it’s the imperialism of the neoliberal view that we have to fight. University profs have more and more occasions for such fights, as the managers at almost all universities [1] now are conscious or unconscious neoliberals who manage by pitting department against department and faculty member against faculty member, all in the name of spurring productivity by installing conditions of competition, which is assumed to be the only way to incentivize people (cf internal vs external motivation, as we discussed on the other thread).

1. I prefer the UK use of “managers” to the US use of “administrators” because the former makes faculty more clearly employees or “knowledge workers” or whatever, whereas with the latter we can delude ourselves with tales of “shared governance” or what have you.