Pianko on student loan forgiveness

Daniel Pianko:

With only 37% of borrowers actually paying down their loans, the federal student-loan program more closely resembles the payday-lending industry than a benevolent source of funds for college…

the federal government may have to deal with as much as a $500 billion write-down when future defaults and loan-forgiveness programs are factored in…

Jay P. Greene on what online education is missing

Jay P. Greene:

The problem of learning is not how to provide information to students.  Almost all of human knowledge is available to students at virtually no cost — it’s called the internet.  Students could look up and learn anything they want right now.  The trick is motivating students to acquire that knowledge.

Online courses appear to be less effective in getting the average student to learn and I suspect the problem is that teaching online is less able to create social communities and authentic relationships that are necessary to motivate students.  Having a human being in front of students who would be disappointed if students did not learn the material seems important and something that online instruction has not been able to simulate…

Kothari and Ray on varying student loan amounts by field of study

S.P. Kothari and Korok Ray:

Restructure the Federal Direct Loan Program to target loans based on field of study…

When the government is in the business of offering credit, as it is now with student loans, it should think hard about credit risk. One of the chief lessons of the 2008 financial crisis was that mispricing credit risk can have catastrophic consequences.

Yet the government’s Direct Loan Program mostly ignores the credit risk of students, treating them largely as identical in their long-term employment outcomes…

Our proposal is to target the loan amount for each student based on field of study. First, we restrict attention to the loan amount rather than the interest rate since a partial loan (rather than higher rate) is better at ensuring that students have “skin in the game.”

Second, the field of study category need not be determined by government alone but can rely on market data. The Boston-based company Burning Glass Technologies collects data on earnings and collegiate educational choices to quantify the value of different majors in college. Relying on such an index would allow government officials to peg the loan size to market data rather than by government fiat alone…

Government Accountability Office on the Need for Patent Office Reforms

Government Accountability Office:

GAO found that district court filings of new patent infringement lawsuits increased from about 2,000 in 2007 to more than 5,000 in 2015, while the number of defendants named in these lawsuits increased from 5,000 to 8,000 over the same period. In 2007, about 20 percent of all defendants named in new patent infringement lawsuits were sued in the Eastern District of Texas, and by 2015 this had risen to almost 50 percent. According to stakeholders, patent infringement suits are increasingly being tried in the predominantly rural Eastern District of Texas, likely due to recent practices in that district that are favorable to the patent owners who bring these infringement suits. GAO also found that most patent suits involve software-related patents and computer and communications technologies. Several stakeholders told GAO that it is easy to unintentionally infringe on patents associated with these technologies because the patents can be unclear and overly broad, which several stakeholders believe is a characteristic of low patent quality.

The U.S. Patent and Trademark Office (USPTO)… does not currently have a consistent definition for patent quality… Without a consistent definition, USPTO is unable to fully measure progress toward meeting its patent quality goals. Additionally… time pressures on examiners are a central challenge for patent quality… Without assessing the effects of current incentives for examiners or the time allotted for examination, USPTO cannot be assured that its time allotments and incentives support the agency’s patent quality goals…

Scott Alexander on how we can be hypocritical when it comes to different cultures

Scott Alexander:

opponents of colonialism tend to believe that cultures are valuable and need to be protected in and of themselves. This is true even if the culture is very poor, if the culture consists of people who aren’t very well-educated by Western standards, even if they believe in religions that we think are stupid, even if those cultures have unsavory histories, et cetera. We tend to allow such cultures to resist outside influences, and we even celebrate such resistance. If anybody were to say that, for example, Native Americans are poor and ignorant, have a dumb religion with all sorts of unprovable “spirits”, used to be involved in a lot of killing and raiding and slave-taking – and so we need to burn down their culture and raise their children in our own superior culture – that person would be incredibly racist and they would not be worth listening to. We celebrate when cultures choose preservation of their traditional lifestyles over mere economic growth, like Bhutan’s gross national happiness program.

This is true in every case except with the cultures we consider our outgroups – in the US, white Southern fundamentalist Christian Republicans; in the UK, white rural working-class leave voters. In both cases, their ignorance is treated as worthy of mockery, their religion is treated as stupidity and failure to understand science, their poverty makes them “trailer trash”, their rejection of economic-growth-at-all-costs means they are too stupid to understand the stakes, and their desire to protect their obviously inferior culture makes them xenophobic and racist…

Bettinger et al on the effects of merit aid

Eric Bettinger, Oded Gurantz, Laura Kawano, and Bruce Sacerdote:

We examine the impacts of being awarded a Cal Grant, among the most generous state merit aid programs. We exploit variation in eligibility rules using GPA and family income cutoffs that are ex ante unknown to applicants. Cal Grant eligibility increases degree completion by 2 to 5 percentage points… induces modest shifts in institution choice at the income discontinuity… and raises earnings by four percentage points at the GPA discontinuity.

Rick Seltzer covers the HECA vs. CPI debate

Rick Seltzer’s recent article in Inside Higher Ed covered the HECA vs. CPI debate. His piece drew upon this post and quoted me:

Misreading the trends in revenue because of cost adjustments will lead to misdiagnosing the way costs are changing over time — and misdiagnosing, in turn, the reasons tuition has been increasing, Gillen said. The common narrative is that declines in state funding have led to higher tuition, he said. But because his analysis shows state funding has cycled over time while revenue has crept up and tuition steadily increased, Gillen believes there has been too much emphasis on state funding. Increasing state funding is actually more likely to feed the trend of higher costs and tuition, he said.

So other elements of higher education finance need to be considered, Gillen said.

“That’s really why I keep writing,” he said. “If I’m wrong, then the way to keep tuition low is to keep increasing state funding. But if I’m right and you keep increasing state funding, that’s not going to do anything to tuition. Tuition is going to keep going up.”

Colleges and universities will raise all the money they can, and they will spend all the money they raise, Gillen said. Under his logic, an increase in state funding does nothing but increase the cap on what institutions can raise and spend.

Following Gillen’s reasoning can lead to very different ideas for keeping tuition in check.

Public College Revenue per Student Reaches Record High

Revenue per student at public colleges in the United States has reached a record high.

Reanalysis of the new State Higher Education Executive Officer’s (SHEEO) annual finance report indicates that in Fiscal Year 2015, revenues per student reached $12,972, surpassing the previous high of $12,440 from 2007. This detail is easily missed however, since the SHEEO report adjusts annual figures for costs rather than inflation. Note that the price index they use, the HECA, stands for the Higher Education Cost Adjustment. While SHEEO is a model of transparency (they note their use of HECA clearly and post their data online), if the goal is to determine if funding for higher education has changed over time, you need to adjust for inflation rather than costs.

An op-ed in Inside Higher Ed has more details, but adjusting for costs rather than inflation will lead to flawed conclusions. Consider the following:

  1. Cost adjustment hides the (slight) upward trend in total revenue over time

The cost adjusted figures reported by SHEEO claim that total revenue per student in 2015 was about $170 different than in 1999, leading to the conclusion that total revenue is just about stagnant. The inflation adjusted figures reveal the truth about a slight upward trend in total revenue. The first figure shows inflation adjusted total revenue per student at public colleges over time, broken down between educational appropriations (“state and local support available for public higher education operating expenses”) and net tuition revenue (tuition revenue after accounting for state and college funded financial aid).

pub_rev_high_1

While recessions cause temporary dips, total revenue is growing over time by about $100 per student per year. The cost adjusted figures from SHEEO largely obscure this trend.

  1. Cost adjustment implies a long-term decline in state funding when in fact state funding is cyclical.

The SHEEO report is often cited as exhibit A by those arguing that state disinvestment is a plague that has been causing havoc in higher education for decades. Yet adjusting for inflation rather than costs reveals that state funding per student is down $900 since 1990, not the $1,700 that SHEEO claims.

The strongest argument in favor of the long-term state disinvestment story is the fact that inflation adjusted state funding per student (educational appropriations) was almost $900 lower in 2015 than in 1990. It is certainly true that this is a large gap, but it is rapidly decreasing – state funding increased by almost $950 per student in just the past four years. The second figure, which simply unstacks the revenue bars hints at a more accurate story of what is going on: rather than being in a long-term decline, state funding follows a cyclical pattern, falling during recessions and rising during the recoveries.

pub_rev_high_2

  1. Cost adjustment misdiagnoses the cause of tuition increases. Tuition does not rise because state funding falls.

Perhaps the most commonly cited justification for increases in tuition at public universities are declines in state funding. Yet this notion finds little support in the SHEEO data. The second figure hints at the main problem, which is that state funding is cyclical, but tuition consistently increases. It’s difficult to explain how steady increases in tuition are driven by state funding which is subject to volatile swings both up and down.

The third figure directly tests the argument that tuition increases because state funding falls. Each year in the chart plots that year’s change in state funding and change in tuition revenue per student. For example, the “2012” label in the upper left corner indicates that from 2011 to 2012, state funding decreased by $621 and tuition revenue increased by $372 per student.

If tuition increases because state funding goes down, then there should be an offsetting relationship between the two with tuition increasing by $1 for every $1 decrease in state funding, as indicated by the red line.

pub_rev_high_3

Very few years fall along the red line. The blue line shows the best estimate of the true historical relationship, and indicates that a $1 decrease in state funding is correlated with only a $0.07 increase in tuition. Not only is that much smaller than the presumed $1 increase, but the relationship isn’t even statistically significant (p-value = 0.3). The historical relationship also indicates that if there was no change in state funding per student, tuition revenue would still increase by $133. To put that figure in perspective, the actual average annual change in tuition revenue over the past 25 years was $135. In other words, there is little reason to believe that changes in tuition are driven by changes in state funding.

Main Implication for college affordability

The main implication of these findings is that the traditional remedy for addressing college affordability will not work. The conventional wisdom, in part fueled by references to the cost (rather than inflation) adjusted SHEEO data, holds that increasing state funding is the key to making college more affordable. The assumption is that there is some cost of providing an education, and that this cost needs to be covered by either state funding or tuition. In such a world, the way to keep college affordable for students is to increase state funding.

But the results here clearly show that the conventional wisdom is wrong. The upward trend in total revenue combined with resounding empirical evidence that tuition does not reliably decrease in response to increases in state funding imply that increases in state funding are more likely to “feed the trend” of higher revenue per student rather than result in lower tuition.

If increasing state funding is not the solution to the college affordability problem, then what is? Researchers have not been able to settle on a definitive answer yet, but a particularly promising avenue builds upon Howard R. Bowen’s revenue theory of costs. Under this theory, the key to college affordability is to change the incentives that college’s face.