In a previous post (Price and cost in Higher Education: Price, Jan. 2007) I looked at some data on tuition price increases over time, and the resulting debt load that many students have taken on. In this post, I want to talk, once again, about the ongoing global transition from nation-states to a market-states (see Welcome to the Market-State,Feb. 20, 2006). In this instance, I will focus on how that transition might relate to price in higher education.
Bobbitt describes the governing contract of the nation state as: the government (the State) commits to improving the lives of its citizens (the Nation), and in return, the citizens agree to sacrifice to support the state. In the market state, the government only seeks to maximize the opportunity - rather than the welfare - of its citizens, and individuals then thrive or fail based on their ability to grasp the opportunities offered by the global marketplace. As a corollary, since the market state is offering less of a guarantee of success to the citizens than does the nation state, the citizens in the former are less prepared to sacrifice on behalf of the state. One consequence of this change is that there are increasing demands that tax loads decrease, with the result that the state has less revenue in a market state environment.
In the nation state, highly educated people across a broad spectrum of fields are considered to provide intellectual capital of great value to the state (see Metrics of Academic Excellence in the 21st century, Feb. 27, 2006). However, in a market state, the state focuses its attention on creating educated people in more narrowly defined fields that are deemed to be of importance in order to meed some perceived need of the state. Higher education overall is considered to be of primary value to the individual, rather than to the collective. A recent Chronicle of Higher Education survey captures the changing societal view of this public good/private good perspective. The survey showed that 2/3 of adult Americans now believe that families and students should pay the largest share of the costs of higher education. Similar surveys in the 1960s showed that most Americans believed the converse, that the federal government should pay the largest share of the costs of higher education. Thus the transition to a market state lowers the responsibility of government to take the lead in paying for higher education.
However, there is a counter trend contained in the market state that
gives the state a very large stake in higher education. As the knowledge
economy continues to expand, access to higher education becomes central
to the principle of maximized opportunity that undergirds the market
state contract. However, as we saw in Price and cost in Higher Education: Price, increasing price is decreasing access to higher education. As a consequence, the state needs to find ways to
counter the effects of increasing higher education price in order to maintain legitimacy. As a further constraint, it must do so without significantly increasing its costs of supporting what has
increasingly become a private benefit. And in any case, because of
its lowered tax collections, the state is greatly constrained in the
financial incentives that it could apply to increasing access even
should that be desirable.
There are basically three approaches advanced thus far to increase access without significant increases in government spending. The first involves the use of loans rather than grants as a major component of aid packages. Although some increased government spending is involved in those programs that provide loans at below market rates or that delay repayment, the expenditure is certainly considerably less than would be incurred through an equivalent grant program. One should note that the new Democratic congress is proposing to increase the number of student loans available by restricting the interest that banks can charge. This decreases the governments financial exposure on the loans, such that the Democratic leadership estimates that no additional government funding will be required for this expansion of access. A second approach is to limit tuition increases through legislative price controls. This approach is typified by proposals by Rep. McKeon, who calls for penalties for institutions that raise tuition faster than some predetermined multiple of the consumer price index. The College Access and Opportunity Act of 2006 as passed by the House dropped most demands for penalties, but did require the top 5% of colleges that are deemed to have raised their tuitions excessively over a three-year period to create panels of administrators, professors, alumni, students and others to explore their costs and operations. Thus, the door is still open to this approach. The third approach works on the market principle that increased competition will lead to lower costs. This last approach has many different manifestations, many of which have potentially major consequences for traditional higher education.
There are two main streams to the approaches used to increase competition in higher education. The first involves lowering the barriers to new competitors, and the second involves increasing educational outcomes information available to consumers so that they can “comparison shop” to find the most effective use of their tuition dollars.
Several bills have been proposed in Congress that serve to lower barriers to new competitors.. For example, students at most accredited for-profit higher education institutions have been eligible for most federal financial aid for many years, which enabled those institutions to become much more attractive and competitive. The House-passed College Access and Opportunity Act of 2006 removed almost all remaining differences in aid eligibility between non-profit and for-profit institutions simply by redefining “institutions of higher education” without mention of profit status. A provision in a 2006 budget bill opened up federal financial aid to students attending institutions that are completely on-line, a type of institution that is generally for-profit. Another proposed- but defeated- section of the College Access and Opportunity act of 2006 would have made it illegal for an institution to refuse to accept credits of a transfer student based solely on the kind of accreditation of the transferring institution. This was an attempt to level the playing field for institutions - mostly for-profit- accredited by national accreditors rather than by the traditional regional accreditors.
Of particular interest is the rationale expressed for this proposal, since it could have major implications. Imagine that a student at the nationally accredited institution received federal financial aid to take English 101. Then if the student switched to a regionally accredited institution and the credit did not transfer because of the difference in accreditation, the student would need financial aid again to retake English 101 at the new institution. The government would pay twice for the same course, thus increasing cost. Note that although this argument revolved around differences in accreditation agencies, it holds equally well when any accredited institution denies transfer credits from any other accredited institution, regardless of whether the accreditation agencies are the same or different. Indeed, the rhetoric of these arguments emphasized that students must not have to repeat a course when switching institutions. This argument potentially opens the door to a rather massive leveling of the playing field by effectively defining courses at all institutions as having the same academic value, which ultimately could lead to a requirement that all courses previously taken be accepted by the new institution when a student transfers.
It is very difficult to define the value of an education provided at one institution compared to that provided at another (see Competitive Higher Education, March 3, 2006). Consumers, therefore, have a very difficult time when comparing one institution to another, thus decreasing the potential for real competition. In particular, traditional providers that have brand recognition have a great advantage over newer competitors without such brand recognition when there are no value metrics available to enable comparisons. Numerous reports, most recently the Secretary of Education’s Commission on the Future of Higher Education, have called for outcome measures to help define the “value added ” by individual institutions. There are many perfectly reasonable concerns regarding the measures that might be used - e.g. will they have any pertinence to education for the 21st century, or will they simply be things we know how to measure easily and cheaply? However, since this seems to be a rational component of efforts to control cost, one should expect the demands for outcomes testing to increase. One also should not be surprised when these measures show that many of the newer for profit higher education institutions are at least as effective as a large number of the 4000 or so accredited traditional non-profit institutions.
The transition to a market state, therefore, says a lot about price in higher education. In particular, the necessity of assuring access to higher education makes it a good bet that price cannot to continue to increase in the future at the rate it has over the past decade or so.
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