ACTA's Must-Reads

Competing Priorities and Scarce Resources: Student Loan Interest Rate Edition

The debate on the interest rate for subsidized student loans has shifted to how to pay for it. This is unfortunate, because such a move amounts to committing a huge portion of federal higher education spending without adequate discussion about whether this is the best use of scarce federal financial aid money. A reasonable estimate of the total cost to the government of the subsidized Stafford loan program is $9 billion**** if interest rates are lowered to 3.4%. To put this figure in context, this is nearly a third of recent spending on Pell grants, and a bit less than what all public colleges and universities in California spend on instruction.

Financial aid dollars are already scarce and may become increasingly so in the years to come. There may be valid arguments for spending this much money on subsidized Stafford loans, but it is not at all obvious that this program, with the increased cost of lowering interest rates to 3.4%, is the best use of $9 billion.

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The rest of this post provides background on the calculation indicating that the Subsidized Stafford loan program will cost the government a total of $9 billion if interest rates are kept at 3.4% (letting rates rise to 6.8% would lower this by $6 billion). To calculate the total cost to the government of a loan program, one needs two numbers, loan volume and the subsidy rate. Unfortunately, estimates of neither are publicly available, but it’s possible to estimate these values. Loan volume is just the total amount of lending, which in the case of the subsidized Stafford loan program for next year, I conservatively estimate to be $40 billion based on College Board data.

The subsidy rate is the Congressional Budget Office's (CBO) estimate of the present value subsidy for each dollar of lending. For example, suppose the government lends me $100 this year, and I pay back the $100 plus $10 in interest next year. At a discount rate of 5%, this loan would have a present value of 4.8 for the government: the present value of the $100 the government lends to me is -$100 for the government, and the present value of the $110 I pay next year is $104.8 ($110/1.05). Since the government makes a present value profit on this, the subsidy rate is negative, in this case -.048, meaning that for each dollar the government lends me, it makes, in present value terms, a .048 cent profit.

Under the Federal Credit Reporting Act (FCRA), the subsidy rate for subsidized student loans is estimated by the CBO to be -10 for 2012 and -15 for 2013. Splitting the difference gives a subsidy rate of -12.5. This means that the CBO estimates that for every dollar of lending during the 2012-2013 academic year, the government will make 12.5 cents.

There are two problems with using this subsidy rate to estimate the cost of the subsidized Stafford loan program at 3.4% however.

First, the rate assumes that interest rates are 6.8%, whereas all political parties are pushing to lower the rate to 3.4%. The CBO estimates that this will cost the government $6 billion. So lowering the interest rate means the government will lose $1 billion rather than making $5 billion. A loss of 1 billion on $40 billion of lending implies a new FCRA subsidy rate of 2.5.

Second, FCRA by design yields a flawed estimate. As the CBO reports

"FCRA subsidy estimates are not comprehensive measures of the costs of the federal student loan programs, for two main reasons: They do not take into account the cost of some of the risks that student loans impose on taxpayers, and they omit most administrative costs (which are recorded elsewhere in the budget)."

Since these should be taken into account, Fair Value subsidy rates, which do take into account administrative costs and the risk borne by the government when lending, provide a better gauge of the actual cost to the government of lending. Table 3 of that same report indicates that for 2012 and 2013, Fair Value subsidy rates are around 20 points higher than FCRA rates, which gives us a new subsidy rate of 22.5.

In other words, at 3.4% interest rates, the subsidized Stafford loan program has a Fair Value subsidy rate of around 22.5, meaning that every dollar lent out will cost the government 22.5 cents. When this subsidy rate of 22.5 is applied to lending of $40 billion, the result is total spending on the subsidized Stafford loan program of $9 billion.

A Profile in Cowardice

Two days ago the Chronicle of Higher Education fired blogger Naomi Schaefer Riley -- an accomplished journalist and author who has covered higher-education for nearly 15 years. Her offense in the eyes of the Chronicle was writing a post critical of black studies. Chronicle editor Liz McMillen offered an explanation of the Chronicle's decision that can only be understood as a profile in cowardice.

Ms. Riley's post criticized a glowing Chronicle piece on the dissertations of graduate students in black studies. She argued on the basis of the Chronicle's own descriptions of the dissertations that they were substituting political partisanship for objective research and analysis. Her piece was sharp, controversial, and sarcastic, but certainly not out of bounds.

The blogosphere exploded. Comments poured in to impugn her character, sneer at her publication record, complain that she had not read the (unpublished and unavailable) dissertations, and even accuse her of racism. The Chronicle published extended responses from the students who had been criticized and from a professor in their department, both of whom launched ad hominem attacks on Riley. More than 6,000 petitioners demanded that she be fired. And so she was.

Truly shocking was the cravenness of her editor, Ms. McMillen. She cited readers' "outrage and disappointment" and accused Riley of violating "journalistic standards" but did not say what those journalistic standards were or how Riley had violated them. She apologized for an editor's note suggesting that readers who disagreed with Riley should -- horror of horrors! -- argue against her instead of trying to silence her. She "sincerely apologize[d] for the distress" that readers felt at having their beliefs challenged. But perhaps worst of all was her self-satisfaction at having caved to popular pressure instead of standing by her writer: "[W]e did not live up to the expectations of the community of readers we serve. You told us we can do better, and we agree."

That Riley was fired was a travesty and an injustice. ACTA has long advocated First Amendment freedoms for everyone, both for scholars and non-scholars, authors and the public, and this episode re-affirms -- yet again -- the importance of that freedom.

But Mark Bauerlein points out a deeper concern with the angry mob's response to Riley. After citing the hysterical tenor of her accusers, he notices that they did not actually refute her charges. Riley offended the politically correct when she suggested that black studies often fails to live up to the standards of scholarly rigor and impartiality. An honest response to her charge would have attempted to defend the intellectual merit of black studies as the scholars understood those merits. But instead, Riley's accusers called her a racist and got her fired. They had an opportunity to engage their critics and explain and justify their field; instead, they shut down discourse and left both sides in their siloes, angrier but not wiser than before.

The Chronicle missed a chance to stand up for First Amendment freedoms, presumably the foundation of any genuine publication. Instead, they kowtowed to their constituency -- the academy -- deciding that political correctness was far more important than the search for truth and the defense of free speech.

What a sorry statement of the values of the Chronicle, the academy's paper of record, that it will not support -- and apparently does not understand -- the central value of the free exchange of ideas. In the words of the late C. Vann Woodward: "To curtail free expression strikes twice at intellectual freedom. For whoever deprives another of the right to state unpopular views necessarily also deprives others of the right to listen to those views."

The American Council of Trustees and Alumni
Anne D. Neal, President

Gov. McDonnell urges public institutions to hold the line on tuition

On the heels of ACTA's report card on higher education in Virginia, a letter sent from Governor Bob McDonnell highlights many key points mentioned in the report. The letter was sent to the board members, presidents and chancellors of Virginia's public colleges and universities and urges recipients to hold the line on tuition.
"I remain very concerned about the affordability of post-secondary education for the young people of Virginia," wrote McDonnell. "I need your leadership now in holding down in-state tuition and fee increases."
McDonnell mentioned the unprecedented $1 trillion benchmark in student debt, and how 58% of students in Virginia graduate with over $23,000 in debt. After years of double-digit annual tuition increases, McDonnell cautioned that the trend is unacceptable and can damage the reputation of higher education in Virginia.
ACTA's recent report, Diffusion of Light and Education, showcased some of the challenges facing higher education in the Commonwealth. In 17 of 39 schools studied, tuition and fees already amount to more than 40% of median household income.
Kudos to Gov. McDonnell for affirming the important role trustees play in ensuring higher education remains accessible and affordable.

MOOCs and the future of higher ed

The idea of using technology, both online and offline, to help facilitate college courses is not exactly new. Various projects, such as the OpenCourseWare Consortium, iTunes U, and various Learning Management Systems (LMS) have served as virtual platforms to deliver various course materials -- including videos of lectures, course notes, PowerPoint presentations, etc. -- to large numbers of students. But the idea that there can actually be a live, online course, with a massive enrollment of tens or hundreds of thousands of participants from all around the world, that can serve as a fully functional, effective, interactive learning platform where students can measurably master material is revolutionary, to say the least.

One of the pioneers of this field is the Silicon Valley startup Coursera, which was founded by two Stanford computer science professors, and has partnered with Stanford, Princeton, the University of Michigan, the University of Pennsylvania, and the University of California at Berkeley. Coursera so far offers 39 courses, all of them for free—ranging anywhere from "A History of the World Since 1300" (Princeton) to "Social Network Analysis" (University of Michigan), from "Modern and Contemporary Poetry" (Penn) to "Probabilistic Graphical Models" and "Cryptography" (Stanford). And these are not just lectures accessible to hundreds of thousands of people around the world. The idea is to have actual courses, with extensive online peer review, tutoring and discussion, interactive homework assignments, graded exams -- all the components, save the physical presence, of a brick-and-mortar college course whose cost would run in the hundreds and thousands per credit hour at these elite universities.

Is this a feasible model? Last year, Andrew Ng, the co-founder of Coursera, decided to put his computer science course on machine learning online for free for anyone who wanted to sign up. Over 100,000 students enrolled in the course. If this number is any real indicator of interest and future potential, then ventures like Coursera, Udacity (another Stanford-based startup), MITx, the Massachusetts Institute of Technology's similar initiative, or Carnegie Mellon's Open Learning Initiative, may have deep, disruptive, as-yet unforeseen consequences for the future of higher education -- especially the so-called "higher ed bubble."

Trustees in particular should stay tuned to these developments. The success of a venture like Coursera may be a guiding model for governing boards as they look for ways to cut costs, measurably increase both student interest and cognitive gains, and implement new technologies and platforms to keep their institutions competitive in tomorrow's world of higher education.

Whither Academic Freedom?

There is nothing so central to the life of the mind than academic freedom -- and in years past, one could count on the AAUP to defend and clarify it. The AAUP's 1915 Statement of Academic Freedom today stands out as an eloquent and inspiring statement of academic freedom and responsibility.

And yet, in the last decade, the AAUP's attention to responsibilities has declined. Indeed, with the AAUP leading the way, many academics have adopted a colloquial definition of academic freedom broadly analogous to the phrase "anything goes." At every level, from faculty to administration to state and federal government to the justice system, we have uncertainty, incoherence, and opportunism where there should be principled decision-making and consistent action.

Academic freedom may be the defining value of America's colleges and universities -- but there is no real clarity or consensus about how that value ought to be implemented, what its limits are, or how best to preserve it.

This is a paradox with profound practical implications for the academy and also for the society it serves.

Indeed, it would not be an exaggeration to say the situation is one of great danger -- not simply for the future of academic freedom, but for the future of American higher education and, by extension, for the future of a society whose democratic institutions and standard of living depend upon it.

In this context, one cannot help but view with alarm the results of the AAUP elections, which in large measure suggest that the AAUP has now positioned itself as a faculty labor union advocating for faculty rights rather than enforcing faculty ethical obligations.

What will happen, of course, remains to be seen. Yet trustees and the public should take note that the organization which has historically served as the arbiter of professional responsibility now appears to be endorsing a working definition of academic freedom that concentrates on rights, job security, and collective bargaining.

To thrive, academic freedom cannot ignore crucial matters of accountability and responsibility. This is a sorry turn of events indeed.

Senator Harkin's Latest Pandora's Box

Senator Harkin is now advocating that for-profit colleges be forbidden from using federal financial aid dollars for advertising, marketing and recruitment purposes:

"We need to make sure that federal education dollars are spent on just that: education," Harkin said.

But if one is serious about making sure federal financial aid money is spent on education, why not restrict it to just direct instructional costs? Bob Samuels calculated that

"the total average annual instructional cost per student is $1,456."

That means the $49 billion the federal government spent just on grants in higher education in 2010-2011 (and not counting the $104 billion in loans) should cover the instructional costs for 33.7 million students (note that in 2009, there were only 15.5 million full time equivalent students).

You can certainly get the $1,456 figure higher by including reasonable out of the classroom costs and/or misallocating other spending as "educational" costs, but the smaller point here is that singling out marketing spending (and for-profit colleges for that matter) makes no sense, and if carried out to its logical conclusion, would dictate large cuts in federal financial aid.

The larger point is that the last thing higher education needs is Washington determining how it should be spending money. Never mind the sheer irony of Washington giving advice on what constitutes appropriate spending. Restrictions on spending would not long be restricted to marketing costs at for-profits. This is a Pandora's Box that no one should want opened.

-Andrew Gillen is senior researcher at the American Council of Trustees and Alumni.

In Memoriam: Ed Rauchut

Ed Rauchut, a prolific literary scholar, beloved professor, and long-time ACTA friend, passed away last Thursday at the age of 61.
In so many ways, he was a model of all that is excellent in higher education. He was revered as a superb scholar and student-focused professor at Bellevue University in Nebraska. And he was the chief architect of the Center for American Visions and Values.
It is no surprise that former University president Dr. John Muller, in a recent article in the Omaha World-Herald, called Ed "...the most popular and influential professor at the university in the past 20 years. This is a very, very significant loss to the university."
Ed held the William and Berniece Grewcock Chair of the University's Center for American Vision and Values and was director of the American Vision and Values Trust. He also served on the board of the National Association of Scholars for nine years and founded the Nebraska Association of Scholars. In the cause of quality higher education, he demonstrated excellent judgment, scholarly depth, and real humor. He will be sorely missed.

Temperance in Maine... and a Rocky Mountain High

Escalating tuition and fees make college education a financial risk that many students can no longer take. That's why trustee and administrative leadership is essential to keep college educations accessible and affordable. ACTA's series of state report cards tries to home in on this challenge -- by comparing the relative growth of administrative expenditures versus instructional expenditures. In most cases, it is teaching that is forced to take a smaller share of higher education dollars. Education leaders in the Maine system are getting the message and modeling the kind of behavior that we need to see around the country. In January, the University of Maine trustees voted unanimously to freeze tuition for the first time in 25 years, and after a popular outcry over administrative bonuses at the University of Southern Maine campus, promptly suspended all discretionary increases.

This contrasts with disturbing tuition increases and administrative expenditures underway in Colorado. While families are hurting, administrators at the University of Colorado are getting big raises again and again!. And all the while students are being forced to bear the burden -- with recent calls for tuition increases as high as 15.7%. Public outcry seems to have quashed the double-digit tuition proposal, but not the salary increases. Rocky Mountain high, Colorado.

Harvard welcomes back SROTC

In another example of the warming relationship between the Ivy League and ROTC, Harvard University announced this week that it has agreed to re-establish a formal relationship with the Army Senior Reserve Officers' Training Corps (SROTC).

The agreement stipulates that the Army's professor of military science, stationed at MIT, will devote office hours to mentor the Harvard cadets. The SROTC is a scholarship program that focuses on producing commissioned officers for the Army.

Harvard President Drew Faust said the move is "a welcome step in the long and distinguished history of military service by members of the Harvard community."

Harvard has agreed to finance the program, as well as offer office space and other amenities.

The announcement comes a year after the school announced it would welcome Naval ROTC back onto campus. Many Ivy League schools banished the programs during the Vietnam era, and slowly have started returning ROTC to campus following the repeal of "Don't Ask, Don't Tell."

Non-profit to broadcast interesting lessons online

We've all been there.
Sitting in a college classroom, enthralled by a particularly enthusiastic professor's lecture, and thinking 'Why can't all my lectures be this interesting?'
It's no small feat to make Rousseau's "The Social Contract" or Keynesian economics interesting, but thanks to the nonprofit TED, students' chances of turning that spark of curiosity into a flame of long-standing interest will be more likely than ever.
TED currently produces videos on topics such as business, technology and global issues. Want to learn more about the perks of being an introvert or the implications of your birth order? Check out ted.com. They have more than 1,000 videos on similar topics - and are gearing up for more.
Now, TED is expanding its reach by launching TED-Ed, an online collection of educational lessons for high school and college students.
By utilizing the latest animation technologies, TED-Ed aims to create concise (less than 10 minutes) videos on an array of subjects from world-class lecturers. From traditional courses, to some which lie a bit outside the boundaries of conventional educational disciplines, the videos are meant to steer students toward further exploration of the material.
The American Council of Trustees and Alumni has found that colleges are increasingly loosening their focus on a core curriculum. The vast majority of colleges don't require even a single foundational course in American history or economics. If students aren't learning these vital courses in the classrooms, at least some of the material will be available online for students who are interested. Though it's no substitute for a rigorous college course, endeavors such as TED-Ed could help minimize the 87 percent of employers who say college students just don't have the skills or knowledge necessary to be successful.
No, you're not going to get course credit. But the next time you realize you've spent the last 20 minutes of your lecture class staring at the clock with tired eyes, see if Ted-Ed has a video that can help make the material a bit less mundane.

The Ant and the Grasshopper ... Again

Today's Chronicle with unintentional irony presented side-by-side two brief stories that illustrate the options for the crucial task of setting priorities among academic programs in these tough economic times. The choices are join or die. No institution can do an effective job of offering all the programs that faculty or students might want, and those that have allowed a burgeoning of low-enrollment programs must often reckon with quick and painful elimination. Facing budgetary shortfall, the University of Northern Iowa has announced plans to terminate undergraduate majors in French, German, Russian, geology and geography and Master's programs in German, French, criminology and sociology: in all over seventy programs will be eliminated or restructured. Meanwhile, five small liberal arts colleges, Bethany College, Davis & Elkins College, Emory & Henry College, the University of Charleston, and West Virginia Wesleyan College, with support from the Teagle Foundation have taken the proactive initiative to share a math professor among them, using both classroom and distance education platforms for the collaboration. Two of the schools are also sharing a history professor.

As ACTA has noted repeatedly some institutions wisely embrace collaboration, rather than competition, with other institutions. Time is running out for the old paradigm of going it alone.

Michael Poliakoff

In Memoriam: James Q. Wilson

With sadness, ACTA observes the passing of James Q. Wilson, a scholar and teacher whose work transcended the lecture hall and improved the quality of life in America. His scholarship and insights are properly credited with the reduction of crime throughout this nation and a renewed focus on the moral behavior that is at the heart of civic and personal fulfillment.

From 1961 to 1987, he served as the Shattuck Professor of Government at Harvard University. He was the James Collins Professor of Management and Public Policy at UCLA from 1985 until 1997 and the Ronald Reagan Professor of Public Policy at Pepperdine University. He was an advisor to Presidents Johnson, Nixon, and Reagan, and received the Presidential Medal of Freedom from President George W. Bush.

ACTA remembers with gratitude Professor Wilson's generosity with his time in serving on the selection committee for ACTA's Philip Merrill Award for Outstanding Contributions to Liberal Arts Education. James Q. Wilson leaves behind a legacy of the highest levels of achievement in American academic life and in service to this nation.

Anne Neal

Message to Senator Durbin: Level the Playing Field

Recently, Senator Richard Durbin wrote to the North Central Association of Colleges and Schools, asking them to "take great care in considering the integrity and quality" of the University of Phoenix. Ironically, University of Phoenix recently published its 4th annual report on the diversity of its students and faculty, its graduation rates, and student learning outcomes, including results from the Proficiency Profile, which is a well-regarded, nationally-normed assessment of core collegiate skills. Only a minority of the nation's non-profit institutions are willing to be nearly so transparent about student learning gains.
ACTA's www.whatwilltheylearn.com project, moreover, quickly reveals how many non-profit institutions graduate less than 30% of their first-time, full-time freshmen, even over six-years. For-profit institutions may make a convenient scapegoat for the crisis in American higher education, but it is both unjust and misguided to apply special regulations to them. Justice and prudence demand a level playing field. That is the only kind of game that will allow America's college students to win.

Michael Poliakoff

Substance Abuse on Campus

Hundreds of thousands of college students each year urgently need help. They need someone to see what is happening on college campuses - 696,000 alcohol-related assaults from fellow students, and a massive and rising level of abuse of alcohol, illegal drugs, and prescription medications.

ACTA's latest publication, Substance Abuse on Campus, shines a spotlight on a campus crisis. Substance abuse is rampant. Drinking has gone from a social activity reserved for weekends to the main event at too many campuses across the country.

- In 2005 there were 1825 alcohol-related deaths among students, a 25% increase from 1998.
- Currently, more than 40% of college students report binge drinking within the previous two weeks.
- Nearly 240,000 students abused prescription painkillers and 170,000 abused prescription painkillers, according to a 2005 study, a sharp increase over the preceding decade.

What is going on?

Colleges are losing sight of their main focus - education. Besides a trend to throw out the core classes that employers prefer, many campuses are scheduling fewer classes on Fridays and Mondays. The weekend grows from two to three or even four days: parties, not learning become the college priority.

Additionally, academic rigor is down. According to a survey of over 30,000 freshmen on 76 campuses, students who drink spend more time drinking than studying: 10.2 hours verses 8.4 hours, on average. The average number of hours students spend studying has declined by about half in the last 50 years, yet GPAs have risen dramatically from 2.5 to 3.1.

Drink more. Study less. Get better grades. No wonder employers are complaining that recent college graduates don't have the necessary skills the market demands.

Substance Abuse on Campus aims to focus trustees' attention on this important issue. There are many things trustees can - and must - do to protect the safety of their students and the academic reputation of their institution - often damaged by a "party school" stigma.

By implementing and monitoring programs to curb alcohol and substance abuse, scheduling more classes on Fridays and Mondays, addressing grade inflation, and encouraging school-sponsored weekend activities that have been shown to reduce alcohol consumption, trustees can help and safeguard their students from the life-threatening dangers of "fitting in" to a campus drug and alcohol culture. They can instead help create a campus culture where academics come first.

Washington Post columnist Alexandra Petri recently discussed this topic in her post about a University of Virginia lacrosse player convicted of killing his girlfriend after he'd been drinking way beyond the point of excess, The tragedy of George Huguely.

Time and again, reading through the coverage of the trial, I am struck by the -- adriftness, for want of a better word -- of everyone involved in this. There's the discipline of sports but then, off the field, there's the strange mess of college life. Sunday Funday. Hookups. Parties. College is a place you arrive after working awfully hard in high school -- or at least writing one or two really compelling personal essays -- and you are entitled to your share of fun. Afterwards, you might not find a job. So enjoy those four years. Colleges act in loco parentis only in the sense that some parents are very hands-off, have lots of money and only show up to prevent the police from getting involved.

Trustees are the fiduciaries of their institutions. They must curb alcohol and drug problems on their campuses by working in conjunction with administrators, faculty, parents and students. Experiencing increased freedom for the first time, too many young students are dying because they don't know the facts - or when to stop. Their futures depend on real leadership in higher education.

In Memoriam: Harry McPherson

Harry McPherson, a public servant of the highest vision and integrity, died yesterday at age 83. During his long career in government, he served as special counsel, advisor, and speechwriter for President Lyndon Johnson. Among his achievements was the organization of the 1966 White House Conference on Civil Rights, whose 2,400 participants included Dr. Martin Luther King and Thurgood Marshall. His wisdom and diplomacy recommended him to presidents of both political parties, and he served on commissions at the request of Presidents Carter, Reagan, George H. W. Bush, and Clinton. In legal practice, his cases included brokering the Tobacco Master Settlement Agreement and gaining compensation for assets seized by the Communist government of Czechoslovakia for 2,500 Czech-Americans.

ACTA was honored by Mr. McPherson's presence at the presentation of the 2011 Philip Merrill Award to his longtime friend David McCullough. And we note with special poignancy that Mr. McCullough, in his remarks, singled out Harry McPherson for his own rich contribution to the study of American government and history. ACTA mourns the passing of this great man, himself a part of our history, and a person who embodied the principles that have sustained this nation.

Anne D. Neal