Obama, Yudof, and the Future of Higher Ed

At the University of Michigan, President Obama made an important speech about his new push to control tuition increases and student debt at American universities. In Ann Arbor, he told college and university leaders that, “You can't assume that you'll just jack up tuition every single year. If you can't stop tuition from going up, then the funding you get from taxpayers each year will go down. We should push colleges to do better. We should hold them accountable if they don't.” The policy behind this statement can be found in his new Race to the Top initiative for higher education. Basically, the president wants to use federal grants and loans as a way of pressuring public universities and colleges to contain tuition increases, and while he does realize that state budge cuts have played a role in tuition increases, it is clear that he thinks that there are other reasons for the escalating costs. Moreover, the president wants to use a billion-dollar grant system to provide funding to states that help to control tuition increases.

In order to discuss this new initiative, PBS had President Yudof on the News Hour. The first question asked was the following: “At basic level, do you agree with the president's observation that the fast-rising cost of getting a college education is harming access?” Yudof’s response was, “You have to remember the president didn't mention that there's been systematic disinvestment in higher education. Our budget was cut $750 million in a year, about 25 percent . . . A third of our tuition goes back into financial aid and is distributed to low-income students -- 55 percent of our students pay no tuition -- 39 percent of the students are Pell-eligible, relatively low-income families. That's the reality.” In other words, Yudof blamed the move to a high fee, high aid model solely on state budget cuts.

While it is obvious that the state budge cuts have a direct effect on tuition increases, we have also seen tuition increases when the state contribution to the UC system has gone up. Furthermore, the other guest on the show, Richard Vedder, pointed out that there has been a massive increase in federal money going to universities and colleges, and that the increase in federally funded grants and loans has allowed universities to continue to spend more as they reduce their reliance on state support.

When President Yudof was asked about the rising costs of higher ed, he responded in the following manner, “Our costs are actually down 15 percent per credit hour over the last 10 years. That's the reality. The states don't want to pay. So it's like you go to your drugstore, the insurance company doesn't want to pay, your co-pay goes from $10 to $20. That doesn't mean the cost of the drug has doubled. It just means your costs have doubled.” This response is very revealing because Yudof is openly admitting that as tuition increases, the university is actually spending less money on educating students.

So not only are students paying more and getting less, but as Richard Vedder argued, universities are increasing their spending on non-educational expenses, like administration: “But it is also clear that universities in the United States over the last generation or so have enormously increased their staffs, for example, administrative personnel, student service personnel. There are climbing walls. They're not in and of themselves all that important, but the cumulative effects of a lot of spending on things outside of the core missions has contributed somewhat to the inflation in college costs.” In support of Vedder’s claims, my own research shows that universities now spend on average about 10% of their total budgets on undergraduate education, but undergraduates and states support 35% of the total university budgets. Meanwhile, the costs for professional education, administration, and research continues to increase, and so as undergraduates pay more, they end up subsidizing other parts of their universities to a greater extent.

When asked what would happen if the federal government decreased its support for the University of California, Yudof replied that, “classes will get bigger, class access may suffer, time to degree may grow. I agree with Professor Vedder. We have to do a better job of cutting our budgets. If we have too many administrators, let's reduce the number.” While we have seen some reduction of administrators at the Office of the President, we are still waiting to see what the campuses will do about administrative bloat. Furthermore, class sizes have already gotten bigger and the access to require classes has already decreased, so it is hard to see how the university is going to maintain educational quality as it increases tuition and aid.

What we should push for is clearer budget transparency so we can see how universities are actually spending the money they do have. We also have to insist on a renewed commitment to undergraduate education, and a major emphasis on making sure that federal research grants receive enough overhead funding (indirect costs) to make them at least break even. As a way of pushing this agenda, I have been invited to the White House to make a presentation to the administration.