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The Label Problem Driving the Cost of American Higher Education

  • 26 September 2019
  • By Andrew Stumpff Morrison

This blog was kindly contributed by Andrew Stumpff Morrison, author and lawyer who teaches at the law schools of the University of Michigan, University of Alabama, and Washington University in St. Louis.

U.S. Democratic presidential candidates’ most-offered proposal for reducing the financial burdens of American higher education is to make community college free of charge. The next-most popular is to do the same for public universities.

It’s hard to see how these ideas would produce the desired effects. They don’t address what seems, ultimately, at the root of our problem: an elephant in the room, which people can find awkward to discuss.

Imagine, for example, you had the option of attending community college at no cost whatsoever, or Stanford University for $10,000 per year. Which would you choose?

In fact, a year at Stanford, including tuition and living expenses, costs $75,000 per year, and there’s no shortage of applicants happy for the chance to borrow that rather than attend community college for the tiny fraction it would cost under our current system. And what Stanford charges appears, actually, to be far below market value: one item to emerge from the recent admissions scandal was a billionaire’s payment of $6.5 million to ensure his daughter’s acceptance – thereby establishing, more directly than we usually can, the fair price of a Stanford degree were it allowed to float at auction.

When pressed, educational authorities often downplay or even deny the significance of college identity. But parents voluntarily assuming costs of hundreds of thousands of dollars – or, in the admissions scandal, millions, plus the risk of jail – to obtain specific affiliations for their children are not crazy. Institutional name is arguably the accepted means of conveying intellectual ability. Don’t try putting your GPA or SAT scores on your bumper sticker.

Frequently cited research suggests that, all else equal, school-identity has little marginal impact on a graduate’s lifetime economic earnings. Perhaps so as the marketplace has no incentive to reward prestige in itself. But this appears to overlook some obvious, if uncomfortable points, the most prominent being peer-prestige. That is to say a wealthy person with an exclusive degree outranks an otherwise identical wealthy person without one. Nor does the research address graduates’ access to academic or high-level government jobs, for which diploma-name remains crucial. Again, parents going to insane lengths for their children’s admission aren’t doing so by mistake or out of some misunderstanding of how the world works. Nor is it their only or principal motive, surely, to improve their children’s future wages. It is to confer a form of lifetime social capital.

Community college at any cost thus isn’t really an equal alternative to Stanford, or to Duke, or UCLA, or the University of Idaho, and none of those is really an equal alternative to any of the others – even though, by studying and doing your homework, you could learn exactly the same subjects in any of these institutions or even at home. The issue has to do not with skill-acquisition but with labelling.

One consequence of labelling-by-institution is the pressure it places on higher-education costs. Oxford professor Simon Marginson has characterised university degrees as “positional goods,” whose hierarchical quality generates competition among schools and students.

It’s true that with astronomical endowments, funded largely by alumni motivated to defend the value of their credential, schools at the very top are in position to offer heavily reduced tuition to most or all their own students. The effect of the institutional-credentialing system is nonetheless constantly felt, everywhere. The positional-goods competition is replicated all the way down the rankings. In prestige and attractiveness, which is the same thing, to prospective students and faculty, Yale exceeds Johns Hopkins which exceeds Ohio State which exceeds Youngstown State. Each must constantly maintain its relative position and must not, at any rate, lose ground relative to competitors. This entails controlling what can be controlled: spending money to hire leading faculty; manicuring the grounds and raising new buildings. A standing bidding war for prestige emerges, in which unlimited money at the top exerts unrelenting economic pressure on all those below.

Little wonder the inflation rate for American four-year college tuition has run at nearly a 7% average annual rate for a half-century, compared with general inflation under 4%. If that seems a non-catastrophic difference, consider the effect of compounding. A representative basket of goods and services priced at $250 in 1964 would have cost just under $2,000 in 2017, while the average tuition at a four-year public college – the same $250, in 1964 – had simultaneously grown to over $9,000: a near-quintupling relative to other costs, in my lifetime.

In its resistance to price pressures our education system is similar to healthcare. At its highest end the system appears simply price-inelastic: Short of some number perhaps in the tens of millions, Stanford would, as we’ve seen, find parents willing to pay tuition. Unlike healthcare, however, there is no inherent supply limit. Stanford or Harvard could admit as many students as they wished, particularly given the advent of online education. The constraint is artificial: because the scarcity of elite credentials is what preserves their value, institutions quite rationally preserve positional advantage by restricting numbers.

As a system, strict labelling-by-institution is not inevitable. Marginson observes that in some countries the “positional advantage hierarchy” is not so steep as in the U.S. or the U.K., from which our system is effectively copied. For a suggestion of how things might be different, consider the cramped, forthrightly shabby physical appearances of even famous continental European universities compared with a typical American campus. Consider also the relative lack of advertising by European universities for new students.

Changing things would require a structural replacement of the existing credentialing system with something else. We would need, in effect, to try to “disaggregate” into other components the currently monolithic, scarcity-based signal of academic merit – which is a student’s physical presence at a specific geographical place, the access to which must actually be purchased, like a pre-Reformation papal indulgence. Maybe for a start we actually should not discourage people from advertising their test scores. Beyond or instead of aptitude tests, we might establish new professional or attainment-based credentials like those employed in the accounting and actuarial professions. The requisite exclusivity could be maintained, at almost no economic cost, by limiting “pass-rates” for top credentials.

Credential disaggregation could have value beyond slowing runaway educational inflation. Anyone who has taught college has observed the wide range of ability within a given class, in a given university. But students who graduate from one school receive the same degree, and from an institutional-labelling perspective all emerge appearing “tied” with each other, inferior to all graduates of higher-ranked schools and superior to all those of lower-ranked ones. Under the labelling-by-institution approach, people are massively and permanently mis-sorted.

Worse, the crucial credential, admission, is allocated in secret, by a process which weighs academic skill as just one among other factors such as family attendance and athletic achievement. Changing the system might have the happy effect of reducing the consequentiality of whatever unholy calculus gets someone like Donald Trump into Wharton at the expense of applicants with ability and curiosity.

Opponents of such a change are unlikely to be in short supply because almost everyone relevant is quite invested in things as they are. But if we want to make American education fairer and less costly, this seems to be where we must start. Free community college won’t do it.


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