Subsidizing Failure

With the national economy still locked in the doldrums, states must continue to pull back on funding public university systems. The universities, in return, have two alternatives: they can raise tuition or cut costs. Most often, they do both.

After several years of diminishing or static appropriations, however, many schools say they have already cut to the bone and must scramble to find new savings.

There is at least one place with huge potential for ending wasteful higher education spending: to stop subsidizing students who do not graduate and put their educations to good use. According to a forthcoming study by Harry Stille, the director of the Higher Education Research/Policy Center in Greenville, South Carolina, the key is admissions policy—the more qualified the students, the more likely (and sooner) they are to graduate. Schools that only admit students who are likely to graduate do not waste much money, while schools with only the barest minimal admission standards waste money excessively.

The idea is hardly new. Yet it’s good that Stille found occasion to bring the subject up again, for too many academics, politicians, and members of the media either deny or contest the cost of paying for non-graduates. Instead, they are still pushing more “access” to higher education to more marginal applicants as a major policy goal.

Stille’s data show that the relationship between admissions criteria and graduation rates is extremely strong. The ten state university systems that have the most difficult admissions criteria were all in the top 20 systems for graduation rates.  Conversely, of the ten state systems with the easiest admissions criteria, only two—New Hampshire (6) and Rhode Island (15)—ranked higher than 37th best for graduation rates.

Stille attempts to compute the cost to the state from students dropping out by multiplying the number of students who start but fail to complete college (“non-completers”) at a school (or system) by the amount that the state subsidizes students at that school. Arizona State University is the most wasteful, with an annual cost-of non-completion of roughly $26 million because it is a large school with a low graduation rate. The University of Virginia is at the other extreme, wasting less than a quarter of a million dollars per year due to drop-outs.

But such a simplistic method—while drawing a vivid picture—fails to take into account the many caveats, extenuating circumstances, and qualitative concerns that render computing the “cost of non-completion” exceedingly difficult.

One claim against such a calculation, usually made by advocates of increased college attendance, is that even dropouts increase their skill level (or human capital, if you prefer). This is probably true in some cases, but often dropouts don’t make it past their freshman year—most likely they learn very little, that’s why they drop out.

There is a much more important argument against quantifying the cost-of-non-completion too narrowly: some rate of non-completion is necessary for a school to maintain rigorous coursework and high grading standards. Only a few ultra-prestigious colleges and universities with exceedingly high admissions standards in the whole country can have near-perfect graduation rates without dropping standards.

Take UNC-Chapel Hill as an example. It has a very high overall graduation rate of 89 percent. Its admission standards are high for a public university, ranking sixth according to Stille’s measure. But it also has a severe grade inflation problem. A faculty study made in 2009 states that the average grade given to undergraduates in 1995 was 2.976 (on a four-point scale), while the average in the fall of 2007 was 3.203. In 2007, 45 percent of grades given were either an A or A-minus, up from 36 percent in 2000.

At roughly the same time, according to UNC system statistics, graduation and retention rates rose. Between 1996 and 2010, the retention of freshmen returning for their sophomore years rose from 93.6 to 97.2, and sophomores returning for their junior year rose from 88 percent to 93.9 percent. Four-year graduation rates rose even more dramatically, from 66.9 percent to 80.4 percent between 1996 and 2008.

It would appear that the extreme grade inflation is a very likely contributing factor in such rapidly rising graduation rates, as are the weak courses and degree programs offered in academia in general, including at Chapel Hill.

Without such opportunities for students to skate by without much effort, many more would drop out. Keeping students who are not applying themselves in school past their first year or so is hardly of any benefit to the state. While Stille’s cost-of-non-completion measure counts them as such, it would be far better—for the state and for themselves—that such marginal students learned a trade or gained work experience.

While it is hard to put a precise dollar figure on the cost of non-completion, in a few specific areas thinking in terms of the cost of non-completion can prove insightful.

Stille indicates that the average amount of time it takes for students to graduate from public institutions is 5.5 years. Some of this may be caused by economic factors—many students are paying for much of their school by working and are forced to take lower course loads or take the occasional semester off to work full-time. Others may take time off for “gap” years, which costs taxpayers nothing. But a large share of late graduation is due to students changing majors or simply not applying themselves. 

This is costly. For example, let us look at East Carolina University’s most recent cohort for which extended graduation statistics are available, the 3,792 students starting in the fall of 2006. Of these students, 32.7 percent graduated after four years, and 58.2 percent graduated after six. That means that 25.5 percent of the class (the difference between those who graduated in four and six years, or 967 students) needed at least one extra semester to finish their educations. The state of North Carolina appropriates $5,660 per student per semester, so that, in the fall of 2010, taxpayers were charged $5.5 million extra for students who took extra time to graduate, from just one cohort.

Much of that $5.5 million was waste from taking too long to complete school. Multiplied by several cohorts over many semesters, and at 16 schools, the cost becomes enormous.

Stille’s list of recommendations to improve the current situation is short, simple, and sensible: state universities should not enroll freshmen who have SATs below 910 (or ACTs below 19), who graduated in the bottom half of their high school class, or who require remedial education before they can handle college-level studies.

As commonsensical as Stille’s recommendations seem, they are likely to draw howls of protest from the academic community and other interest groups. In North Carolina, five schools have average freshman SATs below 910.

Stille’s recommended standards are not, in fact, severe; the College Board that administers the SAT exams recommend that a 1030 SAT score is the minimum one should have to perform real college-level academic work. And even with higher standards at the universities nobody will be denied access to a public higher education. Community colleges have academic programs that permit students to improve their skills and to prove themselves ready for the next level—at a much lower cost to taxpayers.

Some degree of austerity is probably going to be with us for the foreseeable future, and higher education systems will need to find more ways to cut back. Just because the cost-of-non-completion is an imprecise measure doesn’t mean that Stille’s basic assumption, that public universities need to raise their admissions standards, is wrong. His data still make a strong case for that.