Sydney M. Williams
Thought of the Day
“Select Colleges: Supply/Demand Imbalances & Other Thoughts”
July 14, 2023
“When supply can’t keep up with demand, the result is bidding wars. And in
bidding wars, there are always winners and there are losers. There are no beneficial
outcomes. So from an economic perspective, this is extremely wasteful.”
Hendrith Vanlon Smith, Jr. (1989-)
CEO, Mayflower-Plymouth Capital, LLC.
Business Essentials, 2022
An unsurprising consequence of the recent Supreme Court decision to expunge race-based affirmative action for college admission was the resolve to sue select colleges for an unfair bias toward legacy students, children of wealthy donors, and, as former Harvard President Larry Summers intoned, those colleges that have a preference “for those who excel in ‘aristocrat sports.’”[1] He added, admissions officers should “resist being impressed by those who have benefitted from high-priced coaching through the admissions process.”
While the suits may have some merit, admitting students on the basis of name and legacy peaked in the 1950s, though money still talks. From my perspective, selection should be based on merit, but universities need support from all stakeholders: alumni, donors, faculty, and students. Those needs are matched against the demands of government, which is a major source of funding. As an aside, it is a curious fact that economic underclasses are rarely considered. Writing in The New York Times last week, David Leonhardt wrote: “The skew is so extreme at some colleges that more undergraduates come from the top one percent of income distribution than the entire bottom 60 percent.” Nevertheless, in the quest for a perfect solution, universities must keep in mind the aphorism that the perfect is often the enemy of the good.
Laws of economics play a role: What happens when supply fails to keep pace with demand? College, over the past sixty years, has been a growth industry. The number of high school graduates has roughly doubled during that time to 3.9 million, while the percentage of each graduating high school class going to college has increased from 7.7% to 37.5%. Despite that ten-fold increase in demand for a university education, select colleges have not increased student bodies commensurate with increased demand. For example, consider the Ivy League, where demand has been augmented by women who now comprise more than 50% of student bodies and by foreign students who today represent about 11% of their student bodies, yet their total student bodies have increased only about 50% from 1960.
The result is a squeeze on supply, especially at elite colleges. Higher demand plus limited supply result in higher prices. In 1960, for example, Harvard received about 5,000 applications for approximately 1,200 spots. Last year, 57,000 applicants applied for about 2,000 seats. A small number of elite colleges have maintained an “aura of exclusivity,” as Allysia Finley put it in last Monday’s The Wall Street Journal, by limiting the supply of seats. Fortunately, others have taken up the slack, but costs are high. Tuition at Harvard rose from $1,520 in 1960 to $52,659 in 2022 (tuition excludes room and board), an increase of 33.6 times, while average household income increased 11.7 times over those same years. Those sixty years roughly coincide with the start of federally funded student loans, a program begun in 1958 and one favored by colleges, as it assures a steady stream of incoming students, with cost being less of a concern to the university. Coincidence or consequence?
Most universities are recipients of billions of tax-payer dollars in research grants, a major source of funding. In 2020, the federal government paid out $44.2 billion to colleges and universities. This money comes with strings attached; so, colleges adhere to Washington’s dictates. Harvard, for example, with an endowment of $53 billion, in 2019 received $800 million in research funding, with 70% coming from the federal government – moneys paid by you and me. In fiscal 2022, according to U.S. News & World Report, Harvard had an operating budget of $5.4 billion, with over 10% coming from the federal government. The $5.4 billion amounts to $245,000 for each of its 22,000 students, including graduate students. If that seems like a big number to you, it does to me as well. If 5000 of those Harvard students each carry $50,000 in student loans, that means taxpayers are on the hook for $250 million for Harvard students alone, with the university having no liability. With an endowment of $53 billion, should not Harvard bear some of that risk?
What is true for Harvard, is true for other universities. According to insidehighered.com, there were, at the end of 2022, 132 universities in the U.S. with endowments over a billion dollars. Should not they have some skin in the game? Should not they assume some of the risk associated with student loans? Would not they be more concerned with keeping costs lower, and would not they be more cognizant of offering an education that prepares students for the real world? Why should that risk be borne by taxpayers, many of whom never went to college, or who derive no benefit from those that did? It is the university that has responsibility to forge graduates with the means of making a living and repaying loans, not the telephone linesman in Tennessee or the nurse practitioner in Idaho. If individual universities decided to waive student debt that would be their prerogative. The liability would not fall on taxpayers.
While we think of elite colleges as representing the best and the brightest, as the epitome of intellectual thought, as places where great issues are debated, too often they have become forums to promote favored ideologies. Too many, in their desire for racial and gender diversification are blind and deaf to contrarian opinions and class diversification. “The evaluation process at elite colleges,” wrote Professor Jeffrey Selingo of Arizona State University in last weekend’s The Wall Street Journal, “was never fair. It wasn’t fair before the Supreme Court’s 1978 decision in Bakke, which said that colleges could consider an applicant’s race as a factor in admissions, or after the 2003 decision, which again upheld the limited use of race to achieve the education benefits of diversity. Nor will it be fair now.”
Some relief may be coming. The percentage of the population between the ages of 0 and 19 has been falling. According to the U.S. Census Bureau that group comprised 26.9% of the population in 2010 and 24.8% of the population in 2021. Such demographic shifts, along with an increase in demand for community colleges, vocational schools, and apprenticeships, may cause demand for four-year colleges to abate.
But if private universities would free themselves from the yoke of exclusivity, assume student financial risk, operate more efficiently, and rid themselves of the mantle of federal oversight by forgoing government funding, they could expand their universities to meet demand, lower costs, and be at liberty to determine their own optimum mix of students, and ensure they remain at the forefront of global universities.
[1] Regarding athletics at elite colleges, CNN’s John Macintosh, using information from the Department of Education, reported that in 2021 Harvard had 37 varsity teams, with 1,191 athletes (17% of the student body). In contrast, the University of Michigan, with 32,695 undergraduates, had 27 varsity teams, with 866 student athletes, or 3 percent.
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