Wednesday, September 21, 2011

Correlation is not causation

Glenn Reynolds, with another Higher Education "Bubble" update, quotes Robert Weissberg:
Administrative bloat is a major factor in the escalation of college costs, and ‘diversity’ administrators are probably the biggest part of it.
I think that's probably exactly backwards. Looking at colleges as businesses, I suspect that administrative bloat is actually one of the major results of the escalation of college costs, and diversity administrators are one of the biggest parts of that. That is to say, costs aren't going up because colleges are hiring more administrators - they are hiring more administrators because they have more money coming in. They have more money coming in because we've made a decision, as a society, that the path to success in this world includes the credentials that come with a college degree, and because Uncle Sam has stepped in with untold billions of dollars in guaranteed loans to enable people to go.

Stop and think about this from a business point of view for a minute. Let's assume that I'm running a college, and every year I have 1000 applicants for 800 slots in my incoming Freshman class. I go through the applicants, and, based on whatever criteria I choose, I come up with 800. Half of them can pay the nominal $15,000 per year tuition and fees, the other half get help from my endowment fund, and in the end, I end up with 800 students who are going to come in and pay somewhere around $10,000 per person, total. So I've got $8 million in revenue from that class for that year. If I drop the nominal price, I'm going to take in less, and I believe that if I raise it, I'll actually eliminate some of my applicants and probably not increase my revenue, either.

Now Uncle Sam stands up and says, "hey, you, barely literate, barely numerate graduate of our nation's fine public high schools - don't go to work in a factory or become a plumber or electrician. We'll loan you the money to follow your dream of becoming the Next Great Women's Studies Professor." And makes available to every high school graduate a $4000-per year, no questions asked loan. (You'll have to pay it off, of course, but that's out there in the future, and that Anthropology or Medieval English Literature degree will certainly vastly increase your lifetime earning potential.) What do I, as someone running a college, now see when I look out at the world?

"Hey! Every one of my applicants, every one of them, can afford to pay $4000 more per year than he or she could last year!"

Am I going to raise rates by $4000 in year one? Maybe not. But it's not going to take too long to get there. Why would I, as a greedy businessman, forgo profit that there's to be made if I can increase profits by increasing revenues? Or, to put a less cynical spin on it, why would I, as an idealistic educator, forgo the opportunity to improve my facilities and increase my endowment if the students who are growing at my nurturing institution can avail themselves of a little federal money to improve our school's general welfare?

No one's attending school anywhere because that school has "great diversity administrators!" Schools are hiring "diversity administrators" to make sure that they keep their first class seats on Uncle Sam's gravy train...

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