Friday, March 8, 2019
How Big Tobacco’s star advocate became an education expert for the New York Times and Forbes (Michael Simkovic)
Richard Vedder, a leading opponent of excise taxes on cigarettes, takes a dim view of most of higher education. Vedder depicts colleges and universities as overpriced, wasteful, and deserving budget cuts. Vedder argues that academic freedom and research impede teaching marketable skills.
The reality is that public investments in higher education more than pay for themselves. More spending is linked to more innovation and better labor market outcomes. Educational quality and access have improved over time. The economy would likely grow faster if governments invested more in education. More people would find jobs, they would earn more money, and governments’ long-term fiscal position would likely improve.
Vedder would be easy to dismiss if not for his backing from industries that spend heavily on advertising and lobbying—like tobacco, for-profit education, and private student lending. Vedder has become a regular contributor to the New York Times, Forbes, and other publications with wide circulation, and frequently testifies before Congress.
Despite his general antipathy to education, Vedder forcefully defends for-profit education. Vedder likes that for-profit institutions have little interest in “promoting research, saving the earth [or] achieving progressive objectives.” Perhaps harried adjuncts are less likely than tenured research faculty to assess whether taxing cigarettes saves lives.
Public health spillovers aside, for-profit education is typically not great for students or taxpayers.
For-profit institutions spend far more of their revenue on sales and marketing and far less on instruction. For-profits account for a disproportionate share of federal student loan defaults and federal subsidies. Although for-profits typically serve weaker students, after accounting for student characteristics, for profits typically provide less value for the money than non-profit and public competitors. For-profits are the only type of educational institution which have been shown to increase tuition after gaining access to federal student loans, without increasing quality. Many for-profits have been linked to consumer fraud.Vedder incorrectly claims that for-profits serve minority students better because for-profits are more efficient and less ideological, and therefore do not “hir[e] an army of diversity coordinators to demonstrate institutional support for equal educational opportunity [and diversity].” But for-profits do specifically target minorities and veterans in their marketing campaigns, and the data shows that for-profits typically serve them less well than non-profit and public competitors serving similar students.
Non-profit and public institutions better prepare students for the labor market than for-profits. After accounting for differences in student characteristics, non-profits and public institutions boost earnings more and their students default less often on loans. (See here and here).
Vedder incorrectly claims that for-profits do not receive government subsidies when in fact they receive a disproportionate share of their revenue from Pell grants and other federal financial aid (see also here). Higher federal student loan default rates and losses at for-profit institutions means that non-profit and public institutions cross-subsidize for-profits. Vedder’s misleading statement that for-profits are not publicly funded could endear for-profits to opponents of government spending on racial minorities and the poor.
Vedder makes a few good points. His best one is that although for-profits perform poorly on average, at least a few for-profits might perform better than some non-profits or public institutions. I’ve made similar points and have also argued that regulators should not be too quick to shut down marginal institutions that serve students who have no better options. Policies that specifically target for-profits are an imperfect shortcut. Unfortunately, regulators may not have the resources to tease out good for-profits from bad.
Vedder’s call for more competition in higher education sounds reasonable at first glance. But to the extent that for-profits can obscure substandard performance through smooth salesmanship, it is not clear that the for-profit option benefits students or taxpayers. Students can choose between thousands of public and non-profit institutions. Higher education would remain competitive even without for-profits.
An early Vedder white paper extolling the virtues of for-profit education was funded by the Lumina Foundation, an offshoot of Sallie Mae, a large private student lender. Private lenders have been seeking to reduce competition from federal student loan programs for over a decade.
Making federal student loans more widely available to under-performing for-profit institutions could be a way to sabotage federal lending programs. Private lenders and their allies have sought to curtail government loans to graduate and professional schools—the best performing programs which provide the highest returns to taxpayers—while expanding federal loans to high-risk, low-return for-profit institutions. While making federal student loans riskier, private lenders’ advocates simultaneously argue that federal student loans are too risky and should therefore be curbed.
Those seeking to slash government investment in higher education may be following the logic, “the worse, the better.”