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06/20/2010

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Dan Cooper

I need to learn more about the idea of "human capital," but people can wonder if (along the lines of questioning the efficiency of asset markets) schools really do what people presume they do.

Shiller's THE NEW FINANCIAL ORDER has some arguments in favor of better information systems for credit rating purposes, but one could also apply many of the same ideas to measuring the lifetime learning of citizens. One could randomly administer SAT-style multiple choice tests (similar to the entrance exam for Harvard Medical School) that minimize sampling error and tend to assess what people know "six months after class." There will always be problems with defining what should be measured and preventing people from gaming things, but then that's life. The Great Books program, libraries, etc., have long been around to disseminate information. While there's a case to be made for pooling resources for things like science labs, it's not entirely clear why schools even exist. One may need some travel agent capacity, but it doesn't seem that many miss the demise of travel agencies on every street corner. Some people claim that IQs are rising, but Derek Bok had a book a few years ago that brought up some interesting research -- a claim that the average college graduate of today knows what the average high school graduate knew about fifty years ago.

Dan Cooper

Forgot. As with prisons, there may be many (sometimes conflicting) goals to education. One role may be, like a credit rating agency, to discriminate on the basis of merit (rather than some more Rawlsian approach).

The point is that one should expect the cost of education to be decreasing, quality increasing.

msgnet

Has anyone ever studied the effect of government subsidies on tuition rates? I tend to think that as the government provides more money to students to finance their education, colleges will respond by increasing their tuition rates in kind.

Kyle

What exactly are for-profit colleges? Are they private institutions or are they institutions like University of Phoenix and other online universities?

William Bell

Becker's recommendation sounds right, but how would a college's administrators control the default rate on loans to students who went there, if not by relying on the sort of assumptions that Becker decries?

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Miguel Villarreal

Professor Becker - a lot of your assumptions don't seem to be supported by some of the empirical and anectdotal data shown by Eisman, et al.

Your reasoning is a bit circular, you seem to assume that for-profit colleges, since they have been able to recruit students and compete against non-profit colleges, must be offering a valuable service or product. I say that this is simply a function of superior marketing/advertising, which makes up the single largest budget expenditure for most for-profit colleges and dwarfs that of most non-profits in the same market space.

You acknowledge that "some of this does occur" - I think it's a lot more than just some. Let's presume that a student is a rational actor. I can't think of a great many instances in which a rational actor would opt for course credits from a for-profit university, which is generally not subject to the same accreditation standard adn thus not transferrable, at four times the cost, of credits from the local community college.

Further I don't think your analogy to the lack of employment prospects for holders of an English degree really makes a lot of sense in this context. Sure, a Harvard senior thesis on Iambic Pentameter doesn't seem to have much immediate application to the labor force at the present day, but a four-year degree (regardless of major) serves its biggest purpose as an indicator to a potential employer of the likely merit of the prospective employee, rather than as something that endows practical skills. A degree from a for-profit school (for the small fraction of students who actually graduate) in many instances has the opposite effect. For example, Eisman et al have presented evidence of certain employers who have a formal policy against hiring for profit grads for certain positions.

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I find it interesting that the source of the most recent critism of for-profit education is a hedge fund-manager who holds short positions on for-profit education companies. Surely Eisner's criticism of the industry has a large profit motive behind it.

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The for-profits may still look worse on this measure than do the public colleges they compete against, but the difference would be much smaller than the differences in default rates.

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this measure than do the public colleges they compete against, but the difference would be much smaller than the differences in default rates.

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a strong incentive to police their default rates in order to remain eligible for student loans, but one can hardly expect government officials to be able to predict with any accuracy the eventual earnings of students applying for loans.

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other colleges much stronger incentives to police better who they accept as students since they would not want to exceed such more stringent ceiling on default rates.

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