Tuesday, February 10, 2009

The Ugly Truth about Aid

Imagine you're a plumber who fixes leaky public buildings for the state. You charge $150 per pipe to fix. One day you learn that the plumbing budget has been increased. The state hopes this will allow more pipes to be fixed. Would you not consider raising your prices to reap some of this windfall? Wouldn't all the other plumbers try to do the same thing?

This admittedly contrived example mimics what I've seen around the table during planning meetings. There never seems to be enough money to do what a college needs or wants done, so if the state raises aid by $500, guess what the revenue discussion quickly leads to. An article in The Chronicle puts the point on it:
Sen. Lamar Alexander, a Republican from Tennessee, former education secretary, and former college president, said many members of Congress worried that increases in Pell Grants were too often offset by increases in tuition.
It surprises me that it wouldn't be the standard assumption that this would happen at private institutions that are tuition-driven. The argument would go like this:

We currently have N students, paying T tuition each, and receiving an average aid package of F. If F goes up $500, we can raise T by $500 and be in the same market as before. The current students won't notice, and we haven't put ourselves at an additional market disadvantage by raising costs. In practice, of course, the tuition may go up by more than $500, but the same logic applies.

In effect, increases in state and federal aid subsidize new expenses at institutions, or help them cope with new costs. I would argue that the last decade has seen a growth in administrative functions and costs, an increase in projects not directly related to the classroom, and generally a mission creep away from the core educational product. This is not just because of increases in state and federal aid, but also because of the availability of loans.

The stimulus package may provide some hope of another cash infusion from the government. I think it's best not to be fooled by this false spring. I see the current financial storm as something like the K-T boundary in evolutionary history--a time where most of the existing biological designs didn't make the cut. The ones that did (including our ancestors) flourished. From the article:
"Use this time of retrenchment to try something new," Mr. Alexander told the gathering. "You'll probably have to anyway because of the way the economy is."
This is excellent advice--rapid evolutionary changes are coming to those that will survive. It's a good time to be nimble. Machiavelli noted that during stressful times, one can make radical changes. Okay, he was talking about wiping out the opposition after a rebellion, but the same principle applies. Good, strong leadership will be the key to the transitions ahead.

My recent research project on survival leads to a novel conclusion: we can't be solely concerned with external threats. Internal threats are just as bad--particularly the way in which we make decisions. Free exchange of ideas and ability to challenge the boss on a bad idea are essential to this kind of ongoing internal audit.

The only thing I take issue with in the last quote above is the use of the word "retrenchment." I think a trench is the wrong image to conjure. Trench warfare gave way to the Blitzkrieg, and that's a better image: mobility is better than stasis.

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