Purdue’s President Gets to the Bottom of Higher Ed’s High Price

“Higher education has to get past the ‘take our word for it’ era,” insists Purdue’s president, Mitch Daniels, in a recent Wall Street Journal interview. The interview reveals a college president who has done his homework on the issues afflicting his industry. What’s most impressive, however, is that—unlike the vast majority of college leaders, whose approach is to lament the challenges faced by academe, throw up their hands, and raise tuition—Daniels is doing serious work to untangle the tuition question, understand how it relates to other aspects of the market for higher education, and take steps toward reducing cost and increasing value.  

In many ways, the tuition problem is only the beginning. Indeed it was for Daniels. One of his first acts as president of Purdue University was to freeze tuition. In making that decision he says he “had a sense, first of all, it seemed like the right thing to do. Not to skip over that. But secondly that we probably could do it without great difficulty.” It was this suspicion—that keeping tuition in check really shouldn’t be that difficult—that led Daniels to start asking the questions whose answers led him back to some particularly misguided federal policies.  

There are a number of feet at which the corpse of academe could rightly be laid if it were to perish, but the accreditation system may deserve more blame than most.   

To start where President Daniels did, with the issue of high tuition, one obvious question presents itself: Why has demand for higher education continued to rise even as tuition skyrockets? One reason is that colleges are insulated from market pressures by a number of factors: federal subsidy in the form of student aid, lasting endowments and philanthropic funding divorced from performance, and the perceived necessity of a college degree for entry into the workplace, to name a few.

In the absence of market pressure, the price of tuition comes to depend instead on things like the perceived worth of the product being offered and how much it costs to produce. Daniels rightly points out that the “stewardship of a strong-minded board” is necessary to keep that cost in check. But even if trustees rise to the occasion, the worth of a college degree is confounded by the current system.  

Today, rather than high tuition following from high quality, the signal has been reversed. Daniels describes this effect as the “insidious” idea that “if we don’t raise our price, people will think we don’t have confidence in our product.” He goes on to say that “in the absence of proof, people assume a higher price must be a better product or education.”

And so the problem of tuition comes back to another of higher education’s many woes: the lack of a reliable way to indicate quality—the absence of proof. The accreditation system forces schools to submit to an arduous review process in order to receive federal financial aid dollars, but simultaneously fails to weed out low-quality institutions. Since this system uses up the resources available for determining educational quality, we turn instead to readily-available measures such as tuition cost and exclusivity—neither of which really gets at whether students are learning anything—to judge relative worth.

President Daniels deserves high praise for bringing attention to this distortion in the market for education, but he deserves even higher praise for suggesting some solutions even in the absence of major federal policy changes. He ends the Wall Street Journal interview by pointing to his proposed “Bet on a Boiler” program, which would replace the traditional loan-repayment model with an income-share arrangement by which students would contract out a portion of their future earnings to someone who would fund their education today. These are the kinds of creative funding policies which may break us out of the current student loan debt mess—even without breaking up the unseemly marriage of the accreditation cartel and federal financial aid.