Mellon funds project analyzing college costs

Despite the loss of two of its original founders, the Williams Project on the Economics of Higher Education has moved into its second decade with a financial boost from the Andrew W. Mellon Foundation.

The Mellon Foundation recently announced that it has awarded a grant of $475,000 to the project. This grant will be the fourth in a series, bringing the foundation’s total funding of the project to nearly $2 million.

Williams launched the project in 1989 under the leadership of Orrin Sage Professor of Political Economy Gordon Winston, and former Williams economics professors Morton Shapiro and Michael McPherson.

Winston, who is now the project’s sole director, expressed his enthusiasm over the recent grant.

“Mellon supports the best research in higher education that is being done in the U.S., and therefore we are very honored to be given [this] opportunity,” he said.

The Williams project has covered a wide range of topics related to higher education finance in the nine years since its inception. Issues under investigation have included accounting reform in higher education, the responses of institutions to changes in external funding, the distribution of grants, subsidies and work-study to students, the impact of college quality on the careers and financial positions of graduates, and the impact of the recent trend toward merit aid on the quality and accessibility of higher education in the U.S.

The Mellon Foundation is one of the nation’s most prominent supporters of research in the fields of higher education, in cultural affairs and the performing arts; in population, in conservation and the environment, and in public affairs.

Williams faculty members currently involved with the project include Professor of Psychology Al Goethals and Associate Professor of Economics David Zimmerman.

Winston and his colleagues plan to use the grant to continue current research on two main areas. First, the concept of “peer effects” and second, the distinctions between business firms and educational institutions.

According to Winston, the notion of “peer effects” is the idea that the quality of a student’s education is dependent on the quality of the student body. Although it is intuitively apparent that a campus full of strong students creates a strong learning environment, there is no proof of this correlation. The grant will fund projects attempting to prove this correlation. Zimmerman, for example, will examine peer effects on a massive database from Mellon that has recorded comprehensive statistical data about students since 1951, while Goethals will set up psychological laboratory experiments to explore the concept of peer effects.

Conception

The project originated when Winston, McPherson and Shapiro approached William Bowen at the Mellon Foundation to propose that Mellon give Williams a grant to investigate the gaps in current research on higher education finance.

“There was need for more careful and high quality research,” Winston said.

Winston explained that there were initially three primary objectives of the project.

First, he said, organizers hoped to respond to the concerns of people involved in higher education. “We wanted to key off of the concerns of people running colleges and universities— to really listen to them and get data from real people for real people,” said Winston.

Second, economists hoped to emphasize the heterogeneity of American colleges and universities. Winston explained that in a nation with over 3,000 institutions for higher education, a study that considers them as one homogenous group is not sufficient to obtain applicable results.

A third goal of the project was to discover which rules of basic economics are helpful in understanding the cost and value of higher education. “We’re so different from an ordinary firm that you can really get in hot water if you don’t recognize [the differences],” Winston said.

Winston explained that the principles that apply to businesses do not necessarily apply to non-profit organizations, and that the principles of non-profit finance do not always pertain to institutions of higher education.

“The focus of the work we’re doing now has developed a clearer sense of why and how colleges and universities are like familiar business firms and why and how they are not like familiar business firms,” Winston said. “We’ve made progress in nailing down the distinctions.”

Students and scholars associated with the project have written 47 papers addressing issues in higher education.

Winston was especially enthusiastic about the benefits the project has had for Williams students. Each year the project hires two or three undergraduate research assistants. In addition, a recent graduate, often a former research assistant, works as a project coordinator, taking on administrative duties and frequently co-authoring some of the project’s research. Several of the project coordinators have gone on to pursue doctorates in economics.

“This has turned out to be an excellent way for recent graduates to find out whether they like doing research in economics,” Winston said.

He added that six or seven honors theses have also used project data and three courses have been based on the project.

“The project has turned out to be a real resource for the department,” said Winston. “Unfortunately, we haven’t done any courses that really represented the work of the department.”

Why can’t a college be more like a firm?

Winston published a paper in the fall of 1997 titled, Why Can’t a College Be More Like a Firm? The paper addresses the major differences between institutions of higher education and business firms, and the difficulties that those discrepancies create in dealing with the finances of colleges and universities.

For instance, the report notes that while the average college education costs $12,000 a year, the average college student pays only about $4000 annually. Likewise, Winston notes that a Williams college student pays an average of $20,000 (financial aid discounts are included in this average) annually for an education that costs $60,000 a year. The deficit is covered by federal and state government funding and by private donations, so that taxpayers and private donors are paying for the education of every college student in America. Winston argues that state universities face an even greater challenge. At the University of California, for example, students pay for only one ninth of their education, so the University of California pays 88 cents of every dollar of education. Since UC ensures admission to the top 12 percent of students in every high school class, this means dramatic increases in cost of the educational system with population increase, an expense most taxpayers are not willing to cover.

“When you buy a car, you pay a price that covers the cost of producing it,” said Winston. “When you buy a college education, you’re paying about one third of the cost of producing it.”

The report also discusses the fact that colleges and universities differ drastically from business firms in that the quality of their product depends on the quality of their consumers. A college is rated primarily on the test scores and talents of the students it accepts and on the success of the students it produces 30 years down the line. “The best schools compete passionately to get the best students. What it rests on is the real passion schools like Williams have for caring very much about the quality of the students they get,” said Winston.

Impact of the project

Economists both inside and outside of Williams agree that the prominence and influence of the Williams Project on the Economics of Higher Education is unusua
l for research done at a small liberal arts college. President of the College Harry Payne expressed satisfaction with the influence of the project.

“Williams is viewed in the wider world of higher education as the inventor of the systematic study of the finance of higher education,” said Payne. “It’s a special, unique and important world that needs its own vocabulary. We’re very proud of [the project]. It really is one of the activities that gives Williams prominence in the world of higher education.”

William Reed, the vice-president of Wellesley College and a former vice-president and treasurer at Williams, agreed that the project is extraordinarily important in the sphere of educational finance.

“They have become some of the leading thinkers— probably the leading thinkers— in the finance of higher education, so as a practitioner I, like most in the field, follow their work very closely,” Reed said. “They have the ability to add clarity to complex issues. They’re also not afraid to take on controversial issues.”

There is little doubt that the project has influenced modes of thinking about higher education. Winston was recently invited to be an expert witness for the National Commission on the Cost of Higher Education.

According to Reed, Winston transformed the views of the commission, which had originally been a strong proponent of the regulation of the cost of higher education. Winston spoke on the extraordinary value of higher education to both students and the country as a whole, proposing that strict regulation would not help to improve the condition of the current systems.

Trends in higher education

Economists on the Williams Project have spent a significant amount of time addressing the future of higher education, and analyzing the trends it may take in coming years. Winston explained one concern about the future of financial aid.

“There is a very worrisome trend away from what I think is the most inspired aspect of higher education, which is that it has eliminated parental wealth as a criterion for admission,” he said.

Winston worries that these principles are under threat. “One of the really serious questions is whether need blind admission and need based financial aid can survive,” he said.

Williams’s Director of Admission Thomas Parker attests to the impact the project has had on his thinking about financial aid and scholarship.

“It has influenced my perspective on financial aid fairly significantly in that I look at it more in terms of discounting, not mere exchange of dollars,” he said. “It has cast some financial aid and admissions developments in terms of social policy and national good. I’m excited that they’ve got the grant. They’ve been very eager to share their results. It has been good for me and good for the admissions office.”

President Payne agreed that issues of financial aid are a major concern.

“The issue of financial aid is far less stable and far more complex now than it was a decade ago. It’s being visualized as much as a means of obtaining students as [it is being visualized as] a means for access,” Payne said. He added that Williams, like all other schools in the U.S. will have to re-evaluate financial aid and scholarship, but insists that Williams will not compromise its standards during this process.

“We are not going to in any way move away from our principles of full need-blind admission,” he said. “We will maintain those standards.”

Schools with fewer resources and less prestige than Williams, however, may have to compromise standards of exclusively need-based scholarships in order to compete for top students. “My thinking about merit scholarships has been influenced by the project, especially about the degree to which merit scholarships influence behavior,” Parker said.

Winston said another recent trend in higher education is the development of for-profit schools, an educational middle ground between private schools and community colleges. The practicality of for-profit institutions, which offer business and career advancement degrees to adult students, has supported this trend. Phoenix University is the largest and most prominent of these schools, offering a practical education to a student body of 60,000 and expecting a $3 million profit next year. Winston considers this trend a good alternative to third rate community colleges that may not have the resources that a large, for-profit university does, but recognizes that it will change the face of higher education.

Reed notes that if for-profit universities are successful in their goals, the competition they will have with schools like Williams and Wellesley may provide a stimulating challenge to rethink the face of higher education.

“The survival of a place like Williams is not in question, but the way we run ourselves is,” Winston said. “We are due for tremendous change, what form it will take exactly we don’t know. Higher education is going for a very different world than it’s been living in.”