Taxpayers Lose When Colleges Are Too Big to Fail

Richard Vedder:

There are two reasons why universities never "fail" in the sense that they cease to operate. First, of course, with governments paying part of the bill, the probability that revenue won't cover expenses, leading to bankruptcy, is remote. If a school can manage to cover even only, say, 75 percent of its costs through tuition fees and other sources of revenue, it is likely that government will cover the rest -- through operating and federal research grants; indirectly through federal student financial aid, which allows higher tuition fees; or through private donations and investment income enhanced by favorable tax status.

Universities don't fail for another reason, as well: We don't meaningfully define "success" or "failure" in higher education. Did Wesleyan University or Trinity College in Connecticut have a good year in 2011? Who knows? Did their students learn more than they did the year before, or develop better critical-thinking skills? Does the "value added" from an expensive education at those private schools exceed that at, say, the state-supported University of Connecticut, which is far less pricey?

It may well be that some schools are "failures" in a meaningful sense -- their seniors know no more than their freshmen; their graduates are underemployed or have low-paying jobs; and they provide less student satisfaction per dollar spent than at comparable institutions -- but we really don't know that.

Posted by Jim Zellmer at October 2, 2012 3:01 AM
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