[House Hearing, 109 Congress]
[From the U.S. Government Printing Office]





  COLLEGE ACCESS: IS GOVERNMENT PART OF THE SOLUTION, OR PART OF THE 
                               PROBLEM?

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             April 19, 2005

                               __________

                            Serial No. 109-8

                               __________

  Printed for the use of the Committee on Education and the Workforce



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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN A. BOEHNER, Ohio, Chairman

Thomas E. Petri, Wisconsin, Vice     George Miller, California
    Chairman                         Dale E. Kildee, Michigan
Howard P. ``Buck'' McKeon,           Major R. Owens, New York
    California                       Donald M. Payne, New Jersey
Michael N. Castle, Delaware          Robert E. Andrews, New Jersey
Sam Johnson, Texas                   Robert C. Scott, Virginia
Mark E. Souder, Indiana              Lynn C. Woolsey, California
Charlie Norwood, Georgia             Ruben Hinojosa, Texas
Vernon J. Ehlers, Michigan           Carolyn McCarthy, New York
Judy Biggert, Illinois               John F. Tierney, Massachusetts
Todd Russell Platts, Pennsylvania    Ron Kind, Wisconsin
Patrick J. Tiberi, Ohio              Dennis J. Kucinich, Ohio
Ric Keller, Florida                  David Wu, Oregon
Tom Osborne, Nebraska                Rush D. Holt, New Jersey
Joe Wilson, South Carolina           Susan A. Davis, California
Jon C. Porter, Nevada                Betty McCollum, Minnesota
John Kline, Minnesota                Danny K. Davis, Illinois
Marilyn N. Musgrave, Colorado        Raul M. Grijalva, Arizona
Bob Inglis, South Carolina           Chris Van Hollen, Maryland
Cathy McMorris, Washington           Tim Ryan, Ohio
Kenny Marchant, Texas                Timothy H. Bishop, New York
Tom Price, Georgia                   John Barrow, Georgia
Luis G. Fortuno, Puerto Rico
Bobby Jindal, Louisiana
Charles W. Boustany, Jr., Louisiana
Virginia Foxx, North Carolina
Thelma D. Drake, Virginia
John R. ``Randy'' Kuhl, Jr., New 
    York

                    Paula Nowakowski, Staff Director
                 John Lawrence, Minority Staff Director


                                 ------                                

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on April 19, 2005...................................     1

Statement of Members:
    Boehner, Hon. Jon A., Chairman, Committee on Education and 
      the Workforce..............................................     1
        Prepared statement of....................................     4
    Miller, Hon. George, Ranking Member, Committee on Education 
      and the Workforce, prepared statement of...................     6
    Scott, Hon. Robert C., a Representative in Congress from the 
      State of Virginia..........................................     5

Statement of Witnesses:
    Heller, Dr. Donald E., Associate Professor and Senior 
      Research Associate, The Center for the Study of Higher 
      Education, The Pennsylvania State University, University 
      Park, PA...................................................    17
        Prepared statement of....................................    21
    Vedder, Dr. Richard K., Distinguished Professor of Economics, 
      Ohio University, Athens, OH................................     7
        Prepared statement of....................................    10

 
  COLLEGE ACCESS: IS GOVERNMENT PART OF THE SOLUTION, OR PART OF THE 
                                PROBLEM?

                              ----------                              


                        Tuesday, April 19, 2005

                     U.S. House of Representatives

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The Committee met, pursuant to notice, at 2:05 p.m., in 
room 2175, Rayburn House Office Building, Hon. John Boehner 
(Chairman of the Committee) presiding.
    Present: Representatives Boehner, McKeon, Castle, Kline, 
Price, Fortuno, Boustany, Drake, Kildee, Scott, Tierney, 
Kucinich, Holt, Davis of California, McCollum, and Bishop.
    Staff present: Kevin Frank, Professional Staff Member; 
Alison Griffin, Professional Staff Member; Sally Lovejoy, 
Director of Education and Human Resources Policy; Alexa 
Marrero, Press Secretary; Krisann Pearce, Deputy Director of 
Education and Human Resources Policy; Amy Raaf, Professional 
Staff Member; Deborah L. Samantar, Committee Clerk/Intern 
Coordinator; Brad Thomas, Legislative Assistant; Ellynne 
Bannon, Minority Legislative Associate/Education; Alex Nock, 
Minority Legislative Associate/Education; Joe Novotny, Minority 
Legislative Assistant/Education; and Mark Zuckerman, Minority 
General Counsel.
    Chairman Boehner. The Committee on Education and the 
Workforce will come to order. A quorum being present, the 
Committee comes together today to hear testimony on ``College 
Access: Is Government Part of the Solution, or Part of the 
Problem?'' And under the Committee rules, opening statements 
are limited to the Chairman and Ranking Member. So if other 
members have statements, they'll be included in the hearing 
record. And with that, I ask unanimous consent for the hearing 
record to remain open for 14 days to allow member statements 
and other extraneous material referenced during the hearing to 
be submitted for the official record.
    Without objection, so ordered.

   STATEMENT OF HON. JOHN A. BOEHNER, CHAIRMAN, COMMITTEE ON 
                  EDUCATION AND THE WORKFORCE

    I want to welcome all of you here to today's hearing. First 
let me say that this is probably going to be one of our more 
provocative hearings. We're surrounded by evidence that the 
Higher Education Act is not getting the job done for today's 
students and parents.
    Last year, some of our members of this Committee created 
quite a stir when we warned of a growing disconnect between the 
priorities of the college lobbying community and those of 
parents and students. We warned parents and students, the 
consumers of higher education, are growing weary over ever-
soaring college costs, and we warned about the significant 
graduation gap that exists between disadvantaged students and 
their peers at traditional colleges and universities.
    We warned that traditional colleges and universities are 
not meeting the needs of nontraditional students, and we warned 
that the ongoing unchecked hyperinflation in college costs is 
the mark of a system headed for a breakdown.
    The process that follows this hearing cannot be a routine 
reauthorization of the Higher Education Act. It won't be an 
easy process or a comfortable one. Assumptions will be 
challenged, myths will be confronted, and china will probably 
have to be broken along the way, but that's the job that we 
were all sent here to do.
    With this in mind, we're starting today with a candid and 
open discussion about the role that the Federal Government is 
currently playing in college access.
    In the past year, a number of prominent schools have 
voluntarily taken steps to curb tuition growth. Responding to 
consumer demand, growing competition from proprietary colleges, 
and possibly pressure from lawmakers, some schools have ruled 
out major tuition increases in the coming years. Instead, 
they're looking for alternatives. Some are studying ways to 
become more efficient and less dependent upon government, and 
we applaud these institutions for their leadership.
    We remained concerned, however, about the general state of 
American higher education as we prepare this year to 
reauthorize the Higher Education Act, we have an obligation to 
step back and take an honest look at the big picture. We need 
to examine the role that the Federal Government is playing when 
it comes to college access in America.
    A newly published article in the U.S. News & World Report 
offers this assessment, and I quote: ``These days, it doesn't 
matter what your assets look like. It's increasingly difficult 
for almost everyone to afford college, as tuitions climb and 
Federal aid remains more or less stable.'' End quote.
    And this statement I think accurately describes the 
challenge that parents and students face today. Unfortunately, 
the implied assumption is that increased Federal spending on 
higher education would ease the burden that these families 
face.
    Now I'm not criticizing U.S. News & World report, but to 
me, it seems like a dangerous assumption to make. College 
tuition rates have been spiraling upwards for decades at 
hyperinflationary levels, and the Federal Government has 
consistently responded by increasing spending. But college 
access for far too many families remains an elusive goal.
    As many of you have heard me say before, it seems that the 
more we spend in higher education, the further we continue to 
fall behind. In fact, some believe government spending may be a 
hidden culprit in the ongoing inflation of college costs. They 
point to what seems to be a vicious cycle: Colleges increase 
tuition. Government responds by increasing spending, and 
colleges respond by increasing tuition again.
    As we get set to reauthorize the Higher Education Act, I 
think we have to take a hard look at whether such a cycle 
exists. Now this is going to require some thinking outside the 
box, if you will, something that I've found doesn't exactly 
come natural here in Washington.
    Going back to the U.S. News article again, I was struck in 
particular by a comment attributed to a top higher education 
lobbyist who seems alarmed by the growing climate of fiscal 
responsibility and belt-tightening in Washington. Quote: ``The 
Federal budget deficit is an 800-pound gorilla,'' the 
individual is quoted as saying. ``We're not making decisions 
based on a rational assessment of public policy needs in higher 
education; we're making decisions based on what we can 
afford.''
    Now I happen to know the individual who made this remark. I 
know him well, and I certainly wouldn't want to single him out, 
but when did balancing the Federal budget become irrational 
public policy? We should not automatically assume students or 
parents are better off with more government spending in higher 
education. Deficits do matter, and they matter to all 
Americans, including students, parents and the employees of 
American colleges and universities.
    I'm by no means suggesting Congress should not make 
targeted increases in certain higher education programs such as 
the Pell Grant program, which the President clearly strongly 
supports, and we've even proposed expanding it. But there are 
some in Washington who have responded to the latest round of 
tuition hikes by calling literally for tens of billions of 
dollars in increased higher education spending in one program 
after another.
    And I'm concerned that such huge increases would actually 
hurt the very students and parents that they are intended to 
help. At a minimum, they would add to the budget deficit or 
force deep cuts in other programs such as No Child Left Behind 
or special ed. And some believe they'd put the double whammy on 
students and parents by paving the way for another round of 
tuition hikes.
    But before Congress proceeds with this reauthorization, I 
think we're obligated to take a look at the role the Federal 
Government may be playing in the hyperinflation of college 
costs. And I also believe we need to look for ways in which the 
Federal Government can give college consumers more information 
and more choices, restore fairness for low- and middle-income 
students, and encourage greater competition and innovation in 
the higher education marketplace.
    To help shed light on some of these matters, we've invited 
two prominent witnesses to discuss the role the Federal 
Government plays in higher education. I want to thank both of 
them for being here, and we look forward to their testimony.
    And with that, I'd like to yield to my colleague from the 
great state of Virginia, Mr. Scott.
    [The prepared statement of Chairman Boehner follows:]

 Statement of Hon. John A. Boehner, Chairman, Committee Education and 
                             the Workforce

    Welcome to all of you.
    First let me say this is probably going to be one of our more 
provocative hearings. We are surrounded by evidence that the Higher 
Education Act is not getting the job done for today's students and 
parents.
    Last year, some of the members of this Committee created a stir 
when we warned of a growing disconnect between the priorities of the 
college lobbying community and those of parents and students. We warned 
that parents and students, the consumers of higher education, are 
growing weary with ever-soaring college costs. We warned about the 
significant graduation gap that exists between disadvantaged students 
and their peers at traditional colleges and universities. We warned 
that traditional colleges and universities are not meeting the needs of 
non-traditional students. We warned that the ongoing, unchecked 
hyperinflation in college costs is the mark of a system headed for a 
breakdown.
    The process that follows this hearing cannot be a routine 
reauthorization of the Higher Education Act. It won't be an easy 
process, or a comfortable one. Assumptions will be challenged. Myths 
will be confronted. And china may have to be broken along the way. But 
that's the job we were sent here to do.
    With this in mind, we're starting today with a candid and open 
discussion about the role the federal government is currently playing 
in college access.
    In the past year, a number of prominent schools have voluntarily 
taken steps to curb tuition growth. Responding to consumer demand, 
growing competition from proprietary colleges--and, possibly, pressure 
from lawmakers--some schools have ruled out major tuition increases in 
the coming years. Instead they're looking for alternatives. Some are 
studying ways to become more efficient and less dependent on 
government. We applaud these institutions for their leadership.
    We remain concerned, however, about the general state of American 
higher education. As we prepare this year to reauthorize the Higher 
Education Act, we have an obligation to step back and take an honest 
look at the big picture. We need to examine the role the federal 
government is playing when it comes to college access in America.
    A newly published article in U.S. News & World Report offers this 
assessment:
    ``These days, it doesn't matter what your assets look like: It's 
increasingly difficult for almost everyone to afford college, as 
tuitions climb and federal aid remains more or less stable.'' (Butler, 
``Will the Aid Be There?'', Paying for College special edition, April 
18, 2005)
    This statement accurately describes the challenge parents and 
students face today. Unfortunately, the implied assumption is that 
increased federal spending on higher education would ease the burden 
these families face.
    I'm not criticizing U.S. News & World Report. But to me, this seems 
like a dangerous assumption to make. College tuition rates have been 
spiraling upward for decades at hyperinflationary levels. The federal 
government has consistently responded by increasing spending. But 
college access for far too many families remains an elusive goal.
    As many of you have heard me say before, it sometimes seems the 
more we spend in higher education, the further we fall behind. In fact, 
some believe government spending may be a hidden culprit in the ongoing 
inflation of college costs. They point to what seems to be a vicious 
cycle: colleges increase tuition; government responds by increasing 
spending; and colleges respond by increasing tuition again.
    As we get set to reauthorize the Higher Education Act, I think we 
have to take a hard look at whether such a cycle exists. This is going 
to require some ``thinking outside the box,'' if you will--something 
that I've found doesn't exactly come naturally in Washington.
    Going back to the U.S. News article again--I was struck in 
particular by a comment attributed to a top higher education lobbyist 
who seems alarmed by the growing climate of fiscal responsibility and 
belt-tightening in Washington.
    ``The federal budget deficit is an 800-pound gorilla,'' the 
individual is quoted as saying. ``We're not making decisions based on 
rational assessment of public policy needs in higher ed--we're making 
decisions based on what we can afford.''
    Now, I know the individual who made this remark; I know him well, 
and I am by no means singling him out. But when did balancing the 
budget become irrational public policy? We should not automatically 
assume students or parents are better off with more government spending 
in higher education. Deficits do matter, and they matter to all 
Americans, including students, parents, and the employees of American 
colleges and universities.
    I'm by no means suggesting Congress should not make targeted 
increases in certain higher education programs, such as the Pell Grant 
program, which President Bush strongly supports and we have even 
proposed expanding. But there are some in Washington who have responded 
to the latest round of tuition hikes by calling, literally, for tens of 
billions of dollars in increased higher education spending, in program 
after program.
    I'm concerned such huge increases would actually hurt the very 
students and parents they are intended to help. At a minimum, they 
would add to the budget deficit or force deep cuts in other programs, 
such as the No Child Left Behind Act or special education. And some 
believe they would put the ``double whammy'' on students and parents by 
paving the way for another round of tuition hikes.
    Before Congress proceeds with this reauthorization, I think we're 
obligated to take a look at the role the federal government may be 
playing in the hyperinflation of college costs. I also believe we need 
to look for ways in which the federal government can give college 
consumers more information and more choices, restore fairness for low 
and middle-income students, and encourage greater competition and 
innovation in the higher education marketplace.
    To help shed some light on these matters, we've invited two 
prominent witnesses here today to discuss the role the federal 
government plays in higher education. We thank them for being here. We 
look forward to their testimony, and to what we hope will be a spirited 
discussion.
    With that, I would turn to the senior Democratic member of our 
committee, Mr. Miller, for any opening statement he would like to make.
                                 ______
                                 

STATEMENT OF HON. ROBERT C. SCOTT, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF VIRGINIA

    Mr. Scott. Thank you, Mr. Chairman. And, Mr. Chairman, I'm 
delighted to see that there's all of a sudden some concern 
about the deficit. Last year's budget was projected when this 
administration came in to have a $400 billion surplus, but it 
ended up with a $400 billion deficit, a swing of $800 billion, 
which since we are right around April 15th, people would be 
delighted to know was the entire take from the individual 
income tax, approximately $800 billion.
    And before we start coming up with excuses, the war and the 
economy can take credit for about $150 billion of that $800 
billion swing.
    But, Mr. Chairman, we're here to talk about higher 
education, and there's a direct correlation between education 
and an individual's future. The more education they have, the 
better future they'll have. And it's important to make sure 
that in a democratic society we do not deny access to higher 
education to people just because of the station in which they 
were born.
    The Pell Grants, which traditionally have been the key to 
low income students getting into college, are covering less and 
less each year. You used to be able to get a Pell Grant, a 15-
hour-a-week job, and a summer job, and maybe a little bit of 
student loan, and you can go to about any college, certainly 
any state college, in the country. Now the Pell Grant plus a 
lot of loans, you're still far away.
    We need to make sure the Pell Grant keeps up with not only 
inflation but the inflation that you mentioned, Mr. Chairman, 
of college tuition. Student loans have to be available at 
reasonable interest rates.
    Education is also important to the community. Those 
communities that have that have high incidence of well educated 
community have lower costs in welfare, lower costs in crime. We 
also need to make sure that we have the best educated workers 
so that we can attract jobs. Right now we're falling way behind 
in a lot of different areas--engineers, nursing, teachers, a 
number of other areas where we're not doing the job.
    So, Mr. Chairman, I'm delighted to see that we are talking 
about access to higher education and look forward to the 
testimony of the witnesses, and I'd ask unanimous consent that 
the statement from the Ranking Member, Mr. Miller, be entered 
into the record.
    [The prepared statement of Mr. Miller follows:]

Statement of Hon. George Miller, Ranking Member, Committee on Education 
                             and Workforce

    Thank you Mr. Chairman.
    I am pleased to join you at today's hearing. And I've got an answer 
to the question it poses. The federal investment in higher education is 
absolutely part of the solution.
    Since the passage of the Higher Education Act in 1965, Federal 
grants, loans and work-study have helped to send millions of students 
to college, many of whom would not have gone without the help.
    This investment has been critical in making the U.S. the world 
economic leader it is today. Our system of higher education is the envy 
of the world.
    But we all know that the world is quickly becoming a much more 
cutthroat place when it comes to the economy.
    Whether the U.S. retains its preeminence in this fiercely 
competitive global environment will depend more and more on having a 
highly skilled workforce.
    And higher education is the critical tool for building that 
workforce.
    Thanks in part to the improved federal investment in higher 
education since 1965, college participation rates have grown 
dramatically:
      In 1965, 38 percent of African-American high school 
graduates attended college. Today, more than 60 percent attend;
      In 1965, about half of white high school graduates 
attended college. Today, more than two-thirds attend;
      Thirty years ago, under half of all Hispanic high school 
graduates attended college. Today, nearly 60 percent attend; and
      Over the last three decades, the number of women 
attending college has grown by a quarter.
    Continuing this progress--and closing the college participation gap 
between white and minority students--would add $250 billion to our 
nation's economy and an additional $80 billion to tax revenues each 
year.
    Yet we cannot take this progress for granted.
    Already, we know that there are too many college-qualified students 
who are getting priced out of a higher education.
    We cannot continue to ignore rising tuition prices.
    In the last Congress, I cosponsored legislation with 
Representatives Tierney and McCollum that would make tuition more 
affordable and stop big tuition hikes.
    It's time for this committee to act on legislation to make college 
tuition affordable.
    Congress must also do a better job of maintaining and improving its 
commitments to college students, and it should start by increasing the 
Pell grant scholarship.
    This year, the Pell will make it possible for more than five 
million low- and moderate-income students to attend college. But the 
buying power of the Pell is worth $800 less, in real terms, than it was 
in 1975-76.
    President Bush has yet to make good on his promise to raise the 
maximum Pell grant scholarship to $5,100, but that shouldn't stop the 
Congress from acting to help students.
    In addition to Pell scholarships, this year more 14 million student 
and parent loans will be made to help students pay for college.
    Unfortunately, my Republican colleagues on this committee have 
introduced legislation that would require student borrowers to pay an 
additional $5,500, on average, in interest costs over the life of their 
loan.
    This year more than one million low-income, first generation, and 
minority students will benefit from college outreach programs.
    Despite the success of these programs, President Bush eliminated 
their funding in his education budget this year.
    Our nation's continued economic success demands that we take the 
federal investment in higher education seriously.
    We have a responsibility to help make college more affordable for 
students, and to do it in a way that uses taxpayers' dollars 
efficiently--for example, by eliminating wasteful subsidies to banks 
and student lenders.
    It doesn't make sense for the Congress to allocate limited 
resources to boosting the profit margins of banks.
    We have to return to the original premise of the Higher Education 
Act of 1965: that no college-qualified student should be denied a 
college education because he or she lacks the financial resources.
    I look forward to working with my colleagues on both sides of the 
aisle to accomplish this goal.
                                 ______
                                 
    Chairman Boehner. Without objection, so ordered. I want to 
thank you, Mr. Scott.
    Mr. Scott. Well, Mr. Chairman, I'd yield to either of my 
colleagues if I've got any time left. If not, Mr. Chairman, I 
yield back.
    Chairman Boehner. Well, we've got two excellent witnesses 
with us today, and we've granted each of the witnesses 10 
minutes of testimony since we only have two. I thought we'd 
give them more time to give us their point of view.
    Our first witness today is Dr. Richard Vedder. Dr. Vedder 
is Distinguished Professor of Economics at Ohio University, 
with degrees in economics from Northwestern University and the 
University of Illinois. He's been a visiting professor at 
numerous colleges and universities, most recently serving as 
the John M. Olin Professor of Labor Economics and Public Policy 
at Washington University in St. Louis.
    Over the course of his academic career, Dr. Vedder has 
authored several books and more than 200 published papers and 
several studies for the Joint Economic Committee here in the 
Congress. His latest book was titled ``Going Broke By Degree: 
Why College Costs Too Much.''
    Our second witness is Dr. Donald Heller. Dr. Heller is an 
Associate Professor and Senior Research Associate with the 
Center for the Study of Higher Education at the Pennsylvania 
State University.
    He has also taught at the University of Michigan, the 
University of Massachusetts, and Harvard University. He's 
authored numerous books and articles on college access issues 
and served as a consultant for institutions and state agencies 
in many states.
    I think we've explained to you the lighting system, how it 
works. I don't think we're going to have any problems with that 
today.
    So with that, Dr. Vedder, you may begin. You might want to 
turn your microphone on, though, first.

STATEMENT OF DR. RICHARD K. VEDDER, DISTINGUISHED PROFESSOR OF 
             ECONOMICS, OHIO UNIVERSITY, ATHENS, OH

    Dr. Vedder. I am Richard Vedder. I teach economics at Ohio 
University. I'm an Adjunct Scholar at the American Enterprise 
Institute.
    As you mentioned, I recently wrote this book on college 
costs. How do colleges cut costs? How do you cut the costs? You 
follow the money. Costs are rising to a considerable extent 
because you're dropping dollars over campuses and student 
homes, and they're ending up in the hands of relatively 
unaccountable administrators and faculty, who are spending the 
money in part to promote good lives for themselves.
    The solution is to stop the growth in this money flow. Now 
let me document this by summarizing some of the major 
conclusions in my book before discussing some of the policy 
implications. Let's begin with some facts. The cost of higher 
education is rising both to society and to consumers. From 2002 
to 2004, 4-year state university tuition fees increased an 
average of 26 percent. For every year since 1982, college 
tuition fees have risen faster than the overall rate of 
inflation.
    Let me briefly mention six reasons why this may be in part 
so. First, when the Federal Government increases subsidized 
student loans or Pell Grants or tuition tax credits, it 
increases the number of students wishing to attend college at 
any given tuition fee. In short, Federal policies increase the 
demand for education, which pushes up prices and tuition fees.
    Financial assistance on higher education not only has been 
increasing, but it has been rising at an accelerating rate. In 
the 5 years between 1998 and '99 school year and the 2003-'04 
school year, per student assistance rose at an annual rate of 
11.66 percent a year compounded.
    Second, in the private, for-profit sector, when the prices 
for products rise with increased demand, profit margins widen, 
and this unleashes a torrent of entrepreneurial activity as 
firms scramble to get a share of the highly profitable market. 
The rise in demand induces an increase in supply, ultimately 
leading to prices and profits falling to a more normal level.
    This has not happened to the same extent in higher 
education. Universities do not vigorously compete on price as 
they lack the profit incentives to do so. There's no bottom 
line in higher education. Did Xavier University, your alma 
mater, Mr. Chair, have a good year or a bad year in 2004? Who 
knows? With private, for-profit firms, we have real time 
changes in stock prices, earnings reports to indicate the 
financial success of the firm.
    In private firms, poor profits lead managers to being 
fired, employees to being laid off, and bonuses to be reduced. 
In traditional higher education, who knows whether the 
university is doing good or bad? And there are few incentives 
to improve. Poor performance sometimes goes unpunished, good 
performance sometimes goes unrewarded.
    Third, in the public's eye, the primary purpose of higher 
education is teaching our youth. Yet Federal data reveal a 
significant shift in resources over time from instructional 
purposes to other things.
    Some of the things of course include grant funded research, 
which is largely self-supporting and certainly in keeping with 
the educational mission, but some funding has gone for other 
things. In 1929, American University spent eight cents of each 
dollar on administration. Today they spend fourteen cents.
    The big personnel explosion has not been in new faculty but 
in nonteaching professional staff, and I could document this.
    Fourth, universities have become more aggressive in 
discounting fees for some but not all students. Increasingly, 
universities are doing what airlines have done for years. 
They're charging those who are relatively insensitive to price 
more than those for whom price is a major consideration in 
selecting schools. There's been a bit of a soak-the-rich 
attitude more than heretofore.
    Fifth, productivity in higher education has probably 
fallen, difficult to measure, but it's probably falling. 
Staffing certainly is rising relative to enrollments.
    Sixth, much incremental funding has gone to improve lives 
for staff. Salaries of full professors have risen at least 50 
percent in real terms since 1980, and workloads have declined 
for many as well. Some incremental funds from higher third-
party payments have gone to improve the quality of life of 
personnel.
    Now what does this all have to do with the Higher Education 
Act reauthorization? You should aim to improve competition in 
higher education, promote alternatives to not-for-profit 
schools. You should rein in or reduce the artificially induced 
growth in demand that is pushing up tuition fees. Above all, 
you should put some brake on the cost to the Federal Government 
of helping to finance higher education, particularly given the 
large deficits you mentioned accompanied the congressional 
spending spree of the last few years.
    Now there's many ways we could curb Federal programs 
somewhat. One approach of course would be to reduce those 
eligible for loans, restrict tuition tax credits by greater use 
of income-tested eligibility. A variant of this approach would 
simply let tuition tax credits expire after this year. Another 
approach would be similar to what we did with welfare reform in 
the mid-'90's. Put on time limits. Limit a student's loan or 
grant eligibility more rigorously than at present. Put a 
lifetime limit on years of loan or grant eligibility, for 
example.
    Another approach would be to put performance dimensions to 
loans and Pell Grants, have at least part of the grants vary 
with the student's performance.
    A fourth approach would be to set an aggregate ceiling on 
Federal financial assistance, and if legal requests for that 
aid exceed the ceiling, to prorate the grants or loans to fit 
the ceiling.
    Now aside from restricting Federal student assistance, you 
need to ensure that newly emerging competitors to traditional 
universities can flourish. I've been worried about two 
potential problems. The first are the regional accreditation 
associations might use their power to reduce competition from 
the for-profit schools, and perhaps even the junior colleges.
    Our current accreditation system is inefficient, has often 
raised costs needlessly, and is in large part based on input-
based assessment. I'm concerned that the not-for-profit schools 
that largely control the accreditation bodies will start 
putting obstacles in the way of the for-profits.
    A second concern is that the for-profit 4-year institutions 
might increasingly start to deny transfer credits to the for-
profits and public community colleges, not on the basis of the 
nature of the coursework offered, but simply on the grounds 
that these schools are stealing students from them.
    Legislation should minimally include a nondiscrimination 
clause that states that the profit status of an institution may 
not be taken into account in evaluating credit transfer 
requests for any school which has Federal student assistance.
    Finally, the Federal Government appears to be either 
indifferent or hostile to good behavior at either the level of 
the institution or the individual student. With regards to 
students, I would at least give slightly smaller Pell Grants to 
poorly performing students than good ones. I would cut off 
students with poor grades or bad disciplinary records; for 
example, arrests for rioting or other bad forms of behavior. I 
think we can strengthen up--strengthen what we do in this area.
    The same can be done with respect to loans and even tuition 
tax credits to parents of students. A parent who saw that they 
were going to lose a tuition tax credit because their kid got 
arrested and put in jail might have something to say to their 
kid.
    How do you improve institutional behavior? One approach 
would be to bribe them. You can reduce the cost to the Federal 
Government--say you reduce the cost by $5 billion a year 
through restricting loans and grants. Devote a part of that, 
say $3 billion, to tax relief to taxpayers or deficit reduction 
or a non--to other things, but use the remaining $2 billion to 
establish a fund to reward schools holding down their costs.
    Give them incentive payments to keep the sum of tuition fee 
and state government subsidy growth per student to the level of 
inflation or less. Those universities that seriously trim their 
bureaucracies, make their faculty teach more, use personnel and 
facilities year round or use technology to lower costs, would 
be rewarded. Perhaps mandate that a portion of their reward 
payments be returned to the top administrators and the staffs 
as efficiency bonus payments. Provide incentives for workers in 
higher ed to want to cut costs.
    Another variant on the proposal would be to provide 
financial incentives to state governments that increase the 
proportion of state assistance that goes directly to the 
students as vouchers or scholarships rather than institutional 
subsidy payments, or to states that keep the overall growth of 
total higher education expenditures to the rate of inflation 
plus growth in the 18 to 24 population.
    Concluding, Federal higher education policy exemplifies in 
my judgment the law of unintended consequences. Legislation 
that was adopted in good faith to help kids has contributed in 
a significant way to the cost explosion that needs to be 
addressed. And perhaps it is time for tough love for American 
higher education.
    I wish you luck in your endeavors.
    [The prepared statement of Dr. Vedder follows:]

    Statement of Dr. Richard K. Vedder, Distinguished Professor of 
                 Economics, Ohio University, Athens, OH

    Chairman Boehner and members of the committee, my name is Richard 
Vedder, and I am Distinguished Professor of Economics at Ohio 
University, and an adjunct scholar at the American Enterprise 
Institute. I have recently written a book entitled Going Broke By 
Degree: Why College Costs Too Much (Washington, D.C.: AEI Press, 2004), 
a copy of which is being provided to each of you. My testimony is 
largely derived from my research for this book, aided by 47 years of 
experience in American higher education, including service as a 
professor at a wide variety of institutions.
    Public support of higher education is usually justified on two 
major grounds: first, universities allegedly have positive spillover 
effects, so that colleges benefit not just those attending them but 
society as a whole. Second, in keeping with equalitarian ideals dating 
back to the founding, we believe that access to higher education 
furthers the American Dream, specifically that persons can succeed in 
our society regardless of their family position, race, religion, 
gender, ethnicity, or other group attribute. My research suggests that 
while still the best in the world, American universities have lost 
their way in terms of meeting these fundamental objectives. Of 
particular relevance to this hearing, access to college is not growing 
much despite--or maybe even because of--the well intended efforts of 
the federal and state governments. Also, there is some evidence that 
universities have significant and important negative spillover effects, 
that government support for them actually has negative economic 
effects. All told, federal higher education policy is a perfect example 
of the Law of Unintended Consequences.
    I will first summarize in rather abbreviated form the major 
conclusions of my book. I will then discuss some policy implications, 
including some possible directions for federal higher education 
participation as you ponder the reauthorization of the Higher Education 
Act.
    Let us begin with some facts. First, and most obvious, the cost of 
higher education is rising to society in general and to consumers in 
particular. The College Board tells us that in the two years from 2002 
to 2004, four year state universities tuition fees increased an average 
of 26 percent. The Bureau of Labor Statistics tells us that for every 
year since 1982, college tuition fees have risen faster than the 
overall rate of inflation. Over the past generation, tuition fees have 
been rising faster than family incomes, a phenomenon that is not 
sustainable on a long-term basis. There is some evidence that the rate 
of tuition increase has exceeded the inflation rate for at least a 
century, although I would argue that the rate of real increase has 
accelerated in recent times, in part because of public policy.
    In the course of my testimony, I will mention at least six factors 
related to the tuition fee explosion: the presence of huge third party 
payments, the lack of strong market discipline, the use of university 
resources to cross-subsidize non-academic activities, price 
discrimination against some students, a decline in productivity, and, 
finally, rent-seeking behavior.

Third Party Payments
    There are two sectors of the economy where the federal government 
involves itself heavily in financing private transactions, namely 
health care and higher education. It is not a coincidence that these 
are the two sectors with the greatest amount of price inflation in 
modern times. When the federal government increases subsidized student 
loans, gives a Pell Grant, or grants a tuition tax credit, it increases 
the number of students wishing to attend college at any given tuition 
fee. Indeed, that is the idea--the federal government wants to provide 
access to persons who might not otherwise go to college for financial 
reasons. In short, federal policies increase the demand for education 
relative to the supply, which pushes prices or tuition fees up. For 
those who have copies of my book, I refer you to page 16 for a 
graphical presentation of this phenomenon. When the federal government 
began tuition tax credits a few years ago, I jokingly called it the 
Faculty Salary Enhancement Act, reasoning that the tax credits would 
lead to larger tuition increases, and some of the incremental money 
that colleges received would go to the faculty in larger raises than 
would otherwise have been provided. I believe I was right.
    It is a fact that federal financial assistance in higher education 
has not only increased, but it has risen at an accelerating rate. In 
the 1983-84 school year, American college students received $28.4 
billion in financial assistance from all sources. Twenty years later, 
that aid had grown more than four-fold to $122 billion, two-thirds of 
which was provided by the federal government. In the five years between 
the 1998-9 and 2003-4 school years, per student assistance rose at an 
annual rate of 11.66 per cent a year, a truly extraordinary rate of 
growth. By contrast, 15 years earlier, the annual growth rate over a 
five year period was less than half of that, 5.08 percent. This rapid 
and accelerating increase in aid has served to move the demand curve 
for higher education services to the right, and with that there has 
been a sharp increase in tuition fees.

Lack of Market Discipline
    In the private for-profit sector, when the prices for products rise 
with increased demand, profit margins widen and this unleashes a 
torrent of entrepreneurial activity, as firms scramble to get a share 
of the highly profitable market. The rise in demand induces an increase 
in supply, which ultimately leads to prices and profits falling to a 
more normal level. This has not happened in higher education. While it 
is true that institutions are competitive with one another, they do not 
vigorously compete on price, as they do not have the profit incentives 
to induce them to alter their behavior in response to changing market 
conditions. Do you see colleges advertising that they are 10 percent 
cheaper than their peer schools? Or that they are leaving their tuition 
fees constant while their rivals are raising them? It is rare indeed. 
In the private sector, such behavior is commonplace. The for-profit 
University of Phoenix sometimes tells students ``enroll now and your 
books for the first course will be free.'' That never happens with not-
for-profit schools. A successful for-profit business is one that cuts 
costs and/or increases revenues by offering an improved product. Price 
increases are minimized in order to win business and maximize profits. 
Profits mean greater income for managers, stockholders, and employees. 
The profit incentive is lacking in all but a small portion of the 
higher education market.
    The big problem is that there is no bottom line in higher 
education. Did Xavier University, Chairman Boehner's alma mater, have a 
good or bad year in 2004? How would one know? With private for-profit 
firms, we have real time changes in valuations based on stock prices, 
and frequent earnings reports to give a sense of the financial success 
of the firm. There is a very specific and precisely measured bottom 
line. In private firms, poor profits often lead to managers being 
fired, employees being laid off, bonuses being reduced. In traditional 
higher education, it is difficult even to say whether the university is 
doing good or bad, and there are few incentives to improve. 
Accountability is limited. Poor performance goes unpunished, and good 
performance goes unrewarded. State universities have a large degree of 
independence from the political process, and in both public and private 
universities the boards of trustees tend to be volunteers who do not 
take the time to seriously challenge the decisions of the 
administration. Thus universities are far less accountable to anyone 
than most institutions in our society.

Cross-Subsidization of Activities
    In the public's eye, the primary purpose of higher education is 
teaching our youth. Certainly state creation of institutions of higher 
education was largely predicated on the proposition that the presence 
of cheap colleges further the American Dream of equal opportunity for 
all, and education has spillover effects that positively impact the 
rest of society. Yet data provided by colleges and universities to the 
federal government reveal that there has been a significant shift in 
resources over the years from instructional purposes to other things. 
Some of the other things include grant-funded research, which at least 
is largely self-supporting and in keeping with a traditional education 
mission, but some funding has gone for other things. In 1929, American 
universities spent about 8 cents of each dollar on administration, 
whereas today they spend 14 cents and it has been rising. The big 
personnel explosion in universities has not been in new faculty, but in 
non-teaching professionals, many of whom are bureaucrats who do little 
to improve learning but who must be paid--by tuition fees if not third 
party payments. In 1976, American universities had three non-teaching 
professionals for every 100 students; 25 years later, they had six. In 
some schools, luxurious new facilities are adding to costs, as are 
subsidies for intercollegiate athletics. It is also true that as 
federal and state dollars have rained down on college campuses, 
universities have been generous in compensating themselves. The true 
real compensation of full professors at four year schools, for example, 
has risen over 50 percent over the past two decades.

Price Discrimination
    Another reason that the stated tuition fees have grown so much is 
that universities have been more aggressive in discounting those fees 
for some but not all students. Increasingly, universities are doing 
what airlines have done for decades--they are charging those who are 
relatively insensitive to price more than those for whom price is a 
major consideration in selecting schools. More bluntly, there has been 
more of a soak the rich attitude than previously.
    An interesting and some would view worrisome trend has been 
occurring lately with respect to price discrimination. Historically, 
scholarships have largely been based on need, with tuition discounts 
going predominantly to students from lower income families. The whole 
federal financial assistance program depends on prying the most 
intimate of financial information from students and their parents, and 
then using that to determine the price of services. Incidentally, I 
would note that if a car or real estate dealer tried to do that they 
would be probably put in jail. Recently, however, it appears that 
colleges are increasingly giving merit based scholarships in an attempt 
to improve the average quality of the student body in order to improve 
rankings done by such organizations as US News and World Report. At a 
recent meeting I had with a group of private college presidents, they 
complained bitterly to me that the state universities have lost sight 
of their basic mission, giving scholarship aid not to the poor who need 
it in order to attend college, but to bright kids they want to attract 
to improve their national rankings. There is even some evidence that 
suggests that the median family income of those attending four year 
state universities is as high as that of those attending private 
schools, perhaps suggesting that the state universities on the whole do 
not take terribly seriously the notion that they have a special 
obligation serve the disadvantaged.

Productivity Decline
    Rising demand for colleges have led to increase tuition fees, 
which, along with greater government and private gifts and grants, 
means the universities have been awash with funds. They have used a 
good deal of the incremental monies to hire additional staff. The 
evidence is very clear that staffing has risen relative to enrollments. 
For those with copies of my book, I refer you to page 47. Recent data 
updates do not change the picture. Whereas in the mid-1970s it took 18 
or 19 employees to educate 100 students, now it takes 21. In my book, I 
have an extended discussion of the implications of this staffing 
explosion on productivity, concluding that under almost any reasonable 
assumption, productivity has fallen or, at best, remained constant in 
an absolute sense. Relative to the rest of the economy, there is 
absolutely no question that there has been a significant decline in 
labor productivity in higher education.

Rent-Seeking
    The field of public choice economics has the insight that people 
almost always seek to improve their lot in life, even persons working 
for non-profit institutions such as governments and universities. We 
say that individuals are ``rent-seekers'', trying to increase the 
payments made to them beyond those necessary to get them to do any 
given amount of work. University personnel are no different, and the 
relative low level of accountability that they face has allowed them to 
allocate resources in ways that improve their lives, even when that 
improvement comes at the cost of performing their professed mission at 
greater than the lowest possible cost adjusting for quality.
    Specifically, much of the fund reallocation discussed above was 
done because administrators and faculty members could get away with it, 
not because it was necessarily desirable on some educational ground. I 
have already pointed out that salaries of professors have risen 
handsomely in the past couple of decades or so, almost precisely the 
period in which federal loan and grant programs have been 
quantitatively important. Faculty have also quietly but effectively 
lowered their teaching loads, ostensibly to increase time for research. 
It is simply more pleasant to do research, or in some cases, play golf, 
then to teach more classes and grade more papers. Administrators have 
hired more assistants to relieve themselves of some of their work load. 
Much of the personnel explosion has simply served to reduce the work 
pressures on staff.
    There are many other issues that I will only cursorily mention in 
the interests of time. Intercollegiate athletic programs are filled 
with scandal and are increasingly expensive. Grade inflation is 
reducing standards. More and more students spend two, three and even 
more nights a week partying rather than studying. The high rate of 
attrition of students means enormous resources are wasted. Some claim 
that universities are forcing ideological conformity at the same time 
they widely proclaim racial and other forms of diversity. While these 
are all interesting topics, they are the subject of another day and 
another hearing.

Reforming the Academy--Non-Federally Initiated Changes
    Before turning to steps that the federal government should take as 
it ponders the reauthorization of the Higher Education Act, I would 
note that some changes of importance are already happening. These 
trends can be expected to continue under almost any policy regime you 
decide to adopt.

            Non-Traditional Competition
    When something becomes expensive, people search for cheaper 
alternatives. This is happening to an increasing extent in higher 
education. We see several alternatives emerging. One, of course, is on-
line education, provided in part by traditional providers such as not-
for-profit universities, but also by for-profit firms. More generally, 
the for profit higher education industry is growing exponentially, is 
highly profitable, and is viewed by Wall Street as having a very bright 
future based on the high price-earnings ratios prevailing on common 
stock of publicly traded companies. The best known, of course is the 
University of Phoenix owned by Apollo Group, but there are a number of 
other firms growing just as fast and often nearly equally profitable.
    To this point, the for-profits have concentrated on offering 
limited vocationally oriented training to adults studying on a part-
time basis. As that market approaches saturation, the for profits are 
starting to expand into the 18 to 22 year old market, competing more 
directly with traditional not-for-profit providers. The for-profits 
have taken advantage of the soaring tuition fees of the traditional 
providers to be able to offer education at a cost that compares 
favorably with the private not-for-profits. The for-profit universities 
are for those looking at education as an investment, rather than those 
undergraduates at a typical residential university who look at higher 
education both as a service to be consumed and enjoyed, as well as an 
investment.
    In addition to the for-profits and on-line providers, there has 
been a growth in non-university forms of certification of skills. I 
believe that university graduates earn a substantial earnings premium 
over high school graduates not mainly for what they learn in college, 
although some college programs are vocational training in nature. 
Rather, a college diploma usually means the individual is reasonably 
literate, fairly dependable, probably at least fairly intelligent and 
mature, and is at least minimally conscientious. These are qualities 
desired in an employee, and are very often missing in high school 
graduates, so employers will pay a premium for these kinds of workers. 
A diploma certifies that there is a very high probability of some 
minimal level of competency. Such certification, however, can come 
without a formal college education. Firms like Microsoft, Oracle and 
Novell give certificates to persons who have demonstrated proficiency 
in their software. We certify people as being qualified as accountants, 
lawyers, doctors and investment counselors through various forms of 
certification and licensing exams, and it is possible that we could 
expand this approach to occupations where a college degree is clearly 
not in and of itself necessary to demonstrate competency.
    America has been a mecca for students around the world seeking a 
higher education. But that is a two-way street, and as the costs of 
attending U.S. universities rise, more students may seek degrees 
elsewhere, particularly in other English speaking countries such as 
Canada or the United Kingdom.
    Finally, I am already seeing a rise in interest in students 
spending two years in a junior college and then transferring to more 
expensive four year universities to complete their degree. The issue of 
articulation between different institutions thus is becoming a more 
important issue.

            State Legislative Efforts
    State governments are reducing their direct subsidies to colleges 
and universities as a share of their budget, and often reducing them in 
absolute terms as well. As Medicaid eats up a larger share of state 
budgets, and as K-12 lobbies push for ever more expensive education at 
that level, legislators have to either reduce higher education 
subsidies or raise taxes. The reduced state support of higher education 
is leading some states to be approaching piecemeal privatization of 
universities. The graduate law and business schools at the University 
of Virginia, for example, no longer receive any subsidies from the 
state and are, for all practical purposes, privatized. Several major 
universities reach only about 10 or 15 percent of their budgets from 
state appropriations, and the privatization option is becoming 
increasingly realistic.
    Another move at the state level that I think has much to commend 
for it is the growing emphasis on funding students, not institutions. 
Colorado is beginning offering vouchers to students this summer, 
Georgia offers huge grants under its HOPE scholarships to good 
students, and Missouri may adopt a bill that could direct all future 
spending increases for higher education to the students in the form of 
vouchers usable at either public or private institutions. Some of these 
moves would probably increase price competition and the sensitivity of 
colleges to the needs of students. A twist on vouchers would be to make 
them both progressive, as suggested once by Robert Reich, and 
performance based. More would be given to lower income students than 
higher income ones, and more would be given to good students than bad, 
and perhaps all aid would be cut off after the fourth year of study. 
This would help deal with problems of poor college access and high 
attrition.
    Some states are trying to legislate or regulate university 
behavior. Examples include tuition price controls, mandated minimum 
teaching loads, elimination of low enrollment doctoral programs, and 
prohibitions on some forms of conspicuous spending, such as substantial 
foreign travel by administrators. Personally, my own observation is 
that these piecemeal regulatory or legislative attempts seldom work, 
and sometimes they hinder universities in utilizing policies that would 
fit their unique situations well.

            Internal Reform
    Universities are not inclined to cut costs and break from old 
habits easily, but in some cases budget exigencies are forcing change. 
Modifying tenure arrangements, increasing teaching loads, eliminating 
some programs, and reducing administrative staff are four things that 
one or more universities have done in the past few years in order to 
remain fiscally sound. As the traditional universities continue to lost 
market share in an era when the 18 to 24 year cohort is growing slowly 
and soon will begin to decline, we can expect to see some acceleration 
of internal efforts to restrain costs.
Changes in Federal Higher Education Policy
    What does all of this have to do with the Higher Education Act 
reauthorization? You should aim to improve competition in higher 
education, promoting non-traditional alternatives to not-for-profit 
schools. You should take steps to rein in the artificially induced 
growth in demand that has pushed up tuition fees. Above all, you should 
put a brake on the costs to the federal government of helping finance 
higher education, given the large deficits that have accompanied the 
Congressional spending spree of the last few years.
    Before I start giving more specific suggestions, allow me to 
actually commend federal policy in one regards. Putting aside research 
grants from organizations like the National Institutes of Health and 
the National Science Foundation, the bulk of federal assistance has 
gone to students rather than institutions. This is as it should be, and 
I would prefer to see the states move in that direction as well. 
Second, you have not discriminated against students who prefer to 
attend private schools, unlike most state aid that is directed to only 
certain state institutions. Given the rent-seeking and inefficiencies 
associated with institutional grants, I believe governments should get 
out of the business of providing general assistance to education 
institutions. Competition is improved when money goes to students, as 
then their enrollment decisions have greater consequence on 
institutional finances, and that, in turn, makes institutions more 
responsive to student needs and concerns.
    Having said that, I believe a very strong case can be made for all 
governments to largely withdraw from the funding of higher education 
given the empirical evidence regarding higher education behavior. There 
are still enormous income related gaps in terms of higher education 
participation, and many institutions are more obsessed with their US 
News and World Report ranking than serving these needs. A smaller 
proportion of 18 to 24 year old Hispanics are in college today, for 
example, than in the mid-1970s. The proportion of the American 
population attending college actually fell slightly from 1990 to 2000, 
the first decennial decline in modern American history. There is only 
the weakest of statistical correlations between state government 
assistance for colleges and universities and the proportion of kids 
actually attending or graduating from college. Moreover, there is 
evidence that greater spending at the state and local level on colleges 
and universities is associated with negative, not positive, economic 
growth. The alleged positive spillover effects of higher education are 
more rhetorical and theoretical than real, in my judgment. The more 
states spend on colleges, the less non-college-attending citizens of 
states earn. Putting economic issues aside, on equity grounds, why 
should you be subsidizing upper middle class kids to go a fifth or 
sixth year to institutions which have country club like facilities?
    The cold turkey elimination of federal support to colleges or 
students is not going to happen, nor probably should it occur. At the 
same time, however, the double digit increase in student financial 
assistance has contributed mightily to the tuition price explosion, and 
the solution is to reduce the money that is flowing to institutions and 
members of their academic communities.
    There are many ways curbs could be put on various federal programs. 
One approach would be to reduce those eligible for loans, and to 
restrict tuition tax credits by greater use of income tested 
eligibility. Why should persons making more than $100,000 a year be 
allowed tuition tax credits, for example? A variant on this approach 
would be to simply let tuition tax credits expire after this year, as I 
understand will happen under current law. Another approach would be 
similar to what we did with welfare reform in the mid 1990s--put on 
time limits. Limit a student's loan or grant eligibility more 
rigorously than at present. Put a lifetime limit on years of loan or 
grant eligibility, for example. A third approach is to put a 
performance dimension to loans and certainly to Pell Grants. Have at 
least part of the grant vary with student performance. To avoid even 
more outrageous grade inflation than currently exists, tie performance 
to class rank as certified by the college. Any college that refuses to 
certify class rank would find its students ineligible for loans or 
grants. A fourth approach would be to set an aggregate ceiling on 
various or all forms of federal financial assistance, and if legitimate 
requests for the aid exceeds the ceiling, pro rate the grants or loans 
to fit the ceiling.
    There are arguments for or against each approach, but what is 
critical that some approach be adopted that puts brakes on the growth 
in student loan expenditures. At the present, universities set their 
tuition fees each year at ever higher levels and you, the federal 
government, respond by increasing assistance. You enable the tuition 
explosion to persist. If you stop providing assistance, in the short 
run there will be a rise in financial pain to college students, but in 
the long run you will help break the vicious circle of rising fees 
followed by rising loans, grants and now tuition tax credits. 
Universities raise their tuition a lot because they can get away with 
it. Make it difficult for them to do that.
    A highly controversial idea that in my mind would dramatically 
reduce tuition increases would be to phase out the FAFSA form and 
prohibit the solicitation of financial information from prospective 
students and their parents. Denied that information, universities would 
find it much hard to soak the rich, and would reduce the sticker price 
relative to the net tuition revenues received. Given the rather dubious 
record of colleges of providing access to low income groups in society, 
even after controlling for academic ability, perhaps the time has come 
to do this, although it would render it difficult to administrator 
federal programs designed to promote student access to higher 
education.
    Aside from restricting loan, grant and tax credit aid from growing, 
you need to assure that the newly emerging competitors to the 
traditional universities are allowed to flourish. I have been 
particularly worried about two potentially severe problems. The first 
is that the regional accreditation associations might use their power 
to reduce competition from the for-profits. Our current accreditation 
system is highly inefficient, has raised costs in some cases 
needlessly, and is largely based on input-based assessment, to name a 
few problems. I am concerned that the not-for-profit schools that 
largely control the accreditation bodies will start putting obstacles 
in the way of the for-profits. One way would be to impose dubious 
accreditation requirements, such as requiring a certain sized library, 
or that a certain percent of faculty be full-time professors with 
doctorate degrees. As the for-profits grow in relative importance, I 
suspect pressures along these lines will mount. Some review of the role 
of accrediting bodies in determining institutional eligibility for 
student loans is desirable. A good case can be made to base 
institutional loan eligibility on student performance on national 
examinations both in the area of general education and on specific 
subject. For example, perhaps deny student loans to any school that 
does not have 50 percent or more students score a specified score on 
the National Assessment of Educational Progress examinations 
administered to high school seniors. While this approach has its 
deficiencies as well, at least it is outcomes based.
    A second concern is that for year institutions might increasingly 
start to deny transfer credits to the for-profits, or even to public 
community colleges, not on the basis of the nature of the coursework 
offered, but simply on the grounds that the schools have for-profit 
status or are stealing students from them.. At the minimum, legislation 
should include a non-discrimination clause that states that the profit 
status of an institution may not be taken into account in evaluating 
credit transfer requests for any school which has federal student 
assistance.
    Finally, I would observe that currently the federal government 
appears to be either indifferent or hostile to good behavior at either 
the level of the institution or the individual student. Federal 
assistance should be directly related to the degree that students and 
institutions behave in a socially commendable fashion. At the student 
level, as indicated above, I would give at least slightly smaller Pell 
grants to poorly performing students than good ones, and I would cut 
off students with poor grades or whose bad disciplinary records, for 
example arrests for rioting or other bad forms of behavior. The same 
can be done with respect to loans and even tuition tax credits to 
parents of students.
    How do you improve institutional behavior? One approach would be to 
bribe them to be more responsible. Let me give you a specific example 
for illustration. Say that you reduce the cost to the federal 
government by, say, $5 billion a year initially, of governmental higher 
education programs through tightening eligibility for assistance as 
discussed above. Perhaps you eliminate or greatly restrict tuition tax 
credits, for example. Devote a large portion of that, say $3 billion, 
to further tax relief to the taxpayers or to deficit reduction. Use the 
remaining $2 billion to establish a fund to reward schools that hold 
down costs. Give them incentive payments for keeping tuition increases 
to the level of price inflation, or better yet, to keep the sum of 
tuition fees and state government subsidies per student to the level of 
inflation or less. Those universities who get serious about trimming 
their massive bureaucracies, making their faculty teach more, using 
personnel and facilities year-round, or using technology to lower costs 
will be rewarded, while those who do business as usual will not be. 
Perhaps mandate that a portion of the institutional reward payments be 
returned to the top administrators and the staff in the form of 
efficiency bonus payments. Provide incentives for workers to want to 
cut costs.
    Another variant on the proposal above would be to provide financial 
incentives to state governments that increase the portion of total 
state assistance that goes directly to students in the form of vouchers 
or scholarships, rather than to institutional subsidy payments, or to 
states that keep the overall growth of total higher education 
expenditures to the rate of inflation plus the growth in the 18 to 24 
year old population.
Conclusion
    How do you cut the costs of college? Follow the money. Costs are 
rising because you are dropping dollars over college campuses and 
student homes and they are recycling those dollars to the campus 
community, where relatively unaccountable administrators and faculty 
are spending the money largely to promote the good life for themselves. 
The solution is to rein in the growth in this money flow. I wish you 
luck in your endeavors.
                                 ______
                                 
    Chairman Boehner. Thank you, Dr. Vedder.
    Dr. Vedder. Other than that, I have no opinion.
    Chairman Boehner. I could tell.
    [Laughter.]
    Chairman Boehner. I love it when we have a wide array of 
thought brought to our Committee. Dr. Heller, it's your turn.

  STATEMENT OF DR. DONALD E. HELLER, ASSOCIATE PROFESSOR AND 
 SENIOR RESEARCH ASSOCIATE, THE CENTER FOR THE STUDY OF HIGHER 
EDUCATION, THE PENNSYLVANIA STATE UNIVERSITY, UNIVERSITY PARK, 
                               PA

    Dr. Heller. Chairman Boehner, Congressman Scott, and 
members of the Committee, thank you for the invitation to 
address you on this important issue being discussed at today's 
hearing.
    This year, as you know, marks the 40th anniversary of the 
Higher Education Act of 1965, and this law and its subsequent 
reauthorizations have had an unprecedented impact on 
postsecondary education in the United States. This year the 
Federal Government will award $15 billion in grants to about 5 
million students. Twelve million students will receive a total 
of over $55 billion in Federal loans. Approximately 1 million 
high school and college students, most of whom are from low 
income and first generation college-going families, receive 
vital assistance in preparing for college and being successful 
once there through the TRIO programs.
    In response to the provocative title, to use the word you 
used, Chairman Boehner, of today's hearing, I would answer the 
question by stating emphatically that both the Federal 
Government and states are vital parts of the solution to 
ensuring access for today's college students.
    While there are some problems with the way our college 
access programs are structured, and Professor Vedder has ably 
described some of these problems in his book, I differ with his 
conclusion that the solution is to eliminate government funding 
for higher education. I will return to the problem shortly, but 
I want to start by emphasizing the importance of Federal and 
state funding for our nation's colleges, universities and 
students.
    A wide body of research over three decades has confirmed 
two important points about the financial aspects of college 
access. First, lower income students are the most sensitive to 
rising tuition prices, and they are the first to be priced out 
of college as tuition goes up or to drop out if already 
enrolled. The price sensitivity decreases as you go up the 
income ladder, so that the highest income students have very 
little price sensitivity.
    Second, financial aid is particularly important in ensuring 
college access for lower- and middle-income students. Much of 
the discussion about the rising cost of college ignores the 
fact that two-thirds of all undergraduates and over three-
quarters of full-time undergraduates receive some form of 
financial aid.
    In his book, Professor Vedder calls for the elimination of 
the subsidies that states provide public colleges and 
universities, and for Congress to abolish the Title IV grant 
programs. He justifies this radical proposal by presuming that 
government support for higher education has little impact other 
than to enable colleges and universities to increase their 
prices. Remove the public subsidy, as he just argued, and these 
institutions would have little capacity to raise prices.
    Professor Vedder's assumption, I am afraid, is not 
supported by the available research. In 1998, Congress required 
the Department of Education to conduct a study of the reasons 
behind the rising cost of college. That study, which has been 
widely recognized as the most complete and authoritative on the 
topic, was issued by former Secretary of Education Paige in 
2001. It examined whether Federal or state financial aid led 
directly to tuition price increases. This study conducted by 
the Department concluded that there was no relationship between 
either Federal or state aid and tuition price increases.
    This finding confirmed the bulk of the research on this 
topic that had previously been conducted, including that of the 
National Commission on the Cost of Higher Education in its 1998 
report to Congress.
    The study found that the primary driver of tuition price 
increases in public colleges and universities was the level of 
appropriations received from the states. In those states where 
appropriations grew more slowly, or as happened most recently 
were actually cut, prices in the public sector grew the 
fastest.
    More evidence to refute Professor Vedder's hypothesis can 
be found in the last 4 years. Since 2001, the average and 
maximum Pell Grant has risen just about 8 percent. State grants 
have stagnated, with many states offering no increases or even 
cuts in their grants because of the state of their economies.
    There has also been no increase in borrowing limits in the 
Federal loan programs in the last 4 years. During this same 
period, however, tuition price increases have averaged 16 
percent at private colleges and universities, 36 percent at 
public 4-year colleges, and 29 percent at community colleges.
    Clearly, there have to be other factors driving these price 
increases than the availability of state or Federal aid, as the 
amount of aid available to individual students has not changed 
appreciably. What has happened is that the states have 
decreased the funds appropriated for higher education by 1 
percent in current dollars since 2001. The impact is seen quite 
clearly in the rapid rise in tuition prices.
    Now in the face of these cuts, many universities have 
worked to make themselves more efficient. Let me use my own 
institution, Penn State, as an example. Starting in fiscal year 
2002, Penn State endured cuts in its appropriation from the 
commonwealth for 3 years in a row. Our current appropriation of 
$317 million is almost exactly the same amount we received 5 
years ago from the state.
    In response, President Graham Spanier formed a university-
wide taskforce to identify ways to cut costs and make Penn 
State more efficient. We implemented $15 million in budget cuts 
and income enhancements other than tuition increases throughout 
the university, representing more than half of the funds that 
we lost from the commonwealth.
    These changes were made without decreasing the quality of 
the education provided to our over 80,000 students. Similar 
efforts can be found at many other colleges around the country 
who have reacted to cuts in their appropriations by looking to 
find ways to make themselves more efficient.
    While these efforts at making universities more efficient 
are important, they cannot by themselves compensate for the 
elimination of Federal and state support for higher education. 
So contrary to Professor Vedder's assumption that cutting 
Federal and state aid to higher education will lead to more 
moderated prices, the evidence demonstrates that eliminating 
governmental support will result in even more rapidly 
escalating prices, as we have experienced in the last 4 years.
    His proposal is akin to suggesting that abolishing Medicaid 
and Medicare would by itself alleviate the skyrocketing growth 
of health care costs. More likely, this would leave millions of 
poor families and senior citizens without access to adequate 
health care.
    Even with the financial aid available from the Federal 
Government and other sources, many of these students are 
already being priced out of college. A report from the Federal 
Advisory Committee on Student Financial Assistance shows that 
over 400,000 high school graduates who are academically 
qualified to attend a 4-year college are unable to do so 
because of cost barriers. Over 160,000 of these students are 
unable to afford even a community college, our lowest price 
option.
    Eliminating government funding for higher education would 
result in even more lower- and middle-income students being 
priced out of college.
    Professor Vedder's proposal of moving to a voucher system 
is also fraught with danger. He points to Colorado's decision 
to replace its general subsidy with vouchers for students, but 
this experiment is so new that we do not yet have the evidence 
to determine its impact on college students and higher 
education more broadly.
    Professor Vedder also recommends adding a merit component 
to these vouchers, as well as to Pell Grants. This, too, would 
funnel money away from financially needy students, as the 
research that I and others have done has demonstrated that 
merit aid is awarded disproportionally to students from higher 
income families, many of whom do not need that assistance to be 
able to go to college.
    I believe that Professor Vedder's assertions regarding the 
productivity of colleges and universities and their faculty 
members are also mistaken. He claims that the typical professor 
at a major university works only 1,200 hours per year, with 
little evidence to back that up. Yet data from the Department 
of Education show that university professors work an average of 
58 hours per week, or a total of 2,100 hours during a 9-month 
academic year. That's quite different from the 1,200 hours he 
calculated.
    His claim that the lack of productivity among faculty is a 
major reason for rising tuition prices is not substantiated by 
the Department's own figures.
    Professor Vedder also provides some basic calculations he 
claims demonstrate that the public investment in higher 
education actually works against the interests of states. But 
his work uses a very narrow measure of the impact this 
investment has on the economy, and it suffers from measuring 
the impact over a single time period.
    More rigorous studies have found that the public investment 
in higher education earns a positive social return, as measured 
by higher rates of national economic growth and productivity, 
increased tax revenue received by states and the Federal 
Government, and a decreased reliance on government assistance 
programs such as food stamps, TANF, Medicaid, and housing 
assistance.
    As I stated earlier, I believe there are some problems with 
the way public support for higher education is currently 
structured. When I testified before the Subcommittee on 21st 
Century Competitiveness in 2003, I encouraged it to examine 
ways to simplify the process of applying for and receiving 
Federal student aid. And the advisory committee this January 
issued a report on this topic and has a number of excellent 
recommendations for improving the processes of applying for and 
delivering Title IV funds, and eight of the ten recommendations 
would require no increase in program costs.
    Pell Grants are the foundation of student aid for many 
lower and middle income students. Pell Grants are also the most 
well-targeted student aid available to college students in this 
country. Data from the Department of Education indicate that 94 
percent of Pell dollars that go to traditional age college 
students are awarded to those from families with incomes at or 
below the national median of about $45,000 per year. In 
contrast, only 35 percent of institutional grants are awarded 
to students from below that median income, 33 percent of 
private scholarships, and 60 percent of state aid.
    Strengthening Pell and making it easier to apply for Title 
IV funds is an important task for this Congress.
    In closing, I will borrow from the words of President 
Lyndon Johnson when he signed the Higher Education Act into law 
on November 8th, 1965 in San Marcos, Texas: ``The President's 
signature upon this legislation passed by this Congress will 
swing open a new door for the young people of America. For them 
and for this entire land of ours, it is the most important door 
that will ever open--the door to education.
    ``So when we leave here this morning, I want you to go back 
and say to your children and to your grandchildren, and those 
who come after you and follow you, tell them that we have made 
a promise to them.''
    I hope that this Congress in its reauthorization of the 
Higher Education Act will ensure that this 40-year-old promise 
is kept.
    I want to thank the Committee again for the opportunity to 
address these important issues, and I will be happy to take any 
questions you may have.
    [The prepared statement of Dr. Heller follows:]

   Statement of Dr. Donald E. Heller, Associate Professor and Senior 
 Research Associate, The Center for the Study of Higher Education, The 
           Pennsylvania State University, University Park, PA

    Chairman Boehner, Congressman Miller, and members of the Committee:
    Thank you for the invitation to address you on this important issue 
being discussed at today's hearing. As I am sure you are aware, this 
year marks the 40th anniversary of the Higher Education Act of 1965. 
This law, and its subsequent reauthorizations, has had an unprecedented 
impact on postsecondary education in the United States. This year, the 
student aid programs authorized by this act will award $15 billion in 
federal grants to over five million students. Many of these students, 
and millions more, will receive a total of over $55 billion in federal 
loans. Approximately one million high school and college students--most 
of whom are from low-income, first generation families--receive vital 
assistance in preparing for college and being successful once there 
through the TRIO programs.\1\ In addition, hundreds of institutions 
receive direct assistance through Title III and Title V of the Act.
---------------------------------------------------------------------------
    \1\ An additional one million students receive similar assistance 
through Gear-Up, while not part of the Higher Education Act, is another 
important federal postsecondary initiative.
---------------------------------------------------------------------------
    To best understand the role that the Higher Education Act has 
played in America, I will borrow from the words of President Lyndon 
Johnson when he signed the legislation into law on November 8, 1965, in 
San Marcos, Texas:
        The President's signature upon this legislation passed by this 
        Congress will swing open a new door for the young people of 
        America. For them, and for this entire land of ours, it is the 
        most important door that will ever open--the door to education. 
        And this legislation is the key which unlocks it.
        So, when we leave here this morning, I want you to go back and 
        say to your children and to your grandchildren, and those who 
        come after you and follow you--tell them that we have made a 
        promise to them. Tell them that the truth is here for them to 
        seek. And tell them that we have opened the road and we have 
        pulled the gates down and the way is open, and we expect them 
        to travel it.
    As this Committee is painfully aware, the cost of college today is 
much greater, in relative terms, than it was at the time President 
Johnson signed the legislation that November afternoon 40 years ago. 
The grandchildren of many of those first students who benefited from 
the Higher Education Act are today approaching college age. Today's 
students both need--and deserve--support from the federal government to 
be able to attend college.
    In response to the provocative title of today's hearing, I would 
answer the question by stating emphatically that both the federal 
government and the states are a vital part of the solution to ensuring 
college access for financially needy students. While there are some 
problems with the way our college access programs are structured, and 
Professor Vedder has ably described some of these problems in his book, 
I differ with his conclusion that the solution is to remove government 
funding for higher education. I will return to the problems shortly, 
but I first want to start by emphasizing the importance of federal and 
state funding for our nation's colleges, universities, and students.
    A vast body of research over the last three decades has confirmed 
two important points about the financial aspects of college access. 
First, lower-income students are the most sensitive to rising tuition 
prices, and they are the first to be priced out of college as tuition 
goes up, or to drop out if already enrolled. The price sensitivity 
decreases as you go up the income ladder. Second, financial aid--
grants, loans, and work study assistance--are particularly important in 
ensuring the college access needs of lower- and middle-income students. 
Much of the discussion about the rising cost of college, both in the 
media as well as among policymakers, is focused on the sticker price of 
college, and ignores the fact that almost two-thirds of all 
undergraduate students today, and over three-quarters of full-time 
students, receive some form of financial aid.
    In his book, Professor Vedder calls for the elimination of the 
subsidies that states provide for public colleges and universities, and 
for Congress to abolish the Title IV grant programs as well. He 
justifies this radical proposal by presuming that state and federal 
support for higher education has little impact other than to enable 
colleges and universities to increase their prices. Remove the public 
subsidy, he argues, and these institutions would have little capacity 
to continue to raise prices.
    Professor Vedder's assumption, I am afraid, is not supported by the 
available evidence. In the last reauthorization of the Higher Education 
Act, in 1998, Congress required the Department of Education to conduct 
a study to determine the reasons behind the rising cost of college. 
That study, which has been widely recognized as the most thorough and 
complete research on the issue, was issued by former Secretary of 
Education Rod Paige in December of 2001.\2\ The study specifically 
looked at the question of whether federal or state financial aid led 
directly to tuition price increases.
---------------------------------------------------------------------------
    \2\ Cunningham, A. F., Wellman, J. V., Clinedinst, M. E., & 
Merisotis, J. P. (2001). Study of college costs and prices, 1988-89 to 
1997-98, Volume 1 (NCES 2002-157). Washington, DC: U.S. Department of 
Education, National Center for Education Statistics.
---------------------------------------------------------------------------
    The study concluded that there was no relationship between either 
federal or state financial aid and tuition price increases. This 
finding confirmed the bulk of the research on this topic that had 
previously been conducted, including that of the National Commission on 
the Cost of Higher Education in its 1998 report to Congress. In fact, 
the only link between aid and rising prices in the Department of 
Education study was found among both public and private comprehensive 
institutions, those universities that award master's but not doctoral 
degrees. The study found that for these institutions, as they increased 
the proportion of students receiving institutional grants, prices 
tended to rise somewhat faster. But let me emphasize again that this 
study found no relationship between federal and state aid and rising 
prices.
    The study found that the primary driver of tuition price increases 
in public colleges and universities was the level of appropriations 
received from the states. In those states where appropriations grew 
more slowly, or as happened most recently, were actually cut, prices in 
the public sector grew the fastest. In simpler terms, as state support 
drops, public institutions have few options other than to increase 
tuition prices.
    More evidence to refute Professor Vedder's hypothesis and resulting 
policy recommendation can be found in the experience of the last four 
years. Since 2001, the maximum Pell Grant has risen $300, or just 8 
percent. State grant aid has stagnated during this period, with many 
states offering no increases, or even cuts, in their grants because of 
the revenue constraints they faced. There also has been no increase in 
borrowing limits in the federal loan programs.
    During this same period, however, tuition prices have increased 16 
percent at private colleges and universities, 36 percent at public 4-
year institutions, and 29 percent at community colleges. Clearly there 
have to be other factors driving these price increases than just the 
availability of state or federal aid, as the amount of aid available to 
individual students has not changed appreciably during this period. 
While overall spending on aid programs has increased, that growth is 
almost entirely a factor of the increased eligibility of students and 
the number of students availing themselves of the aid, rather than 
increases in the maximum amounts that students can receive.
    What has happened since 2001 is that the states have decreased the 
amount of funds appropriated for higher education by 1 percent, 
including two consecutive years of cuts in fiscal years 2003 and 2004, 
the first time in recent history that state appropriations were cut two 
years in a row. The impact is seen quite clearly in the rapid rise in 
tuition prices I just described. While private institutions generally 
do not receive state appropriations, they have been hurt by the drop in 
the stock market and other investments, which has led to a decrease in 
their endowment earnings and slower growth in private gifts, both of 
which are used to subsidize tuition prices.
    I also want to make clear that public institutions have not simply 
passed the cuts in appropriations on to students in the form of higher 
tuition prices. Let me use my own institution, Penn State, as an 
example. The Commonwealth of Pennsylvania was hit particularly hard by 
the slowdown in the economy in the beginning of this decade. Starting 
in fiscal year 2002, Penn State endured cuts in its appropriation--not 
slower growth, but actual cuts in the appropriation--for three years 
running. Our current appropriation this year of $317 million is almost 
exactly the same amount we received from the Commonwealth five years 
ago, in fiscal year 2000.
    While we have increased our tuition during this period, President 
Graham Spanier also formed a university-wide task force to identify 
ways to cut costs and make Penn State more efficient. This task force, 
which brought together senior administrators, faculty, and staff, 
identified and implemented $15 million in budget cuts and income 
enhancements throughout the university. This amount represented more 
than half of the funds lost from the state appropriation. And these 
changes were made without decreasing the quality of the education 
provided to our 80,000 students. Similar efforts can be found at many 
other higher education institutions around the country.
    While these efforts at making universities more efficient are 
important and can help, they cannot by themselves compensate for drops 
in governmental support, or worse yet, a phased-in elimination of 
federal and state support for higher education. Colleges and 
universities would have no choice but to increase tuition prices at 
rates even faster than have occurred in recent years. So contrary to 
Professor Vedder's assumption that cutting federal and state aid to 
higher education will lead to more moderated prices, the research 
evidence demonstrates that eliminating governmental support will result 
in even more rapidly escalating prices. His proposal is akin to 
suggesting that eliminating the Medicaid and Medicare programs would by 
itself alleviate the skyrocketing growth of health care costs. More 
likely, this would leave millions of poor families and senior citizens 
without access to adequate health care. Similarly, the impact of 
eliminating government funding for higher education would be felt most 
greatly by this nation's lower- and middle-income students, those most 
dependent on the subsidy provided by state appropriations and federal 
student aid, which Professor Vedder recommends eliminating.
    Even with the financial aid available from the federal government 
and other sources, these students are already finding themselves priced 
out of attending college. The Advisory Committee on Student Financial 
Assistance, in its report titled Empty Promises, used data from the 
Department of Education to examine financial barriers faced by 
potential college students.\3\ This report found that over 400,000 high 
school graduates who were qualified to attend a four-year institution 
were unable to do so each year because of cost barriers. Over 160,000 
students were unable to attend any form of postsecondary education, not 
even a community college.
---------------------------------------------------------------------------
    \3\ Advisory Committee on Student Financial Assistance. (2002). 
Empty promises: The myth of college access in America. Washington, DC: 
U.S. Department of Education.
---------------------------------------------------------------------------
    Professor Vedder's proposal of moving to a voucher system is also 
fraught with danger. He points to the state of Colorado's decision to 
replace its general subsidy with vouchers for students, but this 
experiment is so new that we do not yet have the evidence to determine 
its impact on higher education. A major argument against vouchers at 
the state level is that they are unlikely to keep pace with tuition 
price increases, so that over time the value of the voucher will be 
eroded, making it harder and harder for lower- and middle-income 
students to afford to attend college. This is exactly what has happened 
with Pell Grants at the federal level. Professor Vedder also recommends 
adding a merit component to the vouchers. This too would funnel money 
away from financially needy students, as the research that I and others 
have done has demonstrated that merit aid is awarded disproportionately 
to students from higher income families.\4\
---------------------------------------------------------------------------
    \4\ Heller, D. E., & Marin, P. (Eds.). (2004). State merit 
scholarship programs and racial inequality. Cambridge, MA: The Civil 
Rights Project at Harvard University.
---------------------------------------------------------------------------
    I believe that Professor Vedder's assertions regarding the 
productivity of colleges and universities, and their faculty members, 
are also mistaken. Based on his own estimates, the source of which he 
does not provide, he claims that the typical professor at a major 
university works only 1,200 hours per year over the course of a 9-month 
work year. Yet data from a national study conducted by the Department 
of Education show that professors at these universities work an average 
of 58 hours per week, or a total of 2,100 hours during those nine 
months. So his claim that the lack of productivity among faculty is a 
major reason for rising tuition prices simply is not substantiated by 
the Department's own figures.
    Professor Vedder also rightly notes that from 1976 to 1999, the 
proportion of college and university expenditures going to instruction 
has declined by approximately five percentage points. He uses this to 
claim that higher education institutions have a ``credibility'' (p. 44) 
problem when they ask for more money. But Professor Vedder's own 
figures show that this decline was more than offset by spending in two 
categories: research and institutional financial aid. It is hard to 
argue against spending in these areas, as research leads to growth in 
the economy and benefits society in other ways, and institutional 
financial aid helps to reduce the net cost of college faced by 
students.
    Professor Vedder also provides some basic calculations he claims 
demonstrate that the public investment in higher education actually 
works against the interests of the state. But his work uses a very 
narrow measure of the impact this investment can have on states and the 
nation as a whole, and it suffers from measuring economic growth rates 
over a single time period. More rigorous studies have found that the 
public investment in higher education earns a positive social return, 
as measured by higher rates of economic growth for the nation, 
increased tax revenue received by states and the federal government due 
to the increased earnings of individuals who attend college, and a 
decreased reliance on government assistance programs, such as Food 
Stamps, TANF, Medicaid, and housing assistance.\5\
---------------------------------------------------------------------------
    \5\ L. L., & Brinkman, P. T. (1988). The economic value of higher 
education. New York: American Council on Education/Macmillan 
Publishing.
---------------------------------------------------------------------------
    The method used by Professor Vedder also ignores the non-monetary 
benefits society receives from its investment in higher education. 
Studies have documented that those who attend college are less likely 
to commit crimes, give more generously to charity and community 
service, and are more engaged and informed regarding their civic 
responsibilities.\6\ It is difficult to believe that the states would 
provide the $65 billion on higher education that they will spend this 
year collectively if they did not believe, and have evidence, that this 
public investment earns a positive return for each state.
---------------------------------------------------------------------------
    \6\ Institute for Higher Education Policy. (1998). Reaping the 
benefits: Defining the public and private value of going to college. 
Washington, DC: Author.
---------------------------------------------------------------------------
    As I stated earlier, I believe there are some problems with the way 
public support for higher education is currently structured. When I 
testified before the Subcommittee on 21st Century Competitiveness in 
2003, I encouraged the Subcommittee to examine ways to simplify the 
process of applying for and receiving federal student aid. Congress 
went ahead and mandated that the Advisory Committee on Student 
Financial Assistance conduct such a study, and the Advisory Committee 
issued its report earlier this year. This report has a number of 
excellent recommendations for ways to improve the processes of applying 
for and delivering Title IV funds, and eight of the ten recommendations 
would require no increase in the costs of these programs. While I do 
not have enough time to describe them here, I encourage this Committee 
to consider their implementation.
    Pell Grants are the foundation of student aid for low- and 
moderate-income students, and I encourage the Committee to strengthen 
Pell by increasing its purchasing power. Pell Grants are the most well-
targeted student aid program for these students. Data from the 
Department of Education indicate that 94 percent of Pell Grant dollars 
awarded to traditional-aged college students go to those from families 
with incomes below the national median of approximately $45,000 per 
year. In contrast, only 60 percent of state aid is awarded to students 
from the bottom half of the income distribution, 35 percent of 
institutional aid, and 33 percent of private scholarships.\7\ These two 
actions--strengthening Pell, and making it easier for students to apply 
for and receive federal grants, will help to promote access to college 
for academically qualified and financially needy students.
---------------------------------------------------------------------------
    \7\ National Center for Education Statistics. (2005). National 
Postsecondary Student Aid Study 2003-2004 data analysis system. 
Washington, DC: U.S. Department of Education.
---------------------------------------------------------------------------
    I know that this Committee is concerned with promoting competition 
among the various types of higher education institutions in the nation. 
The diversity of choices available to students is one of the strengths 
of our system, and Congress should not eliminate these options. Student 
choice is well supported by the federal student aid programs, which 
allow students to use their grants, loans, and work study assistance at 
any of the more than 6,000 Title IV eligible institutions in the 
nation.
    There are proposals in front of the Committee to eliminate the 50 
percent rules, which restrict access to the Title IV programs for 
institutions who enroll a majority of their students or offer a 
majority of their courses via distance education. While the Department 
of Education has shown some positive results in the Distance Education 
Demonstration Program, I think it is important to note that this five 
year program included only two dozen institutions, many of whom were 
part of or affiliated with traditional, campus-based institutions. The 
Secretary of Education, in her report on the Demonstration Program 
issued earlier this year, noted some concern regarding the student loan 
default rates of institutions participating in the program. I recommend 
that before Congress eliminates the 50 percent rules in their entirety, 
that it move cautiously and heed the recommendations in a GAO report on 
distance education issued last year.\8\ A key recommendation, one with 
which Secretary Spellings concurred in her report, is that continued 
oversight of distance education providers is indeed ``critical.'' \9\
---------------------------------------------------------------------------
    \8\ U.S. General Accounting Office. (2004). Distance education: 
Improved data on program costs and guidelines on quality assessments 
needed to inform federal policy. Washington, DC: Author.
    \9\ U.S. Department of Education, Office of Postsecondary 
Education, Office of Policy, Planning and Innovation. (2005, April). 
Third report to Congress on the Distance Education Demonstration 
Program , p. 20.
---------------------------------------------------------------------------
    In closing, I want to return to the Higher Education Act to 
highlight the key objective established by President Johnson and the 
89th Congress. Title IV opens with these words:
        It is the purpose of this part to provide, through institutions 
        of higher education, educational opportunity grants to assist 
        in making available benefits of higher education to qualified 
        high school graduates of exceptional financial need, who for 
        lack of financial means of their own or of their families would 
        be unable to obtain such benefits without such aid (Sec. 401).
    I hope that this Congress, in its reauthorization of the Act, can 
stay true to this objective.
    I want to thank the Committee again for the opportunity to address 
these important issues. I would be happy to take any questions you may 
have.
                                 ______
                                 
    Chairman Boehner. I want to thank both of our witnesses for 
your testimony, and I think we can all agree that to the extent 
possible, the Federal Government has tried to keep its promise 
to America's low- to moderate-income students and last year 
spent--or this year will spend, you know, in the vicinity of 75 
to $80 billion trying to make sure that low- to moderate-income 
students have the access that they need.
    It seems to me--let me ask both of you, in terms of 
traditional 4-year schools, 2-year schools, how many new seats 
are being built to accommodate this increased waive of students 
that we're seeing in the not-for-profit sector? Are we building 
new capacity? Dr. Vedder?
    Dr. Vedder. You're asking if are we constructing new 
buildings and things of that nature?
    Chairman Boehner. New seats.
    Dr. Vedder. Seats?
    Chairman Boehner. New seats to accommodate more students.
    Dr. Vedder. Put that--that's an interesting way of putting 
it. We are, of course, there's a large amount of capital 
construction going on.
    Chairman Boehner. Well, I know there's a lot of building 
going on. But I'm talking about in terms of increasing 
capacity.
    Dr. Vedder. Well, you're on an important point. Most of the 
allocation of funds to universities these days, or it seems to 
me, and I think there's some evidence to support this, and my 
book is filled with it, evidence that he doesn't talk about, by 
the way, that the instructional component, which is what you're 
getting at, kids going to take classes, is being shortchanged 
relative to the total picture.
    Chairman Boehner. Dr. Heller, do you see any increase in 
the capacity of our traditional two- and 4-year schools?
    Dr. Heller. Chairman Boehner, unfortunately, there are too 
few examples of this. There are some examples, for example, in 
the last five, 6 years, both California State University and 
the University of California have built brand new campuses, but 
those are, unfortunately, some of the few examples.
    What we're seeing more is changes at the margin with 
universities trying to increase the number of seats by 
relatively small numbers. I think as Professor Vedder 
mentioned, the capital costs, never mind the operating costs in 
the face of the cuts in appropriations that public institutions 
have faced, but the capital costs of putting up new campuses is 
a real barrier.
    I think we have seen some growth in the distance education 
area, and while that does hold some promise, I think by itself 
it's not going to be able to accommodate all of the growth.
    Chairman Boehner. Well, the reason I asked the question is 
because it's clear that we don't really see any new capacity in 
our traditional schools, and we know from the evidence there's 
this increasingly large wave of students wanting to attend an 
institution of higher learning.
    Dr. Vedder is an economist. I studied economics a bit. You 
don't have to know much about economics to know that if you've 
got increased demand, no increase in capacity, that you're 
going to drive tuition higher. It seems logical to me. But it's 
not only tuition going higher, because many schools have their 
own grant and aide programs. And while we talk about the 
hyperinflation in terms of tuition and fees, the harder thing 
to get your arms around is what is the real price.
    Now I've talked to the Jesuit colleges and universities. 
I've talked to other groups about what is the real price, 
because everything is being judged on the sticker prices, the 
more I learn about this, are becoming irrelevant. Dr. Heller, 
do you have any evidence of what the real price is?
    Dr. Heller. Well, there's lots of good data from the 
Department of Education, and unfortunately, to be honest, with 
about 17 million students in higher education in the United 
States, you probably have pretty close to 17 million different 
prices.
    The reality is that every university when it packages 
financial aid and it combines resources from the Federal 
Government, from state aid, private scholarships and its own 
institutional funds, it can make decisions on how much aid it's 
going to award literally on an individual student basis.
    So we certainly have data that provides averages that show 
on average here's what students pay in public 4-year 
institutions or private 4-year institutions or community 
colleges.
    But, you know, literally you've got very different prices, 
you're absolutely right, paid by different students. And that's 
a factor of the way we've constructed the system of having a 
stated sticker price and then discounting from that by offering 
financial aid, whether it's need-based financial aid or merit-
based aid.
    Chairman Boehner. Dr. Vedder?
    Dr. Vedder. I've done--it's very, as Dr. Heller indicated, 
it's very difficult, given the data and so forth and the 
complexity of higher education and you are--there are various 
types of schools and so forth, and the picture probably varies 
somewhat from one type of school to another.
    But I have tried to estimate what the, quote, the ``net 
tuition fee'' paid by the average student has been or how that 
has changed over time. And I would agree that it has risen 
significantly less than the sticker price fee. But it is still 
rising relative to the rate of inflation, and it is still 
rising relative to income levels in the last ten or so years. 
Now that may not be a long-term trend.
    So the issue of affordability is still an issue. Another 
way of looking at cost is what percentage of our national 
output, put aside the issue of who pays for it--someone is 
paying for education--we now spend close to 3 percent of our 
gross domestic product on higher ed. Again, you get in some 
interesting measurement issues. Do you count the Lincoln 
laboratories at MIT as part of higher ed or not? You know, 
they're running them for the government. So you get into some 
interesting accounting issues.
    But we're spending close to 3 percent of our GDP on higher 
ed. If you went back to when you were a toddler, Mr. Chairman, 
if I guess your age halfway close to right, it was closer to 1 
percent.
    Chairman Boehner. There's a lot more people attending 
higher education today than when I--
    Dr. Vedder. Yeah. There are more--
    Chairman Boehner [continuing]. Was born.
    Dr. Vedder [continuing]. Attending. But even on a student-
adjusted basis, it has gone up. I've calculated the amount of 
GDP it takes to send one kid to college today relative to 20 to 
30 years ago. It's in my book. And that has risen. It has 
risen. Now it doesn't take you more of your GDP to buy a car 
today, I mean a larger percentage of GDP to buy a car today or 
to buy bread or buy most anything. But it does take more to buy 
a college education and health care. Those are the two--
    Chairman Boehner. But comparing tuition to GDP gets a bit 
esoteric for this Committee.
    [Laughter.]
    Chairman Boehner. Now, it may not--
    Dr. Vedder. You said that, I didn't.
    Dr. Heller. Mr. Boehner, Mr. Chairman, if I may respond.
    Chairman Boehner. Dr. Heller.
    Dr. Heller. This issue about financial aid is an important 
one. And I think one of the key recommendations that the 
advisory committee made in its report about simplifying the 
Federal system is to try to make a commitment of financial aid 
earlier in students' careers.
    Right now, most students don't find out how much aid 
they're going to receive until about April of their senior year 
when they receive an admittance letter from a university that 
has a financial aid offer along with it. That's really too late 
in students' careers, because they're going to get hit by this 
newspaper headline that says it costs $40,000 a year to go to 
an elite private institution.
    We want students and families to be able to learn earlier 
how much aid they're going to qualify for. So if we could find 
ways to make commitments of aid to students earlier in their 
high school careers, then students can prepare themselves both 
academically and financially for college and not wait until the 
end of their senior year when for many students it's really too 
late.
    Chairman Boehner. My time has expired. The Chair recognizes 
the gentleman from Virginia, Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman. Let me follow up on 
that point. When you talk about aid coming in early, you really 
don't need to know that you're going to get--exactly what aid 
you're going to get, but you need to know that you can actually 
go.
    And if people, if your older brother went and your next 
door neighbor 3 years ago went, and they were able to make it, 
just knowing that you can go would offer an incentive to stay 
up late and do your homework sophomore and junior year so that 
you will be ready to go.
    There's no question that a college education offers--
expands an individual's opportunities is there, Dr. Heller?
    Dr. Heller. There's no question. The advantage that you 
earn in labor markets of going to college compared to going out 
into those markets with only a high school diploma has widened 
in the last two decades. You know, it used to be a generation 
ago you could be a high school graduate and get a good job that 
we used to call paying a middle class wage without having any 
college.
    A lot of those jobs have dried up, and more and more jobs 
today that pay a decent wage and pay decent benefits for 
workers and families require some form of postsecondary 
education, not always a bachelor's degree necessarily, but some 
form of postsecondary education. And that's why it's critical 
that we provide the opportunity for all students to be able to 
go.
    Mr. Scott. And I would think it would be inconsistent with 
a democratic society to deny those opportunities based on your 
socioeconomic station at birth. Compared to the '60's and 
'70's, what is the ability of a person, a low-income student to 
be able to afford to get into college?
    Dr. Heller. Well, there's good news and bad news in that 
story. The good news is that when you look at students by 
income, all groups have increased the rate which they go to 
college. As Chairman Boehner pointed out, we've got a lot more 
students in college today than we did a generation or two ago. 
That's the good news is that we have more lower income students 
going to college.
    The bad news is if you look at the gap between the rich and 
the poor in this country, that gap has stayed just about the 
same over the last three decades. We haven't made much progress 
on closing the gap. Because while there are more poor students 
going on to college, there are also more students from the 
upper income groups going to college.
    So if you're concerned about equity and you measure equity 
as the relationship of one group to another, we haven't been 
able to close that gap when you look at students from different 
income groups.
    Mr. Scott. What portion of a college education did a Pell 
Grant pay in the '60's, '70's and '80's?
    Dr. Heller. Well, if you go back to the early 1970's after 
the BEOGs, now Pell Grants, were first created, you could get a 
Pell Grant and you would be able to pay for about 80 percent of 
the total cost of attendance, not just tuition, but tuition, 
room, board, books, transportation, at a typical public 4-year 
institution. That was about 80 percent. And for many states, 
you would be able to get that remaining 20 percent with a state 
grant or by working a few hours, as Chairman Boehner referred 
to.
    Today we're down to less than 40 percent of that cost of 
attendance is covered by a Pell Grant.
    Mr. Scott. And if you wanted to work your way through 
college when it was at 80 percent, you could do it 15 hours a 
week and a little summer job. What would it take you to work 
your way through college today?
    Dr. Heller. We have the data from the Department of 
Education show that we have students who are literally trying 
to work full time, work a 35 or 40-hour week, while also trying 
to go to college full time. And for most students, you just 
can't juggle those two things.
    There's a huge amount of work that students are doing, and 
we know from the research that the more hours they work, 
especially if it's off campus, not working in the library or 
the dining hall, but if they're working at the local mall in 
retail, that kind of behavior is very detrimental to their 
ability to ever get a college degree.
    Mr. Scott. A suggestion was made that financial aid ought 
to be based on your grades. If you were relegated to a low 
income--in many low income areas around the country where the 
educational opportunities frankly were not as good as others, 
and therefore had worse preparation to go to college, should 
you be punished again by getting less financial aid?
    Dr. Heller. No. Absolutely not. And that's why I pointed 
out in my testimony that I have grave concerns about tying Pell 
Grant eligibility to measures of merit.
    Let me note that Pell Grants already have a measure of 
merit. You have to maintain satisfactory progress at your 
institution as determined by that institution. But tying Pell 
or loan eligibility to grades I think is going to work against 
the interests, and I know from the data will work against the 
interests of lower income students who are really dependent 
upon Pell and other aid to be able to go to college.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. McKeon [presiding]. Mr. Castle.
    Mr. Castle. Thank you, Mr. Chairman. First of all, this is 
a great hearing, Mr. Chairman. I mean, I've been dealing with 
this problem for a number of years now, and I just don't know 
what the answer is. I see universities and colleges announcing 
their tuition increases, you know, the day before a big 
vacation or something of that nature, perhaps on a Saturday, so 
nobody knows what the heck's going on.
    Mr. McKeon. That's true.
    Mr. Castle. The Chairman's question, it's just incredibly 
confusing to separate cost versus price versus financial aid 
packages and tuition and fees. You try to talk to a college 
president about it and they confuse you so quickly it's 
ridiculous.
    And I think we would all agree on that. And I think it's 
gone up way too high. And you're absolutely right. It's health 
care costs and higher education have been the two big drivers, 
or at least the two big leaders in terms of cost of living 
increases. And yet I just--I'm still amazed. I mean, we have 
all these young people here and they probably have all kinds of 
debts, but I'm just--there's no public outcry for this.
    And, I mean, I have your book here, Dr. Vedder, ``Going 
Broke by Degree,'' and I would imagine not a whole lot of 
people are reading it. I hope you're selling a lot of them, but 
it isn't John Grisham, if I--
    Dr. Vedder. I'm not going to get rich from it.
    Mr. Castle. Right. You're not going to get rich on it, and 
people aren't going to pay a lot of attention to it, and we 
just keep increasing this. And I just don't understand what the 
heck it takes. I mean, to me, Congress has not done a good job 
with this. But why the heck we haven't gotten the attention of 
the public in terms of reducing some of these costs.
    My question is, do either of you have suggestions on what 
we can do to get a focus on this better than we're doing now? 
Because whatever we're doing now doesn't seem to be getting the 
job done. Because to me it's going to be--it's not going to be 
something we do in Congress; it's going to be the public will 
saying enough's enough, and we've got to do something about it.
    Dr. Vedder. Could I take a first crack? And I'm sure my 
colleague would want to join in. First of all, one reason why 
people put up with this, you know, you're saying why aren't 
they rioting in the streets? Well, I don't know if you said 
rioting in the streets. Why aren't they raising more fuss about 
this? And I would agree with my colleague here, the immediate 
return to the student herself or himself of going to college is 
greater today than ever.
    And one reason why colleges have been able, quote, ``to get 
away with it,'' if you like, raise tuition costs and so forth 
so much, is that while it is true that the costs of going to 
college have gone up a lot, it's also true that the return in 
terms of income differentials have also risen a lot.
    Mr. Castle. Well, am I wrong to fuss about it then? I mean, 
the return is good enough that it's worth the investment?
    Dr. Vedder. Well, to the individual, most of the time it's 
a good investment. Most of the time it's a good investment. 
Having said that, incidentally, it's not clear that that gap 
between, say, what high school kids make and college kids make 
is going to grow forever and continue to grow at the same rate. 
No one really knows for sure that. And if that stops, I suspect 
it's going to be more difficult for colleges to raise their 
tuition. Because in a pure investment sense--
    Mr. Castle. Get back to my question.
    Dr. Vedder. Yes.
    Mr. Castle. Which is, what can we do to shed light on this?
    Dr. Vedder. Well, costs are--colleges are--costs are going 
up like crazy within the colleges. No one has talked about 
that. I will. It takes--let's just--
    Mr. Castle. You and I are talking about it at this hearing.
    Dr. Vedder. Yeah. OK.
    Mr. Castle. But they're not talking about it on ABC News. 
They're not talking about it--they talk about it occasionally, 
I mean--
    Dr. Vedder. Well, talk to these people over here. Don't 
talk to me.
    Mr. Castle. I mean, there's not enough substantial focus in 
this country on it. Dr. Heller, what do you think about all 
this? Because I have a couple of other questions.
    Dr. Heller. Well, I think you're right. And the example I 
gave of what Penn State did in the face of a large budget cut 
in our appropriation from the commonwealth I think is an 
example of what universities have to do more of, to be very 
honest.
    I don't think any of us can sit back on our laurels and say 
that we're, you know, so great that everybody's just going to 
keep knocking on our door and pay those prices, and that 
Congress, frankly, is going to continue to keep writing the 
check.
    But I think, to be fair, that most universities are looking 
at ways to try to control the growth of costs, and if they 
hadn't done this, the price increases we've seen in recent 
years probably would have been even higher. The fact of the 
matter is that higher education is a very highly labor-
intensive business. And if you ask the typical 18-year-old 
going to college and you say to them, would you like to get 
your education via the Internet--it might be a little bit 
cheaper--or would you like to go to a college campus and sit in 
a classroom with other students and a professor, I think that 
most students are voting with their feet and still going to 
traditional campuses for that.
    Mr. Castle. Well, it's a rite of passage to a degree. It's 
something more than just education.
    Dr. Heller. Right. There's more of an experience than just 
education, and that's what students want.
    Mr. Castle. Right.
    Dr. Vedder. It's partly a consumption good as well as an 
investment good when you go to college.
    Mr. Castle. Dr. Vedder, I want to ask you a separate 
question. In your book, you argue that for-profit institutions 
offer a less expensive product whose market discipline is 
stronger, and I would agree with that. You also argue that 
these institutions offer a tangible measure of success.
    In some cases, these institutions support your argument 
surrounding government subsidies since they do not generally 
receive as much government assistance; in many cases none, as a 
matter of fact. Wouldn't you agree that we should not be 
opening the for-profit sector up to more government aid?
    Dr. Vedder. Well, I would agree if you mean should we be 
giving aid directly to institutions in the for-profit sector. 
Of course, I completely agree. We should not do that.
    The issue is whether we should--if there are examples where 
not-for-profits try to thwart the for-profits through their 
accreditation organizations or other way to prevent--in a way 
to sort of restrict competition, I think there might be a 
Federal issue there. I don't know to what extent that's 
happening, and I'm concerned about it.
    But I would agree with you.
    Mr. Castle. Well, I would agree with your last conclusion, 
but I also worry about bringing new people into the government 
largesse in all--
    Dr. Vedder. You know, I completely agree with you, Mr. 
Castle.
    Mr. Castle. Thank you. I yield back, Mr. Chairman.
    Mr. McKeon. Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman. First I want to thank 
both of the panelists for their testimony. And I have several 
questions for Dr. Vedder. I was a college administrator for 29 
years, and I need to say at the outset, I hope not impolitely, 
that the colleges you describe, places lacking in 
accountability populated by underemployed, overpaid 
administrators and underemployed, overpaid faculty, those are 
colleges with which I have no familiarity at all. And I would 
be interested to find colleges that fit that description.
    Although I must say I found myself back in my comfort zone 
having, you know, sort of disdain heaped on administrators. I 
was, you know, sort of familiar with that.
    [Laughter.]
    Mr. Bishop. One of the central points that you make in your 
written testimony, if I understand it correctly, is that the 
availability of student financial aid has driven up demand and 
therefore driven--resulting in an increase in costs. And you 
don't say it directly, but you certainly imply that that's a 
bad thing, correct?
    Dr. Vedder. I certainly--I would agree that it's driven up 
costs. It's probably a bad thing as well because I think it has 
contributed to some inefficiencies in the higher education 
community.
    Mr. Bishop. And those inefficiencies are manifest in terms 
of how colleges distribute their expenditure budget?
    Dr. Vedder. I--that's certainly a way you can see it, yes. 
We, for example, have six nonteaching professional staff for 
every 100 students today. In 1976, we had three. Now we have 
six. That's a doubling in nonprofessional, nonteaching staff, 
generally college graduates who work for universities who don't 
teach. We've had a doubling per student in that.
    To me, that is a sign of some--it may not be inefficiency 
if those--if you can prove that there is a lot of burst in 
noninstructional output coming from those employees, but I 
frankly, I've been in the higher education business too for 
longer than--well, I don't know about longer than you. I think 
we probably rival each other in that, for over 40 years, and I 
don't see it.
    Mr. Bishop. You know, I don't want to be argumentative, but 
you've cited a statistic that in 1929 we spent 8 cents on 
administration and now we're spending 14 cents on 
administration.
    Dr. Vedder. Digest of Education statistics.
    Mr. Bishop. No, I'm not suggesting that the statistic is 
wrong. I'm suggesting that it's misleading. For example, what 
do you think we spent on academic computing in 1929? Or what do 
you think we spent on instructional technology in 1929, or on 
health insurance, or on Social Security compensation? Probably 
not a lot.
    Dr. Vedder. But those aren't administration.
    Mr. Bishop. Yes they are. When you look at how budgets are 
calculated, all of those expenditures would fall under 
noninstructional costs or administration.
    Dr. Vedder. Well, that's an empirical issue we would have 
to examine.
    Mr. Bishop. Let me just go to really perhaps the threshold 
question. Do you believe that access to higher education 
irrespective of social economic status is a good thing?
    Dr. Vedder. Oh, absolutely.
    Mr. Bishop. OK. Now--
    Dr. Vedder. Completely.
    Mr. Bishop. But it's your thesis that the way to get there 
is to withdraw student aid so that colleges are forced to drive 
down costs. Is that correct?
    Dr. Vedder. That is not the primary emphasis. If you were 
to read my book, this hearing is on this topic of financial 
aid, and so I have emphasized that in my discussion here.
    I am saying that if--that increases in financial aid do not 
have the results with respect to access that you intend them to 
have because of the rising costs.
    Mr. Bishop. But--and let me go back to the question. Do you 
believe that the better way to achieve access is by reducing 
cost as opposed to increasing aid?
    Dr. Vedder. I think reducing costs is particularly 
critical, yes.
    Mr. Bishop. OK. And so my question to you is, outside of 
some of the things that we've talked about, do you really 
believe that we can reduce cost such that college will be 
affordable for low- and middle-income families? Do you really 
believe that there's that much play in expenditure budgets for 
the average college that they can get that job done?
    Dr. Vedder. First of all, and I think I was misrepresented 
somewhat even if you listen to my testimony, I did not say I 
want to eliminate even Federal aid. I just said I want to stop 
the growth--slow down the growth. There's a big difference 
between getting rid of it and slowing down the growth.
    Mr. Bishop. I'm not addressing that.
    Dr. Vedder. Well, I am. I have tenure. You have term limit. 
No, you don't have term limit.
    [Laughter.]
    Dr. Vedder. That's my old line when I speak to the Ohio 
legislature. I say they have term limits. And I say, lookit, I 
got the upper hand in this debate. I think we should not get 
rid of student aid, either private, philanthropic, 
institutional, or other aid. And I would agree with Dr. Heller, 
who emphasized that a lot of this aid now at the institutional 
level has become merit-based because everyone is trying to get 
higher in their U.S. News & World Report rankings. That's 
another issue that we have not turned on.
    Indeed, I think a very compelling case can be made that the 
4-year state universities often have lost their way with 
respect to their original goal, which is to provide access to 
low-income students.
    So not only do I agree with you, I would go one step 
further. And if you look at the data comparing Hispanics, 
blacks, whites or you look at low income or high income, and 
even adjust for educational quality, say as measured on the 
National Assessment of Educational Progress, there is a very 
strong smaller percentage of participation among these 
disadvantaged groups. It is a problem, and I am the first to 
admit it--and not admit it. I think it's one that is 
legitimately one that needs to be addressed.
    Mr. Bishop. My time is up. Thank you, Mr. Chairman.
    Mr. McKeon. Thank you. I want to thank both of you for 
being here. I think this is a much needed discussion, and it's 
something that's concerned me for years. And I don't know that 
I have a total answer, but I did introduce a bill last Congress 
that kind of awakened this discussion. And you're probably 
familiar with it.
    I was attacked by the higher education community as 
imposing cost controls, and kind of the tenor of what was said 
was, look, we're doing a great job. We're the best in the 
world. Leave us alone. Send more money.
    But I really am concerned that the cost of living--the cost 
of tuition fees is going up four times the rate of people's 
ability to pay, and too many students are being cut out of the 
opportunity of getting onto that ladder to realize the American 
dream.
    And the study that we have says that by the end of this 
decade, two million students will be excluded. And I just--I 
don't think that's acceptable. And I think some way we need to 
come together and instead of fighting each other, we need to 
come together with the best minds--students, parents, state 
legislators, school administrators, financial leaders, Federal 
Government--we all need to come together on this problem. 
Because I think it reaches far beyond how we're kind of 
discussing it right now.
    Some of us just went to China and looked at what's 
happening over there, and I'm concerned where we're going to be 
in the next 20 years vis-a-vis China and India and how we're 
going to be able to compete and have a trained, educated 
workforce.
    How do you think we can get the public concerned over these 
costs? Or how do you think we can get the people I mentioned, 
everybody together to get a handle on this problem? Both of 
you.
    Dr. Vedder. Do you want to start?
    Dr. Heller. I'll take the first try at that, Representative 
McKeon. It's a difficult process, and I don't have a real quick 
answer to it, but I think you're right. You named the players 
who you need to bring together to discuss these issues. And I 
think that to be honest, to get colleges involved in that 
dialog, you need to try to bring them along voluntarily and not 
with the threat of any kind of legislation that's going to put 
undue burden on them. I mean, I've been in higher education 
long enough--not as long as Professor Vedder, I don't think--
but I've been an administrator, a student and a faculty member 
in higher education long enough to know something about the way 
colleges work.
    Mr. McKeon. If I may just interrupt just a second. I went 
through this same process in '98. We did the reauthorization. I 
was concerned about it then, and we did that. And we talked 
about this and how we needed to work together harmoniously and 
all of those different things, and nothing changed. That's why 
we came out with a bill that maybe put a stick included with 
the carrot. So, excuse me.
    Dr. Heller. Well, you know, again, I'll be honest and say 
that I can't be the apologist for universities. I think that, 
you know, trying to get them together to talk about it is an 
issue. I think trying to get them to understand the real needs 
of parents and students, particularly lower income students, is 
part of that dialog.
    I think that most college presidents are very concerned 
about that. They're the ones who get the phone calls when their 
child has to drop out because they can't afford that tuition 
increase.
    But I think that a lot of the recent evidence since the 
last reauthorization, particularly the last three or 4 years, 
as I've said, when we've had skyrocketing tuition prices, is a 
reflection of the state of the economy, particularly with 
respect to public institutions.
    There is no question when you look at the evidence that if 
states de-fund public institutions, the main other source of 
revenue for these institutions is to turn to students and their 
families. And rather than shut the doors or take away some of 
those seats that Chairman Boehner was talking about earlier, 
most institutions opt instead to raise prices. And when doing 
that, they try to protect the interests of the poorest students 
to make sure they can still afford to come and be successful 
once there.
    But institutions have limited resources. And if the states 
can't bring the money and the Federal Government can't bring 
the money, then we are going to see the impact on poor students 
that the advisory committee laid out in their report and you 
just made reference to.
    Dr. Vedder. If I may comment, I would agree that there are 
problems with congressional mandates on institutions to cut 
costs in certain specific ways. I think you have to give 
institutions a good bit of flexibility to meet their needs.
    But I think there is some justification for it, 
nonetheless. Having said that, that's the downside. The upside 
is, is that the evidence is that there is in parts of the 
higher education community a certain arrogance, a certain sense 
that we are our own bosses. There's a certain lack of 
accountability. He talked about his university. I'll talk about 
mine.
    We've done the same thing. We let 100 administrators go and 
so forth, but we also spent $4.9 million on a new airplane for 
the president last year at the same time we were increasing 
tuition 14 percent. Now that's an arrogance I think of power 
and of misuse of funds, and I think those kinds of things have 
to be stopped.
    And to blanketly prohibit universities from buying 
airplanes would probably be a mistake, some of them for one 
thing run avionics--aviation programs. But at the same time, 
there needs to be some limits on this kind of behavior. My 
suggestion of sort of cutting the dollars coming into 
universities is another way of dealing with this besides 
passing specific rules and regulations dealing with specific 
types of expenditures. I think it's better to cut--if you want 
to sort of contain that kind of behavior is to cut the dollars 
coming in rather than to say don't do this or don't do that. 
But it's an arguable point.
    I commend you, by the way, for shaking up the community a 
little bit with your legislation. I was at a meeting with 13 
college presidents last week and your name was mentioned in 
about every other sentence.
    Mr. McKeon. Everybody loves me. You know, when you propose 
one way to cut or to eliminate the dollars going in, what I was 
saying in my bill was they had 8 years just to get the--to cut 
their increase down to twice the rate of inflation. And if they 
couldn't do that, then all we were talking about was why should 
we continue to give you some of the money that we're giving you 
now?
    Dr. Vedder. I think--well, my testimony was consistent with 
that in one point today.
    Mr. McKeon. I know.
    Dr. Vedder. It's a--it has promise.
    Dr. Heller. Representative McKeon, just to be fair, I think 
that a lot of the objection was the concern that it would be 
students ultimately, particularly lower income, lower or 
middle-income students who would be punished by their 
institutions no longer being eligible for grants and/or loans. 
So I think that's what a lot of the concern was on the part of 
the institutions.
    Mr. McKeon. But the students could take their Pell Grant, 
and they could go to the schools because we asked the schools 
to put on a website where we could make apples-to-apples 
comparisons where parents and students could make better 
decisions on going to a school instead of saying, well, it's go 
to be Harvard or Princeton because they have, you know, 100 
years of credibility, we could go to the schools that are doing 
a good job of providing education and controlling their costs, 
and we can still get a good education and we can afford it.
    Dr. Heller. I agree wholeheartedly. More information for 
parents and students can only help in the process of 
understanding which college charges how much money. I wouldn't 
disagree with you at all about more information.
    Mr. McKeon. Thank you. Mrs. Davis.
    Mrs. Davis. Thank you, Mr. Chairman. Thank you to both of 
you for being here, for your challenging comments. If we could 
go back a second just to a discussion about the value of a 
university education.
    And I believe if I'm not mistaken, Dr. Vedder, you said 
something to the extent it wasn't so much for what students 
learn in college but that the diploma certifies a high 
probability that there is some minimal level of competency. Is 
that the way you would characterize your university?
    Dr. Vedder. That's a sort of a simplified--yeah, in a 
simplified form, I have said that. I didn't say that today, but 
I have said that, yes.
    Mrs. Davis. I guess I'm wondering how the people at the 
university reacted to your statement.
    Dr. Vedder. Well, it's--incidentally, there's a long 
literature for the last--the university, we don't even want to 
go on that route. In the last 30 years, there's been a 
literature in economics--this is not new, it goes back to the 
'70's--that argues that higher education in part is a screening 
device. It's a way for employers to, in a quick and dirty way, 
without spending a lot of money, to find out whether a 
prospective employee has a certain level of competence.
    And in effect, those pieces of paper, while they don't 
prove--absolutely guarantee anything, they do increase the 
probabilities, the likelihood that a person will be reasonably 
literate, will be reasonably sober, reasonably energetic, et 
cetera. And these are skills that are increasingly desired.
    Given the, some argue, decline in K through 12 standards--
that's debatable, I know, but the gap has widened and so forth. 
And so the issue is, when kids go to college, are they 
getting--is the return because of what they learned in college 
or is the return from these other things? And the answer 
probably is both. Certainly an accounting major in college is 
learning practical skills, or an engineering major, that is 
very directly germane to their employment. I don't deny that.
    But there is also this other dimension, and that makes it 
difficult in assessing the returns to higher education, to 
society and so forth. It makes it very difficult to measure 
those in a direct, specific way.
    Mrs. Davis. But I guess that would certainly drive whether 
or not people feel that it's an important thing to be in those 
institutions.
    Dr. Vedder. Sure.
    Mrs. Davis. Dr. Heller, did you have a--want to respond?
    Dr. Heller. Dr. Vedder is absolutely right that when people 
go to college and then they go off into labor markets with that 
bachelor's degree, for example, they're getting the benefits of 
both, whatever human capital, intelligence, the other 
characteristics that Professor Vedder referred to, as well as 
the knowledge that they gained, the skills they gained in 
college, as well as that stamp from that college.
    And there's a reason why people are willing to spend 
$40,000 at a private institution when they could get a 
bachelor's degree in the same field for less money at another 
institution.
    But I think Professor Vedder said it accurately that it's 
both of those functions that's happening in universities. If 
all universities did was to put that stamp of approval on 
people, then we'd be doing a great job of hoodwinking about 17 
million students. And the fact that students still want to pay 
for a college degree is an indication that they believe that 
there's added value there. Otherwise, a bright 18-year-old 
would go off to an employer, let's say go off to Riggs Bank in 
Washington, and say, hey, I'll agree to work for you for free 
for 6 months to prove to you I've got all those characteristics 
you want. You then pay me a salary after 6 months. And they'd 
save a lot of money from going to college. But that's not the 
way things work.
    Mrs. Davis. Yeah. We certainly have plenty of examples of 
people who dropped out of college and went on to be very 
successful individuals.
    Dr. Heller. Right.
    Mrs. Davis. So I think that makes your point. But I am 
interested in knowing, given that, that that's probably true, 
that it has a lot to do with our--really our model of college 
graduates, that we can fully address educationally what in fact 
students are getting into and how parents can be educated in 
order to make those choices, whether again it's an expensive 
school or whether it's a nonexpensive, you know, a school that 
is less expensive.
    Dr. Heller. Right.
    Mrs. Davis. And how we get there is an open question. You 
also referenced the probability or I guess the issue of whether 
or not transferability between public and for-profit and not-
for-profit schools. What role should we be playing in the 
universities in order to enable students to do that? Should the 
accreditation institutions be engaged in that discussion, and 
how should they do that?
    Dr. Vedder. One thing I am seeing, for 20 or 30 years, the 
junior college, 2-year colleges in the '70's and '80's were 
actually losing enrollment relative to the 4-year schools. 
Because as people, as the Nation became more affluent, more and 
more people wanted to go to, quote, the ``better'' 4-year 
colleges. Whether they're better or not, I don't know. The more 
expensive colleges.
    In the last few years, it's kind of trended the other way. 
More and more people are going to 2-year colleges I think 
because of affordability issues. And a strategy that I'm 
hearing increasingly--my wife is a guidance counselor, so I 
hear this in the guidance counselor community--is let's send 
the kids, Johnny or Susie to junior college for 2 years and 
then let them transfer into the 4-year university and thus save 
some money because the 2-year schools have considerably lower 
tuition charges. It's a strategy that I think is one way of 
dealing with the affordability access issue. And I'm just 
saying let's not put obstacles in that happening as we go along 
and be sure that Federal policy is consistent with allowing 
that to happen.
    What that means in terms of specific statutory language or 
even changes in current law, I am not sure. But I'm just saying 
as a matter of principle, we should allow transferability to 
occur because it aids in the process of affordability and 
access and it aids in competition.
    Mrs. Davis. Dr. Heller, did you want to comment?
    Dr. Heller. I would be very reluctant to encourage this 
Committee or the Congress to get involved in telling 
institutions what they should do with respect to transfers and 
who they should allow to transfer into their institutions.
    I think that we've made a lot of progress in recent years 
on establishing articulation agreements that spell out in good 
detail for students what they need to do in a 2-year 
institution, for example, to be then prepared to transfer to a 
4-year institution and a bachelor's degree program. And a 
number of states have made statewide agreements. Florida is a 
good example of this, where they've gone to a unified system 
that says that English 101 in a community college is the same 
as English 101 at the University of Florida. And I would not 
encourage this Committee to get any more involved in that, and 
I think the system is working well as it is.
    Mrs. Davis. Thank you. I appreciate that. Mr. Chairman, if 
I may, just for a second, I think at least in the University of 
California system, a lot of students basically have been forced 
to go to community college because they just don't have the 
seats there available to them, so that we're preparing a lot of 
kids who actually are getting in at university level, you know, 
with four points--four point averages, and they're still not 
able to find a seat.
    Thank you.
    Dr. Vedder. But that's partly because the colleges have 
themselves, in the case of California it's partly state law, 
but it's partly some of the state universities have tried to 
act more like private schools, and I think they've gotten far 
away from the notion of access as a major goal helping poor 
kids.
    We want to get higher in our U.S. News rankings and so 
forth, so we've become more selective and we've rigidly let 
enrollments, you know, be limited to 18,000 or 19,000, 
whatever, getting to the question of seats that was raised 
earlier. We're not increasing seats in some cases as I think we 
intended when the Morrell Act and other legislation was passed.
    Chairman Boehner. The Chair recognizes the gentleman from 
Puerto Rico, Mr. Fortuno.
    Mr. Fortuno. Thank you, Mr. Chairman. Dr. Vedder, you 
mention briefly the Colorado voucher program. Could you expand 
a little bit on that?
    Dr. Vedder. Well, I'm not an expert on Colorado, but last 
year--and it's an interesting scenario of political events how 
it happened. It related in part to their taxpayer bill of 
rights Tabor amendment which restricted state expenditures, and 
one way to get around that was to give vouchers to kids rather 
than to institutions. Apparently that got around the Tabor 
limits.
    And so even Betsy Hoffman, who was president of the 
University of Colorado, supported this move. It was a move that 
was opposed by the higher education community. As I understand 
it, and I may have these numbers wrong, Congressman, in the 
fall of 2005, I think $1,200 vouchers will be given to all 
students who attend schools in Colorado, all public 
institutions and the case of lower income students, three 
private institutions, including Colorado College, which is 
probably arguably one of the finest liberal arts colleges in 
the United States west of the Mississippi. And you can talk to 
the president of that college, and they're very much excited 
about this, a former Democratic Governor, by the way.
    So this is the plan. The Governor of Colorado wants to 
expand that to a larger amount in future years. There's several 
states have said let's keep state appropriations constant in 
dollars and give incremental or increased money not to 
institutions but to the students in this forum. I think it's an 
interesting idea, and it would be interesting to see how it 
works. I am fairly optimistic that it will have no negative 
effects. As to the extent of positive effects or not, obviously 
I would agree that until it's done, we don't know.
    Mr. Fortuno. Do either of you know of any other similar 
examples in other states?
    Dr. Heller. It's pretty widely recognized that Colorado is 
the first state to do this with the state funds. I mean, you 
know, certainly there's an aspect of vouchers to Pell Grants in 
that they're portable and students can use them at any one of 
the 6,000 Title IV eligible institutions. Many state grants are 
similarly portable that way. But this is the first state that 
has decided to take a portion of the appropriation and turn 
that around to a voucher for the students.
    Mr. Fortuno. Thank you. Dr. Vedder, you also mentioned the 
idea for privatization of universities. Could you expand 
further on that?
    Dr. Vedder. Pardon? I didn't hear.
    Mr. Fortuno. Privatization of universities. And I have some 
questions about accountability and oversight issues regarding 
the privatization of universities.
    Dr. Vedder. Organization, accountability issues?
    Mr. Fortuno. Yes.
    Dr. Vedder. Well, that's a broad question, Mr. Fortuno, but 
universities don't face the bottom line of profits. Most 
government--but a lot of groups that are at least partially 
governed by the political process face some accountability from 
the political process. Government agencies, for example, have 
political accountability.
    Universities are somewhat unique in that even state 
universities, although they face some rules and regulations and 
they certainly face the financial constraint imposed by the 
state, they have a high degree of independence. And I think in 
some cases for justifiable reasons, for academic freedom 
reasons, for reasons we want our universities to be -- we want 
them--we want people to express themselves freely and so on.
    But it does sometimes have a cost in terms of leading to 
behaviors that are not dealt with in any important way through 
any--there's no huge accountability. We have 35, 40 percent 
attrition rate. No one has mentioned attrition in this room. 
And incidentally, they're hard to--how do you measure 
attrition? It's hard to measure. But 6-year graduation rates at 
universities. Many universities are, you know, 50, 60 percent 
of the entering people.
    Why don't we hold the universities accountable in that 
area? Why don't we say if you're--get your attrition rates 
down, we'll give you more money? Of course, one way you can get 
the attrition rates down is give everyone A's, you know. So 
there are issues here. I mean, there are ways you can deal with 
it that are not acceptable.
    So this is an issue. The football coach is held 
accountable. Did I have a good year last year or not? We have 
student evaluations for me. Even if they're bad, though, I keep 
teaching because I have tenure. You know, there's no measure. 
Whereas in the private sector, by and large, there is a 
measure, and we use that to govern--to help condition behavior. 
And we don't have that sort of conditioning of human behavior 
in a positive way in the higher education community. And the 
for-profits do to some extent. And that's why I find that an 
interesting experiment to see how they're going to develop over 
time, and they're growing 20, 30 percent a year, which says 
that maybe there's something in that model that is useful.
    Mr. Fortuno. Thank you, Mr. Chairman.
    Chairman Boehner. The Chair recognizes the gentleman from 
Massachusetts, Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman. Dr. Vedder, I take it 
you weren't offering back your tenure?
    Dr. Vedder. Pardon? I--
    Mr. Tierney. You weren't saying that you wanted to give up 
your tenure. I didn't think so.
    Dr. Vedder. I'm actually semi-retired, so I even am better 
than tenured. I have a pension coming in, too.
    Dr. Heller. If they'd pay us like the football coaches, 
some of us would be willing to give up our tenure very quickly.
    Mr. Tierney. Exactly. Exactly. Let me focus on just one 
aspect of this, because I mean there are parts--I think we can 
reach agreement on all of this. The Chairman mentioned the lack 
of new seats in education. I think that's a critical problem. 
If we're talking about a need to have a global competitive 
strategy, it means giving more people higher education so that 
they can take the jobs at the higher level. And I think it was 
Tom Friedman who said something to the effect that China and 
India aren't racing us to the bottom, they're racing us to the 
top. So we've got to do that.
    But I think when you look at the number of people that need 
access and affordability, I think that public higher education 
should play a greater role, and I think in states like mine in 
Massachusetts and other states that deemphasize that. We have a 
lot of nice private institutions, and they sort of think that's 
going to take care of itself.
    We have a lot of people that are just falling by the 
wayside, and if we want to start competing in numbers with 
China and India and others, we had better find a way to get 
those people into the education process and through it to the 
top.
    So in Massachusetts, the state senate just came down with a 
report saying that investment in public higher education in 
Massachusetts has gone down about 36 percent in the last 
several years. I think that's indicative of what's happening in 
many states across the country. Would you agree with me and the 
state senate in that, that in fact that's the case, that public 
investment by states in their public higher education has gone 
down significantly?
    Dr. Heller. Yeah. As I said in my testimony, since 2001--
    Mr. Tierney. I'm don't--I'm not going to interrupt you, 
only because I--I just want--both of you agree to that?
    Dr. Heller. Yes.
    Dr. Vedder. It's happening.
    Mr. Tierney. Let me ask you the next question on that then. 
Would it be appropriate in each of your minds to have Federal 
policy encourage states to better support public higher 
education in one way or another? Either by conditioning 
something on that or by somehow encouraging them to do that, 
that they've got to be a full partner in this just as the 
Federal Government and families are?
    Dr. Heller. I think anything the Federal Government can do 
to encourage states to invest their own funds is a step in the 
right direction for the reasons that you stated, Representative 
Tierney. The LEAP program, for example, is a good example of a 
Federal program that can encourage state behavior by providing 
matching funds when states invest in--
    Mr. Tierney. It would be if the President wanted to fund 
it, but unfortunately, that's not the case. Dr. Vedder?
    Dr. Vedder. Well, you know, this is going to sound 
heretical, but it wouldn't be the first thing I said today that 
does. Massachusetts is one of the few states in the Union that 
spends less than 1 percent of its personal income on higher 
education through state appropriations, one of the few. There 
are several--a few others.
    You go next door or nearly next door to, say, Vermont, they 
pay--spend two, two-and-a-quarter percent. But which state has 
the larger percentage of college graduates among its adult 
population? It's Massachusetts. Now there are reasons--part of 
it is--
    Mr. Tierney. Which state has more private institutions.
    Dr. Vedder. Yes. It's a history of private education. But 
that's--there are schools.
    Mr. Tierney. Can I just--
    Dr. Vedder. They're educating kids. That's the issue.
    Mr. Tierney. Can I just focus you on this? Do you--you 
agreed with me earlier I think that the states have to step up 
to the plate, you know, that they have to, you know, start 
supporting public higher education.
    Dr. Vedder. No, I don't agree.
    Mr. Tierney. You don't agree with that? You think that 
states should be given a walk on this?
    Dr. Vedder. I'm not saying I necessarily favor the 
elimination of state support immediately over higher education, 
but I don't necessarily draw that conclusion, given the 
empirical evidence that the proportion of kids going to college 
does not seem to be very closely related to the amount of state 
support going to education.
    My goal is to see kids go to college. And if state support 
is not having a big impact on their going to college, or at 
least it's unclear whether it's having a big impact, then I 
think we need to think about that.
    Mr. Tierney. Dr. Heller, do you think it's unclear that the 
state support for public higher education makes an impact?
    Dr. Heller. I think the evidence is very clear. In my 
written testimony--I didn't speak too much on this in my oral 
testimony, but in my written testimony, I talk about the fact 
that there are a number of studies out there that show that 
there is a positive social return, not to the individuals, not 
just to the individuals, but states and the Nation benefit from 
the public investment in higher education, and I think those 
are very good studies that demonstrate that.
    The other point is that we've got states now spending about 
$65 billion on public higher education. And I just can't 
believe that all of our 50 states are so hoodwinked that they'd 
be spending that money if they didn't think that there was a 
return other than to the individuals attending those colleges.
    Mr. Tierney. I suspect the business community would feel 
hoodwinked also, because they're constantly pounding for this 
type of investment.
    Do you think that the dissemination--the Federal 
Government's role would be appropriate to identify best 
practices of colleges and universities that are in fact putting 
in place good cost containment things and disseminating that 
amongst the other universities and colleges?
    Dr. Heller. I think that's a wonderful idea. The Department 
of Education has a program called FIPSE, the Fund for the 
Improvement of Post-Secondary Education, and that's exactly 
what a lot of the grants in that program are intended to do, is 
to identify best practices in areas like efficiency and 
productivity and then to promulgate those to other 
universities. So I think that's a great role for the Federal 
Government, and I would like to see that program continued.
    Dr. Vedder. In principle, I agree, too.
    Mr. Tierney. I'm happy to go on, but I think I'm out of 
time.
    Chairman Boehner. The gentleman's time has expired. The 
Chair recognizes the gentleman from New Jersey, Mr. Holt.
    Mr. Holt. Thank you, Mr. Chairman, and I thank you, Dr. 
Vedder and Dr. Heller, for interesting testimony. I'd like to 
pursue some of the more, well, outrageous statements that 
you've made, Dr. Vedder, but let me not do that.
    I do want to mention that Ms. Jennifer Surovy in my office 
has launched on a career in public service because she was 
inspired by you as a student.
    Dr. Vedder. Oh, really?
    Mr. Holt. Even though she says that she's pretty much 
unconvinced by most of your arguments.
    [Laughter.]
    Dr. Vedder. Strange things happen in the world.
    Mr. Holt. I must say that intemperate, provocative 
statements may be better for inspiring students than making 
policy.
    Dr. Vedder. It's a great teaching technique, I'll tell you.
    Mr. Holt. It is, indeed. Let me, rather than pursue those, 
let me get to the basic--and I should thank you for inspiring 
her, by the way. She is really contributing to help people in 
many ways. Let me get to the basic question. There's a lot of 
wailing and gnashing of teeth about increased cost of higher 
education, and Mr. McKeon has spent a lot of time on that.
    But I'm trying to understand, and I'm asking this question 
without any bias, what is the harm that's being done? Is it, as 
Mr. McKeon says, that people are being excluded from the 
American dream? Which seems inconsistent, Dr. Vedder, with your 
statement that in fact we've pumped up demand so much that 
there are more people going to college, that there's still 
upward pressure because there's more demand than colleges can 
handle. Or, is the problem that it just doesn't seem right that 
their prices are going up faster than inflation? And just, you 
know, it's hard to justify that.
    Well, then, should Mr. McKeon introduce a bill that puts 
price controls on pharmaceuticals which are going up faster 
than inflation, or should he look at computers that are going 
up in price slower than inflation and mandate price increases? 
What is--what is the problem that we're trying to address here? 
And then if there's time, a subsequent question more specific 
is, what should we be doing with Pell Grants?
    And back to the first question about what harm is being 
done, we all agree, or you all agree anyway, that it is for an 
individual a good investment and for society a good investment, 
even at today's prices. You come out ahead, we come out ahead 
if more students go to college.
    So what is the problem we're addressing?
    Dr. Vedder. Well, you've asked a question that--
    Mr. Holt. I'm asking both of you, so please allow time for 
each other.
    Dr. Vedder. Yeah. You've asked a very long--a very broad 
question. Let me say right away, I'm not sure I completely 
agree with what you said that I agreed with; namely, that 
society is getting a good investment from higher education. I'm 
not saying higher education is bad or disastrous. I'm saying 
there are individually high returns to higher education.
    I'm not so sure that society or governments or the people 
are getting higher returns. The states in the Union with higher 
rates of economic growth in the last quarter of a century are 
not surprisingly the states that have spent a lot of money on 
higher education. And I have some discussion of that in my 
book.
    We have had more kids go into higher education than ever 
before. That's the plus. And I agree with Dr. Heller, it's a 
plus/minus thing. But if you look at Hispanics, just to pick 
one group, that I happen to remember a statistic from, the 
percentage of Hispanics going to college that are between the 
ages of 18 and 24 are no higher today than they were in the 
mid-1970's. Indeed, they're slightly lower. Now that's not true 
of other groups. Most groups have risen somewhat. But we have 
these huge gaps. So maybe we're dropping a lot of money into 
student assistance, $80 billion of Federal money, but are we 
getting a huge increase, a big increase for the amount of money 
spent in the number going to college? What is the relationship 
per student between the amount of money we spend at the margin 
and the number going to college? I think you'll find it's a 
pretty--it's not a very strong relationship because of these 
tuition increases eating up a lot of the gains.
    Mr. Holt. Dr. Heller?
    Dr. Vedder. And to me, that's the issue we're talking about 
here today.
    Dr. Heller. Congressman Holt, I think the major problem is, 
as I stated earlier, is that even with all of the money we are 
spending on financial aid, which totals about $120 billion a 
year from all the sources, we still have students who are being 
left behind.
    As I mentioned, 400,000 students who are academically 
qualified by the Department of Education's own standards to go 
to a 4-year institution but weren't able to afford to go there, 
and 170,000 who couldn't even afford a community college, even 
though they were academically qualified to go. That is what I 
see as the major problem here.
    Chairman Boehner. Well, let me, if I could follow up on the 
gentleman's point, the goal, the No. 1 goal, of the Higher 
Education Act is to ensure access for low- to moderate-income 
students who are qualified.
    Dr. Heller. Right.
    Chairman Boehner. And the fact is, is you give the same 
numbers that we have, about 400,000 students couldn't attend 
last year. We also know that over the last 20 years, state 
spending on higher education has declined. Federal spending on 
education has increased dramatically, basically taking up the 
slack. I think the big question for all of us is, what do we do 
as we move forward in the reauthorization process? I'll ask 
both of you.
    Dr. Heller. Well, I think that as I said earlier, the Pell 
Grant program is one of the best financial aid programs of all 
out there because it's targeted at the students who need the 
financial assistance. So certainly in terms of structure, Pell 
Grant is very well structured, and I think the only problem 
with it is that we need to find a way to get a commitment to 
students earlier in their educational careers, and also to try 
to return the purchasing power of Pell to something approaching 
what it was back in the 1970's. If we can't get it to 80 
percent of the average cost of attendance, let's try to get it 
back there. And I recognize that the President has submitted a 
budget that does call for a small increase in Pell over 5 
years, but I'm afraid that that's going to be a very small part 
of that road back.
    Dr. Vedder. I think that we need to get more efficient use 
of the money we give out. Part of it you give out in the form 
of various forms of aids and grants, tuition tax credits and 
the like, and I don't think we're getting a high return on that 
investment. And one way to do it is to target a little more 
than we have who gets these grants. Is it, for example, 
possible for a student in their fifth or sixth year in college 
to get a Pell Grant, or to get a grant? To get a Stafford loan?
    Chairman Boehner. How about year 17?
    Dr. Vedder. Or year 17. I think these are questions that 
are legitimate ones to ask. Society may have an obligation to 
offer access to students who take that seriously and work hard 
and perform at least adequately well, not necessarily 4 point 
averages, but do well. Do we have to serve everyone though? Do 
we have to serve the student who gets into problems with 
disciplinary problems, that is immature, who is in their fifth 
or sixth year in college? Some will say, well, we don't have 
many of those kinds of students. Nonsense. Look at the data. We 
have lots of those kinds of students.
    In other words, we need to get a little more hard nosed 
about it and target the money to the deserving poor. And I 
would agree that the deserving poor, maybe we should have 
bigger Pell Grants for them. I'm not opposed to that. In my 
testimony, I actually raise that as a point. I agree with 
Robert Reich, who--the principal who argued for progressive 
vouchers. Let's give more to the poor than to the rich. I think 
that's what public policy is about. I'm all for that. But let's 
get more efficient and smarter about it, and I don't think we 
are.
    Dr. Heller. When we look at why students drop out of 
college, Chairman Boehner, and particularly lower income and 
middle income students, they're dropping out because they're 
running out of money. They're dropping out because they're 
working too many hours, and they're not able to afford to go to 
college without working all of those hours. They're not 
dropping out because they're out in riots--
    Chairman Boehner. I'm well aware of that situation. I was 
there. I went through it. I see the picture. And obviously to 
the extent that we can guarantee them a sufficient amount to 
get started, chances are they're going to do better. But given 
the ever-increasing prices, it's a struggle for all of those 
involved.
    Let me just say thanks to our witnesses today. Oh, let me 
recognize the gentleman from California.
    Mr. McKeon. Mr. Holt left, but he referred to me several 
times. I'd like to just say a couple of things.
    Chairman Boehner. You want to defend yourself?
    Mr. McKeon. Yeah. One thing is our population is growing, 
OK? And as the population grows, we're not saying that every 
student that graduates from high school wants to go to college. 
What we're talking about is those that graduate from high 
school that do want to go to college, and they are being cut 
down. Even though more people are getting Pell Grants, more 
money has gone into Pell Grants, we've doubled Pell Grants in 
the last 10 years, we can't keep up. That's I think the 
problem.
    And then the question the Chairman asked about additional 
seats, the capacity has not expanded to keep up with the number 
of students. And so that drives the cost demand, that drives 
the cost up. And one of the things that a member of the higher 
education community told me, he says, well, you know, this is 
free enterprise. Leave us alone. This is free enterprise. I 
said it's totally different than free enterprise. I mean, in my 
business, I had to go out and make a living, and at the end of 
the year write a check for 5 percent and send it to the 
government. In turn, we send him a check for 35 percent and 
it's--and the difference is amazing. Because until we have more 
seats than students, then they're not competing for students. 
They might be competing for some students, but while they're 
turning students away, there is no competition for that 
student.
    And I just think that this is something that we do need to 
grapple with. I appreciate your--both of your testimony here 
today, and it stirred the pot, and I think we've had a good 
hearing. And thank you, Mr. Chairman.
    Chairman Boehner. And I think that's the whole point of 
today's hearing was just to help move the blinders back a 
little bit and have people consider, you know, where we are, 
what our goals are, and the challenges that we're going to have 
in trying to reauthorize the Higher Education Act.
    The hearing stands adjourned.
    [Whereupon, at 3:43 p.m., the Committee was adjourned.]