=0A=

-->

Type Size

April 17, 2011, 9:45 am

Colleges are too cheap

Tuition fees, though high, nowhere near cover costs. U.S. = colleges=20 need more gifts, more efficiency, still higher fees. A loan system that = would=20 make higher tuition fees possible would cause a substantial change in = the=20 economics of higher education.

Editor's Note: Every week, Fortune.com publishes favorite stories = from=20 the Fortune magazine archives. In the September 1957 issue, Fortune = editor Herbert Solow explored the potential of a federal = student loan=20 system that could allow universities to increase tuition rates to = support a=20 ballooning college-going population and pay their faculty more than what = he=20 describes as "shamefully low pay" (Any of this sound familiar?). As high = school=20 students across the country make their college choices this month, many = of the=20 challenges Solow describes below still resonate, with several public = university=20 systems resorting to tuition hikes to absorb state budget cuts=20 and student loan debt surpassing credit card debt for the = first=20 time last year, as recently repor= ted by=20 The = New York=20 Times.

By Herbert Solow

FORTUNE -- The mixed U.S. system of public and private higher = education must,=20 within a decade or so, greatly expand its resources and = improve its=20 methods, or a presently muffled suggestion of broad-scale federal = intervention=20 will become a roaring demand. A commission of the influential = National=20 Education Association has affirmed that "increased federal aid=20 seems essential." And Congress has before it a number of bills to = expand=20 Washington's role through, for example, vast programs of = scholarships or=20 student loans. President Eisenhower's Committee on Education Beyond the = High=20 School recently declared that Washington should have no permanent = economic role=20 in the system -- that is, "not yet." Federal action should be limited to = the=20 "residual," said the President's Committee. But this will be the case = only if=20 the traditional system can cope with emerging requirements. To do so, it = will=20 need a revolution in operations and financing.

Students studying at a library at Harvard = University in=20 1957.

Requirements are prodigious and growing. Annually there is a leap in = the=20 percentage of Americans who want a higher education. Moreover, there has = been=20 the well-known birthrate explosion. Only two years ago President Nathan = M. Pusey=20 of Harvard somewhat breathlessly reported that he expected an enrollment = on U.S.=20 campuses of five million by 1970 (Fortune, September, = 1955). But=20 already so many young Americans are heading toward campus admissions = offices=20 that the estimate of 1970 enrollment now tops six million -- about = double=20 today's enrollment.

As the President's Committee puts it, the higher-education system's = resources=20 are strained, its quality is jeopardized, and its plans are so = inadequate that=20 it is "in no shape to meet the challenge" of 1970. To provide twice as = much=20 quality education and operate on the basis of the resources that now = appear=20 likely to be available in 1970, the system must sharply increase the = efficiency=20 of non-teaching operations (housekeeping, administration, etc.). With = the=20 present limited facilities for producing college teachers, it is = impossible to=20 double today's faculty of 250,000 by 1970 without a collapse of quality. = So=20 teachers will have to handle more students while maintaining teaching = quality.=20 And in any case, for what educators call "the oncoming tidal wave of = students,"=20 vast increases in funds are indispensable.

Discussion of ways and means is subject to an important limitation -- = lack of=20 reliable key statistics. There is risk in any sweeping statement about = the=20 highly diverse U.S. system, with its 1,800-odd universities, technology=20 institutes, colleges, and junior colleges, its $8 billion plant, its = unbalanced=20 $3 billion annual budget for instruction, and its nearly $2 billion = annual=20 budget for more or less self-supporting items, such as dormitories and = contract=20 research projects. The campuses --about 500 of which have fewer than 250 = students each and a dozen of which have 20,000 or more students each -- = are=20 public and private, metropolitan and semi-rural, church-run and lay-run, = general=20 and specialized, coeducational and segregated, excellent and mediocre. = Little is=20 true about all of them-except that they need more money.

This article starts with two assumptions:

1. Of late the share of total enrollment enjoyed by private = institutions has=20 fallen from 50.3% (average for 1947- 51) to 42.9% (1956). It is assumed = that a=20 continuation of this trend would weaken the role of private institutions = in=20 maintaining standards for the entire system of higher education, and = that it is=20 desirable to find ways and means for the substantial expansion of the = private=20 schools.

2. Higher education has demonstrated its economic value to the = individual. On=20 the other hand, the social need for people with higher education, = however great=20 in an atomic and automatic age, is finite; In selecting students, tests = of=20 motivation, including charging a fee, are therefore relevant; not = everybody has=20 to go to college. The important question about fees is not whether, but = how=20 much.

The hunt for dollars

The fees that students paid for their instruction in fiscal 1957 were = on the=20 average at least double what they were in 1940. But such fees, totaling = about $1=20 billion, still covered only one-third of the costs of the instruction. = The major=20 financial problem, how to make up the difference, becomes more and more=20 aggravated as the student body expands. Can it be solved by expansion of = sources=20 of revenue other than tuition fees? Let us look at those sources.

Endowments, concentrated in private institutions, aren't worth over = $3=20 billion; they have been largely shifted from bonds and the like (which, = for=20 example, constituted 82% of Harvard's investments in 1928) to common = stocks=20 (which now account for nearly 60% of Harvard's investments). The gain in = yield,=20 however, still hasn't kept pace with rising costs. Whereas Harvard's = endowment=20 yield once covered 42% of expenses, it now covers only 27. Princeton's = avowed=20 need for gifts has risen from 4 to 24% of its current budget. Some 800=20 institutions have no endowments. State legislatures have been = appropriating ever=20 larger sums for the campuses they sponsor (12 cents of the Michigan tax = dollar,=20 for exan1ple, now goes to support state institutions of higher education = as=20 compared to 8.5 cents in 1954). But state universities still lack the = funds=20 needed for the job that lies ahead.

Last year non-corporate foundations (Ford, Rockefeller, etc.) broke a = record=20 for giving as a result of a $210 million Ford Foundation grant to the = endowment=20 funds of 630 institutions. (The principal of the Ford grant, however, = cannot be=20 touched until after 10 years.) Beyond this it is impossible to give = reliable=20 figures on foundation giving to higher education for any year later than = 1954,=20 when foundations gave $50 million. The total last year was undoubtedly = higher,=20 perhaps by 50%, exclusive of the Ford grant.

Passing the hat

Every institution, in addition, passes the hat. Professional = money-raising=20 consultants like John Price Jones Co. and Kersting, Brown & Co. are = busier=20 than ever on behalf of campus clients. The American Alumni Council and = the=20 American College Public Relations Association and their members beat the = drums=20 incessantly. Last year, annual alumni drives yielded about $47 million = (alumni=20 also made special gifts of $65 million) as against $3 million in all in = 1938.=20 Business corporations and their foundations were spurred on to = contribute as=20 never before, especially by the Council for Financial Aid to Education, = led by=20 Irving Olds, Frank W. Abrams, and Alfred P. Sloan Jr. And while the = council=20 labored, 39 recently organized regional associations of colleges and=20 universities knocked steadily and insistently on corporation doors. = Through the=20 associations, corporations could give to batched beneficiaries that have = their=20 own prearranged formulas for sharing proceeds. Corporations gave = about $110=20 million last year, as against $24 million in 1948.

Thanks to all these sources, U.S. colleges have kept the sheriff = away. But=20 the absolute size of the gap between tuition fees and costs now = threatens to=20 grow massively. So do long-neglected capital needs. According to an = estimate=20 based on a broad survey made in 1954, there would be required 10 ten = years,=20 in addition to income from established sources, annual new = income of=20 $60.8 million for capital expansion and operations. Unless traditional = practices=20 are strikingly changed, the 1970 budget for instruction alone, with the = student=20 body doubled, will be twice the present figure -- in other words, = somewhere=20 around $6 billion. What to do?

In recent canvasses of potential new sources of funds a radical idea = keeps=20 cropping up -- the idea of charging students what their instruction = costs. Such=20 a change from traditional policy might endanger democratic education and = deprive=20 campuses of much fine talent-unless the change were linked to the = expansion of=20 financial aid to needy students. Even now about 200,000 of the most able = high-school graduates annually renounce higher education, often for = financial=20 reasons. So, while such innovations as higher fees are debated, there is = increased emphasis on getting more revenue from other sources.

Presumably the ceiling on alumni giving has not been reached. At = present only=20 20% of alumni respond to solicitation, so there is a large untapped = source.=20 Yale's annual take from alumni has risen from $509,000 in 1949 to = $1,737,000, an=20 increase of 240%; Yale is now aiming at $2 million a year. Almost every=20 institution will intensify its alumni drives. While the economy expands, = corporations will increase their giving. Last year corporations made=20 tax-deductible philanthropic contributions of all kinds to the amount of = almost=20 $550 million, or 1.26% of their profit before taxes (as against the 5% = that the=20 income-tax law encourages them to give). Perhaps they will never give = 5%, but=20 educators hope that as more and more corporations adopt philanthropic = policies=20 for a variety of business reasons, the share going to higher education = may top=20 $200 million.

Trade unions have begun contributing, though mostly in the form of = earmarked=20 scholarships. Churches are seeking more money for campuses under their=20 sponsorship. Soon, too, as a result of a pioneering promotional campaign = now=20 being run by the Advertising Council, and follow-up drives envisioned by = alumni=20 and other organizations, the general public may be asked for annual = gifts.=20 Legislatures will be pressed for bigger appropriations, although the = state=20 universities will be in vigorous competition with demands for highways,=20 hospitals, and welfare services.

The federal government may help by paying full costs of research = services=20 that it obtains from universities, which, in many cases, the government = does not=20 now do. Washington can help in other "residual" ways: by making further = easy=20 loans on income-producing facilities like dormitories; by extending to=20 lecture-hall and laboratory construction the matching grants-in-aid = arrangement=20 now available to hospitals; by revising the income-tax laws to intensify = encouragement of individual giving. These, at any rate, are among the=20 suggestions made by the President's Committee.

Upgrading operations

Colleges may be able to affect some economies. An instrument of = growing=20 importance in improving campus housekeeping operations is the management = survey.=20 Yale cut operating costs by $400,000 a year on the basis of = recommendations made=20 in 1950 by Cresap, McCormick & Paget, the leading campus management=20 consultant. This firm and others have since surveyed about 150 = institutions, and=20 an analysis of 50 cases shows that each survey paid for itself in = operational=20 savings, through improved budgeting, centralized accounting, application = of=20 machine techniques to records, reorganizing dormitory service, = establishing=20 maintenance standards, converting to offset printing, installing = automatic=20 telephone equipment, improving purchasing, and improved use of plant = space.

Tuition fees are shown in this chart as a = percentage of=20 all teaching costs. On the average, students in all types of = institutions of=20 higher education pay only 33 percent of teaching costs. The closest that = any=20 class of students comes to covering teaching costs with its fees is 62 = percent,=20 the average student contribution in private liberal-arts colleges. (The = figure=20 for faculty salaries is slightly inflated because, owing to prevailing = reporting=20 methods, it includes some expenditures for faculty-related requirements = like=20 assistants, secretaries, stationery, etc.)

Most plant space is used wastefully, especially in afternoon and = evening=20 hours, on Saturdays, and in the summer. One way of using it more = intensively=20 would be to divide the academic year into four quarters, instead of two=20 semesters, including the summer months, which are usually a down period. = In=20 fact, the four-quarter idea has been advanced as one way of improving=20 educational methods and raising quality, quite apart from the economies = involved=20 in better use of plant. Clarence H. Faust, formerly a dean at the = University of=20 Chicago and now both president of the Fund for the Advancement of = Education and=20 vice president in charge of education for the Ford Foundation, has = outlined a=20 plan that would give students an assignment to study independently off = the=20 campus for one-quarter of each year. This would increase the number a = given=20 plant could handle.

Would the system detract from the quality of education? Dr. Faust = believes=20 not. "The pressure of numbers may be the occasion for important = improvements in=20 college education," he says. Dr. Faust rejects the old assumption that = the only=20 way to learn is in a group, taking a formal course. Many educators agree = that=20 U.S. college students show inadequate initiative because they are = conditioned in=20 high school to study only specific assignments, and are brought up "in = the lock=20 step of class lectures, recitations, deadlines for papers and reports, = and=20 course examinations." Dr. Faust would reduce student-teacher contact. = This could=20 be done by having students spend several months working on their own, = after a=20 month or so of lectures that would identify the nature of problems = involved in a=20 given subject and would indicate how "a sharp, sensitive, = well-disciplined mind"=20 goes to work on the problems. A related reform would be to reduce the = highly=20 inflated number of courses offered. Together, such reforms would dilute = the=20 present average twelve-to-one student-teacher ratio, and so conserve = faculty=20 labor.

Perhaps the most radical pedagogical suggestion is the use of = television,=20 which the Fund for the Advancement of Education has been pushing=20 assiduously. TV can effectively present not only uniquely talented = lecturers to=20 students anywhere, but also a wide range of audio-visual materials, = including=20 costly equipment, art originals, operational techniques in surgery, = engineering,=20 etc. Three years of experiment at Pennsylvania State showed that in many = subjects TV students somewhat surpassed those taught conventionally.

The great giveaway

But the U.S. higher-education budget will never be balanced by = savings on=20 housekeeping and teaching costs. And since charity -- generous as it is = -- has=20 fallen short, has its limits, and is an unpredictable source, serious=20 consideration is being given to the controversial idea of charging = students the=20 full cost of instruction. That students get a great deal for nothing is = not=20 generally appreciated. When, by a unique, bold decision, one eastern = private=20 college raised its tuition fee to substantially 100% of the cost of = teaching, it=20 simultaneously notified parents that acceptable students could get = grants-in-aid=20 (discounts, in effect) if their families could not pay in full. One = father=20 thereupon entered his daughter in a neighboring college, haughtily = declaring=20 that he wanted no charity. But the neighbor's tuition charge, which = Daddy=20 proudly paid "in full," was almost $400 under cost.

U.S. higher education is, in fact, an enormous charity. Though = board and=20 lodging are usually charged for at cost, an insignificant number -- = possibly=20 none -- of the three million students, even at the most expensive = institutions,=20 pay the full cost of their instruction proper (at the exceptional = college cited=20 above, costs have since overtaken fees once again). All get a standard = discount,=20 its size depending on the local cost level, the institution's wealth, = and how=20 eager the institution is to attract talented students who may lack the = cash to=20 pay full costs. Campus cost accounting is still largely a primitive art, = so that=20 figures must be accepted with caution, but it is probable that the = private=20 institutions' standard discounts average about $500 a year, those of = state=20 institutions about $800.

Moreover, the many worthy students who find that the discounted = tuition fee=20 is still too high for them seek and often get an extra discount in the = way of a=20 grant or scholarship. The business of giving scholarships was once more = or less=20 hit or miss. An increasing number of institutions are turning to a = central body,=20 College Scholarship Service, for help in determining which students = should get=20 aid and how much. This ensures a fairer system of scholarship awards, = but it by=20 no means decreases the worries of the institutions as the 1970 hordes = approach.=20 Somebody, after all, must finance the discounts, which, on the basis of = present=20 practices, could top $4 billion by 1970.

Alma professor

The people who chiefly finance college discounts are the teachers. = The=20 college teachers of the U.S., says the President's Committee, "are = subsidizing=20 the education of students, and in some cases the luxuries of their = families, by=20 an amount which is more than double the grand total of alumni gifts, = corporate=20 gifts, and endowment income of all colleges and universities combined. = This is=20 tantamount to the largest scholarship program in world history." The = teachers=20 make this contribution, not always cheerfully, by working for shamefully = low=20 pay.

At Brown University, for example, where the pay scale is above the = average,=20 assistant professors get less than the $6,000 offered by industry to = many of=20 Brown's engineering students as starting pay. State institutions, = sometimes by=20 politicking behind the interference of victorious football teams, = achieve better=20 average salary levels than private institutions. Yet a full professor's = salary=20 at the average large state university in 1954 was only $7,000, less than = that of=20 a locomotive engineer. More than a score of institutions pay full = professors=20 less than $3,000. Half of all faculty ranks earn below $5,600. There = was, in=20 fact, a drop in both the absolute and relative pay status of college = teachers=20 between 1904 and 1954. Between 1940 and 1956 college teachers' = purchasing power=20 rose -- but only 12%, while that of industrial labor rose 64%, that of = doctors=20 96%. Had professors' salaries held their own, top men at leading = institutions=20 would be getting over $15,000 today. But even at Harvard, richest of all = the=20 institutions, the average pay of full professors is only $13,000.

The rising faculty bill

In the view of the President's Committee, institutions will have to = boost pay=20 by 100 to 125% to hold and attract first-rate talent. What will this = cost? Well,=20 let us assume that professorial productivity will be increased by = one-half,=20 raising the student-teacher ratio to 18-to-1 and thus, incidentally, = further=20 justifying better pay. Even then 134% of the present faculty (or a total = of=20 335,000) would be required in 1970 to handle the doubled student body. = With the=20 average salary around $11,000 after the projected raise, the 1970 = faculty might=20 cost two and a half times what the faculty costs today, or close to $4 = billion.=20 Were other factors unchanged, this would mean an addition of $500 = million to the=20 projected $6-billion instructional budget. And where would it come = from?

One possible source would be tuition fees, if raised to realistic = levels. The=20 question of raising fees is under lively discussion on most privately = controlled=20 campuses, and during 1957 over 65% of all land-grant colleges and = state=20 universities favored some raise. If all institutions set tuition fees at = the=20 level of true costs, six million students in 1970 might provide $6.5 = billion in=20 revenue, enough to cover the projected faculty bill and all other direct = costs=20 of instruction (such as use of classrooms, equipment, etc.).

Such a drastic change in financing -- or any major fraction thereof = -- would=20 have to be put into effect on a wide front. Unless public institutions = raised=20 their fees substantially, few private institutions would dare to; the = private=20 schools could not permit much widening of the present average gap of = $500=20 between their stated fees and those of their public competitors, lest = they lose=20 many talented students. Even among private institutions, any substantial = fee=20 raise would probably have to be undertaken simultaneously by all the = competing=20 institutions in any given group ("groups" are, for example, large = universities,=20 technology institutes, New England colleges, etc.).

Raising tuition fees to match costs, unless there were compensating = aid to=20 desirable, needy applicants, would tend to jeopardize democracy in = education and=20 to turn campuses into clubs of rich and not always talented students. = But if=20 tuition boosts were followed by boosts in special discounts to the = talented=20 needy, much of the revenue gain would be canceled out. The current = stated=20 tuition fee at Rensselaer Polytechnic Institute is $1,200, a rise of = $200 over=20 last year; but one-third of the increment will be swallowed up by the = increased=20 student aid that R.P.I. feels it must provide in order to maintain the = caliber=20 of its student body.

Credit as aid

Of late, support has begun to mount for one plan of student aid that = might=20 provide a partial solution to this problem. This is to introduce = installment=20 paying and credit into higher education on an order of magnitude never = tried=20 before. Students who wanted to pay cash would, of course, be free to do = so, but=20 what is being considered now is a loan fund that eventually could take = care of=20 everyone, if everyone wanted to use it.

Chairman Devereux C. Josephs of the President's Committee, who was an = investment banker, then president of the Carnegie Corporation of New = York, and=20 is now chairman of New York Life Insurance Co., finds "obvious = advantages to all=20 concerned in borrowing toward an education." Josephs argues: "If all = students=20 capable of winning admission to an institution could have access to = loans,=20 irrespective of capacity to win scholarships, pressure would be removed = when=20 most appropriate and responsibility and independence promoted. " The = committee=20 itself has suggested that private foundations do something about = "creating new=20 regional or national mechanisms for supplying credit to students through = their=20 colleges at low interest and on flexible repayment terms."

Who will borrow?

There might well be many lenders and borrowers. College training = today is=20 quite another commodity from that dispensed in early U.S. colleges, = which were=20 set up primarily to produce preachers and teachers, whom society, then = as now,=20 esteemed but underpaid. Today a college education is an investment that = adds an=20 average of $100,000 to graduates' lifetime earnings.

Retroactive scholarships could be provided to cover educational debts = of=20 those who become teachers, preachers, or members of other poorly paid=20 professions. Princeton University has some scholarships of this type = now, and=20 some states with programs of teacher-training tuition loans forgive the = debt in=20 return for teaching service after graduation. Women, too, might present = a=20 special problem since they seem convinced that men would not be anxious = to marry=20 debt-encumbered college graduates. Yet many women now get to college = with the=20 aim of a gainful job at least for a time, during which they could = liquidate part=20 of their debt. (In the Belgian Congo, the relatively few African women = who get a=20 primary education are the object of keen rivalry among educated African=20 men.)

Will students in general borrow money for higher education? According = to the=20 U.S. Office of Education they now raise only 1.5% of their funds by = borrowing,=20 and it is also true that some student loan funds now theoretically = available go=20 begging. But these facts may mean little. As long as discounts in = tuition are=20 available, a sort of Gresham's law operates against students' taking = loan money.=20 Also, some loan money is so hedged about with requirements as to place = of=20 residence, personal habits (non-smoking), age, course of study, creed, = parental=20 membership in an organization, emergency nature of the need, etc., that = only a=20 few students can qualify. Some loan funds have a ceiling of $100, = require=20 repayment in a few months, or exact over 6% interest. Many = institutions (in=20 New York State over 40%) have no loan funds at all.

The growing loan idea

But when colleges have substantial loan funds, make them broadly = available at=20 low interest and for long terms, and promote their use, borrowing = becomes more=20 popular. Here are some cases in point.

In 1930 friends of the Massachusetts Institute of Technology put up=20 $1,450,000 to start a loan program. It has since grown 80% through its = own=20 operations. Requiring neither collateral nor a co-signer, M.I.T. will = lend up to=20 $4,400 to cover tuition charges for four years. Interest was cut in 1949 = from 2=20 to 1%, which has been adequate to cover losses and expenses. Payments = are=20 scheduled at the rate of $50 semi-annually, beginning six months after = finishing=20 studies. Since the start, M.I.T. has lent about $4,150,000. Only $14,700 = has=20 been written off and maturities now past due come to only $26,000. = Thirty=20 percent of all loans have been repaid ahead of due dates. Last year = M.I.T. lent=20 over $450,000 to 700 out of its 5,800 students, gave only $370,000 in=20 scholarships.

Harvard Business School, a two-year graduate institution, has largely = abolished extra discounts. Any needy student can get a $2,500 loan, = repayable=20 six and a half years after graduation at 4.5% interest that begins = accruing=20 after graduation. Further aid is available on proof of inability to get = family=20 help. This, called an "advance in aid," bears no interest but carries a = moral=20 obligation to repay. Last year, of $560,000 provided in student aid, = $350,000=20 was in loans, $135,000 in advances, only $75,000 in scholarships.

In professional schools, of course, the student's eventual income is = in=20 relatively plainer sight than in a liberal arts college, but the loan = idea has=20 also worked well for liberal arts undergraduates. Harvard College offers = an=20 example. In 1948-49 Harvard gave nearly $500,000 in extra discounts, = lent only=20 $10,000 on a long-term basis. No freshmen could borrow, others could = borrow only=20 up to $400. Interest was set at 4.5%, accruing immediately. Today, = freshmen are=20 eligible along with others for loans at 3% that begins accruing after = graduation=20 and completion of military service, and the ceiling has been raised to = $1,800=20 (45% of the four years' stated tuition charges). Repayment is required = at the=20 rate of $10 monthly after graduation and completion of military service. = In=20 1956-57 the college, while giving over $1 million in scholarships, lent = about=20 $225,000. In short, in eight years scholarships have doubled in amount, = loans=20 have gone up over 2,000%.

HELP in Massachusetts

Thus loans can be made attractive and, as their popularity grows, new = funds=20 are becoming available. Last year the Massachusetts legislature, = observing a=20 rise in student aid demand, created the Massachusetts Higher Education=20 Assistance Corporation, a private body authorized to lend money to = students or=20 to approved educational institutions, and to receive tax-deductible=20 contributions from banks, railroads, utilities, and other corporations.=20 Massachusetts also legislated limited adulthood for any minor who wants = to=20 borrow for higher education and meets certain formal requirements. By = July 1,=20 MHEAC had received contributions of $91,000, mostly from business = corporations.=20 MHEAC has not made direct loans but under its Higher Education Loan Plan = (HELP)=20 it has undertaken to guarantee 80% of loans made by commercial banks to = eligible=20 borrowers, up to 10 times the corporation's capital. The banks will lend = unsecured loans of up to $1,500 to a student, with simple interest at a = lower=20 rate and with longer repayment periods than commercial banks ordinarily = require=20 for personal loans. The interest charge while the student is in school = is 0.5%=20 above whatever the Boston prime rate on unsecured commercial paper may = be. The=20 student agrees to pay up six months after graduation, but the bank = agrees to=20 extend the time on request, at 4.5% interest discounted.

During its first four months operation, the Massachusetts corporation = guaranteed loans of more than $110,000 made by 68 banks to 283 students. = New=20 York State, early this year, adopted a similar measure, and a bill = introduced=20 into Congress by New York's Senator Jacob Javits would authorize the = Secretary=20 of Health, Education and Welfare to grant states $100,000 annually to = set up and=20 run HELP corporations. The Javits bill would also create a federal HELP = program,=20 provide free insurance for up to $750 million of student loans, and = grant=20 lenders the difference between student interest rates and those = prevailing in=20 the open market.

A number of businessmen have offered ideas on how to organize massive = credit=20 for higher education. Their common plea is for foundations or others to = set up a=20 broad loan fund. Some specify an initial capital of about $50 million. = Mr.=20 Josephs, whose view is in formed by his experiences in insurance and=20 philanthropy, and as chairman of the President's Committee, has made so = me=20 suggestions: "Borrowing should be limited to a portion of the total cost = of=20 education; no interest should be charged before graduation and rates = should be=20 gentle thereafter; repayment schedules should be flexible and readiness = to=20 modify them when appropriate should be announced. A relationship with = the=20 borrower's college should be established so that it or the alumni = association=20 could help maintain the flow of repayments (were repayments to drop = seriously at=20 a particular college, further credit could be denied its students). The = loan=20 fund should be guided by practical, public-spirited men and administered = professionally. Should some such plan become popular, it might be=20 self-supporting, though providing little, if any, return on the=20 philanthropically contributed capital. Once there is a record of = experience,=20 notes could be rediscounted and thus the loan money available be = multiplied.=20 Were such a plan widely used, employers would undoubtedly come around to = aiding=20 employees with repayment commitments."

Some business judgments

In recent years Fortune has referred to the views of other = advocates=20 of massive credit for higher education. One such, Ricardo A. Mestres, = treasurer=20 of Princeton, found educators cool to his slogan, "Study now, pay = later," but=20 largely on grounds of feasibility rather than principle. Another, Ernest = van den=20 Haag, a former businessman now teaching economics and sociology at New = York=20 University, last year expanded his ideas into a book, Education as = an=20 Industry. He contends that a system of higher education based on = credit=20 liberal enough to cover all tuition and living expenses would tend to = increase=20 educational opportunity and also to equalize it. He suggests starting a = loan=20 scheme in professional schools where "the effect of education on alumni = income=20 is most uniform, obvious, and extensive."

Van den Haag would have the colleges lend to or, as he sees it,=20 invest in students after raising capital by selling = bonds, or=20 simply endorse students' notes and rediscount them. He argues the = colleges would=20 then "have an incentive to select for investment just about as many = students as=20 will be able to repay no more, no less. Selecting more would be risking = loss of=20 the investment. Selecting less would mean loss of investment = opportunity..."

An early promoter of a loan plan was Sydney M. Roth, a Chicago = mass-marketing=20 consultant who helped to establish cans as acceptable beer containers. = Roth=20 thinks that many people are against the notion of borrowing for = education for=20 about the same poor reason bottle-minded beer drinkers were against the = can:=20 they hadn't tried it. He sees human earning power as a promising field = for=20 insurance companies and other investors of capital. Edmund C. Mayo, = president of=20 Gorham Manufacturing Co. of Providence, has proposed a philanthropically = sparked=20 mechanism, perhaps to be called the College Education Acceptance=20 Corporation (the reference to the expansionist effect of automobile = acceptance corporations on that industry is evident). A. Vere Shaw, a = New York=20 investment counselor, has made a similar proposal, which he hopes would = enable=20 colleges to "withdraw from constant fund-raising campaigns and confine = their=20 activity to education."

That, no doubt, is to hope for too much. But a loan system that would = make=20 higher tuition fees possible would cause a substantial change in the = economics=20 of higher education. And something will have to be changed if the system = is not=20 to be submerged by "the oncoming tidal wave of students," with a = resulting=20 general cry for federal rescue.

Also from = Fortune=20 Classic:

Joseph P. Kennedy:=20 A portrait of the founder=20
The decline and fall of business ethics=20
The Life of a $725,000 Scab

Filed under Fortune Classic

7 Comments | Add a Comment

I hope readers aren't missing (I almost did) that this is a 1957 = article, as=20 "B" mentioned in their comment.

How about today? I am a college professor, and I'm not sure if this = will=20 surprise anyone, but I think colleges should be more affordable.

What leads to higher costs? One huge factor for public schools is = that over=20 the years state support to keep tuition lower has decreased further and = further.=20 The university presidents try hard to make up the difference in creative = entrepreneurial entrepreneurial ways including partnerships with the = private=20 sector and more and more fund-raising from alumni and private donors. = But it=20 only goes so far. The rest of the difference has to come from somewhere. = Luckily, where I teach, they have been able to keep the increases fairly = rare=20 (not every year or two) and the tuition still modest by national = standards. But=20 if the state keeps cutting...

The other big issue is, when I was in college, we didn't have all the = fancy=20 support systems they have today. There is a sort of arms race between = colleges=20 they are all to one extent or other trapped in. Some support services = I'm very=20 glad we have today that I didn't have when I was in college, offices to = help=20 with tutoring, career counseling, personal health crises, etc, have = expanded,=20 and that's probably good. But do we need quite so many bells and = whistles in=20 some parts of technology? Probably not. If you want to resist this, = encourage=20 your kids to attend places which are a bit less 'sexy' on those add-ons, = but=20 which have faculty who care about teaching and have an open door policy, = even if=20 you don't have wireless at every late' serving cafe on campus (we don't, = and=20 this is an unfair hyperbole, but you get the idea..)

Meanwhile, if the federal government would spend just a few billion = less on=20 tax-breaks and subsidies for, say, big oil, and give that money to state = for=20 education, states might be able to hold down public tuition a bit = more...it's up=20 to parents and taxpayers to insist on making education a priority..we = rarely=20 do..even when the Glenn Comission report came out around 2000 and we had = a=20 budget Surplus, what did politicians do? Spent a bit to improve k-12 = (which=20 makes colleges better since we would have high school graduates who are = prepared=20 and know how to read and write..) nope, we let that opportunity=20 pass
www2.ed.gov/inits/Math/glenn/toolate-execsum.html

Posted By Prof D, Maryland : April 18, 2011 4:50 = pm=20

Have you ever reviewed the composition of the general and = administrative=20 expenses at universities? I'm currently a graduate student and after = working,=20 I'm shocked by the number of administrative assistants in academic = departments=20 and staff allocated to far flung non-core functions. Businesses have cut = down=20 these expenses, but has education really taken a hard look at operating=20 expenses?

Posted By Kim, Durham, NC : April 18, 2011 1:32 pm =

I'd draw a different conclusion. Colleges SHOULD BE RUN to ensure = costs are=20 kept in line. The idea that educational expenses (like medical expenses) = should=20 be allowed to grow without being tied to overall society's ability to = pay should=20 be considered "obsolete."

Posted By David Emery, Reston VA : April 18, 2011 = 11:48 am=20

Thank you both Joy and B! These are great points! Everyting I = learned, I=20 learned from life, not college. In fact, my experience is what helps me = get=20 through school. I have all my classmates asking me how to do their work! = Imagine=20 that!!

Posted By Sharon Ritchie, Yonkers, NY : April 18, = 2011 11:25=20 am

1. Look at the length of this article! Now that's substance! Well, we = at=20 least know the last time when Fortune published something more than 5 = terse=20 paragraph, 1957.

2. I'd love an article like this about today's landscape. Like, why I = can pay=20 $20k for a college education and make $50k out of school; but 6 years = later the=20 same public school costs $50k and their graduates make $26k out of=20 school.

Posted By B : April 18, 2011 9:12 am

Are you kidding me? The quality of eduction in the U.S. is horrible. = In=20 general, the system is so behind in science and math and all a degree is = is a=20 piece of paper. I'm not using anything I learned in school (Seriously, = when do=20 you use history in everyday life?) and I think it was a waste of money. = Colleges=20 had better give me a VERY good reason as to why they want to keep = increasing=20 tuition costs for providing less than par eduction. When stores increase = their=20 prices and lack excellent customer service, do you think people will = keep=20 visiting those stores? Heck no!

Posted By Joy, Houston, TX : April 18, 2011 8:46 = am=20

As a student who is almost finished obtaining her BBA Degree, the = College of=20 Westchester in White Plains, NY already utilizes space on weekends and = evenings.=20 They call it a hybrid. Every other weekend, you attend classes and on = the days=20 you don't attend, work is done online at home. As for colleges being = cheap, I=20 don't think so. This program at the college costs $35,000 for a two-year = degree,(I had already obtained my AOS Degree and the college has just = been=20 authorized to grant Bachelors Degrees) yet our graduates can't get good=20 jobs.

Posted By Sharon Ritchie, Yonkers, NY : April 18, = 2011 8:27=20 am

CNNMoney.com Comment Policy: CNNMoney.com = encourages you=20 to add a comment to this discussion. You may not post any unlawful, = threatening,=20 libelous, defamatory, obscene, pornographic or other material that would = violate=20 the law. Please note that CNNMoney.com may edit comments for clarity or = to keep=20 out questionable or off-topic material. All comments should be relevant = to the=20 post and remain respectful of other authors and commenters. By = submitting your=20 comment, you hereby give CNNMoney.com the right, but not the obligation, = to=20 post, air, edit, exhibit, telecast, cablecast, webcast, re-use, publish, = reproduce, use, license, print, distribute or otherwise use your = comment(s) and=20 accompanying personal identifying information via all forms of media now = known=20 or hereafter devised, worldwide, in perpetuity. CNNMoney.com Privacy=20 Statement.

Colleges are too cheap

Please create a screen name to access this feature.

Forgot password

Password selection

Log in & let's get started!

Sign up or log=20 in

We're Sorry!