SUNDAY, NOVEMBER 26, 1995
An economist, the author is a former member (1991-92) of the Michigan House of Representatives.
Then a dean at Michigan Technological University, I argued that Michigan universities and their boards should expose the fraudulence of MET and its threat to the future quality of state-related universities. Unfortunately, ever eager to kow-tow to their political masters, despite the consequences for those future generations of students whose educational welfare had been entrusted to them, the higher education establishment issued ringing endorsements of MET and, not coincidentally, of Blanchard and Bowman.
Fortunately, less than two years after MET was launched, and despite the higher education apparatus support for Blanchard, John Engler was elected governor, and he immediately suspended the sale of MET contracts. However, focusing on questions concerning the prospective financial viability of MET, Engler and his state treasurer, Douglas Roberts, failed to reveal the more sinister potentialities inherent in the program. Thus, the stage was set for the Engler Administrations disinterring of MET in 1995.
In fact, MET is a Trojan Horse, concealing within itself prospects for political manipulations of public higher education in Michigan which will seriously compromise the educational opportunities of future generations of Michigan students. When Engler, in the interest of students, should be moving in the direction of privatizing higher education in the state, he has instead resuscitated a device which will ultimately eventuate in even greater and more pernicious state control.
MET achieves these reductions in parental risk by entering into a contract, at a fixed price dependent only on the age of the child beneficiary, under which it guarantees to pay the then-prevailing tuition at any public university in Michigan in which the child enrolls after graduation from high school. Because MET is supposed to be unsubsidized by the state, the price of a MET contract is determined by (a) the rate of return expected to be realized on MET investments and (b) the anticipated average future tuition obligations of MET participants. Thus, the price will be lower the higher the expected rate of return and the lower the expected average future tuition obligation.
Because parents enter into MET contracts well before the child is ready for entry into college, this chaining effect may have quite serious consequences, distorting the childs schooling decisions. A student eventually revealed to have extraordinary talents warranting attendance at a specialized institution outside of Michigan (MIT, Julliard, ...) will face the dilemma of waiving MET benefits if he chooses to fully exploit those talents or of securing those MET benefits at the expense of foregoing that schooling most appropriate to his now-revealed talents. Unfortunately, this dilemma will not become apparent until well after the contract is purchased.
The effect of a MET contract on eligibility for other financial aid may also be adverse. At the least, MET would enter into asset tests for means-tested financial aid. More likely, under prevailing financial-need formulae, MET tuition payments would be deducted from the total cost of attending school in computing net costs for purposes of determining financial need. Thus, lower-income families will rationally decide not to participate in MET if they anticipate a continuation of current need-based aid systems (federal, state and institutional), the benefits of which would be reduced by participation in MET. This consideration will virtually dictate low participation rates in low-income urban areas by comparison to higher-income suburbs.
Contract beneficiaries may also be significantly disadvantaged by comparison to other students, and all students, contract beneficiaries and others, may be disadvantaged by institutional and State responses to the existence of MET.
To some degree, errors in one dimension may offset errors in another. Thus, tuition rates may rise more rapidly in a highly inflationary period, but high inflation would also be expected to be reflected in higher-than-anticipated rates of return to MET investments. However, there is no reason to believe that these errors will necessarily cancel.
One dimension of error which will not have a canceling counter-error involves the distribution of participants over institutional tuition charges, and for two reasons systematic error in the forecast distribution can be anticipated. First, those expecting to attend higher-tuition Michigan public institutions will have a greater incentive to participate: Their purchase price will be determined by METs expectation of average tuition, but their expected benefit will be determined by the higher tuition of the institution which they anticipate their child will attend. Second, as a beneficiary of a MET contract which guarantees payment of tuition at any Michigan public institution, a student who, in the absence of MET participation, would have chosen to attend a lower-cost Michigan university, will, with the MET contract, elect a higher-tuition school, simply because the student will no longer pay any part of the higher tuition charge. Thus, MET participants can be expected to attend institutions charging higher-than-average tuition, and any expectation of this in the determination of the MET contract price will only further discourage participation by students expecting to attend lower-tuition universities.
Political influence can be expected to exert a significant downward pressure on MET contract prices, as revealed by legislative responses to the prices announced with the 1995 reopening of MET. Conjoined with the risk of errors in the forecast of tuition increases and rates of return and especially in the tuition distribution of contract holders, MET losses will not be unlikely. MET will find it impossible to recoup prior losses from higher prices on future contracts, simply because this will insure future nonparticipation. As a result, MET will either default on its obligations, state subsidies will be required, or other actions to avoid losses will be required. Because a MET default will be politically unacceptable, avoidance of state subsidies will necessitate other interventions into the higher education process to reduce losses.
Thus, MET may well be a Trojan horse, hiding within itself the establishment of political/bureaucratic control over tuition and admissions. The only object of these controls will be to reduce or eliminate MET losses by holding down tuition and shifting enrollment to lower-tuition institutions. But, the consequences of the resultant rationing will be broader and more fundamental, as students find their educational opportunities restricted in the interest of minimizing MET outlays and as institutions are prevented from providing educational services for which students (in the absence of MET) would be willing to pay.
While universities have abused their constitutional autonomy, often converting it into constitutional impunity (as, e.g., in the case of the shielded financial illegalities of Michigan Technological Universitys Ventures Group), that constitutional autonomy is essential to the quality and vitality of Michigans public universities. As a result of MET, serious erosion of that quality and vitality can be anticipated. Students, the intended beneficiaries of MET, may well become its most serious victims.
While lower-income urban students may be relatively underrepresented in MET, they will pay the same price as MET participants of any erosion of quality and choice in Michigan public higher education.
Stephen P. Dresch, elected to the Michigan House of Representatives in 1990, was an unsuccessful 1992 Congressional primary candidate. A Ph.D. economist (Yale), he is former dean of Michigan Technological University's School of Business and Engineering Administration, research scholar at the International Institute for Applied Systems Analysis (Austria), chairman of the Institute for Demographic and Economic Studies, director of Yale University's program of Research in the Economics of Higher Education, and research associate of the National Bureau of Economic Research.