9 Oct 2014

In Dutch higher education, the regulator is king

Menno S writes:*

Another day, another alarming report about the erosion of Dutch higher education. The Dutch system graduated about 200.000 students last year from three different systems of vocational or academic training, and all three systems are plagued by complaints about the quality of education.

In my view, these problems are the result of dysfunctional incentives set by the Dutch government, as the provider of the funding for higher education. The government has three goals - quantity, cost and quality - which are in tension with each other. Quality systematically loses out. I think this is due to the incentives created by the government. Investing in students is just not profitable in Dutch higher education, but attracting more students and teaching them cheaply is.

The government aims to raise the number of Dutch students that finish higher vocational training or a university programme to 40% of the working population. This would make the Dutch one of the best educated nations in the world. Thus, institutions are paid per credit (ECTS) a student earns. The only way an institution can earn more is to scale up. And universities have. The number of university students increased from 160.000 in 2000 to 245.000 in 2011.

As the number of students increases, the government must foot the ever larger bill. It aims to keep costs per student low. Budgets for education divided by the number of students have dwindled. While the number of students has skyrocketed, the number of faculty at universities has stayed the same. The list of cost-cutting measures is long. Many programmes have started to enforce a ‘minimum number of credits per semester’, so students who don’t perform can be removed from the college. Universities don’t get paid for teaching a course when a student fails the course. Institutions are penalised when students take longer than three years to obtain 180 credits. Therefore, universities have an incentive to ‘push’ students through the educational funnel by lowering standards.

The government also aims to improve the quality of education. All degree programmes are audited and must pass to receive funding. This system encourages minimal effort (any performance beyond ‘pass’ is not rewarded), but it's also hard to get right. Educating a student is a complex enterprise, and there are few objective criteria for what constitutes a ‘good education’. For the purposes of regulation, ‘quality’ is reduced to a number of criteria which are achieved on paper. The audits are mostly about paperwork: test scores, a clearly structured curriculum, meeting government standards for diploma types and having administration in order. The classroom experience of students is not part of the audit. Educators don’t see auditors in their classroom, and as a result, they report that they don’t ever see upper management in their classroom. Why would those managers come to class? To earn funding for their institution, the classroom experience is basically irrelevant.

To improve the system, the government has to upgrade its quality controls, or give students themselves a more meaningful role in allocating resources. Given the problems with quantifying quality, I support the latter. Give students generous public loan programs to them let them choose between different programs at different prices. In the end, students will always have a greater stake in and be better informed about their education than any regulator.

Bottom Line: While students numbers and expenditures are easy to track and difficult to fudge, quality in education is not captured easily. Dutch higher educational institutions have scaled up, while ‘gaming’ the quality ratings to pass.

* Please comment on these posts from my microeconomics students, to help them with unclear analysis, other perspectives, data sources, etc.