Perverse Incentives Handed Higher Ed to AI

Artificial intelligence did not wreck our colleges and universities. Leadership in higher education did. AI simply revealed the perverse incentives underpinning America’s system. Where the three actors of academia—administrators, faculty, and students—should strive in harmony toward Truth, our universities abandoned that pursuit long ago and reoriented themselves toward a new end: the appearance of learning.

American colleges depend on tuition, and administrators must keep the money flowing in. Student-derived revenue provides roughly 75% of operating budgets for the median private college, and roughly 50% for the median public college. Approximately 13 million students each year pay their tuition with federal dollars received through Title IV of the Higher Education Act of 1965, which governs student financial aid programs. Although students can only use this funding at accredited schools, the accreditation process is flawed, as many state and private accreditation organizations overemphasize outcome metrics like retention and graduation rates.

But maximizing for these metrics has unintended consequences. Most significantly, it incentivizes university administrations to churn out as many graduates as possible rather than focusing on rigor, which weakens academic standards. With these incentives in place, every student expelled for cheating constitutes lost revenue and a hit to the university’s rankings, not to mention the administrative cost, potential lawsuits, and public scandal that every institution wants to avoid.

The faculty have their own misaligned incentives. About 68% of instructional positions are now contingent, meaning that the majority of faculty depend on non-tenure, short-term contracts that are increasingly subject to the tyranny of student evaluations. If instructors are unpopular with their students, it is reflected in end-of-semester surveys that department chairs review before offering contract extensions. Thus, most instructors are strongly incentivized to appease their students to score well on course evaluations and keep their jobs.