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According to Department of Education data, 64 percent of students who began seeking a bachelor’s degree at a four-year institution in the fall of 2014 completed that degree at the same institution within six years. Still, rates vary greatly by institution: At Princeton, 98 percent of students graduate in six years; an hour or so up the road, at Bloomfield College, in New Jersey, that rate is just 33 percent. (Bloomfield is in the process of merging with Montclair State University.) To understand these trends, we analyzed three national data sources, and a clear trend emerged: College completion is trending upward.
What led to this trend? Our research was able to rule out several potential explanations. The trend was not explained by students changing enrollment patterns by attending colleges with higher graduation rates. It was not due to students performing better on standardized tests prior to starting college. Changes in student-to-faculty ratios and instructional expenditures also failed to explain the graduation-rate improvement, we found. At the same time, students were working more for wages while enrolled and were spending less time studying, which seemed unlikely to boost graduation rates. This left us with a puzzle. What else could explain the dramatic increase in graduation?
It boiled down, we found, to an increase in GPAs — yes, grade inflation. First-year GPAs increased from 2.44 to 2.65 for college students who graduated high school in 1992 compared to 2004. And the rise in GPAs was significant enough to account for the increase in graduation rates. But why are GPAs increasing in the first place?
We amassed a variety of evidence to study these questions. Our clearest test came from a college, which, for research purposes, we were allowed to call “Public Liberal-Arts College.” At this college, final exams in certain courses are sometimes exactly the same in different years. We compared students who took the same class, got the same score on the exact same test, and asked if their grades would have been higher if they had taken the class in a later year. Amazingly, the answer was yes. Students with the same demonstrated proficiency got higher GPAs as time went on. This, along with other evidence, drove our conclusion: Grade inflation is causing an increase in GPAs — and that, in turn, drives the increase in graduation rates.
Grade inflation likely increases graduation rates through two channels. The first is that higher grades mean that students are less likely to be dismissed from the university for bad academic performance. Students also have to retake courses less often. The second channel is that higher grades change student behavior in ways that increase graduation. For example, students might respond to higher grades with less anxiety over grades, or a stronger belief that they are capable of college-level work. Either way, grade inflation will (and has) increased college-completion rates.
It is easy to see how a focus on graduation could affect grade inflation. Imagine that a college wants to increase its graduation rate. An institution under such pressure has several options at hand. It could maintain grading standards and help students via tutoring or other student-success programs. It could change who is admitted (if it is a selective school). These are costly changes to make, and any particular program may not work.
Alternatively, the college could relax its grading standards and suggest or accept that what used to be D-level work is now worth a C. Relaxing grading standards has the advantage of providing no direct cost to the university, the professor, or the student.
In our experience, students would generally welcome higher grades for less effort. So, who is the constituency for tough standards? It may be that top students would want tougher standards as a way to distinguish themselves. It may be that employers would want tougher standards for a similarly desired differentiation. You can even imagine alumni looking back and wishing they had stronger incentives to learn more. Still, the constituency for tougher grading is not potent, and the benefits of tougher standards tend to be delayed, accruing to the student after they leave college.
Is grade inflation good or bad? As economists, our answer is predictable: It depends. In a grade-inflated system, some students will graduate who otherwise would not. But on the other hand, some students will fail to learn job-relevant information and skills that they otherwise would have. In the extreme — where no effort is required to pass a class — it is easy to imagine many students not learning at all.
There are valid perspectives on both sides of the grade-inflation debate. The grading standards that were used in the 1990s may very well not be ideal. But, as our research suggests, grade inflation is too important to be ignored. Administrators, professors, and students must discuss grading and, ideally, come to a shared understanding of what the right level of difficulty is.
In our view, the ideal grading standard would balance the learning-incentive effects of lower grades with the graduation-increasing effects of higher grades. This is a tough balance to strike, and it is especially challenging if no one on campus is discussing the issue.
The solution will require a concerted choice by administrators. And here, the data show some curious trends. Higher-earning majors in engineering, science, business, and economics have not inflated grades as much, and some research suggests this is because the faculty can hold high standards because students want to earn high labor-market returns.
Discussions about proper grading standards will be contentious. Different stakeholders will bring different perspectives to the table. However, making sure the student reward and incentive structure is fair and encourages learning is crucial for every campus. Grading standards are currently haphazard and decentralized. A serious discussion of what colleges want to accomplish with their grades could change that.