The Future of Public Higher Education?

I’m returning from the AACSB conference in San Diego and had the opportunity to attend several interesting sessions.  One, in particular, stood out and echoed some of the “What Keeps Us Awake At Night” post from last week (and much of what we’ve been discussing in the Strategy and Competition in Higher Education class this semester). 

The session, run by Andrew Policano, Gary Fethke and Susan Hart (from UC Irvine, University of Iowa, and University of Strathclyde, respectively), was nominally about public universities and the new funding paradigm, but since the majority of US students are educated in public colleges and universities, this has implications for all of us as institutional members, parents and citizens. 

The presentation covered a lot of ground, and I’m going to focus this post on four of their main themes:

Global forces in higher education:  Strong population growth and surging demand for higher education from emerging economies, financial crises in developed economies, a new generation of different learners and digital transformation – all of these are combining to put significant stress on higher education systems.  Particularly relevant for US public institutions is the rapid decline in public subsidies for higher education, which leads us to the next theme.

Who should pay and how much?:  One long-standing argument for why society should pay is that the social returns of higher education to society exceed private returns to the individual; thus, without a subsidy, too few students would go to college. Given that, over time, the subsidy has been falling and students have been paying an increasing share of their education costs (see graph below), one can conclude either that society perceives the private return has been rising relative to the social return or that the return to other uses of scarce funds is greater than that of higher education.  However, students can get financial aid, which leads us to the next theme.

How should tuition be set?:  With state funding waning, public institutions have been moving from a low tuition/high subsidy model of education to a high tuition/high financial aid model.  So now many public institutions are admitting more “full pay” students – those from other states and international students.  The speakers argued for setting tuition closer to the actual cost of educating a student, decreasing or eliminating the out-of-state tuition differential, charging higher tuitions for international students and for high-demand majors, and offering a subsidy to low-income students. 

Impediments to change:  There are many impediments, one of the most difficult being the culture of cross-subsidization, where high-demand, high-income programs and departments offset shortfalls in lower-demand, lower-income programs and departments.  According to the presenters, this type of culture preserves all programs, regardless of demand.  It also creates a sense of entitlement, and equal treatment across programs (rather than a merit-based culture), and ultimately leads to complacency and excessive time spent lobbying for additional funding.  So the culture needs to change.  And, as anyone that has tried to make significant change in an organization knows, changing culture is notoriously difficult and is a very long-term process, at best. 

So, what’s a school to do?  Their response (summary slide below) was music to my ears – all about strategy.  Defining what a school will (and won’t) do based on strengths and demand, defining and measuring value, positioning and communication, building a transparent culture, aligning incentives, and addressing organizational structure.  Perhaps not a complex set of recommendations, but certainly very difficult to implement.

Policano and Fethke have a new book, Public No More, which goes into further detail on all of the above, so I promptly ordered it after the session.  Have you read it?