The Customer Is Always Right?

Faculty members and pundits regularly criticize colleges for investing scarce resources in facilities or athletics rather than making academic spending the priority. Think about all of those articles about campus spending on climbing walls, or the latest trend in luxury dormitories (nap pods are in).

What if such spending choices are logical, at least if one accepts that the (student) customer is always right?

Research released Monday by the National Bureau of Economic Research (abstract available here) suggests that four-year colleges that want to attract the vast majority of potential students (those who can't aspire to enroll in highly competitive institutions) may be making wise investments by spending on "consumption" preferences, even if that essentially defines higher education as (in the paper's title) "college as country club."

The study is based on analysis of college spending patterns and the choices and stated preferences of students who graduated from high school in the classes of 1992 and 2004.

All students appear to value spending on "amenities," which were classified to include student services and activities, athletics and facilities; and to make enrollment decisions in part based on such spending. (While much public discussion of spending on these areas focuses on items some might view as discretionary, this category also includes admissions, student health and all of residence life -- not just seemingly over-the-top facilities.) So in analyzing student preferences, all other factors equal, it is clear that colleges will attract more applicants (and students) by spending more on these categories of the budget.

Spending on academics is calculated in the study to mean instruction and academic support -- including all costs associated with courses, libraries, museums and other facilities that relate directly to the educational mission. It turns out that only those students who are able to consider and enroll at highly competitive institutions value academic spending enough that it would influence their decisions. So, the authors conclude, the vast majority of four-year colleges and universities will not see increased applications by investing in academics.

"One important implication of our analysis is that for many institutions, demand-side market pressure may not compel investment in academic quality, but rather in consumption amenities," write the authors, three University of Michigan scholars. They are Brian A. Jacob, the Walter H. Annenberg Professor of Education Policy; Brian P. McCall, professor of education, economics and public policy; and Kevin M. Stange, assistant professor of public policy.

"This is an important finding given that quality assurance is primarily provided by demand-side pressure: the fear of losing students is believed to compel colleges to provide high levels of academic quality. Our findings call this accountability mechanism into question. However, our findings do not speak to the normative issue of whether consumption amenities are good or bad for students and taxpayers."

Jane V. Wellman, executive director of the National Association of System Heads, and the founder of the Delta Project on Postsecondary Costs, Productivity and Accountability, said via e-mail that she wasn't surprised by the findings, and that they backed up major concerns she and others have had about spending priorities. (Wellman is known for her work focusing not just on colleges' prices, but on how they spend their money.)

"It's the second-tier institutions that throw money at the consumer side of things, hoping to hang onto students and to move up in rankings," she said. "They can't compete head to head with the big dogs, and have found that students with money are willing to spend it on things that have immediate and tangible benefit."

At the same time, Wellman said that it was important not to judge all of higher education by these findings. She said that at community colleges (excluded from the study) and regional public institutions (only a subset of the study), "I don't think there's similar evidence of 'amenities' arms races," she said.