College costs/prices

The Disruption Is Here

A recent essay here by Robert Archibald and David Feldman challenged the idea of a "higher education bubble." They argued that a degree, even an expensive degree, is still worth it. They correctly pointed out that a degree is not an asset that responds to supply and demand like other markets. Their point that "on average most of us are average, and the data show that college is a very good investment for the average person," is true enough. But their real message was: there’s no need to panic, the status quo is still working. I disagree.

Said essay is part of a broader continuing discussion, this round set off by Peter Thiel's statements surrounding his 20 Under 20 Program encouraging students to "stop out" of college – with the idea that they are more likely to achieve entrepreneurial breakthroughs on their own than with more formal education.

Thiel is a managing partner at one of the venture investors, Founders Fund, in my company, Inigral. Ironically, Inigral serves educational institutions with our Schools App, and most of our clients are traditional colleges and universities. (Schools App is a community platform inside Facebook and on mobile devices that helps to welcome the incoming class during the admissions, orientation, and first-year experience, making sure students find their “fit” and get off on the right foot.) So my company helps keep students in college while Thiel is going around talking about the potential value of "stopping out."

Given this irony, people often ask me what I think about Thiel’s comments suggesting that higher education is in a bubble. Here's what I think: He is mostly right, but the future prospects for education are more optimistic than Thiel suggests for two primary reasons: 1) Though it looks like an economic bubble, it's unlikely that there will be a precise moment in which the market crashes. Instead, there will be a slow market shift towards amorphous market entrants that can deliver relevant, quality education conveniently and affordably. 2) There's a path forward if folks in higher education understand the processes of both disruption and change management.

Thiel's critique of higher education isn’t that degrees have no value. It’s about whether the industry is ripe for disruption, which I have defined in the context of education here. Thiel correctly observes that higher education is a market with unsustainable price increases based on irrational confidence. It’s true. Tuition has grown at rates that astound and outrage since the early '90s, and these prices seem unable to turn course. Our system incentivizes institutions to pursue selectivity, gargantuan research, and increased spending per student (small class sizes, student services, physical plant).

As of yet, there's no market mechanism to reward high levels of student success for the least possible cost. This is irrational. Thiel’s critique is based on an unstated assumption: market forces are starting to unleash on institutions that have not had to learn to thrive in a post-Internet, mobile device-oriented, and competitive marketplace. Indeed, few are currently asking themselves the important questions and embarking upon the dramatic transformations that will allow them to thrive.

This bubble is not going to suddenly crash; degrees are not normal assets that can be bought and sold on the open market. Even more importantly, the irrational confidence in education is founded on some fundamental truths: education produces opportunities for individuals, an educated population can both compete globally and provide a great foundation for democracy, and I would add that an education is an end in itself -- a transformative process that provides a near-priceless value. To boot, almost all of our nation's postsecondary institutions are filled with smart people who can not only survive, but also thrive if given the right road map, tools and opportunity.

Higher education should be transforming as quickly as it can. Whether or not there's a "bubble" that will be dramatically "popped" does not change the bold reality of an oncoming future, what I propose to call the Great Disruption.

Here's a suggested survival guide:

First, regard any continuing education programs, night school, certifications, or alternative models of education as start-ups within your organization. If you don't have one already, start a fully online program. Allow these groups to act as independent entities that can explore different models of how to educate and serve students. Hire the best, smartest, and most courageous people to run them. Allow them to innovate, and have your main operation learn from their innovation actively. Do not assume that their models cannot inform your traditions, because the speed at which traditional institutions learn to adopt these new models will determine how healthy they can stay when the full market forces of disruption start to occur.

Second, embrace "blended learning" and competency-based assessment. Move away from seat-time-based models in an attempt to bring rapid cost efficiency, especially to our more generic courses. We're already trying to teach our "Econ 101" courses to 500 students at a time. Why not go at them with even more scalable models to the point where one course can serve nearly unlimited numbers of students? It’s already possible through lecture capture, video content, blended learning, different technology supported models of coursework, participation, grading, and assessment. What needs to exist but doesn’t yet will come rapidly once the market starts to demand it.

Third, actively seek vendors as partners that can provide technology to "scale" any of your existing processes out of the classroom -- marketing and communication, financial aid, student services, community building, and student success. Over the past 30 years or so, technology has been used within the existing educational model and within the operating framework of our institutions. Institutions need to look at technology differently -- they need to see it as an opportunity to transform what they do and help them adapt.

The reality is that in higher education, there is a lot of spending focused on improving student success, but not all the efforts scale and their outcomes are often difficult to measure. Too often, success is measured anecdotally because there's no scalable way to gather real-time information, but this changes with schoolwide software. A small handful of schools, in particular Purdue University, seem capable of building this technology internally, with projects such as Mixable and Hotseat. But most colleges and universities will find that they are not very good software developers. Even if they can build something they will have trouble building upon it and maintaining it. So colleges should seek this kind of software from others.

Fourth, actively seek to take advantage of the Internet as services arise that are of interest to your students, your faculty and staff, and more importantly -- your market. Put lectures on iTunes U and Youtube, get your professors on Academia.edu and Notehall. Send your students to StudentMentor and StudentAdvisor. See what happens. Something will pop up that will remarkably improve or change what you do. One thing is for sure: we're quickly going to move to a model where "all-star" faculty members who have amazing reputations as both thinkers and teachers will probably be your best foot forward on the Internet.

Fifth, just adopt good management practices from business. Decide who you are and what you are good at, and start cutting the rest. Hold people accountable. Who is responsible for persistence and completion? Give people incentives. Who gets a bonus if the persistence and completion rates go up? Constantly improve institutional efficiency and effectiveness: who’s responsible for identifying opportunities to improve and taking the necessary steps?

On a personal note, my biggest fear is that our institutions in higher education are not structurally capable of making efficient and courageous decisions that will allow them to innovate and thrive through the coming Great Disruption. As a result, probably the biggest element of focus needs to be on change management and reorganization that will provide true accountability for student success, as well as create incentive systems that reward risk taking in pursuit of excellence and efficiency. Having said that, the worst thing to do would be to spend all your focus as an administrator going through a painful and time-consuming reorganization that delays pursuing the five tips listed above.

The cost-cutting race is on. And the Great Disruption is just beginning.

Author/s: 
Michael Staton
Author's email: 
info@insidehighered.com

Michael Staton is CEO of Inigral.

Dealing With Fine Print

Smart Title: 

Auxiliary service agreements tying vendor spending on facilities to contract renewals raise conflict-of-interest questions -- and may be quite common.

The Real Rising Cost of English Universities

Smart Title: 

Tuition will exceed government's estimates, leading to more questions about direction of higher education.

Luxury, Subsidy and Opportunity: Purchasing a Quality Education

Many parents ask about the differential benefit their children might get by attending an expensive private college or university. Prestigious private institutions have elaborate facilities, luxurious appointments, constant attention to student needs and desires, and small classes. They also carry high sticker prices.

Other private colleges struggle to stay afloat financially, unable to charge enough in tuition and fees and too poor in endowment to subsidize the kind of elite-style education often associated with the words "private college." Public universities also vary dramatically in what they charge, what students actually pay, and what amenities and services they provide. 

Consumers, the parents and students, struggle with the data, which are never clear, and seek to find the best possible match between a student’s abilities, temperament and style and an institution's capabilities and charges. Any reasonable judgment becomes difficult because we have no reliable method for determining the value of the educational product generated by either public or private, large or small, rich or poor institutions. 

Parents and students in the marketplace for higher education seek a prestige, luxury education for a bargain price, and work to identify subsidies that will offset the real cost of a luxury education. These subsidies come in many different forms, and while much attention focuses on merit scholarships and need-based financial aid, institutions manipulate their prices and costs in other ways that disguise the full subsidy involved.  

Private institutions, whose discount rates among the most prestigious institutions reach an average of perhaps 40 percent, but fall to much lower rates among less wealthy colleges, subsidize educational costs through payments from the earnings on their endowments.  As a result, the price a student pays at a wealthy private institution, even at the sticker price, is less to much less than the actual cost of instruction.  

Public universities also subsidize the cost of higher education. Their legislatures will subsidize tuition, providing a low rate for in-state and a high rate for out-of-state students, clearly reflecting the subsidy.
Big public universities have other subsidies as well, some of which they share with their private elite counterparts. Their research enterprise supports faculty, graduate programs and facilities available to undergraduates who choose to take advantage of them. Their endowments bring better faculty and better facilities than the revenue generated from students and state could afford, and the size of the big publics and the larger private institutions allows them to cross-subsidize a wide range of niche academic specialties that smaller institutions cannot support.

Prestige public and private institutions also subsidize non-academic enterprises such as major sports programs and a wide range of cultural enterprises from theaters to rock concerts to art galleries.

What about quality? Quality in higher education at the undergraduate level is an elusive measurement.  Some measure undergraduate quality by focusing on variables that measure how much is spent per student, how many students are in a class room, how high the quality of the participating student are, or similar items that speak to the nature of the process that moves the student through the system rather than to a direct measure of the value of the education delivered. The evidence to support this relies more on faith than any science.

What we do know is that like all luxury goods, small classes in elegant surroundings are surely more comfortable, more graceful, more convenient and more personalized. Like a luxury Mercedes, the expensive education, whether purchased from an elite private or out-of-state at elite public institution, may be more costly, more comfortable, more elegant, and more prestigious than an educational Chevrolet, but the luxury features contribute little to the effectiveness of moving passengers to the supermarket. 

Many studies have attempted to identify a major difference in the outcomes from attending expensive private institutions or attending high quality public universities in-state at half the price. Few of these find any significant difference in the outcomes, and in most cases the differences that do exist usually appear to reflect the differences in the wealth and opportunity provided by the students’ family circumstances before they enter college rather than any particular enhancement that comes from the luxury process of education.

Universities and colleges have no magical power. The value of the education acquired at most middle to upper ranked schools (by any criteria) is mostly dependent on the commitment and focus of the student rather than on the miraculous power or luxury characteristics of the institutional process. Moreover, most colleges and universities sell a commodity product, an education that at its core is fundamentally similar between institutions. The amenities may differ -- luxury dorms, elaborate student centers, complex and fully equipped recreational facilities -- but the chemistry and English classes are pretty much the same.

Luxury is a good thing if you want it and can afford it. If someone will deliver a Mercedes for the price of a Geo, why not ride for the four years in style? Nonetheless, if you find yourself in a Geo, you will get to the supermarket at almost exactly the same time as your friends in the Mercedes. What you do when you get out of the car, however, depends almost entirely on you, not on the luxury of your ride.

Author/s: 
John V. Lombardi
Author's email: 
lombardi@umass.edu

Predictability and Its Costs

The chancellor of the State University of New York proposed Thursday that the state adopt a new tuition policy: Each year, tuition would go up for freshmen by the rate of the Higher Education Price Index (an inflation measure for colleges), and then be frozen for those students for four years.

The proposal, modeled on a 2003 Illinois law, is likely to be popular politically. Students and parents hate the unpredictability of tuition increases. In New York, as in many other states, tuition may remain relatively level for a few years, followed by years of double-digit increases. Pure luck can determine whether a family gets by with relatively flat rates or massive bills.

SUNY's chancellor, Robert L. King, says his plan would "protect" students and their families from such increases. But a look at the history of state tuition policies  suggests that the protection may not be all it appears.

States regularly adopt tuition policies, limiting the rate of increase or even freezing tuition, and lift those policies during the same kinds of financial crises that prompt states to adopt double-digit tuition increases. If King's policy wins approval, it could easily be undone the next time the state faces a deficit and the governor doesn't want to raise taxes (a not infrequent event).

More broadly, the Illinois plan prompted some concern in that state that colleges would seek to set their rates artificially high, so they could cover unanticipated expenses during the four years that a given class would be assured the same rate. Colleges have many set expenses: Professors must be paid, libraries stocked, buildings heated and maintained, etc. In theory, King's plan would also require the state to keep up support for the university system. But if that doesn't happen, does the university system cut back or renege on its pledge to students?

And there's one other question, too: Tuition predictability is great for families with decent levels of income and savings. But does a plan like this really do anything for those for whom the only thing predictable about tuition is that they can't afford it?

It will be interesting to see how this plays out in New York. Judging from
this report,  the debate will be fun to watch.

Author/s: 
Scott Jaschik
Author's email: 
scott.jaschik@insidehighered.com

Long Tails in Higher Education

What do Chemistry 101 or Introduction to European History have in common with Harry Potter and the Half-Blood Prince or the latest singles from Green Day or 50 Cent?

They're all bestsellers in their domains. Education experts often wonder whether bestseller status among college courses might provide lessons about educational markets and planning, just as popularity shapes entertainment and cultural products. Such speculation has grown with the advent of online education. Some argue that by making the most popular courses virtual, colleges can slash costs, helping to pay for low enrollment courses.

The alternative has been to raise revenues for low-enrollment courses by adding enrollment. This "add seats" approach has become more attractive in the new world of online education. Which alternative makes more sense for colleges considering online versions of some courses?

Cost-cutting advocates suggest that great efficiencies may result from delivering online a small set of popular undergraduate courses. Courses such as Chemistry 101 or Introduction to European History would have large enrollments and "basic" curricula. These popular courses illustrate the "80-20 rule" -- 20 percent of a resource typically generates 80 percent of the possible benefits. Popular courses may not even constitute 20 percent of the catalogue's contents, yet they often represent 80 percent of enrollments. If that 80 percent can be served through automated, virtual means, that should release tremendous savings, offsetting the cost of courses that don't lend themselves as easily or cheaply to virtual delivery.

Sales data on books and music tracks cast marketing and planning issues in a new light. Chris Anderson, editor of Wired magazine, describes a new phenomenon first noticed in Web-based retailing of pop culture products such as books and songs: Very low-volume sales -- typically associated with backlist items -- can add up over time to stupendously large total sales. Anderson calls these large totals the "Long Tail." In Internet marketing and flexible warehousing, Anderson says, the Long Tail results in aggregate possible sales that can rival or surpass the total sales of popular items. The more books or songs available for purchase, the bigger the market opportunity.

A conventional marketer might carve out space for known or likely bestsellers and concentrate on selling those units -- the 80-20 rule. Selling the 80 percent of products that appeal to the slimmest markets simply costs too much. But the virtual marketplace makes it possible to reduce overhead drastically. For the low marginal cost of adding non-bestsellers, a business can make major gains from trickle-like sales of an enormous, traditionally neglected body of products. Call it massive multiple-niche marketing.

In higher education, the Long Tail view suggests that an 80-20 rule overplays the importance and benefits of moving online the 20 percent of classes that draw the highest volume. If we can find effective, high quality ways to make bestseller courses virtual, there are good reasons to do so. But there is also a broad and deep market for all those smaller classes-not in the individual instances but in the aggregate. We know this because so many of those courses are offered by colleges and universities, and so many such classrooms are reasonably well populated. Surprisingly, the Long Tail perspective suggests that, with Web-based delivery, potential exists for great expansion in specialized subject areas, as long as the costs of instruction (course delivery) resemble or improve on current rates.

An important distinction separates Long Tails in pop culture from those in higher education. It's possible to cut delivery costs for "niche appeal" units in entertainment but not education. Technology has an equal effect on pricing for all entertainment products regardless of bestseller status; the same is not so of educational offerings, which are inherently more specialized and expensive. This cost imbalance occurs since we are less likely to move high-end, low-demand educational offerings to an automated or virtual delivery mode-precisely because they are higher-end, requiring more intensive instruction.

Even if we did recreate them for virtual delivery, it would be at great cost. This suggests that a potential for profitable Long Tails may be unlikely in highly specialized university-level courses. But if current trends are any indication, this difference could have a limited lifespan. Three factors could create a Long Tail for course offerings:

  • Growing demand for higher education beyond undergraduate and professional education. This factor is seen in the great success of continuing education programs, reflecting demand for degree and non-degree programs alike.
  • Continued and diverse attempts to improve the quality and delivery of higher education online, by traditional, non-traditional, and commercial institutions.

Even if these factors intensify, many challenges lie in the way of a Long Tail market. No one has set a standard for a salable unit of online education -- entire courses, elements of course materials, or something else altogether? Should those units even be sold per se? Some approaches to these issues include: Open access to self-contained courses (Carnegie Mellon's Open Learning Initiative ); open access to curricular materials organized by courses (MIT's OpenCourseWare); open access to curricular materials organized into course modules (Rice University's Connexions ); continuing education courses for sale (the AllLearn project of Yale, Stanford, and Oxford); and program courses for sale (the eCornell project).

What really distinguishes high and low enrollment courses? Does the distinction simply consist of enrollment size? Advocates of small-sized, traditional classes argue that a highly specialized course requires an intensively personal approach that even a maximally "high touch" online learning experience cannot provide.

Even if these challenges are met, it's far from clear that traditional colleges and universities would willingly help bring about a Long Tail online market in higher education. From educational and economic perspectives, the outcome would not necessarily be positive. In literature or music sales, rescuing the backlist means exposing new audiences to unknown or forgotten worlds. By contrast, online delivery of higher education's "backlist" might well hasten consolidation of the market. How many different courses on Beowulf or Mallarmé can attain even tiny market share? With a drastic focusing of such "sales," the market could consolidate around colleges offering the best specialized courses, spelling an unhappy fate for institutions unable to compete.

Still, the potential for a Long Tail lies dormant in courses that are not yet offered online but can be found at 2,400 U.S. institutions. Year after year, a wealth of such courses, in highly focused topics such as Tagalog, Random Matrix Theory, and African traditional religion, appear in scores of college catalogues. This indicates a clear and widespread interest among current students in courses on diverse, super-specialized, arcane subject matter. There is no telling what the potential is for additional audiences of adult and returning students.

The 80-20 rule, then, is not a fixed picture, if it holds at all. The backlist 80 percent of courses represent an enormous number of classroom seats in their current, traditional mode of course delivery-and possibly many more virtual seats, if the transition is ever successfully made to online delivery. We're not likely to capture 80 percent of classroom seats by putting online 20 percent of all courses (this was obvious anyway, given that most courses taken by undergraduates are not giant lecture courses). Efficiencies may be gained by concentrating on putting large enrollment courses online. But we must be sober about the extent of those efficiencies-and about what is left out when online offerings neglect the backlist.

Is it really possible to deliver highly specialized courses online at the same levels of quality as traditional formats? Perhaps -- competent online courses or materials abound for focused topics ranging from Akkadian to causal reasoning to the history of the Jazz Age. But in case it is too costly to build those assets, colleges should look at what they are getting from ostensibly low-cost online versions of popular courses-the vaunted 20 percent. Should they demand more than "satisfactory" and "efficient" as grades of quality in those online courses-and would meeting those greater demands cost more?

Although in principle an "add sales" approach based on a Long Tail may beat a "cut costs" approach, low enrollment courses are not being created for online delivery in great numbers -- a notable exception being at MIT, where course materials alone are being digitized. As long as costs and quality remain perceived barriers to digitizing highly specialized courses, a Long Tail scenario in higher education may be a ways off. But it's worth contemplating how such a scenario might arise, and what it might mean for distributors and students ("consumers") of university-level courses. A Long Tail in niche-interest courses could build revenue opportunities for colleges and universities, consolidate markets among institutions offering such courses, and transform how students choose among courses and programs.

Author/s: 
Saul Fisher
Author's email: 
info@insidehighered.com

Saul Fisher is director of fellowship programs at the American Council of Learned Societies. He is formerly a program officer at the Andrew W. Mellon Foundation, where he directed the Teaching and Technology Program.

Improving Learning and Cutting Costs

The continued rising cost of a college education threatens to put a high quality education out of reach for many Americans. It is incumbent upon America’s higher education system to figure out a way to resolve the seemingly intractable conflict between cost and quality. This is not news.

What is news is that there is now proof that colleges and universities can improve student learning while reducing instructional costs.

Thirty diverse institutions have been able to increase student success while simultaneously lowering the cost of doing so. How have they done it? Like most industries in the United States, these colleges and universities are taking advantage of the capabilities of information technology to improve quality and increase
productivity by letting go of an outdated, labor-intensive instructional model. They are proving, conclusively that, by redesigning the way in which we provide collegiate instruction, we can provide a better education at a lower cost. 

The name of this effort, which involved 55,000 students annually, is the Program in Course Redesign, led by the National Center for Academic Transformation. The center has been able to show how technology can be used to achieve quality enhancements and cost savings. In a recent review of the program presented to Lumina Foundation for Education, researchers showed improved student learning in 25 of the 30 projects, with the remaining 5 showing learning equivalent to traditional formats. All 30 institutions reduced their costs for the courses involved by 37 percent percent on average (ranging from 15 percent to 77 percent) and produced a collective annual savings of $3 million. Of the 24 that measured retention, 18 showed noticeable increases.

Additional analysis of the data shows that course redesign increases the achievement of all students, including traditionally underserved ones (students of color, low-income students and adults), thus dispelling the myth that technology and underserved students do not mix.

The redesign projects focus on large-enrollment, introductory courses, which have the potential of helping significant student numbers and generating substantial cost savings. Undergraduate enrollments in the United States are concentrated heavily in only a few academic areas. Just 25 courses generate about 50 percent of student enrollment at the community college level and about 35 percent of enrollment at the baccalaureate level. Successful completion of these courses is critical for student progress toward a degree. But typical failure rates in many of these courses -- 15 percent at research universities, 30 to 40 percent at comprehensive universities, and 50 to 60 percent at community colleges -- contribute heavily to drop-out rates between the first and second year.

In order to have a significant impact on large numbers of students, institutions should concentrate on redesigning the 25 courses in which most students are enrolled instead of putting a lot of energy into improving quality or cutting costs in disparate small-enrollment courses.

The redesign projects are moving students from a passive “note-taking” role to an emphasis on reading, exploring, and problem-solving.

Demonstrable gains in student learning have been produced through: continuous assessment and diagnostic feedback; increased collaboration among students; computer lab hours in which faculty and or/peer tutors provide one-on-one assistance; and online tutorials. These instructional techniques are hardly revolutionary. What has changed dramatically is our capacity to incorporate good pedagogical practice into courses with very large numbers of students -- a task that would have been impossible without technology.

At the same time, the instructional redesign is helping institutions save money.

At many community colleges, it takes students an average of about two-and-a-half times to pass introductory math courses. Enabling students to pass key courses in fewer attempts generates considerable savings in institutional resources and in student time and tuition.

The major cost item in instruction is personnel, so reducing the time that faculty members and other personnel invest in a course and transferring some of these tasks to technology-assisted activities are key strategies to freeing up resources to be used elsewhere.

Among the most effective cost reduction techniques are: on-line course management systems, automated assessment of homework, quizzes, and tests, online tutorials, shared resources for course development, utilizing undergraduate learning assistants instead of graduate students, and using the Web to reduce classroom space requirements.

For example, Rio Salado College redesigned four online pre-calculus mathematics courses taught previously by four instructors. By taking advantage of instructional software by Plato Learning and a non-academic course assistant who monitored student progress and addressed all non-math-related e-mails (an astounding 90 percent of all interactions), one instructor is now able to teach 100 students concurrently enrolled in any of the four courses and provide more individualized help. Three instructors have been freed up to increase enrollment in these courses or to offer additional upper division courses. Most important, student retention in those courses increased from 59 percent to 65 percent.

Perhaps the biggest stumbling block that prevents institutions from embarking on a redesign program is the immediate response that most academics have when they hear the words "reducing costs." And, as you might guess, that response is rarely positive. Most academics (and most people in general) associate "loss of jobs" or "heavier workloads" with cost reduction. That's really not surprising since that's how costs have been controlled in higher education for at least the past two decades.

What's different about this approach to cost reduction is that rather than taking resources away from institutions, course redesign frees instructional resources to be used for other purposes such as developing new programs, serving more students or responding to areas of pressing need. What the institutions involved have in common is that insufficient resources have prevented them from doing all of the things they want to do. Course redesign lets you do what you want to do if you had more resources -- it lets you achieve what's on your wish list.

We need to change the national conversation about what is possible. Once we break the higher-quality-more-money nexus, we can unleash the creative energies of hundreds -- indeed thousands -- of faculty members, professional staff and administrators to work on redesigning courses.

The solution is not to throw money at the problem. The solution is to work together to re-think the ways we teach and the ways students learn. By building on these course redesign principles, we can create a 21st century higher education system that will serve our nation well.

Author/s: 
Carol A. Twigg
Author's email: 
info@insidehighered.com

Carol A. Twigg is president of the National Center for Academic Transformation, which serves as a resource for colleges on how effective use of information technology can improve student learning while reducing instructional costs. This article is based on a paper Twigg wrote for the Lumina Foundation for Education, which is sponsoring a meeting in Washington today to explore college cost issues.

More Than Fiduciary Duties

Trustees of public and private research universities have a fiduciary responsibility to act in the best interest of their institutions. However, actions that appear to be in the private interests of their institutions may not be in the social interest and these institutions are also expected to serve society as a whole. In deciding what optimal policies are, trustees must weigh their institutions’ private interests against the interests of society as whole. Seven examples are provided below.

Undergraduate Financial Aid

Increasingly, and with a few exceptions (such as my own university), public and private research universities are competing for prestige in the market for undergraduate students by offering non need-based grants to admitted applicants. However, evidence suggests that the increased use of merit aid may “crowd out” need-based aid and lead to fewer students from lower and lower-middle income families enrolling at these institutions. How should trustees trade off enhancing their institution’s prestige as an undergraduate institution versus maintaining the social goal of remaining accessible to students from all socioeconomic backgrounds?

This is an important issue because our nation’s public and private research universities spend more per student on undergraduate education than their comprehensive university counterparts. Considerable research suggests that students who attend institutions at which more resources are devoted to their education achieve higher earnings after graduation and are more likely to be admitted to top professional schools, which also contribute to mobility and prestige, than comparable students who attend institutions at which fewer resources are devoted to their education. With few exceptions, the shares of students attending our nation’s most selective public and private research universities that are Pell Grant recipients are woefully low.

Similarly, to the extent that institutions are under pressure to enhance their graduation rates, because these are used as another metric of institutional prestige and success, they can do so by devoting more resources to help the most disadvantaged students that the universities enroll succeed. Alternatively, they can do so by reorienting the nature of their institutions’ student bodies; as an example a number of urban research universities are moving away from their roots as institutions that serve disadvantaged urban residents by building more on-campus housing and using merit aid to attract less disadvantaged students from outside their cities to their institutions. Trustees must ask which strategy makes most sense for the institution and which is in the public interest. Suppose that to achieve any given level of graduation rate success is cheaper for the institution if it goes the merit aid route, rather than spending resources recruiting talented students from lower income families, providing need-based aid to them, and then providing extra support services to help them succeed at the institution. From the perspective of a trustee, is the appropriate policy choice obvious?

Creating the Faculty of the Future

American colleges and universities, including our nation’s research universities are increasing their usage of adjuncts and other forms of contingent faculty. Partially, this has resulted from financial pressures facing the institutions and uncertainty about future budgets. Partially, it has resulted from research universities encouraging their tenured and tenure-track faculty to “buy back” their teaching time so that they can devote more time to research and generate more research ( and potentially more commercialization revenues) for the university.

While adjuncts and other non tenure-track faculty save universities money, research also shows that, on balance, they adversely impact upon undergraduate students in the form of reducing graduation rates, increasing drop out rates, and reducing student interest in taking subsequent classes in the same field . That’s not to say the adjuncts aren’t working hard and that many of them aren’t deeply committed to teaching -- but people teaching from semester to semester, frequently at multiple institutions and without offices or meaningful support, face great difficulties in being as effective in the classroom. In addition, the reduction in the share of undergraduate teaching done by tenured and tenure-track faculty at research universities deprives these students of role models who might encourage them to go on to Ph.D. study and the reduction in the share of faculty positions that are tenured and tenure-track at research universities reduces the attractiveness of pursuing Ph.D. study to undergraduates attending these institutions. Put simply, although each research university trying to maximize its research output is operating in its self interest, these employment practices may hurt undergraduate education and have contributed to the decline in Ph.D. going behavior of American college students.

Should trustees take a more forceful position and argue for the importance of having more of the undergraduate teaching at research universities done by the tenured and tenure-track faculty, even if this means that less research will be produced at the university? Should trustees argue for the importance of maintaining the number of tenured and tenure-track faculty so that their institution’s students will be more likely to go on for Ph.D. study, even if this is not the deployment of faculty that will minimize the cost structure of their university?

Tenure and the Absence of Mandatory Retirement

Research universities make a commitment to faculty members when they award them tenure. Tenure is important to both faculty and the university both because it protects academic freedom and because it provides an incentive for faculty members to work for the best interests of the university and to participate in faculty governance. However, with the passage of the 1987 amendments to the Age Discrimination in Employment Act, since 1994 tenure has become effectively a lifetime employment contract because tenured faculty members cannot be compelled to retire. The end of mandatory retirement for faculty surely has contributed to the growing use of contingent faculty.

The tenure system was originally adopted in the United States with mandatory retirement as an important part of the system. One would think that with the elimination of mandatory retirement that universities and their faculties would devise systems of post-tenure review processes to assure that tenure is not seen as an unfettered lifetime employment contract. Indeed, the American Association of University Professors position is that post-tenure review systems are consistent with a tenure system as long as the evaluations of faculty members are done by their peers, these reviews are seen as formative (seeking at the first level to improve performance) rather than summative in nature, the reviews are not used to shift the burden of proof from an institution (to show cause for dismissal) to the faculty member (to show cause for retention), and the reviews are conducted according to standards that protect academic freedom.

To date, post-tenure review processes have been adopted primarily at public universities, often under threat of legislatively imposed mandates. No president or provost at a private research university wants to even raise the issue with his or her faculty because of the concerns that doing so would cause the administrator to lose the support of the faculty (making it harder for him or her to lead the university) and that some faculty (but presumably not the most talented) would flee to other universities. So even though adoption of post-tenure review systems by all research universities would help to demonstrate that higher education is trying to maintain “quality control”, which is socially desirable, it is very unlikely to occur. Should the trustees of individual private research universities play the role that the legislatures play with respect to public institutions and urge the president of research universities to push for the development of post-tenure review system?

The 'U.S. News & World Report' Rankings and Controlling Costs

The annual U.S. News ranking of research universities as undergraduate institutions is partially based on the amount that each university spends per student. Any university that unilaterally cuts its spending or holds down the rate of increase in its spending relative to its competitors will fall in the rankings -- even if the spending cuts have no impact on the undergraduate experience. Previous research has shown that an institution that falls in the rankings finds in the next year that it receives fewer applications, has a lower admitted student acceptance rate, has lower SAT scores for its entering students and must increase the size of the financial aid packages that it offers to attract students, other factors held constant. No trustee should want to see his or her university fall in the U.S. News rankings.

While spending more per student does, on average, lead to better outcomes for undergraduate students (see my discussion above), given concerns about runaway costs and tuition in American universities, one would think that running an institution in an efficient matter and cutting out waste would also be a social goal.

Should trustees of public or private research universities put pressure on their institutions’ administrators to hold down costs as a way of increasing economic efficiency and reducing future increases in tuition? What is more important, their institution’s position in the rankings or operating the institution in a way that does not waste resources?

Commercialization of Research

The Bayh-Dole Act encourages universities to obtain patents on faculty research findings from research funded by government grants to provide universities with a financial incentive to speed the flow of faculty research findings into commercial use. Many research universities have established offices of technology transfer to facilitate the development of licensing arrangements and joint ventures to help accomplish this goal. While most universities actually have not yet shown a profit on such arrangements, a few have hit it big.

Even if such efforts ultimately enhance the revenue flow coming into universities, commercialization efforts may have downsides as well. These include limitations placed on access of other researchers to new research findings and limiting poor countries’ access to scientific breakthroughs that have the potential to improve their populations’ economic well-being and health. For example if the rights to market new strands of disease resistant crops or new medicines to combat serious diseases are licensed to third parties, there is no guarantee that these parties will sell them to poor nations at prices that are at all affordable. Should trustees of research universities encourage their administrators to seek commercialization contracts that would guarantee access to such discoveries to people from poor nations, even if this means a reduction in commercialization revenues coming into their universities?

Training Our Nation’s Teachers

A number of our nation’s selective private research universities have eliminated or deemphasized undergraduate teacher education programs. One reason is that teachers’ salaries are lower than the earnings in alternative occupations that graduates of these institutions enter and thus potential teachers may be unwilling to take on the large debts that are often necessary to finance attendance at these institutions. Another reason is that schools of education typically do not generate large volumes of external research funding and that the alumni of these schools typically do not have the financial resources to generate large gifts to the institutions.

A number of studies suggest that, on average, students learn more when they are taught by teachers with high academic ability. Other studies suggest that students from selective academic colleges and universities are more likely to enter teaching if there is an opportunity for them to become at least provisionally certified as a teacher as part of their four-year undergraduate program. Given concerns about the quality of elementary and secondary education in the United States, encouraging, rather than discouraging, bright college students to enter teaching careers is very important for our nation’s well-being.

Rather than reducing their role in training teachers, should research universities, especially the most selective ones, be developing programs to encourage their students to enter the teaching profession? One possible policy would be to develop loan forgiveness programs for graduates who enter teaching; these would be analogous to programs that a number of leading law schools have adopted for their graduates who enter public interest law careers. To develop funding to support these programs will require the development of increased annual giving or increased endowments for these purposes; to do so will invariable reduce the funding available for other initiatives that the institution may perceive to be in its private interest. Should trustees of research universities urge their administrators to move in this direction?

The Land Grant Mission

Many public universities were founded with explicit land grant missions and historically have received funding from state and federal governments to help them carry out these missions. Through agricultural, cooperative, and industrial extension services, they have been major transmitters of knowledge to American farmers, consumers, workers and industry. Cuts in state and federal funding have limited the ability of land grant universities to carry out their land grant missions. The universities cannot “load” the costs of these activities onto the backs of undergraduates in the form of higher undergraduate tuitions. They have been forced to become more entrepreneurial and to use the “profits” that they generate from groups that can pay for their services (e.g. large corporations) to subsidize the provision of services to underserved populations. However, forced to generate their own revenues, it is natural for them to spend a larger share of their time on commercial activities and less on serving the public at large.

If a land grant university were to devote more resources to extension and public service activities, these funds would again have to come from annual fund raising and from raising endowments to support these activities. More generally, if other public and private research universities are serious about their social mission, they too should be engaged in activities to benefit society more broadly, such as working to improve elementary and secondary education, and will need similar sources of funding to do this.

While a recent Washington Monthly ranking of universities took involvement in extension and public service activities into account, this ranking is currently not one to which many people pay much attention. So devoting resources to these activities will mean doing less of other things. How do trustees, who have fiduciary responsibility for operating budgets, decide what the appropriate balance is between these activities and what many view as the core missions of the university -- undergraduate and graduate teaching and research?

Author/s: 
Ronald G. Ehrenberg
Author's email: 
info@insidehighered.com

Ronald G. Ehrenberg is th Irving M. Ives Professor of Industrial and Labor Relations and Economics at Cornell University, director of the Cornell Higher Education Research Institute, and a faculty trustee at Cornell. The views expressed in this piece are solely his own. A longer version, with citations, is available on the research institute's Web site as a working paper titled “Key Issues Facing Trustees of National Research Universities in the Decades Ahead.”

The 20th Century University Is Obsolete

Higher education, like the human species itself, is the product of evolutionary forces that produce structures -- the DNA if you will -- that enable one variant to thrive and cause another to falter.

The life form known as higher education was hatched in a monastic cocoon in the 10th century. From this beginning, higher education institutions took shape as an evolving species, changing form and mission in response to external forces. Familiar milestones on this evolutionary journey include secularization, development of academic disciplines, evolution of administrative structures, growth of the research university, and the concepts of academic freedom and tenure.

With the dawn of the Knowledge Age, the evolution of higher education has drastically accelerated so that the pace of change is now measured in years, not centuries. Higher education today is a global commodity with all the competition and product diversification that entails, including the splitting of the production from the distribution of knowledge. This is much like the movie industry, where a few companies make movies and many companies distribute them in theaters, on television, and on DVDs.

Research I universities that produce new knowledge thrive in this new environment, but they are now dependent upon strong financial links with the economic agendas of companies and countries. They are no longer the sole citadels for the production of new knowledge,  but rather just one node on a global network of corporate and national R&D sites.

The transformation of Higher Education Life Forms on the distribution side of knowledge is even more dramatic, evolving a new species that concentrates simply on distribution of currently available knowledge.

This new species features a small core of knowledge engineers who wrap courses into a degree to be distributed in cookie-cutter institutions and delivered by working professionals, not academics. There is no tenured faculty, no academic processes; the sole focus is on bottom-line economic results. These 21st century institutions are not burdened with esoteric pursuits of knowledge; rather, they focus on professional degrees for adults that have a fairly clear market value for a given career path.

The exemplars of this new species are the for-profit universities, which are cutting their teeth on the weakness of the 20th century universities. Though new at the game, in a few years they will be capable of hunting with lethal success. This new species is market-driven. Its key survival mechanism is the ability to rapidly evolve to new environments and to position in the market. Since they do not carry tenured faculty, they can rapidly jettison disciplines of study that do not penetrate market. Since they do not have academic processes, they can rapidly bring to market programs that can capture market share.

Certainly, not all for-profit providers have the core capabilities to compete long term in the market. Some emerge quickly and as quickly become extinct, but others are proving quite adept at drawing strength from this globally competitive market.

As mass, longevity and a voracious need for large quantities of prey (resources) proved lethal to the dinosaurs in the stark environments created by global darkening, so the universities of the early 20th century may face serious thinning or perhaps even extinction in the new globally competitive environment of higher education. Universities rooted in the early 20th century are intrinsically inefficient in today's environment of market valuation and brand identity. Given the current internal structure of tenure and faculty governance, these universities lack the capability to respond to market forces in a timely fashion -- to close out product lines no longer playing in the market and rapidly bring new and more efficient product to market.

Still, these once elegant life forms persevere, but for reasons having nothing to do with innate capability to embrace change. Instead, at the undergraduate level it is the instinctual and perhaps irrational desire of many parents to see their children prosper in a traditional liberal arts environment, and so their willingness to spend inordinate amounts of money for education. At the graduate level, the "brand name" is the driver. The reputation of leading institutions, established in an era before global market competition, is based on a footing much different from that used today to obtain market position, but it still works to sustain the life form, at least among a few elite universities.

In addition, traditional universities have benefited from some serious slack in the evolutionary rope. The Industrial Age required a few knowledge workers and a lot of folks doing heavy lifting, whereas the Knowledge Age requires vast numbers of educated workers. Almost overnight, this has led to a massive spike in global demand for education, with motivated consumers increasing perhaps 100-fold. What was the privilege of a few has become the expectation of all.

But global supply falls far short of meeting demand. With a population of 295 million, the United States has only 15 million active seats in the higher education classroom; China, with a population of 1.2 billion, has 2 million seats available; Brazil, with a population 170 million, has 2.5 million seats available.

This imbalance between supply and demand has creating a robust market for all providers. Suppliers of higher education simply have to dip their nets in the water to catch students. There is not yet the fight-to-the death competition for market share, and inefficient institutions have received a short reprieve from their evolutionary fate. But at some point, as with all markets, a saturation point will be reached, with supply outstripping demand -- perhaps in 5, perhaps in 15 years. When this inversion occurs, those life forms with the required flexibility to quickly adapt to a fiercely competitive environment will survive and the others will fade from memory.

As there is private health care for those who can afford to pay at any price point, so there will continue some form of higher education that will meet the need and the check book of those wealthy enough to afford it. But for most now driven to higher education to meet the requirements of the Knowledge Age, it is value (the ratio of perceived quality over price) that will be the key determinate of what institution they will choose for their tuition dollar. To further stress the current market, state funding is not keeping up with inflation or enrollment growth, forcing higher education institutions to rely more on tuition and donations. Thus higher education is being pushed to stand on its own financial bottom rather than be a subsidized commodity, once again forcing the value proposition.

So what will be demanded of 20th century universities to survive when market supply reaches or exceeds demand? As in every market, those producers that have driven efficiency into their production system and responsiveness into their market positioning have at least a change at surviving. But the challenge is daunting because the 20th century university is trying to play serious catch up in new markets -- adults, women, diversities, the under privileged -- while using the same mentalities that allowed them to attract the 18 to 25 year old male.

As with IBM, which played in the personal computer market, but really lived in the mainframe business market, there is no fire in the belly of 20th century universities for these new markets. These institutions have not changed the way they go about their business to serve these new markets; and if there has been some change, it has been accompanied by the widespread grumbling of the faculty: Why do we have to teach at night? Why do we have to teach at multiple campuses? Why do we have to provide support services in the evening? Why do we have to teach students who aren't educated the way we were? Why do we have to schedule classes so students can maximize their employment opportunities?

Meanwhile, 20th century universities are running average price increases twice the inflation rate and carrying multiple overheads of unproven value to the buying market. Walk into the library of any university today that has ubiquitous connections to the Internet, and you will find the stacks empty of both faculty and students. Is the traditional library a value add or a costly overhead? As with IBM, 20th century universities believe their brand will sustain price increases. "No frill, just degree" competitors are producing product without the high cost of minimalist full-time faculty workloads, large libraries and multiple staff intensive manual processes. As with the personal computer, will the buying market ultimately see any difference between the products except the name on the plastic and the price on the sticker?

What will be the destiny of the current life form we have called the 20th century university? It consumes far too many resources for what it returns to the environment, and though there are vast resources (markets) available, its structures do not let it tap these resources effectively. Its evolutionary tardiness has provided opportunity for a new species to take hold - the profit driven university. As the evolution of the human race has picked up the pace with each passing millennium, a future life form that has little resemblance to current higher education life forms will emerge much sooner than the usual eons it takes for evolution to create the next iteration of life.

The 20th century university is indeed obsolete and faces extinction.

Author/s: 
Rev. John P. Minogue
Author's email: 
info@insidehighered.com

Rev. John P. Minogue is senior lecturer at the Center for Higher Education and Organizational Change at Benedictine University and was president of DePaul University from 1993 to 2004.

What Princeton Tuition Freeze Means -- and Doesn't Mean

For the second time in seven years, a highly visible and prestigious private institution has announced a decision not to increase tuition. In 2000, Williams College announced a tuition freeze for the coming academic year, and in 2007 Princeton University did the same. In both cases, the institutions cited substantial endowment gains as a central reason allowing them to hold tuition constant for one year. What are we to make of these episodic pricing decisions?

In the Williams case, I was familiar with the thinking of the leadership, and I believe it was a clear attempt to send a signal to peer institutions that price increases in the face of sharply increasing institutional wealth were undermining public trust in higher education. I wrote at the time that, “If peer institutions do not follow suit, Williams will almost surely be forced to resume tuition increases next year. And, within a couple of years, the entire incident will be forgotten.” Indeed, that is precisely what happened.

I am not privy to the thinking that motivated the Princeton decision, but I do not sense from their public statements that they are trying to send market signals, or  to lead others to emulate their behavior. In fact, the purity of their tuition decision was complicated by a large jump in room and board charges, so the net effect is to raise their total charges by $1,780 (4.2 percent), an increase greater than gains in the CPI. I see no reason not to take their public explanation at face value -- they have experienced excellent endowment returns, and in 2006 their board authorized increased spending from the endowment. With non-tuition revenue rising, they were able to meet anticipated financial needs for the coming year without an increase in tuition. They used this opportunity to bring expenses of room and board more closely in line with revenue, thereby reducing a subsidy they had been providing to room and board in recent years. In short, they took advantage of a favorable moment to (in their words) “‘true-up’ their operating budget.”

While Princeton is larger and may carry more punch in the world of higher education than Williams, I will be very surprised if this decision triggers an onslaught of emulation. Only a tiny number of extraordinarily wealthy institutions could even consider following, and it is unclear why they would do so. The distributional consequences of the Princeton decision could be viewed as analogous to the early Bush tax cuts, in that the benefits will accrue to the very wealthy parents who pay full tuition, not exactly a blow for greater equity. If a small number of similarly wealthy colleges and universities did the same thing, it is hard to work up much enthusiasm for the virtue of the resulting redistribution of income.

Leaders of those institutions that could afford the same decision have to consider the opportunity costs involved. Might there not be better uses of the extra dollars raised by tuition? For example, not all wealthy institutions have followed the lead of Princeton and others in providing full scholarship support to those low-income students who are admitted, but cannot conceivably afford to attend without full support. Allocating funds to that purpose would seem to be a far better use than simply freezing tuition for all enrolled students for one year. Wealthy universities might also take this as a year to provide direct assistance to high schools -- especially those that can’t afford to provide good college counseling that might make the difference in whether an exceptionally able high school student who doesn’t come from a college-going family can find out about the opportunities to attend a Princeton or another top college. One can easily imagine socially beneficial uses of funds that would compete strongly against a tuition-freeze at highly selective universities.

One counter-argument to the above takes us back to the motivation behind the Williams decision in 2000. If the entire Ivy League plus Stanford, Northwestern, Chicago, Emory, Amherst, Williams, Swarthmore, and other similarly wealthy colleges and universities were to fall in line with the Princeton decision, pressure to contain tuition would be felt further down the chain of institutions, and might slow the rate of tuition growth for all. Would that be a net benefit to society at large?

Certainly such a move would gain political plaudits for a sector that has been sharply criticized for years for its pricing behavior. On the margin, access and opportunity might be modestly increased for potential students of limited means. It is far from clear, however, that such an across-the-board approach would be as efficient as more effective targeting of financial aid on those with substantial need. The majority of private colleges that depend heavily on tuition would be hurt, and some might close.  As a former president of Kalamazoo College and board member at Goucher and Sweet Briar Colleges, I can attest that the vast majority of private colleges are far more dependent on tuition than is Princeton. To provide perspective, a typical private college endowment would be in the range of $130 million, while Princeton’s $13 billion is 100 times larger.

And, to be effective, the group of institutions exercising this price leadership would have to commit to a multi-year form of restraint, such as a group decision to limit tuition increases to no more than some objective index, such as the CPI. Holding tuition unchanged for only one year would not do the job.

The implausibility of coordinated decisions by multiple independent boards of trustees willing to commit to a 5- or 10-year tuition limitation to break the back of the “arms race” in higher education must give one pause. Competition in higher education simply does not work to control prices as happens in most for-profit industries. Colleges are not seeking market share, but rather increased quality and prestige. Families and students seek institutions that provide those attributes, and are willing to pay for them. My essay about the Williams decision in 2000 referred to the “Cockeyed Economics of Higher Education,” a phrase that is still apt.

I conclude, therefore, that the Princeton decision in 2007 is another one-time event with little lasting significance. A year from now we will hardly remember it, and nothing fundamental will have changed in the financing of higher education. And, as the remarks above suggest, I am at best ambivalent about that likely outcome.

Author/s: 
David W. Breneman
Author's email: 
info@insidehighered.com

David W. Breneman is University Professor, and Newton and Rita Meyers Professor in Economics of Education, and dean of the Curry School of Education, at the University of Virginia.

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