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Early in my career, I had the pleasure of team teaching a course on the Economics of Higher Education with then Hofstra President Robert Payton.  For an untenured Assistant Provost it was a tremendous honor and a great course to teach. We focused on the cost of higher education and we focused on the economic return to higher education. Now that I have stepped down as Provost after 25 years, I am looking forward to once again teaching an economics of higher education course but the reality is that the new course about our industry will bare almost no resemblance to the course I taught earlier.

Yes, we will still talk about the cost of higher education and we will still talk about the economic return to higher education. But these will be small segments of the course. Economics has a far greater impact today than it had 25 years ago and we are clearly doing much more to impact both supply and demand. First of all, there is discounting. Twenty five years ago, no time in the course was dedicated to this topic, though we did talk about the cost of scholarships. Today there is a high degree of sophistication that determines what amount of scholarship will attract the numbers of students you want, with the profile you want. This discounting is critical to the admission of first year students but has also spread much further throughout education. Discounting and scholarships are critical for transfer students, for graduate students, and has recently spread quickly throughout the law school community. As consumers become more savvy about scholarships and aware of discounting, the expectation goes up on their part and the costs go up on our part. Also, part of the present consumer behavior pattern related to higher education is the expectation of more options and services provided for students while at the same time more robust scholarships are also expected.

Schools are providing economic incentives to help persuade students to graduate sooner. How do these incentives work? If you increase the number of credits that a student can take for his or her flat rate tuition or if you reduce the number of credits necessary for the degree, the effect almost certainly will be a larger percentage of students graduating in both 4 and 6 years. On the graduate level, earning an advanced degree with fewer credits provides an added incentive and a reduced cost for enhancing your credentials. There are even the beginnings of economic assurances about placement. Institutions are saying that they are so confident that you will get a job, that if you don’t in a reasonable amount of time, they will pay you X dollars.

When working with tenured faculty, especially in areas of reduced demand, the use of economic incentives is also increasing. Exit economic incentives are an important part of the effort to trim faculty (or administrators or staff) or reallocate faculty positions from areas of less demand to areas of more demand. And to limit the cost impact of more and more senior faculty, institutions are making use of more adjuncts.

In addition to exit incentives, for faculty, especially in health related fields, there are more and more senior level entry incentives consisting of very lucrative packages designed to lure the best from one institution to another institution. The ripple effect, on reputation and on the local economy, can make this is a very wise investment.

Ours is a wonderful enterprise. I’m a firm believer in the transformative power of education. But the economic currents impacting our industry make it a tougher and tougher business to manage.

The opinions expressed are solely those of the author.


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