The 'Crisis' in Higher Ed Financing

Anyone in search of a metaphor for the difficult financial and political situation facing American higher education had a slew to choose from at a conference on the business of higher education on Thursday. College officials are standing on a tightrope, said Stanley O. Ikenberry, trying to balance concurrent pressures to increase student access, control tuition and costs, and deal with declining financial support from governments and other traditional sources.

November 4, 2005

Anyone in search of a metaphor for the difficult financial and political situation facing American higher education had a slew to choose from at a conference on the business of higher education on Thursday. College officials are standing on a tightrope, said Stanley O. Ikenberry, trying to balance concurrent pressures to increase student access, control tuition and costs, and deal with declining financial support from governments and other traditional sources. Or they are are heading down a river with Class 5 rapids on an inner tube, "holding on for dear life" as they grapple with those new technologies, etc., as David Kirp described.

Or, to use James Hearn's analogy, perhaps colleges and universities are like frogs in a pot of water that is slowly heating up as the institutions incrementally create new (and market-driven) streams of revenue, barely noticing -- until it's too late -- how commercial they've become. Do colleges risk becoming too driven by business forces, asked Hearn. (In other words, has the frog boiled?)

The TIAA-CREF Institute, the pension giant's research arm, brought a high-powered group of college administrators, scholars of higher education and other policy makers together for a two-day conference, entitled "The New Balancing Act in the Business of Higher Education," at which they grappled with a dizzying array of big picture questions about the current state and future prospects of the American college system.

This is getting to be a trend: The TIAA-CREF conference followed by a day a Lumina Foundation session on college costs and came as an Education Department commission on higher education is getting into gear.

That these various conversations are all taking place is no coincidence: College leaders, politicians and others are increasingly coming to the view that a crisis is brewing for American higher education, driven by a set of concerns that include the country's ebbing economic and technological competitiveness internationally; continuing socioeconomic inequity in terms of access to college, at a time of significant population growth driven largely by lower-income and educationally underprepared young people; and a steady buzz of political noise about colleges' rising prices and the factors that drive them up.

"The nation is in the early stages of a national crisis on higher education," said William E. (Brit) Kirwan, chancellor of the University System of Maryland, one of several panelists at the TIAA-CREF session who had participated the day before at the Lumina conference. "Our hope and expectation is that through all this discussion, some ideas will emerge for some innovative solutions that can begin to address the problems that are at the root of this crisis. This situation is either a wake-up call for our nation or the harbinger of our worst nightmare -- that depends on how our nation responds."

Although not all participants agreed on the exact elements of the crisis -- there was extended debate, for instance, about whether state governments have really reduced their support for public colleges, and if so, by how much -- the general thrust of the daylong discussion was that most colleges face a dicey financial future (if not present).

That's because colleges are confronted by a decline (or at least leveling off) of state and federal government support, and a sense that they can go only so far in replacing those funds by raising tuition before completely alienating politicians and the public. And while they are increasingly turning to alternative sources of revenues, such as licensing, technology transfer and online programs, or experimenting with tactics such as charging different tuitions for different programs, those options are fraught with their own potential problems, various panelists argued.

In a paper prepared for the conference, Hearn, a professor of public policy and higher education at Vanderbilt University, said that college officials needed to explore such options, but to do so carefully. "Increasing marketization is probably inevitable in U.S. higher education, but that inevitability does not warrant abandoning vigilance over core values that may be imperiled, such as those favoring faculty and institutional autonomy," he wrote.

David Kirp, professor of public policy at the University of California at Berkeley, spoke about his 2003 book, Shakespeare, Einstein, and the Bottom Line ( Harvard University Press), and a set of institutions that he described as "problematic successes" -- colleges that had transformed themselves in some meaningful way, either through technology or a change in business practices, and thrived, but sometimes at a real cost. He spoke most positively about the 15 Southern college classics departments, individually facing declining enrollments if not extinction, that collaborated to jointly offer classes through use of technology and sharing of resources; the effort's big problem was scheduling.

He also heralded -- at the risk of "being taken by the collar and thrown out of the room" of representatives of traditional higher education -- thework done by the for-profit colleges of DeVry, Inc., which he said "graduates more African-American engineers than any other institution in the United States" and "pays their teachers a whole lot more than you pay your adjuncts." The limits to DeVry's model, Kirp said,is that it offers degrees only in those disciplines for which there's "an immediate bottom line profit."

Kirp was far more critical of the move to independence from state regulation and financing by the University of Virginia's graduate business school, which was made possible in large part by dependence on an executive education program that leaned heavily on proprietary information from the companies of its students -- information that UVa instructors could never share with the undergraduate and graduate students they teach. Nothing could be "more antithetical" to the principles of higher education than that compromise, Kirp said.

So what are American college leaders to do, besides move cautiously in exploring new sources of revenue? Amid the flurry of ideas, some rough consensus emerged. First, institutions must spend their financial aid more wisely, in ways that will allow them to better accommodate the huge numbers of low-income and academically underprepared students that will be increasingly showing up at their gates and doors in the next decade. Several panelists cited the statistic that more than 75 percent of students in the country's top economic quartile now get a higher education, compared to well under 10 percent of those in the lowest quartile.

Kirwan of Maryland noted that the proportion of institutional financial aid that is awarded based on students' financial need had declined from 90 percent in 1990 to about 60 percent now, and he and others argued that colleges must shift back in the other direction, toward aid based on need rather than academic merit, or "we are truly at risk as a nation of destroying the American dream of upward mobility."

He and others, including F. King Alexander, president of Murray State University, argued that colleges must take meaningful steps to cut costs, to show lawmakers and the public that academic leaders can be good stewards of their funds. And they must do so, they said, not just by "cutting budgets" in the haphazard way that colleges often do.

Ikenberry, former president of the American Council on Education, noted with irony that upon returning to the faculty at the University of Illinois after a long career as an administrator, he had "become a radical" who can only shake his head at how the "nonsensical administration" responds to financial restrictions. "We wait until we get cut in state budget, and then we eliminate every faculty position that happens to be open at that particular point in time," with a "randomness" that strikes everyone as "fair and equitable" but is thoroughly unstrategic.

If college and university leaders bolster aid for low-income students and cut costs in a meaningful way, Ikenberry and others said, they should be able to more effectively make the case to state and federal policy makers and politicians, and the public, for "reestablishing higher education as a national priority for public investment." Several panelists discussed a previously announced plan by the American Council on Education to do just that, through a coordinated lobbying effort aimed at restoring public trust in the college system.

Several of the speakers questioned whether a campaign to seek more public funds had any chance of success, given the tough competition for both federal and state funds from elementary and secondary education, health care costs, and other (more pressing?) needs. David Longanecker, executive director of the Western Interstate Commission for Higher Education, noted that every state projects structural budget deficits by 2013. Added David Breneman, dean of the Curry School of Education at the University of Virginia: "I just don't see state government coming back."

He and Kirp said there was one creative way that the government (or at least the legal system) might be able to help. In the "amenities arms race" in which colleges feel pressure to keep up with other institutions by offering ever fancier dorm rooms, student centers and other facilities, Kirp and Breneman said, no individual institution believes that it can afford to act on its own. But colleges have been leery of talking about steps they might take together ever since a group of elite Eastern colleges faced federal antitrust scrutiny for jointly setting financial aid policies in the 1980s.

Perhaps, Kirp told those in the audience, they should assemble the best antitrust law experts on their faculties to figure out what kinds of common stances the institutions might take that would allow them to act cooperatively to jointly cut their costs (or their tuitions) without crossing the line into anticompetitive behavior. "That would be a cheap investment for this organization: to bring them together to figure out what the 'Yes' answer is on a whole array of issues. Then you'd just have to figure out whether you have the fortitude to do it."


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