All too often, especially in lean economic times, students and families disregard private institutions out of hand because of the perceived cost. But in the battle for talented students, private liberal arts colleges will win the day by showing students and families considering higher education that “private” doesn’t mean “expensive.”
A few weeks ago, my institution, Juniata College, released a new policy, guaranteeing our students the ability to graduate in four years, or the fifth year is on us.
Well, from the reactions of some of the public universities in Pennsylvania, you might have thought I had suggested eliminating college sports. The fact is, private liberal arts colleges excel at giving students the tools to maintain momentum toward graduation within four years.
National statistics bear this out. The National Association of Independent Colleges and Universities says nearly 80 percent of students at private colleges who finish graduate in four years, compared to about 50 percent at public institutions.
Juniata did not decide to guarantee that almost all our students will graduate in four years as a cheap marketing ploy designed to take shots at state universities. Rather, it’s a call to arms for all colleges and universities to start their own affordability comparisons.
Our numbers have been splashed across newspapers and read over the airwaves. You can Google them at will. They are: Juniata’s tuition of $28,920 per year goes down to $13,786 per year once our financial aid package kicks in. That makes the four-year bill, after we add in yearly education-related fees, $60,536.
Compare that with what U.S. News & World Report noted in the November 5 issue: “Since it is now taking the average public university student more than six years to graduate, the cost of a public college degree is now more than $90,000, about 25 percent more than it was for the freshmen of five years ago.”
When we compared our figures to the publics, we also added a cost not many people talk about: the earnings a person would have made if he or she had graduated on time. Based on a very conservative annual earnings estimate of $21,000, two extra years in school will “cost” an extra $42,000 above tuition.
So, if you consider lost earnings, that “state school” education isn’t looking so affordable, is it?
Instead of traditional majors, we use programs of emphasis, in which students can design their own educational plan. If they change their minds about a career path once (or even twice), they won’t lose momentum by taking new prerequisites. Our study abroad programs -- 40 percent of our students study abroad -- focus on programs that offer courses and credit applicable to our students’ programs. Finally, we use internships within our curriculum to offer students academic credit and experiential learning without sacrificing extracurricular time or activities -- 85 percent of our students have at least one real-world internship.
And before anyone sniffs at our flexibility as somehow a lack of “standards,” that favored panacea of bureaucrats everywhere, our results speak for themselves: 96 percent of graduates over the last five years either secured employment or went to graduate school within six months of graduation.
In 2006, 96 percent of those Juniatians who graduated, did so in four years or less. Over the past few years, 92 percent of our graduating students have done so in four years or less. In our system, in which two faculty members advise students throughout their college career, there is very little retracing of steps and no wrong turns -- mainly because our curriculum is highly adaptable. In reality, our guarantee isn’t much of a gamble because we are already succeeding beyond many of our private college peers and well beyond the state universities. Instead, it makes policy the good work that has long been practice at Juniata.
To those forward-looking institutions willing to take the challenge with us, to do everything we can to ensure the affordability of a great education, let us put our numbers on the table and let our constituents decide.
Thomas Kepple is president of Juniata College, an undergraduate liberal arts college in Huntingdon, Pa.
Late last year I was in Washington, D.C., listening to government officials and policy analysts discuss the state of higher education in America. The tone of those conversations, as has been the case since the advent of the Spellings Commission, was troubling. I left with the clear impression that there is widespread distrust of colleges and universities in Washington on both sides of the political aisle.
That means suspicion of higher education is not a partisan issue and that the era of accountability and cost sensitivity will not end when the Bush administration leaves town. Key public officials like Massachusetts Sen. Edward Kennedy and California Rep. Howard P. (Buck) McKeon will probably continue to rail about rising college costs. And the higher education sector will probably continue to be hampered by its inability to tell a believable story about why tuitions keep increasing at rates higher than inflation.
To a certain degree, suspicion and distrust of colleges and universities are problems of the higher education sector’s own making. College and university leaders, most of whom were faculty members at some point, have the professor’s reflex against simplified explanations. Professorial skepticism toward neat, tidy, simple (but often inaccurate) answers is understandable and admirable. But politicians and reporters like to hear coherent and compelling narratives that are easy to understand and easy to retell to their constituents and readers. Higher education has often failed to grasp this. And it shows in the explanations higher education gives about the rising cost issue: They are all too often defensive or obfuscating -- leaving the public scratching its head in perplexity.
The stories being told in Washington about higher education, as everyone working at a college or university knows, are not flattering. The dominant stories coming from the mouths of politicians and the pens of reporters portray America’s colleges and universities in an arms race to out-compete each other on rankings, wealth, prestige, student diversity, scholarships and financial aid, faculty compensation, teaching loads, and non-academic facilities. College professors are depicted as disinterested in students and eager to have decreased teaching responsibilities. College administrators are pilloried as overpaid, unnecessary bureaucrats -- although, ironically, government intervention nearly always requires colleges to hire more administrators to comply with the reporting requirements imposed by legislators. And who hasn’t read or heard stories of dormitories overbuilt in the image of four-star luxury hotels or of million dollar-climbing walls? Tales of the latter have become the stuff of urban legend.
The dominant meme describes American colleges and universities as institutions driven by their own self-interest rather than by the interests of students or of society. Lost in the debate is any sense of the public’s interest in anything other than the politics of resentment, which builds its persuasive case through portrayals of colleges and universities as bloated, elitist, inefficient, unworthy of tax payer support, and lacking the ethical high ground. If only colleges and universities were run like a business goes a common critique that warms the hearts of the for-profit higher education sector and its key Congressional supporters like Ohio Rep. John Boehner. Applying business principles is the panacea according to this simplistic but seductive narrative that has put colleges and universities on the defensive since the beginning of the Reagan administration.
Magazine and newspaper articles increasingly depict a college education in business terms, as a consumer good to be purchased. Customers (students and their parents) are encouraged to seek the best deal, to bargain, to devise strategies to pay the lowest price for the highest quality. The ubiquitous so-called merit scholarship, which in most cases is nothing more than a price discount to lure another customer, makes it nearly impossible for any five parents with children at the same college to know how much the others are paying. The situation is akin to the airline industry where invariably no two seats on the same plane are sold for the same amount.
The emphasis on cost to the paying customer casts a college education squarely in the realm of commodity. And to be sure, there has always been an inherent commodity aspect to the experience of getting a college education. Most American colleges have never been free, and historically most students have entered college seeking upward economic and social mobility. But too much emphasis on college as commodity, voiced by students or by colleges, corrupts higher education, leading colleges and universities to be seen primarily as businesses churning out product rather than as places that inspire, enlighten, and uplift society. Even the colleges themselves have encouraged this kind of thinking to justify why students and parents should be willing to pay the rising cost of college--as institutions often cite studies showing a $1 million lifetime earnings advantage for college graduates over non-college graduates.
On the issue of rising tuitions, colleges and universities, as they have exuberantly embraced marketplace paradigms, have let themselves get defined as money-driven, price-gouging wealth-accumulating firms rather than as cathedrals of learning. This has happened because colleges and universities have not been bold in telling their collective story. Instead, colleges and universities have let themselves end up in the defensive position of rebutting the unflattering stories and simplistic caricatures about why college costs so much. Those stories and caricatures, when left unchecked, undermine the public’s trust in higher education.
There are potential opportunities for colleges and universities to begin shaping the story from within higher education rather than simply reacting to stories from without. But the first step is to craft accurate, uncomplicated, and believable narratives.
The case for the small liberal arts college offers one starting point. Providing an education at a small liberal arts college is a highly individualized process. The liberal arts college classroom is more akin to an artisan’s workshop or an artist’s studio than to a factory floor or an assembly line. If higher education must be forced to adopt the language of the business transaction, then perhaps the small liberal arts college must make the case, as Reed College’s President Colin Diver often has, that consumers always pay higher prices for, and are more willing to make sacrifices to afford, handcrafted goods in comparison to mass-produced goods. Diver’s argument is compelling because it is self-evident to most consumers that craftsmanship is synonymous with quality.
Nor is it a stretch to claim that a liberal arts education is the product of craftsmanship, the result of a slow, labor-intensive process that produces individually unique student learners whose lives have been transformed for the better by four years at the institution. One enduring image of the small college education has the eminent 19th century Williams College professor Mark Hopkins on one end of a log and a student on the other end. The Hopkins image came to symbolize the intimate small college transmission of knowledge from sage to student.
Colleges that Change Lives, by the former New York Times education editor Loren Pope, has garnered a following due to its message that small costly private colleges, like Earlham and Reed, perform a kind of educational alchemy not easily broken down into bottom-line terms but somehow able to deliver on the promise of the book’s title. Pope’s book has drawn attention to 40 colleges that are not the household names invoked by politicians trying to make hay out of critiques of higher education. Yet Pope’s 40 colleges are collectively one example of the kind of compelling story that, if told more often, might help private higher education regain the public’s trust.
When justifying the high cost of college, is it enough to assert, as countless presidents of private liberal arts colleges have, that the actual production costs of educating a student are sometimes double the tuition charge? I do not think so. In fact, I suspect that the public hears such arguments and imagines that higher education is wasteful. After all, what product costs twice as much to produce as its sale price? What firm survives producing such a product? Discerning consumers wonder how much of that double-the-sticker-price true cost pays for the hidden costs of fund raising, public relations, student recruiting, and athletic programs; that is, enterprises not regarded as being at the core of most colleges and universities, but precisely the areas that many people immediately associate with the runaway cost of higher education.
Rather than change the subject when politicians rail about the so-called non-academic costs that get passed on to students in the tuition bill, colleges need to hit the issue head on. Straight talk about non-core costs might be appealing to the public and disarming to higher education’s critics. There are potentially persuasive ways to justify the non-academic costs of running a college or university. For example, why not just assert that the expenses incurred by college fundraising and endowment management enterprises are examples of how colleges gather non-tuition revenues to keep their tuitions from rising even higher? College leaders can say with authority that those revenue-chasing expenditures, rather than being cited in the cost of educating a student, might more appropriately be charged off against the endowment and fund raising returns. The public might then understand that, without the marginal dollars netted through fund raising and endowment returns, tuitions would be much higher.
Similarly, colleges can justify their public relations and recruiting expenditures as the price of bringing in quality students and faculty as well as the price of enhancing the perceived value of the degree the student will earn. Finally, colleges can argue that they provide their students a unique lifetime affiliation that accrues benefit long after the last tuition check gets paid. How many firms can say that about their product?
And if none of those arguments work, colleges can do what they have been loath to; that is, point to the students and parents in the consuming public and say, in the words of an old Toyota commercial, “you asked for it, you got it.” That’s right. College tuitions have gone up because students and their parents expect more from the college experience than ever. Meeting those expectations does not happen when institutions run in place to hold down costs. To get less expensive colleges, the public will have to accept less expansive college degree programs and facilities. There is no evidence that the public is willing to do so; nor should it. In any case, both are points that higher education needs to make early and often.
Candor and transparency about the costs they charge is something colleges and universities will have to practice soon enough as Congressional interest in a “College Access and Affordability Act” has made it into the next reauthorization of the Higher Education Act (HEA). The next HEA will call for colleges to provide students and their parents with more transparent and detailed explanations of the costs they charge. The emphasis on explaining and justifying costs will, in the hopes of some members of Congress, influence colleges to hold down future tuition increases.
Higher education has already taken notice of suggestions in Congress that massive college endowments ought to be taxed and that the nation’s wealthiest universities should draw upon their billion-dollar endowments to eliminate tuition altogether. Perhaps as a result of such rhetoric, Harvard and Yale have announced increased financial aid for families with incomes between $120,000 and $180,000. Expanding eligibility for generous grant aid to families with upper middle to upper class incomes, notwithstanding all the mostly good publicity it has brought to Harvard and Yale, raises as many concerns about college costs as it addresses.
For example, are Harvard and Yale’s expansive new financial aid policies just a veiled price discount (like merit scholarships elsewhere) for families that can afford to pay? And is it not obvious to Harvard and Yale that expanding financial aid eligibility to encompass families in the top 5% income bracket -- based on the argument that if they need help everyone does -- is the latest evidence that colleges and universities charge amounts beyond the reach of most American families? Many of us in higher education, while we applaud Harvard and Yale’s increasing interest in providing access, wonder how candid those universities will be about their motives as they defend the new initiatives going forward.
Making a candid case regarding college costs is an approach I have seen work for Reed College. In information sessions, when I have justified Reed’s tuition charges using images of artisans and craftsmen to describe what goes into a Reed education, I have seen the description resonate with audiences. I believe that those audiences have responded positively because they understand that they usually pay more for individually tailored and handcrafted items that have an inherent quality advantage built into them. Just as most people recognize the value of seeing or being part of a live, rather than a recorded, performance or of getting a poem or artwork created specifically for them, rather than receiving a mass-produced card, they understand the value of a handcrafted education.
The students and parents I speak to seem to appreciate that Reed addresses the high cost issue directly and offers an explanation that sounds consistent with the values and the day-to-day academic life of the college. They also seem to understand that a small college like Reed provides a highly personalized education -- where every student has the apprentice scholar experience of a thesis -- that cannot easily be replicated at a lower cost. The idea that life changing goes on in addition to degree acquisition is a powerful closer -- to use sales parlance -- for Reed.
In the midst of brick throwing at colleges over rising costs, Reed has chosen to make its here-is-why-we-cost-so-much case by citing the value of its handcrafted education. The approach works for Reed because it reflects the college’s mission and communicates institutional values. But the approach also works because Reed has constructed a narrative about college costs that makes sense and sounds believable rather than like defensive back pedaling or dissembling. Perhaps by tying their explanations of rising college costs to their distinctive missions and identities other colleges and universities can craft similar persuasive narratives.
Paul Marthers is dean of admission at Reed College.
After a decade and then some of commissions, studies and stern warnings, Congress is poised to finally take concrete action to hold down the rising cost of a college education. A notable consensus has emerged among lawmakers of both political parties and major elements of the higher education community that sunshine and transparency are the best first steps to empower consumers and address the college cost crisis. While agreement among these parties is a feat in itself, this achievement is even more extraordinary considering the staunch objections of a few short years ago.
Today, the U.S. House of Representatives will vote on the College Opportunity and Affordability Act, a bill that will lift the veil on rampant tuition increases and hold individual colleges and universities accountable for their role in pricing students out of the dream of a higher education. The legislation couples strong consumer-driven disclosure with meaningful data comparisons so that higher education consumers and policy makers alike will be able to better understand the phenomenon of rapidly rising tuitions.
After shining a spotlight on the problem, the bill encourages solutions by requiring institutions with the greatest tuition increases to form Quality Efficiency Task Forces, whose purpose is to identify what is driving the cost increases and what can be done about them. The bill also calls on states to do their part, recognizing that for public institutions in particular, state support plays a critical role.
Keeping college affordable has been a priority of mine since I came to Congress. I earned my degree later in life, an experience that has helped keep higher education at the forefront of my agenda throughout my political career. And in the 15 years I’ve spent in the U.S. House of Representatives, rising college costs have consistently topped the list of “what’s wrong” with higher education, at least in the view of American students and families.
Even the most casual observers of American higher education recognize that there are no easy answers to the college cost crisis. The quality of our institutions has long been linked to institutional diversity, consumer choice and academic autonomy. At the same time, public and private colleges and universities alike are heavily subsidized by the public in the form of taxpayer-funded financial assistance. There has always been a tension between postsecondary independence and public accountability, a balancing act that is particularly tenuous when it comes to the question of appropriate federal intervention into hyperinflationary college prices.
In the lead-up to the 1998 Higher Education Act reauthorization, I thought the most appropriate solution was to enlist higher education experts. In doing so, we established the National Commission on the Cost of Higher Education. In simplest terms, the Commission recommended that colleges be required to disclose more detailed financial information, while also self-examining to identify strategies that would hold down costs. These seemingly modest recommendations were given a cool reception, to put it mildly.
After swiftly rejecting the Commission’s proposed reforms, the higher education community pledged to deal with rising tuitions independently. Lawmakers were given assurances that colleges and universities recognized the pressing need to hold down costs, and would act accordingly, without intervention. Unfortunately, it seems the college affordability gap has only grown wider in the decade since.
When we began the current HEA reform cycle in 2003, I knew colleges could no longer go it alone. Congress needed to do something. Building on the recommendations of the Commission, I proposed a College Affordability Index to help students and families better understand and compare tuition increases. Five years later, the details have been refined but the principle remains the same -- thanks to the bill we are about to consider, higher education consumers will finally be given the information they need to start exercising their power in the marketplace.
Luckily for students and families, Congressional action has not occurred in a vacuum. Colleges and universities have begun to recognize that the college cost crisis is not a figment of Congressional imagination, but a serious threat to educational equality and American competitiveness. The higher education community has also come to the conclusion that while congressional action is inevitable, institutions can still be the primary drivers of reform if they step up to the plate now and take a leadership role, rather than forcing Congress to intervene more aggressively.
Some in the higher education community continue to bury their heads in the sand and reject the very existence of a college cost crisis. Others acknowledge the problem, but spend more time criticizing our proposed solutions than offering creative responses of their own. Neither of these stances is acceptable.
Late last year, the Education and Labor Committee unanimously approved legislation that takes meaningful steps to keep college affordable. The bill will receive strong, bipartisan support in the House this week, and later this year our efforts to solve the college cost crisis will become law. College costs have dominated the 1998 and 2008 HEA reforms. Let’s hope that in another 10 years we will have finally changed the subject.
Howard P. (Buck) McKeon
Rep. Howard P. (Buck) McKeon of California is the senior Republican on the House of Representatives Committee on Education and Labor.
With titles such as Our Underachieving Colleges, Going Broke by Degree,Excellence Without a Soul, and Remaking the American University, several excellent books have argued in recent years that there is significant room for improvement in American undergraduate education. As a former student, parent of students, college faculty member, and taxpayer, I share this view.
As a researcher who studies entrepreneurship, I have observed entrepreneurs successfully develop the non-traditional student market. I have wondered if the traditional student market could be revitalized by a major wave of entrepreneurially driven innovation. So, in "The $7,376 'Ivies,' " a study soon to be published by the Center for College Affordability and Productivity, I looked at undergraduate education for traditional students as if I were exploring a new venture opportunity.
I started by creating a value-designed model for a hypothetical college, and then determined its cost by developing a detailed pro forma income statement. By value-designed model, I mean a model designed for value “customers”. These are the students (or perhaps more often their parents) who are looking for “value” -- a high quality product at a relatively low price. When buying a car, they’ll take a $22,000 Toyota Camry over a $105,000 Mercedes S or a $10,000 Chevy Aveo 5. To get to a low enough price point for the value customer, a college must either have a large subsidy from public or private sources, or have lower costs. I looked at the cost side. As the title of my study suggests, I found that value-designed models of undergraduate education can radically reduce costs AND increase quality.
The hypothetical school I designed is called the College of Entrepreneurial Leadership & Society (CELS). CELS is designed for traditional, undergraduate college students of moderately selective to highly selective academic standing who want to be actively involved in the “college experience.” CELS is not for students interested in a pure vocational school or an ivory tower. Rather, CELS targets students who want to exit college a better, more mature person with a solid foundation for life and a successful career.
CELS will offer a broad curriculum that provides students with a strong liberal education, appropriate technical skill for entry level+1 jobs, potential to be general manager of an organization in their chosen profession early in their career, plus foundational skills and knowledge for life outside of work. Majors will be offered in Behavioral Science, Business, Communication Arts, Education, Engineering Science, Information Technology, Letters & Civilization (interdisciplinary humanities), Public Affairs and Science & Technology.
As a former student and parent, I think CELS would provide an extremely high quality education. You may not share this view. That is fine. The market for higher education is large with multiple segments. Several value designed models are viable, and can produce significant cost savings.
For example, a CELS with 3200 students would have a total operating cost (without room and board) of under $8,000 per student. This is the cost to the school, not the cost to the student. Price (i.e. tuition) is the cost to the student. Because most colleges are heavily subsidized by a state and or/private philanthropy, they are able to charge tuition well below their actual cost. CELS’s cost of under $8,000 is drastically below the cost of “top” liberal arts schools ($25,000 to $62,000) that cater to prestige-oriented customers. But it is also well below the $12,000 cost of public regional colleges who have many price driven customers and a less academically selective student body. So, if a CELS received the same level of subsidy as a public regional college, it could charge students about $4,000 less than the regional, even though the product was competitive with the “top” liberal arts schools.
To arrive at this low cost position, I didn’t cut corners on anything that was important to the CELS value proposition. CELS doesn’t use many adjuncts, faculty salaries are competitive with those at research universities’, a laptop is included in tuition, the Division III football stadium has a Jumbotron, etc. As the CELS example illustrates, a college using a value designed model could deliver a prestige quality product to its target market and yet have vastly lower costs .
The key to getting higher quality and lower cost is to constantly use a value mentality when designing the model. All decisions need to be made so as to maximize value to the target market. Who are your potential students and what package of benefits (primarily learning) and price is attractive to them? It is crucial to realize that different target markets may be looking for different benefits. Students at a No Frills University may not be interested in a “college experience”, but CELS students think it extremely important. Ivory Tower College students may see the study of “Knot Theory“ or “Divas, Death, and Dementia on the Operatic Stage“ as vital to their education, while CELS students will find these topics an academic curiosity at best. So how to maximize value varies from college to college.
However, there are some major techniques that simultaneously add value and decrease costs, no matter what the target market.
Having a coherent curriculum. A well-designed curriculum is key to both improving student learning and lowering costs. Providing a personalized education through mass customization is possible if you build upon a well-designed platform of courses for both general education and the major. While done to insure quality of learning, significant cost savings also ensue because you are reducing the number of class sections you offer. At CELS almost 50 percent of a student’s course work is a set of general education courses that are required for everybody. CELS faculty will spend a great deal of time designing these courses to insure that they provide a consistent learning experience so that every CELS student will graduate with the core general knowledge and skills for their future. The same approach will be taken in the design of required courses for the major. Given a strong platform in both general education and their major, students can use the remaining 20 percent to customize their education. They can pick specialized courses in their major, courses from other majors and off-campus learning experiences to match their individual career goals and personal interests.
Using appropriate teaching technique and technology. What is appropriate varies by course; but generally active learning works better than passive, and active learning can generally be done as well in a class of 100 as a class of 5. (The exception is when the students’ work product needs to be highly customized). A lecture format class of 25 students is much less effective than a class of 100 using an active learning format, but costs four times more per student to deliver. For example, Socratic case method classes of 100 have long been used successfully in major law schools and graduate business schools.
Consolidating majors. Intellectually fragmented arts and science majors and highly specialized professional majors are not appropriate for an undergraduate education. They also significantly increase the number of undersubscribed classes that have to be offered. In other words, rather than Accounting, Finance, Management, and Marketing majors, CELS has a Business major. Similarly, CELS has Letters and Civilization rather than English, History, Philosophy and Religion.
Keeping the undergraduate education mission primary. Other missions like graduate education and research can add significant costs. While good missions in their own right, they provide little if any direct benefit to undergraduate students. In addition, they have a tendency to distract attention from undergraduate education. Performing them may actually reduce benefits to undergraduate students. So, at CELS expectations for faculty research range from modest to non-existent. From CELS’s perspective, faculty can do research as a job perk, not because it is a vital part of our mission.
Reducing organizational silos. Disciplinary and functional silos are a barrier to providing a coordinated education that meets students’ needs. In addition, reducing silos lowers cost by reducing the number of faculty and administrators needed. For example, at CELS, faculty are in multi-disciplinary units along the lines of the majors. Individually, most faculty have some multi-disciplinary skills so it is much easy to coordinate interdisciplinary education, and you need fewer faculty. Because there are fewer faculty and CELS is not a research school, there is no need for an extra level of management (deans’ offices) between the front line supervisors (department chairs) and provost.
With a value-designed model, a college can deliver a prestige quality product to its target market at a fraction of current cost. Value designed models could radically remake higher education, however this cannot be done overnight. Most existing schools should not immediately convert to a value-designed model. New models need to be tested and refined on a small scale before wholesale adoption. Beyond that, the barriers to innovation at most colleges are probably far too high to make wholesale adoption feasible at this time.
Today CELS and other value-designed models should be pioneered by: 1) the social or for-profit entrepreneur interested in starting up a new independent college, 2) the successful multi-college university that wants to pursue radical innovation through a new college without disrupting their existing colleges, and 3) the existing small college that is willing to make major disruptive changes internally in order to drastically improve its value externally.
At this time, public policy makers, concerned citizens, and educators should actively encourage pioneer innovators. Then over time, many existing colleges will imitate the successful pioneers, both because the pioneer has developed the innovation and demonstrated its usefulness, and because the pioneer’s success puts pressure on under-performers to increase productivity. Thus higher education industry performance could improve dramatically overtime. However, in order to reap widespread benefits from innovation in the future, there must be pioneer innovators today.
Vance H. Fried
Vance H. Fried is a professor of management at Oklahoma State University.
In the next 15 years millions more of our citizens must get into and through higher education. Why? According to the statistics and numerous reports published over the last couple of years, we need an educated work force to propel the U.S. economy forward, an economy that is capable of benefiting from and working with rapidly emerging economies around the world. But yet , as Fareed Zakaria wrote in a recent article in Newsweek, “Just as the world is opening up, we are closing down.”
The numbers are in. We know what is needed for the U.S. If our colleges and universities cannot produce the millions of additional graduates, we could confront a crisis that will lead to a preponderance of “closed for business” signs unless urgent and significant action is taken.
Today, most governors, state legislative leaders, and higher education leaders understand that the path to economic security and prosperity for our nation and our states runs through the college campus. Why, then, does the task appear to be so daunting, so overwhelming?
The force of the need to educate many more millions is on a collision course with other forces confronting today’s campuses. The federal budget and many state budgets are constrained by present economic conditions and rocketing spending for defense, public safety, health care, human services and transportation. There likely won’t be a pot of gold at the end of the government budget rainbow for most colleges and universities to garner significantly more operating funds to accomplish what they are being asked to do. Plus, now -- even more than earlier this decade -- policy makers appear to be more opposed to continuous and significant increases in tuition and fees as a means to redress budget shortfalls.
As a result, productivity and affordability in higher education will take center stage just as accountability took center stage this past decade. What is the answer? Of course, there is no one right answer, but answers must be found and they must be found quickly. Collective and empowered leadership will be required on the campus, in governing boards, at state capitols, and in the business sector. No one gets a pass; no one gets to point a finger at the other.
The challenge is to focus on colleges becoming more productive by growing revenues through increased enrollments at the same time they become more efficient in offering their services. After all, both the need and the potential users are there. Most private sector businesses would be delighted to have such a need for their services and would be retooling to meet that need.
Campus and/or system leadership is the key to unlocking doors to greater productivity and affordability. After all, the citizenry will receive their education from the campus, the place where the work gets done. Higher education leaders proclaim that campuses are loaded with the intellectual capital to create and innovate. So, as higher education leaders we should not and cannot wait for government or the private sector to singlehandedly meet these challenges for us. We must take the lead. That may be our greatest public service challenge to date.
The first requirement is for campus leaders to understand and accept the reality, the necessity of meeting the country’s need for millions more educated citizens, while at the same time acknowledging the government budget constraints to do so. Many already do understand this dilemma and would welcome partners in the policy-making realm and business sector to join them in seeking positive solutions. However, if campus leaders resist the challenge and choose to not accept reality, policy makers will likely force external solutions that may not be the most desirable or related to real campus solutions.
What is urgently needed now is collective leadership from the campus, business sector, and policy-making entities to engage as peers in addressing this crisis. Campus leaders should take the first step to create the environment where constructive solutions can be found. Old ways of solving public policy issues -- such as testifying to legislative committees in an "us vs. them" manner -- will not work: such practices foster the belief that every answer must depend on some type of funding.
Yes, initially the campus may need to address some tough questions about existing practices such as the role of tenure and using more part-time faculty, but those questions already exist. Engaging faculty and administrators with policy makers and leaders from the business sector (all in the same room at the same time) will undoubtedly lead to answers that will be more broadly understood, supported, and actually capable of being successfully implemented.
Likewise, policy makers play a key role in addressing the need for a more educated work force and should acknowledge their role in addressing the challenge to educate millions more citizens. They should accept the need for an adequate funding support base for campus operations and financial aid benefiting students at all types of institutions They should discontinue reducing the percentage of the public budget allocated to higher education in order to fund other parts of the budget. They should support innovative approaches to productivity and permit campuses to redirect productivity savings. These actions will send a clear commitment to higher education leaders about policy makers’ commitment to educating many more citizens.
Major, not minor, change will need to be considered by this collective leadership to ensure an affordable postsecondary education for millions more of our citizens. Some ideas to consider putting on the table include the following:
Change the cultural perception of a campus as a “place to go” to be one that provides instruction and enhances learning. Make significant changes to the instructional delivery model. Consider removing traditional time constraints such as quarters and semesters.
Hire campus leaders with a passion for increasing productivity and student success. Hold campus leaders and departments accountable with rewards for specific, significant results. Examples could include increases in the number of courses completed and/or degrees or certificates awarded, reducing time to degree, or reducing student costs.
Provide financial incentives -- even in tough times -- to reward campuses and departments that make significant internal changes to meet the need to educate many more citizens.
Revise state and campus funding allocation formulas to focus on student success rather than attendance, and also focus funding on special initiatives to achieve specific public policy objectives. Give funding priority to departments and institutions that can accommodate increased numbers of students at least cost and reward those that graduate large percentages of those that enter.
Establish departmental budgets that have specific goals to create specific revenue streams and then allow them to use the revenue they generate.
Collaborate. Collaborate. Collaborate. Find ways for campuses and departments to consolidate administrative, student service, and academic support functions required of all campuses. Provide incentives for faculty and departments to collaborate to offer what students need anywhere, anytime.
Focus more on “finishing degrees” for adults who earned credits earlier in their lives but did not receive a credential.
Consider charging tuition and fees tied to the actual costs of instruction. Charges for large general education classes should probably be significantly less than charges for small, highly specialized classes.
Explore having community colleges or selected four-year colleges provide all remedial instruction for the state or region, releasing resources for the other four-year colleges and universities to focus exclusively on college-level courses.
Make greater use of the expertise and experiences of retirees since there will be significant numbers of them who can offer this resource.
Balance career education and liberal arts education opportunities. An economy based on a broadly educated citizenry will be the economy most able to adapt to inevitable and constant changes.
Reduce government regulations and reporting requirements. Government regulations and policies tend to “count” not “produce.” Many policy makers believe that government cannot regulate business to success. The same principle applies to higher education.
Use accountability measures and incentives that truly focus on productivity. Don’t use accountability measures to play “gotcha” since there is no better way to drive down productivity. Accountability measures that focus on “gotchas” will “getcha” very few results.
Making college more affordable and achieving greater productivity are not only worthy goals; they are critical to the economic prosperity of the country and states. No single solution will work for all. Together we can create collaborative solutions and adapt them as needed for particular situations and needs.
This country needs to educate millions more of its citizens during the next decade. Urgent and bold leadership and action is needed to meet this challenge. Higher education leaders should take the lead to create the setting to forge the solutions to make college more affordable and achieve greater productivity. I am optimistic that such leadership exists.
Larry A. Isaak
Larry A. Isaak is president of the Midwestern Higher Education Compact and chancellor emeritus of the North Dakota University System.
Administrative costs on college campuses have soared in recent years, contributing in no small measure to the striking rise in student tuition and fees. Higher education leaders themselves are at least partly to blame for this, as their institutions’ focus on rankings and reputation has led them to spend increasing amounts of time and money on non-academic matters. But true to college officials’ complaints, the growing demands of government regulation also contribute significantly to the administrative bloat.
I propose that institutions be much more explicit about the money they spend to meet federal (and, for public colleges, state) demands. They should add a line to their tuition bills called the Federal Regulatory Compliance Fee, so that parents and students (and, yes, politicians) know just how much regulation costs them. Here’s why.
The explosion in administration costs has been striking. With the number of campus administrators, on average, now equaling the number of faculty members (and, perhaps even exceeding it given the increased reliance on adjunct faculty as resources are shifted to from instructional to full-time administrative positions), it appears that the university administration has become the tail that now wags the educational dog.
Some of this administrative burden is clearly self-imposed. When college students became customers, and institutional rankings became focused on reputation, fund raising and selectivity rather than educational opportunity or academic quality, the education of students became almost incidental to the institutional priority of getting onto somebody’s – anybody’s – top 10 list.
Who has time to worry about what happens in the classroom when there are glossy brochures to design and publish, colleagues to woo (it is they who will assess your institutional reputation when ranking season rolls around), earmarks to seek, research infrastructures to build, grants to win, press to avoid, coaches to hire, merchandising opportunities to pursue and donors to cultivate? I sometimes wonder how cheaply we could run colleges and universities if we got rid of capital campaigns, selectivity ratings, federal grant programs, commercial athletic enterprises, and architectural showcasing and went back to the traditional focus on … silly me … teaching and learning.
Oh that’s right, we do know how affordable it is to educate students without all of the extras -- community colleges are the perpetual reminder of how inexpensive it can be to provide a quality education at an affordable price (although these institutions are currently under-resourced given the role they play not only as institutions of higher education, but also as the new high schools).
Rules Require Cost Shifts
Nonetheless, a great deal of administrative burden does flow from the growing list of federal regulations that may ultimately be the greatest barrier to innovation, efficiency and quality in higher education. Many of these regulations force institutions to shift valuable resources away from classroom instruction and into administrative functions and salaries, not to mention electronic data systems, non-instructional facilities, external advisory groups, and teams of consultants and lawyers who help institutions complete the annual ritual of checking boxes and submitting reports to bureaucrats who are unlikely to read them and who will never confirm their accuracy.
In fact, even when regulators know that they are asking institutions to use outdated and faulty methods to collect inaccurate data on a non-representative population of students, they still hold institutions accountable for producing the coveted report. Can you say … IPEDS?
That does not mean that all regulations are bad or wasteful. Truth be told, there are many regulations that are productive, necessary and critical to maintaining our national edge in the area of higher education. The federal regulatory framework does, in many ways, level the playing field among institutions and set minimal standards for financial and instructional integrity among a group of institutions that are increasingly focused on the wrong priorities. And for those institutions engaged in scientific research, some regulations are critical to ensuring student and worker safety and to protecting our national security when sensitive work or materials are involved (although the current regulations are outdated and far too expansive in this regard).
It is true that colleges and universities can opt out of a great number of federal regulations simply by declining to participate in certain federal programs, such as federal student aid programs and federal grant programs. But during this time of shrinking state support and significant endowment losses, can institutions afford to turn away ANY potential source of funding? I sometimes wonder if institutions ever do the math to determine if the benefits of participating in various federal programs -- and especially federal grant programs -- actually exceed the costs.
While some degree of regulation is a good and necessary thing, how do elected officials, and perhaps even more importantly, the voters, know when the regulatory burden is too great? As we see with each reauthorization of the Higher Education Act of 1965, when Congress can’t do anything to address the legitimate challenges that students or institutions face, they show the love by authorizing grant programs that will never be funded, expanding existing programs that have never shown positive results, and adding layer upon layer of additional regulations so that they can tell their constituents just how serious they are about solving all of higher education’s problems.
Congress can’t actually guarantee that undergraduates will have access to the Nobel-winning faculty featured on the glossy college brochures, and they can’t force an institution to offer enough sections of required courses so that all students can graduate in four years, but they sure can force institutions to tabulate more data and report on more things. Whether or not the data are meaningful or the reports are useful is not terribly important. One wonders, however, if for the cost of writing yet another report, the institution could have hired another professor to teach freshman composition.
Sure, it sounds good for an elected official to say that he or she is going to hold an institution “accountable” for instructional quality, or campus safety, or cost containment, but what if the regulatory framework intended to improve a legitimate problem only makes it worse? For example, what if regulations aimed at increasing retention rates serve only to provide the sort of perverse incentives that further erode institutional quality? After all, the unintended consequence of our past efforts to increase high school completion rates is that we essentially made the high school diploma meaningless, and yet we still can’t give the thing away to 20% of the population.
Or what if regulations intended to control escalating college costs serve only to make it more expensive to operate – and, therefore, attend – an institution of higher education? What if regulations intended to increase the quality of classroom instruction do nothing more than shift precious resources away from the classroom and over to the administration building?
The problem with our current regulatory system is that voters do not have access to the sort of information that would allow them to evaluate the true efficacy or the actual cost of the regulations created or imposed by the officials they elect (no, elected officials don’t write the regulations, but it is they who write the laws that require, and set the specifications by which agencies promulgate and enforce regulations). I’ll bet that the average student or parent has no idea just how many federal regulations apply to institutions of higher education, or how the compliance burden contributes to soaring costs.
Elected officials of both parties have realized the polling benefits associated with castigating higher education leaders about rising tuition costs, but do the voters understand that each time Congress passes a law, they contribute significantly to those rising college costs? In the absence of good information, voters seem to think that doing something is better than doing nothing, especially when they are misled into believing that someone other than them will pay the cost (as if regulatory costs are ever absorbed by producers and not passed along to consumers).
Calculating, Not Complaining
In order to provide students and voters with the information they need to make informed decisions, it is imperative that colleges and universities provide clear information about the true costs of these regulations to the people who ultimately foot the bill -- the students, their parents, and the taxpayers.
Instead of just complaining about regulatory burden, colleges and universities should take the time to calculate actual cost of compliance -- including the cost of personnel, information systems, specialized facilities, and programmatic changes that are required to meet regulatory standards -- and then disclose this information to students and the public on the institution’s homepage as well as on each student’s bill.
Moreover, instead of burying compliance costs in the overall tuition rate, I urge institutions to start billing students separately for their portion of the compliance costs through a line-item Federal Regulatory Compliance Fee. Utilities have used this sort of billing practice for years, and perhaps it is time that colleges and universities follow the lead to inform students of just how much the federal government shares in creating, rather than solving, the problem of rising college costs.
Then, when new regulations require the institution to hire more staff or purchase new technology, the students will understand the direct connection between the cost of attendance and increased regulatory burden. Not only will this allow academic leaders to place the cost-increase blame squarely on the shoulders of the responsible parties, but it will also provide students and the public with the information they need to engage more effectively in the democratic process.
Conversely, the data may reveal that regulatory burden contributes only minimally to rising college costs, in which case we know to start looking harder for the real problem.
Regulations clearly have associated benefits as well as costs, but there is generally scant information about the cost side of the equation and an overabundance of promises on the benefits side. It is my guess that once students and the public have access to accurate information, they may be willing to forfeit a few of those “government assurances” in order to be able to afford the opportunity to attend college in the first place.
And with a paring down of regulations to those that are truly important, institutions may be better positioned to comply more fully while at the same time allowing the dog to, once again, wag its tail.
Diane Auer Jones
Diane Auer Jones is president and CEO of the Washington Campus and former U.S. assistant secretary for postsecondary education.
Recent headlines have been full of disappointment for Americans, particularly regarding institutions that affect their daily lives. First it was the banks who argued that they were “too big to fail” in asking for a federal bailout and then proceeded to award obscene bonuses to their executives. Then it was the automakers, who made a mockery of the maxim “what’s good for General Motors is good for the country” when CEOs of the “big three” took corporate jets to Washington to plead for their own rescue package.
Now, it seems, higher education is joining the list. As colleges and universities hike tuition and cap enrollments while pleading for billions of federal dollars, we have new evidence that public disappointment and disillusionment with higher education are building rapidly. Through new opinion research conducted by our organization, the National Center for Public Policy and Higher Education, and Public Agenda, the American public is sending messages that colleges and universities and state and federal policymakers cannot afford to ignore. These messages include:
Alma mater has become Higher Ed, Inc. While most academics bristle at the admonition for higher education to run more like a business, that is exactly what’s happening in the public’s view, and they’re not sure they like it. We were surprised enough when more than half of Americans voiced the belief three years ago that colleges and universities are more interested in their bottom lines than in providing a good education for students. We have been even more surprised -- and dismayed -- to see that figure jump almost 10 percentage points in just three years.
Let’s be clear. The public is not saying that they do not want higher education institutions to focus on efficiency and effectiveness. In fact, they believe colleges and universities could educate more students with the resources they have. When they see tuition rates outpacing the average family’s paycheck even in times of economic distress, or read stories about excessive compensation of college presidents or about universities bailing out athletic programs while furloughing faculty, it isn’t hard to see how people might be just a bit skeptical about higher education’s priorities.
We can walk and chew gum when it comes to balancing access, quality and cost. In some of our earlier research, we uncovered a pervasive belief among college presidents that cost, access, and quality are locked in a zero-sum game, one that we dubbed “the iron triangle.” Expanding access means either increasing costs or sacrificing quality, containing costs requires limited access or skimping on quality, and so on. As in previous recessions, we are seeing this belief in action in the states, as some of our largest public college and university systems are freezing or rolling back enrollment and/or hiking tuition in the name of preserving quality.
The problem is that a growing majority of Americans just don’t buy that line of argument. More than half of those surveyed agree with the statements that colleges could spend less and still provide a quality education and that colleges could serve more students without hiking prices or damaging quality. These numbers have held steady over the past three years, which is not surprising, given that most people are experiencing significant changes in the workplace due to the recession, international competition, and technological change. They have not seen evidence of parallel innovations in higher education, and they’re wondering why.
We can’t live without higher education, but can we live with it? Simply put, people are feeling trapped. The “squeeze play” -- the combination of beliefs that higher education is essential but that many qualified students are being shut out -- continues and the majority agreeing with both of these statements has reached record highs. This trend is likely to continue as the economy continues to punish the undereducated most severely, and the fiscal slump prompts more tuition hikes and enrollment caps in the face of severe national economic distress. As the squeeze on students and families intensifies and confidence in the altruistic mission of colleges erodes, higher education’s position in the competition for public resources when the economy recovers may be seriously undermined.
So what does this mean?
For colleges and universities and their advocates in Washington, the message being sent by the public is clear. Spending time and money explaining why higher education is essential to the nation’s future is not the answer. Our data show very plainly that the American people get it when it comes to the need for higher education. But those same data also depict a public that is quickly becoming increasingly skeptical of the leadership and management of colleges and universities.
Rather than acknowledging the public’s concerns, some higher education lobbyists and advocates instead criticize the public as uninformed. While the average American may not understand the details of the higher education enterprise, the point is that the American people are anxious, frustrated, and not convinced that colleges and universities are being managed in ways that are consistent with their values. A PR campaign will not fix that. In this case, actions truly will speak louder than words.
For policy makers at the state and federal levels, these numbers represent a signal that voters are increasingly interested in what they are doing and will do to keep higher education affordable and accessible. The answers will not be easy in this campaign season, with the federal stimulus tapering off and many states facing severe budget shortfalls.
The inconvenient but unavoidable truth is that the time has come to talk about real changes in how higher education is funded and delivered.
In February 2009, at a meeting of the American Council on Education, I challenged a group of university presidents and other leaders of higher education to focus on the need for greater innovation in higher education. I encouraged those leaders to heed the lesson offered by George Romney to the auto industry in the 1970s to innovate or lose their advantage: “There is nothing more vulnerable than entrenched success,” he said. I followed up in October 2009 with an article in Newsweek entitled "The Three-Year Solution: How the reinvention of higher education benefits parents, students, and schools."
The response has been pleasantly surprising.
Over the past year and a half, a growing number of institutions of higher education came forward with proposals to offer three-year degrees to their students. Here are a few examples:
Grace College, in Winona Lake, Ind., is offering an accelerated three-year degree in each of its 50-plus major areas of study. Dr. Ronald Manahan, Grace's president, cites the cost of college as a driving force behind the decision. “We have listened to people’s concerns about [the cost of] higher education and we are answering them,” he said.
Chatham University, in Pittsburgh, Pa., is offering a three-year bachelor of interior architecture without summer classes, allowing students to get into the job market a year earlier. School officials have reconfigured the four-year degree by cutting Studio classes from 14 weeks to just seven, and when compared to similar programs, these students graduate two years earlier.
Texas Tech University, in Lubbock, Tex., is offering an accelerated three-year medical degree, rather than the usual four. The program is aimed at making it easier and more affordable for students to become family doctors.
As institutions of higher education look into the possibility of offering a three-year degree, some have run into federal policies that seem to interfere with their ability to innovate. For example, this May I received a letter from Jimmy Cheek, chancellor of the University of Tennessee-Knoxville, describing a potential obstacle to a three-year degree surrounding student loans.
Here’s the issue: Under the Higher Education Act, student loan limits are tightly set to prevent over-borrowing by students. Federal annual loan limits and lifetime loan limits establish a maximum amount one can borrow under the federal student loan program. The annual loan limits are designed to pay for two semesters per year (see chart below).
Example: Scheduled Academic Year
Scheduled Academic Year 1
Fall 2010 and Spring 2011
Scheduled Academic Year 2
Fall 2011 and Spring 2012
Scheduled Academic Year 3
Fall 2012 and Spring 2013
Scheduled Academic Year 4
Fall 2013 and Spring 2014
For most institutions of higher education, and most students, this works and makes sense. But 3-year degree students often take a third semester’s worth of classes over the summer. The federal limits appear to prevent students from obtaining a loan to pay for those summer courses.
Fortunately, there is a solution. Working with the Congressional Research Service, and the staff of the U.S. Department of Education, my office has identified an option that exists under current regulations to give flexibility on these loan limits to institutions of higher education and students. Instead of following a standard “Scheduled Academic Year” as outlined above, an institution of higher education offering a three-year degree could award loans to students through a “Borrower-Based Academic Year," per the chart below:
Example: Borrower-Based Academic Year
Scheduled Academic Year 1
Fall 2010 and Spring 2011
Scheduled Academic Year 2
Summer 2011 and Fall 2011
Scheduled Academic Year 3
Spring 2012 and Summer 2012
Scheduled Academic Year 4
Fall 2012 and Spring 2013
This option would use the same annual loan limits and lifetime loan limits, but compress them to match the student’s academic schedule. Compared to the typical “Fall-Spring” academic year over each of the four years, a three-year degree program could use a “Fall-Spring, Summer-Fall, Spring-Summer” structure to allow for a compressed academic schedule.
I have been told that this “Borrower-Based Academic Year” option is currently not well used because it is administratively complicated for institutions to offer both “Scheduled Academic Year” and “Borrower-Based Academic Year” loan structures at the same time for individual students. But for an institution that offers a comprehensive three-year degree program involving a number of students, this seems to make sense as a way of helping students in that program afford the tuition and fees.
I have asked Chancellor Cheek to let me know if this option would work for the University of Tennessee, or if more flexibility needs to be added. When Congress last reauthorized the Higher Education Act in 2008, we made several changes to the Pell Grant program to allow that funding to be used on a year-round basis. There is no reason students should not have that same flexibility with their student loans.
It is my hope that more institutions will explore innovative ways to provide a high-quality postsecondary education. The three-year degree is one idea for some well-prepared students, but it is vital to our competitiveness as a nation that we develop other ideas to improve the efficiency of higher education and expand access to more Americans.
Institutions of higher education are rightly feeling pressure from parents, students, state and local leaders, the business community, Congress, and the Obama administration to do a better job of providing more Americans with a quality college education at an affordable price. That pressure will likely grow more intense every year as more jobs require higher education, advanced certificates, or technological skills from their applicants.
Some have asked whether all colleges and universities should be required to offer a three-year degree. My answer is a resounding no. Just as the hybrid car isn’t for everyone, all students and all institutions won’t want a three-year degree. The last thing we need is more federal mandates on higher education.
The strength of our higher education system is that we have 6,000 independent, autonomous institutions that compete in the marketplace for students. It is that marketplace that needs to develop the new ideas for the future -- and not become a victim of its own “entrenched success" -- so that our students, and our country, can continue to thrive.
Senator Lamar Alexander
Sen. Lamar Alexander (R-Tenn.) is chairman of the Senate Republican Conference and a member of the Senate Committee on Health, Education, Labor and Pensions. He served as U.S. secretary of education under President George H.W. Bush and as president of the University of Tennessee.
Rather than bore you with the details of our recent report highlighting problems with the Higher Education Price Index (HEPI) and the Higher Education Cost Adjustment (HECA), we thought we’d tell you about recent developments concerning lunch at the Center for College Affordability and Productivity (CCAP).
Contract negotiations at CCAP typically involve plenty of Janx Spirits and closely resemble Ford Prefect’s favorite drinking game. After winning the previous round against our boss, we insisted on a lunch per diem. We decided that we would construct the Lunchtime Cost Index (LCI) so that we would know how much the per diem should be each week.
Everything was going smoothly, until one day, while eating our now routine steak and scotch lunch at Smith and Wollensky, we realized that CCAP was in dire financial straits. We conducted a thorough analysis to determine the cause of this unexpected turn of events. It turned out we were spending an inordinate amount of money on the newly established lunch per diems. We studied charts showing that the per diems, adjusted by the LCI, were relatively stable. And yet here we were, running out of money.
With little else to be done, we brought in consultants to get to the bottom of things. The final ValueLandShackWoodenShowerRepair, LLC report (we couldn’t afford the better-known PricewaterhouseCoopers) pointed out that when determining the cost of the per diems to CCAP, it was inappropriate to adjust them by the LCI. Doing so indicated the cost of the per diems relative to the cost of lunch (assuming the LCI accurately gauged the cost of lunch), but what we wanted to know was the cost of the per diems relative to everything else in the budget – something that a lunch-specific price index could not reveal.
Moreover, it turns out that the LCI was not even a good measure of the cost of lunch, because it was biased whenever there was a change in productivity, whenever substitution occurred, whenever quality changed, and because it was self-referential.
Prior to the lunch per diem, Andrew and Jonathan would trek to Subway and order an a la carte meatball sub every day ($5.00). The LCI was supposed to tell us the cost of maintaining a meatball sub’s worth of lunch. However, shortly after CCAP introduced the per diem, Subway introduced value meals. Now, we could get chips and a drink with our sub for the same $5.00. Theoretically, the LCI should have registered this as a decline in the cost of a meatball sub’s worth of lunch. But since we were still spending $5.00 at lunch, and the LCI was determined by asking how much the standard meatball sub option at Subway costs, the LCI reported that the cost of lunch was unchanged. Economists would say that the LCI missed the productivity increase -- more output (lunch) for the same input ($5) - and was therefore biased upward.
The following month, Subway raised the price of their meatball sub meal to $6.00. Quizno’s, however, did not. The price of their meatball sub meal remained at $5.00. Jonathan and Andrew started buying Quizno’s subs instead. However, the LCI continued to ask how much a meatball sub at Subway costs. By failing to account for the substitution from Subway to Quizno’s when their relative prices changed, the LCI was again biased upwards (reporting an increase when actual spending was unchanged).
The astute staff at CCAP quickly diagnosed this particular problem, and changed the methodology of the LCI from just the cost of a meatball sub at Subway to tabulating lunch costs wherever they were spent. In retrospect, this merely caused other problems.
Since Jonathan and Andrew were used to spending $5 out of pocket prior to the per diem, after they started receiving the per diem, it wasn’t long before they started to buy higher-quality meals. They were still willing to spend $5 out of pocket on lunch, which with the per diem meant that they could now spend $10. They started off upgrading to chicken subs at Subway and Quizno’s. These higher-cost subs would then drive up the LCI, and as the LCI grew, the per diem grew.
Of course, the cost of a meatball sub's worth of lunch hadn’t changed, but as higher-quality subs were ordered, the LCI was unable to disentangle the different effects. Because the LCI did not hold the quality of lunch constant, it was unable to distinguish between (1) cost increases due to changes in the quality of lunch and (2) cost increases due to higher prices for a given lunch.
The last problem we discovered was that our actions affected the LCI. As the per diem increased, it wasn’t long before Jonathan and Andrew began venturing beyond Subway and Quizno’s. Each move resulted in higher spending, which led to a higher LCI, which led to a higher per diem, which then spurred us to go to a better restaurant, starting the cycle again. The LCI kept increasing, not because the cost of lunch kept increasing, but simply because we spent more. In other words, the LCI was self-referential. It wasn’t long before we were eating a steak and scotch lunch at Smith and Wollensky every day.
Our consultants suggested that rather than creating a highly specific price index with all these problems, we should just use what everyone else uses 90 percent of the time, the Consumer Price Index (CPI). While the LCI was useful in answering some questions that were specific to CCAP lunch patterns, it was not at all appropriate to rely on it as a gauge of how much lunch should cost.
Sadly, before this sensible change could be implemented, Jonathan and Andrew lost the next round of contract negotiations, and with it, their lunch per diem. In fact, as punishment for the lost revenue, Jonathan and Andrew are required to write more op-eds. Fortunately, they’ve discovered that fiction can at times be easier to write than nonfiction.
Ridiculous as this may seem, our lunchtime escapades are not too far off from what has been occurring with HEPI and HECA in the higher education industry. In addition to both of them suffering from quality, productivity, and substitution biases, the HEPI is self-referential. Even more importantly, because of what they measure and how they measure it, their actual usage deviates substantially from their appropriate usage.