Better-Than-Ivy Education: $7,376 a Year

July 8, 2008


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 is a professor of management at Oklahoma State University.

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