The Spending War on Student Recruitment

At a time when everyone should be committed to lowering the cost of college, it could trigger a windfall for education marketers and become the most expensive component of a higher education, writes John Katzman.

April 18, 2016

There’s been a great deal of recent press and politics around the climbing walls, lazy rivers and other seemingly lavish campus amenities that have become commonplace at colleges and universities. But critics are missing the real arms race in higher education: a new student-recruitment spending war that is orders of magnitude more expensive and ends in only higher tuition rates for students -- with none of the fun and relaxation.

For decades, nonprofit colleges and universities spent around 2 percent of their tuition revenue on recruitment -- on things such as direct marketing and other marketing initiatives. Spending a great deal of money on recruitment was pointless -- while it might yield more applications and therefore a higher selectivity and better U.S. News ranking, a university’s physical facilities limited capacity. Exponentially growing enrollments led to more buildings, professors and maintenance engineers -- all with long lead times and high costs.

Twenty years ago, for-profit colleges emerged in shopping centers and others in physical spaces that were less costly and easily expandable. The for-profits invested heavily in marketing and recruited effectively; enrollment grew by 225 percent in the decade ending in 2008. But though they won reputations as great marketers, they were actually just prolific ones, spending 10 times more than traditional institutions -- almost 20 percent of their tuition revenue.

In the past decade, colleges moved their degree programs online, eliminating physical constraints entirely. With the limitless scaling potential of online learning, nonprofit institutions have brought more and more programs online. This has given prospective students hundreds of new options within easy reach.

In many ways that is what online higher education was meant to do -- increase access and options for students and spur competition among colleges. That, in turn, promised to lower costs through efficiency and produce better quality. And it still can.

However, this access is creating a massive problem: those lower costs allow colleges to spend more on marketing, and the new competition forces them to spend more. As nonprofit marketing budgets start to look like those of the for-profits, the annual recruiting spend of American colleges will move inexorably from its current $10 billion to $100 billion a year.

As bad as the amount of this new spend are the tactics. To populate their online programs and appear more selective, colleges hire shady companies to generate clicks and inquiries, then drive those inquiries to call centers using sophisticated scoring algorithms. And to lower risk, many are offering marketing and management firms direct shares of their online tuition revenue. My company, Noodle Partners, has been offered 30 percent of tuition to market and recruit students by more than one university. Needless to say, we declined (among other problems, that violates Title IV regulations).

This new and bizarre arms race could trigger a windfall for education marketers and make recruiting the most expensive component of a higher education. At a time when everyone should be committed to lowering the cost of postsecondary education, this seems an unconscionable use of federal student loan and student tuition dollars -- especially considering that marketing costs don’t directly contribute to better quality or efficiency.

It’s likewise difficult to see a benefit for consumers in other industries with runaway marketing budgets. Pharmaceutical companies have, for example, steadily increased their marketing budgets to 24 percent of their revenue since 1990, but Americans haven’t gotten healthier as a result.

To get this marketing explosion in check, a statutory or regulatory fix may be needed. For instance, Congress could limit subsidized student loans to the cost of the education itself, as the former Senator Tom Harkin once proposed, avoiding subsidies for recruiting expenses and profit. Or the Department of Education could limit outside providers from sharing tuition revenue if marketing spend exceeds 5 percent of tuition (of course, this limit would have to somehow be extended to universities’ in-house programs as well).

Whatever solution we settle on, the higher ed marketing assault needs rules of engagement before it goes nuclear.


John Katzman is CEO of Noodle Partners and founder of The Noodle Companies. 


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