UV Letter - Volume 1, #5
In a prior newsletter, we situated higher education at the base of an arduous and inexorable climb up the mountain of ROI - return on investment. Unprecedented reductions in state funding of university and community college systems have already started many institutions on this journey. Aside from elite institutions, which will always have a line out the door and down the street, institutions that survive and thrive will be those that are able to demonstrate a compelling ROI to prospective students and their families.
What are the elements of ROI? As we discussed, opportunity cost is a big one. Universities that structure programs in a way that not only permit, but encourage students to work full-time while earning a degree will demonstrate a superior ROI, ceteris paribus.
The other cost element is direct expense: tuition and fees. Over the past 15 years, tuition and fees have increased by more than 60% at private universities, and by more than 80% at public institutions. The result is an unprecedented increase in student loan debt. According to the Federal Reserve, since 1999 outstanding student loan debt has grown by 511%. It now stands at $930 billion and is expected to reach $1 trillion by the end the year.
As one surveys the higher education landscape to identify an educational input that appears to have risen as swiftly as the debt-output, the correlation that comes closest is spending on administration.
Between 1975 and 2005, the number of administrators at colleges and universities grew by 85%, and the number of associated professional staff grew by 240%. (As a comparison, over the past 15 years, the ratio of administrators to students grew 39%, while the ratio of employees engaged in teaching or research to students grew 18%.)
One of the primary drivers of this phenomenon is the U.S. News rankings. U.S. News and other rankings were created to evaluate elite universities. But one important side effect is that thousands of non- elite schools ranked by U.S. News have increased spending per student in an attempt to improve their relative position in the rankings.
The unfortunate result is a uniform model of program delivery where most American colleges and universities aim to become "The Harvard of the __________" (fill in the blank for the region). This valiant effort requires offering the same range of programs, and attempting to provide the same services as an institution with an endowment of nearly $30 billion. It's a recipe for inefficient and expensive program delivery, which yields skyrocketing tuition and student debt.
On a more simplistic level, take a look at college catalogues from ten institutions chosen at random. What differences do you see? All claim to offer the same basic programs and experience with little differentiation besides an "international focus," a "community service" experience, or a "values based education."
This relative homogenization of higher education does a huge disservice to students and their families. Unless and until it is reversed - and until most postsecondary institutions begin to focus on their essential purpose - student instruction with measurable educational outcomes - it will mean suboptimal ROI for millions of Americans. And the reverence with which postsecondary education is currently held in this country will undoubtedly dim.
If U.S. News is not the beacon of hope, what is? One interesting model is what's happening in the UK. There, the Conservative - Liberal-Democrat coalition government is in the process of transforming higher education. With a raft of new legislation and regulation, the government is explicitly welcoming private and for-profit providers. They are providing direct incentives for institutions to offer programs at lower price points. And they are inviting specialized programs that were once marginalized (not permitted to call themselves "universities") into the core of higher education.
A report published in August by the Lib-Dem think tank CentreForum (Lib-Dem Vince Cable is the cabinet member responsible for higher education) charts the logical destination of the path the government has embarked upon.
The report, titled "Degrees of Quality: How to Delivery the Courses We Need at the Prices We Can Afford" argues the UK should develop a new system, with the majority of universities delivering programs sourced and by a handful of elite universities. Elite universities would design standardized courses and exams to be delivered in a systematic, standardized manner by the teaching institutions. The result would be a massive reduction of expenses, since universities could focus solely on teaching these terrific programs. It also would increase accountability and student outcomes.
Let's hope the UK continues to move down this road. If her majesty's government succeeds, in 5-10 years we will have a model of how efficient program delivery can improve ROI for American students.
In our next newsletter, we will focus on what technology can do – and equally important, what it cannot do – for colleges and universities beginning to focus on the ROI for their students.
University Ventures Fund invests in universities and service companies in areas where rising demand and shrinking supply create rapidly growing market and student service opportunities.