Changing Higher Education

The Senate keeps up the pressure

In How higher education will contribute to greater access I picked up a theme of earlier posts - both Democrats and Republicans are very interested in increasing access to higher education, lowering college costs is one way to increase access without increasing government spending , and one good way to get costs down is to get the universities and colleges to somehow foot more of the bill themselves.  The most obvious way to get higher education to pay more of the bill is to look to their endowments for greater payout.

Continuing to keep the pressure on this theme, yesterday Sen Max Baucus (D), chair of the Senate Finance Committee, and Sen Charles Grassley (R), senior Republican on the Committee, sent out a letter to 136 of the best endowed colleges and universities asking for considerable data on costs, financial aid, endowment management, growth and payout.   Just in case anyone missed the focus of this request, the press release about the letter quotes Grassley as saying  Tuition has gone up, college presidents’ salaries have gone up, and endowments continue to go up and up. We need to start seeing tuition relief for families go up just as fast. It’s fair to ask whether a college kid should have to wash dishes in the dining hall to pay his tuition when his college has a billion dollars in the bank.

It seems likely that this request will produce considerable data that has not been publicly available previously. And that probably will be a very good thing. However, since each of these institutions differs from the others in sometimes obvious, sometimes subtle ways, viewing the responses in a one-size-fits-all way could lead to some very shortsighted policies.   In any case, it looks as if Higher Education will be following with great interest the activities of the Senate Finance Committee this year.

Why has globalization had such a small effect on higher education - and when will that change?

I recently wrote an article that addressed these provocative questions. It has been accepted for publication in New Directions for Higher Education, to be published by Jossey- Bass. I will just cover some of the main points of the article in this post, and point interested readers to the preprint.

I argued the first premise of this question - that globalization has had a small effect on higher education - by using the taxonomy that Samuel Palmisano defined to classify the stages of industrial globalization (see Globalization and internationalization, June 7, 2006).   I argued that most of what occurs in higher education today fits Palmisano’s 19th century “internationalization” model of hub-and-spoke activities.  I then described the relatively few activities in higher education that fit the early 20th century “multinational” phase, and the even more uncommon higher education activities that have real parallels with “globalization” as the term is generally used in the business literature.  I argued that the “international” activities have little potential to cause major change in higher education, but that both the “multinational” and “globalization” stages have the potential to cause as radical change in higher education as they have in industry generally.   

How higher education will contribute to greater access

In At last, a Democratic alternative to the McKean tuition cap proposal (May 18, 2007), I suggested that although Democratic and Republican approaches to assuring access are somewhat different on the surface, at heart they are quite similar - the universities should pay for increased access, not the government.   The Boston Globe report today on the latest Democratic ideas for increasing access further emphasizes the role that both parties expect higher education to play in assuring affordability and access:

Congress to look at college endowments

By Reuters  |  October 25, 2007

WASHINGTON - Congressional tax writers are taking a hard look at elite US universities' multibillion-dollar endowment funds and considering steps to make them spend more of their riches to help students.

In legislation being developed in the Senate Finance Committee, top universities such as Harvard or Yale might be told to spend at least 5 percent of endowment funds annually, as private foundations must do to keep their tax-free status.

Other steps being considered could slap new endowment rules on colleges that raise tuition above certain annual limits; require more money to go to student aid; or require endowments be more open about operations.

The measures are being hammered out as part of a bill focused on education tax credits that Finance Committee chairman Max Baucus, Montana Democrat, has said he wants to consider this year.

Glittering profits - earned in large part through investments in hedge funds and private equity - and tax breaks at endowments are a talking point in the House, as well, said Representative George Miller, California Democrat.

The breakdown of the price-productivity-cost model of private research universities

I have learned a lot recently  participating in a project on Global Higher Education led by Paul Jansen and Debby Bielak of McKinsey &Co.  The project is sponsored by the Forum for the Future of Higher Education. Paul and Debby have collected a group of university CFO’s, a college president, and an old provost (me) together to apply a McKinsey sector-wide analysis to higher education. It is fascinating to see what such an analysis tells us about our world.

The team recently made a presentation entitled Higher Education Trends and Risks: Implications for Leading Institutions and Sector Performance  at the annual Aspen Symposium of the Forum.  My assignment was to talk about trends and risks for private research universities - in 15 minutes.  I approached this impossible task by first apologizing to the audience for the egregious simplifications that I would have to make in order to describe the situation in 15 minutes, and then introduced my simple one-parameter model to describe the problems facing the research university.  Since this model met with some approval at the Symposium, I thought it might be worth repeating here.

I began by describing what I called our Mission Box. Excellence - as defined by us in a very self-referential way - has become the visible driver of our mission.  Our mission, in a very general way, focuses on traditional undergraduate education, graduate and professional education, and research.  Focusing on excellence means that if it is worth doing (i.e. one of our mission foci), it is worth doing better.  Doing it better costs more money, so at some point the customer can’t, or won’t pay for it, so we lose money.  As a consequence, over time, losing money has become our very visible surrogate for excellence (my one parameter model). (Clayton Christensen, who also spoke at the symposium, has pointed out the often catastrophic outcomes of making your product better than the customer wants or needs. See also Disruptive Technologies:when great universities fail? March 3, 2006)

Real income vs educational level- a problem for higher education

An article in Foreign Affairs, and recent reports from the Pew Trust and ETS all have recently made similar, and very important, points about education and the American economy.  The first article talks about falling real wages and the relationship to protectionism; the Pew Trust looks at decreasing economic mobility in the US, and ETS considers the impacts on the US of a “perfect storm” of divergent skill distributions, the changing economy, and demographic trends.  Taken together, these reports raise some important questions for higher education.

Kenneth F. Scheve and Matthew J Slaughter, writing in the July/August 2007 issue of Foreign Affairs, discuss generally falling wages in the US, and their connection with increasing protectionism.  They point out that real income growth recently has skewed significantly in favor of high earners, with a strong correlation to educational level. They report:
Less than four percent of workers were in educational groups that enjoyed increases in mean real money earnings from 2000 to 2005; mean real money earnings rose for workers with doctorates and professional graduate degrees and fell for all others....Even college graduates and workers with nonprofessional master’s degrees saw their mean real money earnings decline.
In particular, the mean real earnings of college graduates fell by almost 4% between 2000 and 2005, while the mean real earnings of the MBA, JD, MD group rose by about 10%.  Hardest hit, not surprisingly, were high school dropouts, whose mean real earnings dropped by about 5% over that time period.

Supplement to Price and Cost in Higher Education: Price

In Price and Cost in Higher Education: Price I discussed briefly debt load for graduate students.  This note adds a bit of detail to that discussion.

Kenneth Redd of the Council of Graduate Schools reports that in 2003-2004, 43% of minority students were taking out loans to finance their graduate study, with the average annual loan being about $19K.  Thirty four percent of white graduate students were taking out loans, averaging about $18K annually. Upon completing the doctorate, 65% of minority students had outstanding debt, with an average of $51,263, while 51% of white students had an average cumulative debt of $51,648.  These numbers are roughly twice as large as comparable numbers from a decade ago.

Bad as this situation seems, it is better than in some professional schools.  Equal Justice Works recently published a study of debt loads of graduating law students. They found that more than 80% of all law students borrow to support their education.  Upon graduation, students in public institutions had an average debt of $51K, while those from private institutions had an average debt of $79K. While these debt numbers are not prohibitive compared to the $135K median starting salary for an associate in a big law firm in a large city, they are overwhelming for someone looking at public interest law, where starting salaries are in the $36K-$44K range.  This is clearly a situation in which the cost of education is having a significant social impact.

Breaking ranks at the top on tuition

From the Los Angeles Times Jan 22, 2007 edition

Princeton won't increase tuition
From Times Wire Reports
January 22, 2007

Aided by one of the nation's largest endowments, Princeton University decided to hold tuition steady, something it hasn't done in four decades.

Trustees chose to keep tuition at $33,000 for the 2007-08 school year by dipping into its endowment of about $13 billion.

My recent posts Price and Costs in Higher Education: price and the political economic system and Price and Costs in Higher Education: price discuss some of the larger background pertinent to this announcement.  Before concluding that this will set off a wave of similar announcements, however, one needs to note that Princeton has the largest endowment per student of any of the major universities, and thus is most able to make such a decision with the least impact on its programs.

Price and Cost in Higher Education: price and the political-economic system

In a previous post (Price and cost in Higher Education: Price, Jan.  2007) I looked at some data on tuition price increases over time, and the resulting debt load that many students have taken on. In this post, I want to talk, once again, about the ongoing global transition from  nation-states to a market-states (see Welcome to the Market-State,Feb. 20, 2006).   In this instance, I will focus on how that transition might relate to price in higher education.

Bobbitt describes the governing contract of the nation state as: the government (the State) commits to improving the lives of its citizens (the Nation), and in return, the citizens agree to sacrifice to support the state.   In the market state, the government only seeks to maximize the opportunity - rather than the welfare - of its citizens, and individuals then thrive or fail based on their ability to grasp the opportunities offered by the global marketplace.  As a corollary, since the market state is offering less of a guarantee of success to the citizens than does the nation state, the citizens in the former are less prepared to sacrifice on behalf of the state.  One consequence of this change is that there are increasing demands that tax loads decrease, with the result that the state has less revenue in a market state environment.

In the nation state, highly educated people across a broad spectrum of fields are considered to provide intellectual capital of great value to the state (see Metrics of Academic Excellence in the 21st century, Feb. 27, 2006).  However, in a market state, the state focuses its attention on creating educated people in more narrowly defined fields that are deemed to be of importance in order to meed some perceived need of the state.  Higher education overall is considered to be of primary value to the individual, rather than to the collective.  A recent Chronicle of Higher Education survey captures the changing societal view of this public good/private good perspective. The survey showed that 2/3 of adult Americans now believe that families and students should pay the largest share of the costs of higher education.  Similar surveys in the 1960s showed that most Americans believed the converse, that the federal government should pay the largest share of the costs of higher education.  Thus the transition to a market state lowers the responsibility of government to take the lead in paying for higher education.

However, there is a counter trend contained in the market state that gives the state a very large stake in higher education.  As the knowledge economy continues to expand, access to higher education becomes central to the principle of maximized opportunity that undergirds the market state contract.  However, as we saw in Price and cost in Higher Education: Price, increasing price is decreasing access to higher education.  As a consequence, the state needs to find ways to counter the effects of increasing higher education price in order to maintain legitimacy.  As a further constraint, it must do so without significantly increasing its costs of supporting what has increasingly become a private benefit.  And in any case, because of its lowered tax collections, the state is greatly constrained in the financial incentives that it could apply to increasing access even should that be desirable. 

Price and cost in Higher Education: Price

The issue of the rapidly increasing price of higher education has been much in the news of late. Increasingly, one hears calls from Washington for limits on price increases in the name of accessibility.  One hears responses from university groups that focus on rising costs, and the necessity of reflecting those rising costs into the price. (See my comments and links in Report from the Secretary of Education's Commission on the Future of Higher Education, Aug 10, 2006)

In fact, I believe that the calls from Washington are but a part of a broader, long term political-economic trend that inevitably will lead to controlling price in higher education.  If this interpretation is correct, then there are serious issues to be addressed, because I do not believe that costs in higher education can be controlled in a significant way by making trivial administrative changes.

In this post, I review some data on this contentious issue of price. In a subsequent post,  I will place the issue of price of higher education in a larger context of changes in the global political-economic scene, and discuss some ways in which I believe that control of price might occur.  In a yet-later post, I will consider the question of cost, and brainstorm about possible ways it might be controlled.