Changing Higher Education

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)

An unusual new initiative in outcome measures and transparency

 The President's Forum, a consortium led by Excelsior College of adult-serving higher education institutions, announced on October 22 a new initiative on transparency and accountability.  This new initiative, called Transparency by Design,  provides a comprehensive action plan aimed at elevating the quality of higher education available to adults. A central component of this plan will be to provide program-specific outcomes data that will help students to make informed decisions about their education investment:

Transparency by Design institutions, which currently number 10 colleges and universities, plan to issue annual Transparency By Design Reports in the first quarter of each year, starting in 2009. These reports will include comprehensive data for each course of study, including student demographics, completion rates, costs, student engagement and knowledge and skills learned. Most important, Transparency By Design Reports will include outcomes at the program specialization level, allowing prospective students to assess how well a program will prepare them for their professional pursuits.

This initiative is obviously one of many recent efforts to create higher education outcomes measures that can be useful to prospective students.  What is most interesting about this initiative, however, is that the consortium members are a mix of non-profit and for-profit adult- focused higher education institutions.  On the for profit-side are such well known names as Kaplan and Capella Universities, while on the non-profit side one finds the relatively new Western Governors University and the older and well regarded Fielding Graduate University.

This partnership of the for- and non-profit sectors to provide comparative outcomes data strikes me as a landmark event with considerable importance for the evolution of higher education.  From my perspective, the sooner we get beyond considering education to be of high or low quality simply based on its profit status, and move to looking at real outcomes, the better off we shall all be.

Inventing the global university: the competition among the for-profits increases

Up until now, Laureate Education has been pretty much the only institution working to build a truly global university.  Most recently, Laureate was taken private by a group of heavy hitters (including the endowment funds of Stanford and Harvard) so that it could take an even more aggressive approach to creating the first really global higher education entity (see Doug Becker moves to China, July 26, 2007).   However, Apollo Group, which previously has had a relatively  unsuccessful venture into globalization, has now taken on a substantial partner itself with the goal of stepping up the competition with Laureate. 

Apollo has partnered  with the Carlyle Group to form a $1B joint venture called Apollo Global to invest in education services outside the US.  Details are scarce at the moment, but it appears likely that the focus of this new enterprise will be on China, India, and Latin America.  Brooke B. Coburn, Managing Director and Co-head of Carlyle Venture Partners III, L.P., said in a Carlyle press release, “Global demand for higher education is strong.  Apollo Group’s operational expertise coupled with Carlyle’s global network make this a powerful partnership.” Some financial analysts are suggesting that the approach taken by this new partnership will be similar to that taken by Laureate - buying existing schools in the target regions.   It will be very interesting to learn more about the strategy of this new player - and to watch the response of Laureate.