Changing Higher Education

Big news on the Laureate front

Laureate International Universities just announced it has a new Honorary Chancellor – none other than William J Clinton, 42^nd President of the United States!  According to the press release:

 As Honorary Chancellor, President Clinton will advise this group of universities in areas such as social responsibility, youth leadership and increasing access to higher education.  He will also encourage civic engagement and youth leadership on important social issues during his appearances at university campuses and in print and online messages to the nearly 600,000 students in the Laureate network.

“Last year I had the opportunity to visit Laureate’s universities in Spain, Brazil and Peru to speak to students, faculty, and the communities that they serve,” said President Clinton. “These private universities exemplify the same principles of innovation and social responsibility in education that we worked to advance during my Presidency and now through my Foundation, and I am pleased to support their mission to expand access to higher education, particularly in the developing world.”

A little over a year ago, I wrote a post (Laureate keeps building a global brand) about Laureate’s building of a high-quality global brand.  In addition to focusing on ever-increasing educational quality in their system, they have long recognized the importance of working with groups such as the World Bank to increase access to education, and in participating at international higher education meetings.  The appointment of President Clinton as Honorary Chancellor will help greatly to increase their visibility and brand globally.

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 On another front, Laureate announced last week another acquisition in the US – the WASC accredited National Hispanic University in San Jose, CA. According to the press release:

With its focus on educating the growing and underserved Hispanic population in the United States, NHU complements Laureate International Universities' mission of providing broad access to higher education.

According to the Mercury News:

A new, nonprofit foundation made up of the current trustees will own the property and continue to run the college's charter high school on campus. Laureate will operate the university and pay unspecified rent to the foundation. In addition, the foundation will have three seats on a new NHU board set up by Laureate.

The Mercury News also reports that Laureate hopes to add up to 8000 online students within 5 years, and possibly open other campuses of NHU around the country.  Again, according to the Mercury News, Paula Singer, the President and CEO of the Laureate Higher Education Group:

said NHU offered Laureate an opportunity to tap into a large pool of Hispanic youths who can't afford traditional, campus-based education or don't have time because they work.

It will be interesting to see how Laureate succeeds in expanding educational opportunities to this group without running into the high student debt problems that many other for-profit, online programs have encountered. 

Making a profit on the core educational function

 Following my posting the article Unexamined premises in reporting on the for-profit higher education front, I received an email from an old mentor of mine, John Lombardi.  Like any good mentor, he praised my efforts in that post before gently pointing out that I have missed a key nuance or two in the discussions of the for-profit vs the non-profit sector.  His insights were very interesting, and serve as a springboard for this discussion.  However, he bears no responsibility for distortions of his viewpoints that I might purposely or accidently set out below.

I have often commented that we in the non-profit world of higher education lose money on education.  John pointed out that that is not literally true.  We lose money on the bundled degree product that we sell, which includes education, socialization, athletics, housing, student services, support for professors to create and disseminate knowledge, student recruitment, etc. But if we do the bookkeeping in a different way, we see a different picture. 

Consider first an abstraction that I will call the core costs of instruction.  John argues that these core costs are very similar institution to institution, for-profit and non-profit. That is, the core of education is essentially a commodity. These core costs are always less than the revenue that comes in to pay for the educational product, creating a profit to the institutions. What varies, institution to institution and for-profit to non-profit, is how this profit is used.

Typically, in the non-profit sector, the instructional profit is used to subsidize the various components of the bundled degree.  Some of the subsidized components are themselves part of the instructional “center”. For example, some of the profit is likely to be used to broaden educational offerings beyond the core of profit making offerings, e.g. to support low enrollment majors, and increased breadth of electives.  However, much of the profit goes to non-instructional areas such as student services, student recruitment, athletics, buildings and support for professorial knowledge creation and dissemination by faculty.  Putting all of this together, we over-subsidize. That is, we spend more than the profit made on the core instruction, thus losing money on our now- bundled degree. This deficit must be made up from additional resources (e.g. philanthropy).

Don't assume one (US) size fits all

I published a short article on April 15 on the Times Higher Education website.  The article is entitled From where I sit: Don’t assume one (US) size fits all.  In it, I express some of my concerns about the widespread desire in developing countries to build new universities using US universities as models.  I find that the biggest challenge in consulting in such countries lies in convincing those in charge to focus on what they want and need from their new institution and how to make it happen, rather than on how to create a copy of a successful foreign institution that is optimized to solve a very different set of problems and issues.

I invite you to check it out, and weigh in with comment on either the THE site or here. It is an important issue.      

The latest on tuition discounting from NACUBO

NACUBO has just published its 2009 Tuition Discount Study.  It contains further sobering information regarding difficulties in the current cost/price model of higher education:

After several years of stability, the results from the NACUBO 2009 TDS show that the average tuition discount rate for first-time, full-time freshmen has jumped dramatically. The average discount rate increased from 39 percent in Fall 2007 to 42 percent in Fall 2008. For students who received these grants, the reported average award covered more than half (53.5 percent) of the Fall 2008 tuition and fee “sticker” price.  Due in part to the increases in tuition discount rates and institutional grant awards as a percentage of tuition and fees, net tuition revenue fell 2 percent from 2007 to 2008.

Preliminary results for 2009 are also reported.  Average discount rate took another jump for Fall 2009, going from 2008’s 41.8% to 2009’s 42.3%. The percentage of freshmen receiving financial aid also continued its multi -year march upward, having gone from 78.8% in 2000 to 82.3% in 2008, jumping to 84.3% in 2009. Average award stayed flat in 2009 at the very impressive value of 53.5% of tuition.  The good news seems to be that net tuition revenue rose from 2008 to 2009 by 1.9%. 

But how did net tuition go up when the discount rate went up and the number of freshmen getting grants went up? Simple.  Raise tuition a really large amount.  Indeed, average tuition was raised 6.6% above inflation going from 2008 to 2009! (see: Perspectives on the elephant of college pricing. ) So the really bad news is that simply increasing tuition 2%-3% above inflation as has been the practice for the past several decades is not sufficient to keep the cost/price model in balance.  The growth in discount rate and in percentage of freshmen getting aid grants has upset the balance.  The $64 question is whether this growth is a short-term anomaly produced by the current unusually bad economic conditions, or is the new normal resulting from the 3 decades of higher-than-inflation growth of tuition that has left more and more families financially stretched to the limit.

Any bets?

 

Global higher education funding and the great recession

I highly recommend a very interesting recent paper by John Aubrey Douglass of UC Berkeley, entitled Higher Education Budgets and the Global Recession: Tracking Varied National Responses and Their Consequences.  He looks at the impacts of the current recession on education funding and policy in a number of OECD and other countries, including the US.  His conclusion, as captured in his abstract, is rather disheartening, to say the least:

Preliminary indicators show that most nations have not thus far resorted to uncoordinated cutting of funding for higher education that we generally see in US state systems. Their political leaders see higher education as a key to short-term economic recovery, long-term competitiveness, and often their own political viability –particularly in nations with upcoming elections. Further, although this is speculative, it appears that many nations are using the economic downturn to actually accelerate reform policies, some intended to promote efficiencies, but most focused on improving the quality of their university sector and promoting innovation in their economies. One might postulate that the decisions made today and in reaction to the “Great Recession” by nations will likely speed up global shifts in the race to develop human capital, with the US probably losing some ground.

One of the special difficulties in the US, as Douglas sees it, relates to the fact that 75% of all post-secondary students here attend state-controlled public institutions:

In short, how state budgets go, so goes US higher education; whereas most national systems of higher education financing are tied to national budgets with the ability to borrow and leading to different policy responses – with most OECD nations delaying budget cuts to higher education or, in some instances, actually increasing their investment and enrollment rates.

 Although there is considerable focus in this paper on the US in general and California in particular, it presents very informative and useful snapshots of the impact of the recession on higher education in a number of countries around the globe.

While this report paints a very depressing picture, the OECD report Education at a Glance 2009 shows that 2006 tertiary educational expenditures per student in the US were the highest in the OECD, and a bit over twice the average for OECD countries.  Although it is increasingly clear that global higher education funding trends are not in our favor, it is equally clear that we will remain for some period the leader in expenditures per student. Thus, we have the resources to continue to be highly competitive - if we use our resources more efficiently and effectively.  As noted by Douglas, many of our competitor nations are using this downturn to accelerate needed educational reform.   We should do the same, instead of demanding more resources to support the status quo (see the previous post, The canary in the higher education coal mine).