The Coming College Collapse

Some pretty alarming predictions are being made about American institutions of higher education these days.  Clayton Christensen, a professor at the Harvard Business School, predicts that half of all colleges and universities will close or go bankrupt in the next decade.  That’s upping the ante on a prediction Christensen and Michael Horn made in the New York Times in 2013:  that the bottom 25 percent of every tier of colleges and universities will close or merge out of existence in the next 10 to 15 years.

Abandoned HospitalWhy the dire forecasts?  Because colleges have been struggling for a while now, their business models aren’t sustainable, and demographics and economics indicate that things are going to get worse very soon.

Here’s an interesting point made in the first article linked above:  “Many colleges and universities are increasingly unable to bring in enough revenue to cover their costs. Indeed, the average tuition discount rate was a whopping 49.9% for first-time, full-time freshmen in 2017–18, according to the National Association of College and University Business Officers. That means that students are paying roughly only half of what colleges and universities say they charge. A tuition discount rate above 35% puts a college in a danger zone, particularly when it is heavily dependent on tuition. Many institutions have discount rates far above that now.”

The fact that the average tuition discount rate is nearly 50 percent indicates that it’s high times if you’re somebody whose child is getting ready to go to college.  College tuitions may be like hospital prices lists for different procedures — that is, they are quoted amounts that almost no one really pays — but an average discount of 50 percent is staggering.  Clearly it’s a buyer’s market out there, and buyer’s markets are bad news for sellers, who get caught in price wars that do nothing except cut into their bottom line.  And, in the case of colleges and universities, the fight for students not only involves cutting tuition, but also building new, high-end dormitories, workout facilities, student centers, and other facilities that might appeal to high school kids who are trying to decide where to spend the next four years.

Statistics also show that about 25 percent of private colleges are operating at deficits, and that expenses have exceeded revenues at public colleges over the past three years.  And demographics aren’t helping, either:  the number of American 18-year-olds who are going to college is declining, and the decline is supposed to get worse within a few years.  Combine fewer applicants with tuition price wars and high fixed costs to pay expenses like tenured faculty salaries and building maintenance costs and you start to see the obvious challenges.  Throw in the possibility that some kids who have grown up sitting in front of their computers might decide to opt instead for the on-line learning options that are making increasing inroads, and the picture becomes even bleaker.

Often, predictions turn out to be wrong, of course, but there is no doubt that these are tough times for American institutions of higher education.  Don’t be surprised if, in a few years, you hear that your alma mater is closing its doors.

 

One Reason Why College Is So Expensive

There’s a longstanding debate in the United States about how expensive college has become, and what to do about it.  Some people say we need to get over the notion that every young person needs to go to college, and recognize that learning a trade that is always going to be needed is a perfectly fine way to live a happy, productive life.  Others argue that we need to make college loans more available, and at better terms, and still others say that students loans are a long-term trap for the borrowers and therefore the federal government should pay for college.

Curiously, there’s not much of an outcry for colleges and universities to actually take steps to cut their costs and, as a result, cut their tuition.  And while there are some low-cost alternatives, in the form of community colleges, traditional economics don’t seem to apply to the college decision-making process.  Low-cost competitors don’t restrain the pricing of tuition at more prestigious institutions, because there is always a gaggle of parents, and students, willing to pay exorbitant amounts to go to Harvard, or Stanford, and acquire the diploma from an eminent school.

stanford-university-696x391Could colleges and universities cut costs and offer lower tuitions?  A recent article about the school bureaucracy at Stanford points to one way it could be done.   The article describes the explosive growth in the administrative apparatus at the school and cites some interesting statistics:

“Expenditures for non-academic administrative and professional employees have doubled at US colleges in the past 25 years, vastly outpacing the growth in the number of students and faculty. According to the Department of Education, administrative positions have grown by 60% between 1993 and 2009, ten times the rate of growth of tenured faculty positions. Private schools are more guilty than their public school contemporaries; there are now 2.5 non-academic employees for every full-time tenure-track faculty member at private institutions, which exceeds the 2:1 ratio at public universities. A proliferation of associates and assistants, marketers and managers, now outnumber faculty and TAs.”

Why has the number of administrative employees at colleges doubled, and what do all of these people do?  Were you aware that, at Stanford, there is an “Office of Alcohol and Policy Education” that has its own associate dean, assistant director, operations manager, and assistant dean?  Or a Students & Activities Leadership area that is supposed to “help students find community and foster passions” that has four professional staff members?  And the growing college bureaucracy not only contributes to the spiraling cost of an education; the article linked above argues that the administrative state at Stanford not only consumes resources and money, but also “strangles student culture” and harms the education students receive.

When I went to school at Ohio State in the ’70s, the administrative part of the University was small, and many of the positions and offices described in the article about Stanford didn’t exist.  And, not coincidentally, tuition was very reasonable.  And while some new positions are logical and appropriate, such as those that seek to enhance diversity and inclusion on campus, the need for other additions is highly debatable.  When I was in college, we didn’t need school administrators to help us “foster passions” or “find community,” we somehow managed to do it ourselves.  And maybe it would be better for students, and a more fitting preparation for the real world, if students had to muddle through themselves without having an army of officious administrators dictating what they should and shouldn’t do.

Are there school trustees, or college presidents, out there who are willing to tackle cutting bloated administrative budgets, eliminating nonessential positions, and making the cost of an education more affordable?  We may find out only of students and parents decide to stop writing blank checks when it comes to tuition.

A Speech To College Freshmen

College classes are starting again, and everywhere excited college freshmen are heading off to their new schools, accompanied by worried parents.

Every college makes a big deal about graduation and brings in big-name speakers to talk about what the graduates should do with their degrees.  I think that approach is backward.  By the time you’ve got your degree, you’ve already made a bunch of choices that have put you on a certain path.  Kids could use some honest advice at the beginning of their college career, not the end.  Here is my advice to the incoming freshman class.

Greetings, you freshmen, and welcome!  Now that you’re settled in and have met your roommates, it’s time for you to consider an important question:  are you sure you want to be here?

In case you haven’t heard about it, getting an education at a college like this one is very expensive.  Chances are that you, or your parents, are borrowing the money to pay for your chance to study in these ivy-covered buildings all around us.   Those loans are going to be with you and your family for a long time, and the need to pay back what you have borrowed may affect a lot of the choices you will be making after you graduate.  If you are taking out student loans, you may well still be repaying them when you are in your 30s, or even 40s.  So, before you make that kind of long-term commitment, think for a minute:  Are you sure you want to borrow tens of thousands of dollars to get a college degree?

If your answer to that is “yes,” then you need to think about what you can do to achieve some kind of meaningful return on your investment in yourself.  Do you have a real interest that you want to pursue, or are you here because everyone knows that a college degree helps your job prospects?  If you are in the former category, follow your interest, but do it seriously.  Don’t dabble!  Take the courses that give you the best grounding in that area of interest, get to know your professors and advisors in that area, and look carefully at the training programs and internships that are available here.  If you are in the latter category, look to take the toughest schedule you can.  Don’t avoid the math and science courses because you think they’ll be too hard.  In our world of constant technological advances, people who have some grounding in math and science are better positioned than those who never ventured outside the humanities curriculum.

And speaking of long-term consequences, try to avoid them in your personal life, too.  That means having a little self-respect, and not heading down to the 24-hour soft-serve ice cream dispenser in your dorm cafeteria every night.  In case you haven’t noticed, we have an obesity problem in this country, and you don’t want to become part of it.  Your goal should be to avoid putting on the “freshman 10” — or 15, or 20, or 25.  And if you’re given the chance to engage in underage drinking — and we all know that chance will come, don’t we? — think before you drink!  You don’t want to drink and drive, or lose control of your senses and end up with a splitting headache and hangover in a stranger’s bed, or develop a life-long drinking problem.  In short, show some self-respect!

I’ve got only one more bit of advice for you:  accept that your new roommates seem a bit weird — but also understand that you are, too.  Notwithstanding what your parents have been telling you for the last 18 years, you aren’t perfect or the pinnacle of human evolution.  You’ve got your faults and foibles and odd habits, and your roommates do, too.  Accept their idiosyncrasies, and they’ll accept yours.  As you move through life, you’ll come to realize that cheerfully accepting other people’s differences, and being able to interact civilly with them despite those differences, is one of the most important lessons you can learn.

Good luck to you all!  In today’s world, you’re going to need it.

The Questionable Consequences Of Student Loan Programs

Last year, Americans took out $100 billion in student loans.  This year, the total amount of outstanding student loans will exceed $1 trillion.  Amazingly, Americans now owe more on student loans than they do on credit cards.

The story of federal student loans is one of a well-intentioned program that has produced unintended consequences.  The underlying concept was that a college education has value and that qualified students shouldn’t be deprived of that value simply because they couldn’t afford tuition and boarding costs out of pocket.  Since many members of Congress went to college and enjoyed the experience, this concept wasn’t a hard sell.  And if the funds were loans that would be repaid, and couldn’t be discharged in bankruptcy, what was the risk?

Now, people debate whether student loans and student aid have contributed to the constant increases that have made tuition at most colleges exorbitantly expensive.  (Some, like Education Secretary Arne Duncan, argue that there is no connection, but simple notions of supply and demand dictate that if there is a greater pool of funded applicants — i.e., demand — the price of the service being supplied can be increased.  Does anyone really doubt that if fewer people were going to college, colleges fighting to attract candidates from that shrinking pool would engage in price competition?)  The ready availability of student loans also has led to the proliferation of “for-profit” colleges, on-line programs, and schools that teach students technical skills or the “culinary arts” — in many instances, skills and capabilities that used to be taught by “on-the-job” training at no cost to the person learning the trade.  And how many parents decided to forgo attempting to save for college as their children grew up because they figured a pool of loan money would be available when the time came?

There can be no dispute, however, that for many student-borrowers the decision to finance their higher education through student loans has become an albatross.  Some years ago I sat with some associates at lunch when the topic of student debt came up; one of the associates mentioned, grimly, that on her current payment plan she would pay off her debt when she was in her 50s.  In good times, the payment obligations necessarily restrict the job options that the graduate can consider; if you will owe thousands of dollars a year, you may not be able to afford taking that low-paying, but likely fulfilling, public service job.  In bad economic times, the debt load becomes crushing.  You can’t find good-paying work, and what you can find pays barely enough for food and rent.  You fall behind on your loan payments, late fees get imposed, debt collectors come knocking at your door and that of your co-signing parents, and suddenly you are trapped in a desperate debt death spiral.

Recently I heard one of the Occupy Wall Street protesters interviewed.  She explained that she had received a history degree from a reputable college, and it meant nothing for her in the job market.  How many of the OWS protesters are frustrated recent graduates who see their futures swirling ’round the drain as a result of their student loan debt?  Isn’t it time that we re-examine this program, to see whether our good intentions have simply paved the road to a hellish lifetime of being dunned by debt collectors for a generation of college graduates?

Writing The Last College Tuition Check

Earlier this month Kish and I wrote our last college tuition check.  It is one of those milestones that you don’t fully appreciate until you have reached it — and then you realize that it means a lot, and in unexpected ways.

Of course, college graduation is an achievement for the student, the culmination of four years of classes, tests, labs, papers, deciding on majors, and thinking about what you want to do with your life (among other college-related activities).  It also is an achievement for those parents who have footed some or all of the bill for the education the graduate has received.  For those parents, the sense of accomplishment probably is similar to the feeling people used to have when they made their final house payment and had a party in which the couple lit aflame the mortgage papers.  As proud as Kish and I have been of Richard and Russell and their fine college careers, we also should be proud of ourselves.

Yet, for all of the positive feelings that come with signing that last tuition check, there is an even stronger feeling of wistfulness and — to be perfectly blunt — advancing age.  When your kids have graduated from college you can’t really consider them to be kids any more.  They will always be your children, but now they are adults.  You will never watch them play a Little League game again, or help them with their homework, or take them to the 8th grade dance class.  They will move on with their lives, and you will be more of a spectator than a participant — like the initial guest on the old Tonight Show who began in the seat next to Johnny Carson and ends the show four guests away at the end of the couch, next to Ed McMahon.

As much as I have looked forward to being done with college payments, I now find myself wishing that the day hadn’t come quite so quickly.

No Surprise To Parents Of College Students

The College Board reports that, once again, tuition and fee costs at both public and private colleges have increased at a rate faster than inflation.  For private four-year colleges in the United States, costs for the 2009-2010 year increased by an average 4.4 percent.  Average costs for public universities increased by an even larger amount — 6.5 percent.

There seems to be endless elasticity of demand for degrees from elite American colleges.  There undoubtedly are people who would gladly pay $100,000 a year for the privilege of seeing Junior get his sheepskin from Harvard or Yale.  As a result, there is no effective incentive for such schools to really try to control costs.  Why make cuts that will anger faculty and staff when tuition increases can be implemented without meaningful opposition?  Hiking tuition is simply the path of least resistance.

Interestingly, although politicians often talk about how important it is to try to make college affordable, they always do so in the context of government-backed loans to pay the tuitions and related costs set by the educational institutions.  In contrast, they never criticize college administrators for failing to control costs.  Colleges and universities have worked out a pretty sweet deal — they get lots of research funding and grant money from federal and state governments, and those governments then guarantee loans, at favorable interest rates, to help students pay the constantly increasing price tab for tuition and room and board.

Kish and I are now in our fifth year of paying college tuition costs, and the annual tuition increase notices come with the same certain regularity as the swallows returning to San Juan Capistrano.  In reality, the ever-increasing cost of a higher education will not be reined in until the law of supply and demand once again comes to apply to the process of getting a college diploma, and that day still appears to be a long way off.