Category Archives: Mission & Purpose

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The Debt Problem – Part I

Student debt is no small problem, but colleges can take the first step toward addressing it.

In his column in The New York Times on March 9, Charles M. Blow states: “We are reaching a crisis point in this country’s higher education system” because of “staggering levels of debt.” He notes that student loan debt has more than doubled in the last eight years, to almost $1 trillion, and that, not unexpectedly, student loan debt is hardest on families in the bottom quintile of family income. Mr. Blow ends his column with, “We are on an unsustainable track. This will not end well.”

How is it that this problem has become so large so quickly? How do we fix it? Is this as big a problem as people claim?

I’m glad you asked. This is a problem that resulted from many intersecting forces:

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The Folly of Early Action

Early action pressures colleges to award financial aid without information on student need.

Some years ago, a few of the most prestigious colleges and universities adopted a new model for admitting students. Rather than facing a delay of several months after making application before hearing the university’s decision, a prospective student could choose to apply for “early decision.” The very best applicants would learn much earlier in the admissions cycle that they had been accepted – but the catch was that they then had to commit to attend the university that had accepted them. No longer could they wait and compare offers from other institutions. “Early decision” cut both ways: in return for an early answer, the student was obliged to make an irreversible commitment.

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Moody’s Blues

The time for bold action by university leaders is now, the credit agency says.

On the 16th of January, Moody’s Investors Service issued a report entitled “US Higher Education Outlook Negative in 2013.” Inside Higher Ed followed with an article on the findings in the report the next day. The report, and the article, were sobering reading for university administrators, and, in some quarters, more than a little frightening.

Moody’s, one of the three major credit rating agencies worldwide, has downgraded its outlook for the entire U.S. higher education sector from stable to negative. Based on a careful analysis of data over the past several years, Moody’s concludes that there is “mounting pressure on all key university revenue sources, requiring bolder actions by university leaders to reduce costs and increase operating efficiency.”

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Should Price Reflect Cost? (Part 2)

When it comes to pricing, higher education and health care have much in common

In Part I of this post, we discussed how the “high cost/high aid” model of price and cost in higher education has led to growing educational debt and a widening achievement gap between affluent and low-income students. This week, we’ll talk about how (and why) to change this model.

But first: consider the following hypothetical conversation between an admissions officer and two prospective students, as he explains the college’s financial aid policy:

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Should Price Reflect Cost? (Part 1)

Tuition could be reduced, more students might earn degrees, and less debt would greet them after graduation

In a major front-page, above-the-fold article on Sunday, 23 December, The New York Times told of the widening gap in college completion rates for high-income versus low-income students. The Times illustrated the broader story with specific examples, including one of a student who was admitted to Emory University on what she thought was a full-need scholarship – but, because of problems in completing her financial aid forms, she arrived to find she had no institutional aid, and needed to borrow $40,000 just to enroll for her first year. Ultimately, her financial problems reached the point where her grades suffered, and she was suspended in her senior year. She now has an educational debt of almost $60,000, but no degree.

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Turning Grinches into Santas

Might some of the richest colleges use endowment dollars to reduce the need for public subsidies and tuition revenue?

In my last post, I criticized wealthy campuses for focusing too much on the size of their endowments and the returns on their investments, and not enough on making their campuses financially accessible to more students. In this post, I will suggest why they strayed, and why it is important that they rediscover a more socially useful path.

It all begins with an analysis of mission and purpose. Private colleges were established in this country to meet the need of various religious denominations to prepare members of the clergy here in the colonies, rather than having to import them from Europe. A number of institutions still retain their religious affiliation, although very few of them limit their educational efforts to the preparation of clergy. However, most private colleges today have at best a distant relationship to a particular religious denomination, or have become entirely secular, and their educational programs have expanded dramatically to include all of the traditional arts and sciences, and very often professional programs as well.

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Colleges: Grinches or Santas?

Bottom-line mentality has crept from the business world (where it belongs) to higher education (where it doesn’t).

In my previous post, I noted the diametrically opposed reactions of some colleges and universities to the public’s rising concerns regarding the cost of a college education, and the ballooning debt taken on by a growing number of students and their families.

The large majority of both public and private institutions are tweaking what I believe to be a broken model: they are seeking to increase financial aid while looking for ways of economizing, but, while well intentioned, these are at best temporary bandages on a severe wound. Moreover, these solutions are not sustainable, and, in their efforts to economize, these campuses risk being perceived as cutting the quality of their educational offerings.

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Too Rich To Be Generous?

At some colleges, concerns about reputation and exclusivity seem to outweigh the impact of tuition on students and families.

In the last few months, a number of the wealthiest colleges and universities in the country have been reconsidering the level of their financial aid. Paradoxically, their intent is not to increase their financial aid, but to reduce it. How do we reconcile societal concerns regarding the rising costs of higher education (and the corresponding rise in student debt) with the decision by wealthy colleges to spend less on student aid? What is going on?

Let’s turn the clock back about 30 years. In the early 1980s, there were, by today’s standards, only a handful of wealthy colleges and universities. Top-tier universities such as Duke and Brown had endowments of less than $150 million. Even at Harvard, endowment drawdown and annual giving contributed only a minor portion of the annual operating budget. And yet, as a fraction of median family income, the cost of college then was significantly more affordable than it is today.

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Having One’s Cake, and Eating It, Too

How new revenue streams can augment tuition and ensure that every RWU student gets more than what he or she pays for.

In my last post, I posed the dilemma of how a campus could freeze tuition (as Roger Williams University has chosen to do), thereby eliminating a logical source of new revenue, without somehow causing damage to the quality of the students’ educational outcomes. Isn’t it the case that “you get what you pay for” – and if you pay less, doesn’t that ensure that you will receive less?

Of course, most people recognize that the quoted statement is overly simplistic. A person can spend anywhere from about $15,000 to more than $200,000 for a new car, but most people don’t think that it is worth it to spend extravagantly on a car, if their primary goal is just to have reliable transportation. Similarly, one can purchase a perfectly respectable bottle of wine for $10 to $20, although it is also possible to spend more than $200 for a grand cru from Burgundy. Is that bottle worth 10 or 20 times the first bottle? As a practical matter, not to most people.