In my last post and the post before, I discussed the public’s perception about higher education not contributing to the welfare of society. One possible reason is that the cost of higher education has risen significantly and the funding mechanism for students to pay for these higher costs is loans. A real harm to society could occur should these loans be so burdensome that they cannot be repaid. Of course, should demand drop as a result of less subsidized loans, it is possible these costs could be lowered. Otherwise, the result would be lower supply from the closing so some colleges that failed to manage their costs. This conclusion would fall under the basics of economic theory that we typically teach to all undergraduate students.
I can hear the administration wailing as I write. “We cannot afford to cut any costs”, the administrator say. “We are already operating on a razor thin budget,” they continue. They lament, “our funding from the state continues to decrease”. They might even mention, funding from endowments continue to feel pressure by historically low returns. “We have to raise tuition”. These are excuses and assumptions based on narrow viewpoints. Here are some basic facts about college operating budgets.
The main cost of running a college is not the facilities. The number one cost in running a college or university is faculty salaries. Whether this is called instructional cost, compensation, or salaries with benefits, it is the number one cost from University of Florida, the University of Texas System, the University of Michigan, University of Southern California, Vanderbilt University, or Duke University. Back when I was running businesses and before I became a professor, it became apparent that if I needed to reduce the operational costs, I started with the largest line items. (Just an aside, if I had an operating budget of $100 million and my cost of raw material was $75 million, I was better of looking for a 2% savings, 1.5 million, in raw material than a 10% savings in a $10 million dollar line item). So based on my logic, the best possibilities for efficiencies or cost reductions are available in instructional costs. These savings can reduce cost of attendance and have a real impact on potentially lowering tuition and the subsequent student need for financial aid.
Yikes, I can hear my colleagues in academia screeching now. Seems we in academia like to make a lot of noise. The accusations will fly about cutting the compensation of professors that are already woefully under paid. This is a debatable argument for a position that pays full year compensation for 9 months of work. That, however, is not the thrust of my argument. Please, recall that my goal is around a 2% reduction in what arguable is typically 75% or more of the operating budget of the college or university. I think we can do that without touching salaries.
First, I need to provide some background on a common practice in colleges and universities called course releases. A course release is a decision by the college or university to excuse a professor from teaching one or more sections that would be their normal teaching obligation according to the professor’s contract. So for instance, if a professor is contracted to teach three courses per semester in addition to their research and service obligations, a one course release would mean teaching two courses one semester and three courses another semester.
As I stated in an earlier post, I believe this practice of granting course release sends the wrong message to everyone involved. This approach fosters a culture of avoiding teaching. I mean that the colleges and universities encourage professors both tenured and untenured to seek and receive a release from teaching. The university or college is tacitly acknowledging the perception that teaching is burdensome. By a release from teaching, a professor is ‘rewarded’. This seems to imply that teaching is not the core purpose of being a professor. Additionally, the replacement instructor is often an adjunct or graduate student that is demonstrably less qualified to teach the subject.
Eliminating the use of course release, except in most exceptional circumstances, has the additional benefit of likely being our 2% cost savings. Now I am not going to go into a long list of citations about studies that have found this cost savings exists. I do not think studies about the impact of course releases on college budgets exist. Instead, I will walk you through my own experience as a department head and try to translate that into my projected savings.
Just a quick reminder, I have run academic department at universities for 7 years. In that time, I have always had one or more faculty that has been granted course releases. Sometimes the course releases were offered as inducements during hiring. Other times, they have been offered to faculty that agree to some University desired project such as Ethics training, Curriculum development, Implementation of Honors College, etc. This list of reasons and the amount of releases is extensive. The question is just how extensive.
Here is one way to calculate the impact. In any given academic year, the department head knows the number of faculty and their contracted teaching assignments. So for example, if I have 15 faculty and each is contracted to teach 6 courses in a year, then I have 90 sections of marketing ‘something’ that I can offer. Unfortunately, it is not that simple. I have to take into account the course releases (most of which are provided by the college and/or university). In the last three years, course releases have reduced available teaching by 12%, 14%, and 10%. Fortunately, for the students of my university, I have been able to fill about half of those teaching shortcomings with visiting professors with PhDs in marketing. The rest of backfilling the teaching shortcoming comes from using larger class sizes. I do not use adjuncts.
I do not think my department is uniquely burdened. I believe this course release policy is common and represents a hidden ten percent cost. Even a reduction of half of these course releases would represent a a 5 to 6% savings in faculty compensation costs. Implementing a significant reduction in the use of course releases across all departments leads to a real savings. That savings can be used to lower the cost of attendance and subsequent loan amounts. If higher education really choses to address their customers concerns about potential negative impacts on society of high education, then solutions such as dramatically reducing course releases would be a great first step.
Students have borrowed for college almost since the beginning of the college system in the United States. Sometimes the money was for no more than living or spending expenses and the person loaning the money could be family, a friend, or even the bank. Slowly and with many good intentions, governments both federal and state decided to subsidize students. There were many programs but the guaranteed loan programs became the most popular. These guaranteed programs were, up until 2010, available through private lending institutions under the Federal Family Education Loan Program (FFELP). In this iteration of government subsidized college education, loans were funded by the Federal government and administered by approved private lending organizations. By underwriting the loans, the Federal government ensured the private lender would assume no risk should the borrower ultimately default. As noted in last week’s post, the taxpayer or the target audience or taxpayer was/is the ultimate guarantor.
The last administration dramatically increased the subsidizing of college education and in 2010 loan guarantee system through private lenders was discontinued. All guaranteed student loans are now processed, and disbursed, directly through the U. S. Department of Education. Additionally, all existing student loans from 2010 and prior reverted to the Department of Education. This latest version of the student loan system has four versions with varying interest rates, grace periods, and terms of repayment. The current interest rates run from 3.4% to 8.25%.
According to the Federal Reserve Bank of New York, the total student loan debt is - $1,407,200,000,000 ($1.41 TRILLION). That is trillion not billion. There are over 44 million people with student loan debt with a default rate of 10.7% and the taxpayers are footing the bill for over $100 billion in defaults each year. Oh and the Average Debt per Student Borrower is $27,857 (studentloans.net 2017). Just for some perspective, in testimony to congress in 1977 the GAO mentioned typical college student loans as being in the ‘hundreds of dollars’ (GAO 1977).
Just to be clear, the university or college financial aid office administers the processing of student loans and can encourage or discourage students from taking out this federally guaranteed loan (free money anyone?). However, if the student does not apply for the loans and accept the money, that student may not attend the college or university thus suppressing demand. Does anyone else see a conflict in interest? It is not surprising that recently the number of graduating seniors with debt in the federal programs is exceeding 70%.
So while as a society we may be increasing the number of college graduates. The question is at what cost to society. You might recall from my previous post that some taxpayers are beginning to question the impact of higher education on society (July 10 Pew Research ). This Pew survey does not ask what negative impact they see from higher education but it would not seem unreasonable that they worry about the size of the debt, the high default rate that they, the taxpayer, must annually cover, and that over 44 million US citizens are starting their careers in substantial debt.
It might also be important at this point to note that if in fact the subsidized college education is creating an artificial demand, then the natural economic outcome is an increase in price. This of course is presuming that an increase in supply does not happen. I think a review of the current closures of colleges and the wave of mergers would suggest that supply of college education opportunity is decreasing. It is not surprising that the cost of college is on the rise.
Even more painful is that there are a couple of solutions that can address rise in the costs of a college. In the next two posts I will discuss two major cost areas that if properly managed could slow this rate of increase. These solutions may even hold the possibility of lowering college costs.
This past week the Pew Research Center released a report about their annual survey of American’s views of major institutions (July 10 Pew Research ). The public’s perception of the positive impact of higher education on society continues to decline. Because of the headline associated with the report’s release, a number of my colleagues in higher education took the opportunity to insult and refute the opinions of the respondents. To me they have really missed the point and it is a classic marketing insanity approach. So while I may rant a little in this post, bear with me. This is convergence of two of my passions, the value of higher education and appropriate application of marketing principles.
The headline announcing the survey results focused on the fact that respondents that identified as Republican or Republican leaning mostly had a negative view of impact of higher education on society. However, as we try to teach our students, I tried to look a little deeper. I did this not because I believe that proposition that higher education negatively affects society is accurate. I think you can read my previous posts to see I am a staunch advocate of the exact opposite. Rather, as a marketer, I am concerned when a significant portion of my target audience holds a negative view of my value proposition and product.
Oh and yes, I do suggest that people that are politically active to the extent they identify with a political party are actually the same group paying the bills for colleges. They are taxpayers, parents paying for tuition, and/or donors. As taxpayers, they have influence on state funding. They also have influence on the tax-exempt status especially property taxes of both private and public colleges and universities. These same people are also ultimately the source of funding for the ‘federally’ guaranteed loan system but more on that later.
These survey respondents are in many ways our target audience and I wanted to know what exactly did the survey results tell us about this significant constituency. As we try to teach our students, I wanted to investigate the report beyond the headlines and graphs. Here are a few of the facts I was able to glean. There are 2504 respondents of which 1050 identified as Republican and 1230 as Democrat leaving 224 not identifying with either political party. These percentages are a huge divergence from the Gallup results (Gallup 2016) of 29% Democrat and 26% Republican but for purposes of this blog, we will let that issue go.
As best I can extrapolate from the reporting, these are the actual results. Fifty eight percent, 58%, of those identifying as Republican or 609 people had a negative view of the impact of higher education on society. Nineteen percent, 19%, or 233 of those identifying as Democrat hold a negative view. Finally, it appears there are 174 of the combined Republican and Democrat that held neither a positive nor a negative view. In a marketing analysis, these results would not be good. Only 53.5% of our customers have a positive view of the value of higher education on society and this percentage is decreasing.
To coin the popular phrase, Houston we have a problem. Members of academia choosing to refute the perceptions of their target audience compound the problem. Attacking the target market is not a solution and I find it scary that colleagues are taking this approach. The focus should not be on why our customers or target audience is wrong. Perception is reality is a fundamental principle in marketing. The argument our customers just do not ‘get it’ also disallows an appropriate scrutiny of what might actually be the negative impacts of higher education on society.
Some might suggest there are many negative impacts. I will suggest three. When I first started on this particular blog, I intended to delve deeply into each of these three issues along with suggested solutions. That approach is too lengthy. Instead, I will mention my main three negative impacts and give some insights into their connections. Then in the next three blogs, I will look in depth at each of the three. I hope that upon some reflection, my colleagues in higher education will give some thought to these potential negative impacts as well as the suggest solutions. Then we in academia might begin to ‘see’ from our target audience’s perspective. Oh and I know, my views are not widely held in academia so a disclaimer that these are my suggestions and do not reflect the views of my employer J.
To me perhaps the most critical problem is the financial aid system that has built up around student loans. It is a broken system. And I am not commenting on the poor customer service issues (Money 2017) which include text messages during graduation ceremonies reminding students that their grace period is about to expire (true personal experience). Rather the issues are systemic. Colleges and Universities are looking for a growing number of students. They use financial aid packages to attract students with “free money”. The loan is often offered as a first financial aid option by the college or university’s own financial aid officer. Evidence shows that in some cases the post-graduation career cannot provide the funds to repay the loans. This is creating what some refer to as the college loan bubble (Motley Fool 2014).
Second is a culture of avoiding teaching that is beginning to permeate colleges and universities. By a culture, I mean that professors both tenured and untenured seek and receive a release from teaching. A release means that for a period of time the professor is required to teach one less course. This is a two-fold mistake. First, it sends a message that teaching is burdensome. By a release from teaching, a professor is ‘rewarded’. This seems to imply that teaching is not the corer purpose of being a professor. Secondly, the replacement instructor is often an adjunct or graduate student that is demonstrably less qualified to teach the subject.
Lastly, we have let the collegiate athletics has become disproportionate in funding in comparison to the teaching operations of most colleges or universities. The dollar amounts of donations and funding of college athletics is vastly disproportionate to the number of students involved. In addition, the money associated with the collegiate athletic programs has led to unprincipled actions by university personnel. Not the least is the collusion with preventing students to benefit from their efforts and achievements not because of principle but because doing so might infringe on the athletic revenue stream.
These three negative aspects of the current system are all connected by … drum roll please … money. Professors do not like to talk money or operations. However, the huge costs associated with college education, the financial burden from loans to afford these costs, and the ignoring of two major financial drains that could possible lead to reduced costs are all issues that need further discussion. I will do so in the next three blogs.
There seems to be a two-prong set of problems associated with achieving the financial value of the college education. One problem is, of course, the cost associated with the education. Many of my previous posts have addressed the cost and associated debt-financing issue so we will let that pass in this post. The second issue may in fact be a supply issue. As the number of undergraduate degrees increase, this supply may be depressing price (the value). It is quite possible that even though average starting salaries have increased, they are possibly lower than would be the case if policy makers had subsidized a lesser number of students in the form of student loans.
Running counter to the argument for less graduates are the intangible and tangible benefits to society for having an educated work force. The critical thinking, problem solving, and proficient communicators produced in college help their organizations perform efficiently and effectively. These same capabilities are essential to informed democracy. The benefits are documents by others and in previous posts.
What if an additional system existed that developed the critical thinking, problem solving, and communication capabilities without relying on the collegiate experience? Even more intriguing, what if such a system was less expensive and maybe even allowed the student to starting earning while learning? It should not sound too farfetched. The idea I am going to suggest existed back around the same time as the development of what became today’s modern liberal arts education. It is the Artisan system.
The artisan system progressed and with the guilds developed a system of Master Artisans that guided and educated the apprentices. They were educated not just in skill but in creativity and artistry. The Master achieved high recognition in society, as did the apprentice artisans. They shift to mass production and less interest in skill decreased this system. However, with the resurgence in customization and appreciation for skilled work, it is possible that a return to a modernized system of artisan education will supplement and add to the collegiate experience. Next week’s post will expand on this subject.
My last post started a pattern. I plan to start expanding the scope of the discussion about the value of a college education. Some future posts will address specifics challenges and remedies to delivering the collegiate educational value. Other posts will address sectors and organizations with impacts on the delivery of the value. This post addresses one such group. The employer and their willingness to pay for a collegiate education are integral to the value proposition.
Employers that recruit college graduates seem to fall into two categories. Both categories highly value the college education and are usually willing to invest in the form of starting salaries in the benefits received from college-educated employees. I say usually as I do occasionally encounter companies offering starting salaries half of the typical starting salary. Perhaps they should reread some of the earlier posts about the cost of college and the need for sufficient return on that investment. Besides these outliers, the two categories that do value the college education vary in their perspective on essence of what they want from the newly graduated student.
The first group of recruiting companies value the liberal arts education (see this post The Liberal Arts or a General Education). The transformation of individual through the development of critical thinking, learning judgement, honing communication skills, and enhancing problem solving ability are valuable to the hiring organization. These organizations value the new thoughts and ideas brought to them by the recent college graduate. Occasionally managers may rue some of the youthful enthusiasm but typically realize they need the energy and work the recent graduate provides. These employers are likely to cast a wide net and look at all or many majors.
The second group has specific needs in addition to the characteristics mentioned above. These can be engineering, chemistry, business, musical theatre, and so on. There are skills that are associated with the career that go beyond the general education learning outcomes. As an example, here is a recent set of requirements posted in a blog for one area of my department, digital marketing.
However, it is this second group that sometimes struggles in their recruiting efforts. They look for these very specific skills and then say all majors may apply. Take for instance the quote that accompanied the skills listed above. “The major can play an influence in an employer’s decision, but the fact that you spent the time and effort to get your degree along with the experience you have received outside of traditional schooling and your work ethic goes further (at least in my opinion) than the specific degree you received.” It is easy to understand the slippage that can occur from the desire for the essential skills from the liberal arts education to the specific major skills. Despite that statement of empathy, I am not sure such a statement as in the quote would be made about an engineer or concert pianist. These types of statements can confuse the student. The all major may apply statement also confounds the value proposition. Employers must become cognizant of their own needs and convey them clearly.
It seems that clarity in hiring expectations is essential for achieving the appropriate return on the investment in specific majors. Employers need to embrace in their recruiting that they are targeting best overall generalists. This is the category one mentioned above. These organizations should accept all majors as applicants. On the other hand those organizations that are category two with hiring needs that match specific skills need to embrace that distinction and narrower their search to the appropriate major. The advice and messaging from the employers needs clarity. It will take this clarity of all the parties involved in the college education process to help insure the students achieve the return sought in the educational investment.