Is the College Business Model Broken?

Back in February, I participated in a national debate on higher education, a debate sponsored by the Lumina Foundation and broadcast on PBS. (The question was whether America needs more college graduates to remain an economic power; the article I wrote about that debate includes a link to it.)

That was one in a series of national debates centering on higher education. Another one took place on April 27, on the question “Is the business model of higher education broken?” The four debaters were (on the affirmative) Brit Kirwan, Chancellor of Maryland’s university system, Gail Mellow, president of LaGuardia Community College in New York, (on the negative) Richard Levin, president of Yale University, and Daniel Hamburger, president of DeVry, Incorporated. NPR’s Ray Suarez was the moderator.

The wording of the topic is somewhat vague, but in the white paper accompanying the debate, University of Virginia education professor David Breneman clarified matters, writing, “Those who assert that the business model is broken argue that shifts in the way higher education is financed render it increasingly unaffordable to many students, and that institutional incentives toward increased status and prestige distort internal resource allocation in wasteful and inefficient ways.”

That formulation lends itself to debate. Who should pay for higher education—students or “society”? And whoever pays, are college costs exorbitant? Finally, what can be done?

Unfortunately, the debate did not shed much light on those questions. It did, however, illuminate the rift between the for-profit higher education sector and the public sector. That’s where the “heat” comes in.

Brit Kirwan spoke first for the affirmative side, arguing that the higher ed business model is broken because we aren’t graduating enough students from college now and the economy is going to need far more in the near future—but we won’t be able to make the “investments” necessary for that to happen.  (The idea that bad things will happen to the American economy unless we get more people through college is exactly the proposition that Professor Vedder and I tore apart in our debate. I suppose Kirwan didn’t see it.)

Kirwan also stated that we encounter “huge inefficiency” due to the inability of many students to smoothly move from high school to college. They have to waste time and money on remedial education, a problem that would be lessened if we could better align high school and college standards.  But when students graduate from high school with very weak reading ability, it isn’t because high school officials don’t know that college-level work demands at least a moderate literacy level. (The problem is that rigorous work in English is now generally thought to be too demanding and injurious to fragile young egos.)

Finally, Kirwan said that higher education “must make cost containment a way of life.” Now there’s something we can agree on. Unfortunately, he did not provide any specifics on cost containment. That was the dog that did not bark in the debate. The discussion never got into the many inefficiencies and diversions that make higher education so costly and what kind of “business model” would slice into them.

Speaking first for the negative side, Yale president Richard Levin argued that America must be doing something basically right because according to a well-known survey, 17 of the world’s top 20 universities are in the U.S. But even if you think such surveys really measure educational value (and I don’t), that point tells us nothing about our whole higher education system.

Levin also observed that even though costs have been increasing, enrollments have not been declining, thus indicating that the business model isn’t broken. True, enrollments have not been declining (they have been pretty stable for the last 15 years), but there is a lot of talk about how higher education is our next “bubble.” Jane Shaw raised that prospect more than a year ago; recently, writers as politically diverse as Glenn Harlan Reynolds and Anya Kamenetz have suggested the same thing. Perhaps the “business model” isn’t yet broken, but is cracked and about to break?

Speaking next was Gail Mellow, who said that increasing government “investment” in higher education in the past was what spurred our economic, social, and cultural growth after World War II, but that “our broken system has led us to disinvest in higher education just when we need it most.”

Whoa! Although many state governments have cut back on their funding of public colleges and universities, that doesn’t mean that the nation has “disinvested” in higher education. As government support has decreased, private support has increased. A few small colleges have shut down, but there has been substantial growth at others, including the for-profit sector. Higher education in America is not shrinking or crumbling.

Mellow’s complaint was that our model is “dysfunctional” because the cutback in government funding has meant “punishing levels of debt” for students and limits “colleges’ ability to hire the faculty, build the labs and buy the computers they need to educate the next generation.”

Yes, some students are heavily in debt and struggling, but most are not. The right conclusion to draw, I think, is not that government needs to put lots more money into higher education so everyone will find it affordable, but that students and families should (and with the well-publicized phenomenon of high debts and low-paying jobs impressing itself on people’s consciousness, will) make wiser choices in the future.

As for the idea that schools can’t afford what they need to educate their students, there is little or no evidence that students are missing out on their education for want of professors, labs, and computers.

What most bothered Mellow, however, was competition from for-profit schools. She said that they are “destabilizing” and declared, “We need a business model for higher education that does not let colleges make profits for shareholders while taking needed tax dollars away from the public higher education model.”

Ouch! That was a rather nasty jab at the remaining speaker, Daniel Hamburger of DeVry. His reply was polite but pointed: for-profit institutions cannot “take” any dollars. Students can choose to use their government grants and loans at for-profit schools and many are doing so, perhaps perceiving better value there than at the traditional non-profits.

Furthermore, Hamburger said, for-profit schools pay taxes and thanks to the profits they make, have been able to expand to provide needed additional capacity in areas such as nursing.

During the Q and A session that followed, there were some interesting exchanges, but the moderator never steered the discussion toward the vital question of costs. I wish Ray Suarez had asked the four debaters, “Isn’t it possible for colleges—particularly those that are non-profit—to substantially cut costs? Some schools, public and private, do a good educational job with much lower per-pupil expenditures than others.”

An example he might have pointed to is Lindenwood University, whose efficiency reforms kept the school from going bankrupt, the subject of this Pope Center article.

Suarez might also have asked the three representing non-profit institutions if they really have a “business model” at all. The modus operandi of most colleges has been: See how much money we can bring in from all sources, then spend it. Oversight from trustees and (in the case of public institutions) politicians is usually negligible and since there are no stock shares, officials needn’t worry about a takeover by competing management teams if they run things inefficiently.

I hope the Miller Center will return to debates on education policy and devote one to this: Resolved that American colleges and universities can significantly lower their costs.