Late night thoughts on higher education finance

Stanford.As summer starts winding down towards fall and the new academic year, we have the perspective to think in broad strokes about the near future. In my last post I shared some educators’ fears about what they see happening to colleges and universities. In this post I’d like to return to the topic of higher education’s economics.

How are we going to pay for college? How are universities responding to economic stresses? Trying to answer these questions causes me to ask another question: are higher education’s finances stabilizing after the crisis, or are they seizing up and worsening?

Short version: most campuses are feeling an ongoing budget cramp.  American families aren’t spending more money for college, even as campus fees rise.  And enrollments just ticked down a bit.  This could be a new normal.

Or it’s a sign that the machinery of higher ed financing is seizing up.  College costs are likely to keep on rising, since the body of tenure-track faculty continues to exist and become more expensive, and there’s no sign of slowing the amenities arms race.  Meanwhile families and politicians fiercely demand a reduction in cost, and improvement in quality.  There’s no sign of compromise or middle ground.

Long version:

To begin with, consider this summer’s survey of American campuses’ chief financial officers. The CFOs are generally unhappy with their institutions’ outlook over the next five years, and gloomier still for the five years after that.   Most see no new funds coming in, so they will have to shift funds around to meet needs (who’s going to lose in that game?).

Meanwhile, one recent study finds that American families have stopped paying more for college.  Sometimes this is due to downshifting institutional ranking, as in sending a teenager to a state school instead of a private college, or to community college instead of a big public school.  Another factor is cutting non-tuition costs “by having their children live at home or add roommates”, which might do some interesting things to living arrangements over time.  However we do it, Americans have dug in their heels in the face of increasing costs.


At the same time schools can’t count on increasing numbers of students any longer.  That’s because the total amount of students has gone down.  This means increasing institutional competition for a slightly smaller pool of applicants, and raising prices won’t play well in that game.

I can read these developments in two very different ways. Competing scenarios: either the education market just corrected itself into new levels, or the higher ed funding crisis just got worse.

I. The New Normal.  America has just experienced a very large correction.  We hit Peak Student Population in 2011, and have ratcheted down that population a bit.  As consumers and families of consumers, we decided that college costs shouldn’t rise any further.  Campus leaders in turn have focused their sober attention on budgets, and won’t be boosting them anytime soon.

In a short while some educators will refer to 1990-2010 as the go-go years, the epoch of ebullient growth.  Others will have more sour terms for the period.

Parents are not delighted, nor are adult learners, but they grudgingly accept that colleges are at least trying to respond to their requests.  And the college premium, that lifetime earnings bonus associated with a degree, remains viable.

 machine+zigazou762. The Machine Seizes Up.  Institutional leaders want to cut costs, but have run into limits.  For years they trimmed where they could, expanding the number of adjuncts, retiring older staff, postponing major projects.  Now they are faced with locked-in constraints: slow endowment growth and/or reduced state contributions; guaranteed compensation growth for tenure-track faculty; a solid cadre of administrators, either established for regulatory compliance or simply entrenched.  The campus physical plant must be maintained, and peer institutions aren’t showing any signs of backing off on the next climbing wall or souped-up wellness center.

Students and families, meanwhile, are outraged as rising prices.  They are not mollified by the various reductions made possible through discount rates.  Instead, they dread debt.  Additionally, they are skeptical of campus value. State and national politicians of all stripes join their chorus.  They demand more for less.

(This is where distance learning comes in, be it MOOC or otherwise.  A Hail Mary play, an unusual approach to reduce costs. )

Yes, these are huge generalities, and I admit to all kinds of exceptions.

So which is it?  Is academic financing hitting a wall, or morphing into a new stability?  Or is there a third way of reading these tea leaves?

(machine photo by zigazou76)

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9 Responses to Late night thoughts on higher education finance

  1. Pingback: The Future of Higher Education | Pedablogy: Musings on the Art & Craft of Teaching

  2. Hi Bryan,

    I’m not quite seeing how these are mutually exclusive. It does appear that we have hit a wall – Peak Students is past, AND families are not willing to pay any more. Rising operational costs will continue to rise, but there are no longer any funding sources to fund it. Federal and state funding dried up years ago, and now costs can no longer be passed along to the students.

    As these two trends cross, schools will run into the red (I’m seeing this happen now) with the inevitable results if their pockets are not deep or they cannot develop new revenue sources (and I agree with you, CFOs seem gloomy about new revenue sources.) Additionally, I see alternative organizations like StraighterLine nibbling away at the first-year attendance rate that helped fund the rest of the years provided at four-year institutions. I think the real “correction” is still to come.


    • Good thoughts, Judith.
      The two scenarios may be exclusive if colleges and universities can reduce costs. I know that’s a huge “if”, but if they can do so without closing, then they might satisfy families’ price demands.
      If they cannot, then we may well be heading for the correction you mention.

      There is a third option, which is that we simply accept more debt. Americans did so in our lifetimes, with the post-1980 explosion of credit card debt.

  3. Pingback: Late night thoughts on higher education finance | Bryan Alexander | bismain | bismain

  4. Bryan: You allude to it above, but I think it worth underscoring the impact the unfunded federal, state, and accreditor mandates and technology expansion have on administrative staffing. I’m tired of hearing politicians (particularly, since they are often the source of the mandates) and faculty rant about administrative “bloat” as a primary cause of increased college costs. No institution asked for the opportunity to police the failure to register for the draft, monitor drug convictions of aid applicants, prevent illegal file sharing (both a personnel and systems cost), and all the other social engineering the Congress has attempted to accomplish, using the significant leverage of institutional eligibility for participation in federal student aid. The list of such mandates is too long to address here; suffice it to say that few faculty would be willing to perform these functions, so the institution has little choice but to swell the administrative ranks. Do some institutions have more VPs than necessary and/or salaries that exceed the local scales for comparable responsibility? Undoubtedly so, but probably not enough to significantly impact what would otherwise be needed to maintain federal, state, and accreditor compliance.

    And then there is healthcare, predetermined retirement benefits. etc.,etc.,etc.

    • I agree, Richard. Much of administrative growth is due to recent and external needs: the governmental mandates you mention; the information technology revolution; expanding student life support. And yes, the compensation for these positions is nontrivial.

      But total faculty compensation remains largest.

  5. Pingback: Peak education 2013 | Bryan Alexander

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  7. VanessaVaile says:

    You could probably run this again now more or less as is…maybe with minimal updating just to keep from being caught out.

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