The Future of Higher Education

Having nothing better to do (or nothing that I felt like doing) on a Sunday afternoon, I thought I’d respond to Bryan Alexander’s thought-provoking post on nothing less than the future of higher education.

First a caveat: I am not an expert in higher education finance, but as an economist I do have an opinion–no rejoinder necessary, Bryan 😉

I don’t think Bryan’s analysis is quite complete, or at least it’s not representative of what I’m seeing.  The economist in me always asks, “What’s the alternative?” If consumers and families decide “that college costs shouldn’t rise any further,” that’s a wish or an emotion, but what does it mean?  What can families do about it?  Let’s assume we’re dealing with the majority of colleges and universities below the very top, where students and families actually have to pay for school.  The natural response is to downsize, either by choosing “cheaper” schools, say a public over a private, or spending the first year or two at community college and then finishing at a four year school.

There’s a lot of money to save with both options.  The average cost per year at a private four year institution is more than $40,000. The corresponding cost at an in-state public is about half that.  (Even the “net cost” at a private is higher than at a public.) So we should expect to see more students choosing the University of Virginia (in my state) over say NYU.  We should also expect to see more students staying in state, choosing UVa over say Penn State.  Community colleges are cheaper even than public four year schools.  When you include the fact that most community college students live at home so they don’t pay room and board, community colleges become significantly cheaper.  So Bryan’s first scenario may be normal looking for higher education as a whole, but it’s not normal (even new normal) for individual schools, who may be facing extraordinary stresses.

Bryan’s second scenario feels right to me, at least the symptoms seem familiar.  But what’s not right is it seems too surface level to me.  To make sense out of what’s going on, one has to start with a theory of what’s been driving the costs of higher ed.  The theory that makes the most sense to me is Baumol’s cost disease.  The best explanation of this is Archibald & Feldman’s Why Does College Cost So Much?

If Archibald and Feldman are right about what’s driving costs, many of the surface symptoms are only minor embellishments on the cost train.  The question again is what can consumers do about it and what can schools do?  Consumers may be “outraged a[t] rising prices,” but their options here are the same as in scenario 1 above.  “State and national politicians of all stripes [may] join their chorus.  They [may] demand more for less.”  But what does that mean operationally?   If schools do not have the endowment growth to cover the increasing costs and/or the reduction in state support, then (whatever people think) prices will have to continue to rise and the scenario 1 options will prevail.  I see this as the likely short run outcome.  But this is not a stable outcome.   As consumers downsize to other schools, the schools they would have attended will run into problems on the revenue side.  See, for example, St. Mary’s College of Maryland and Loyola of New Orleans.  For now, those schools are holding their programs together with the fiscal equivalent of duct tape, but if the trend continues, at some point a tipping point will be reached resulting in catastrophic failures.

The only solution that I see, long term, is to change the rules of the game.  MOOCs are an example of an attempt to do this, but I don’t see that MOOCs as they currently exist are the answer.  For a school to be viable, it’s going to need to clearly identify its value-added and focus its efforts in that area.  Schools that continue to offer programs that are only adequate are going to face increased revenue shorfalls.  Our school is in the early stages of attempting to play a different game by looking for new, innovative programs to invest in, and by making difficult choices about long time programs to reduce or close.  We’ll see how that works out.  My guess is that in the coming years we will see an increase in diversity of what a college education looks like, as schools experiment to find a strategy that works for their context.  Many of these experiments will fail, but hopefully some will succeed.  I haven’t thought enough about this yet, but I could imagine faculty whose disciplinary departments in small liberal arts colleges are being downsized moving into interdisciplinary departments to teach common courses in a new university curriculum.  A very different but promising example of a sustainable strategy could be Mike Caulfield’s idea for residential online education.  I would hate to see the alternative of a two tiered system of higher ed:  Residential education for the few and something like career-oriented online education for the many.

One thing is clear: the higher ed system has not reached an equilibrium yet.