With very few exceptions, the economic condition of higher education institutions is under stress. For public institutions, state funding has seen such significant declines in the last decade that costs have shifted to students, who now must pay much higher tuition. And many of the small private institutions that are heavily dependent on tuition find they must offer deep discounts, just to get students in the door.
Clearly, conditions seem to call for a dramatic makeover of the economic models in use in today’s higher education system. There is a great need to drive changes—both cultural and structural—that make institutions financially viable in the decades to come. So where do campus leaders begin, and how do they conduct conversations with stakeholders in their institutions and the higher education industry?
Business Officer interviewed four college presidents and asked each of the leaders to talk about his or her administrative and academic successes, institutional challenges, and steps being taken to be financially sustainable—all while they continue to provide the best academic experiences and opportunities for their students. The presidents also have agreed to serve on the advisory board of NACUBO’s Economic Models Project.
Philip J. Hanlon, president of Dartmouth College, Hanover, N.H., since 2013, is an academic and administrative leader who held a succession of administrative leadership roles at the University of Michigan for more than a decade, most recently as provost and executive vice president for academic affairs. Hanlon also has been serving on the NACUBO Board of Directors since 2010.
Devorah Lieberman is the first female president in the 123-year history of the University of La Verne, La Verne, Calif. With more than 30 years of higher education experience, she was one of 13 national scholars invited to participate in the three-year Project on the Future of Higher Education, from 2002 through 2005.
Horace Mitchell became the fourth president of California State University, Bakersfield, in 2004. A psychology professor with research interests in the areas of identity construction, multicultural psychology, and psychological assessment, he continues to teach. Mitchell also has been serving on the NACUBO Board of Directors since 2012.
Eduardo J. Padrón has served as president of Miami Dade College, Miami, since 1995, where his work is hailed as a model of innovation. No fewer than six American presidents have selected Padrón, an economist by training, to serve on posts of national prominence.
Philip J. Hanlon on Self-Investment
Higher education institutions are on a financial path that’s unsustainable. Although we haven’t yet reached the breaking point, we may be getting close. For the last four decades, sticker price increases at institutions have been well above any rate of inflation—2 to 3 percent—on an annual growth rate.
Campus leaders need to get out in front of this issue with a sense of urgency. One of the problems that we face is: We presidents are a group of independent operators with no organizing group. We are 3,000 different players, each doing our own thing, which is why I tend to think that the change will have to come from outside the higher education system.
It might take a suitable shock from the outside before higher education leaders become—by necessity—inventive. If the next act of Congress, after the Affordable Care Act, is the Higher Education Affordability Act, institutions may face any number of requirements. Then leaders might say, "OK, we’ve got to be creative. We’ve got to do something different." But, I just can’t see it coming from within the system, because presidents at higher education institutions have learned to be cautious.
It’s All About the Rankings
Many college presidents fear making bold decisions. Just look at the phenomenon that’s been going on in the last 40 years. I call it "the great homogenization of higher education." Everybody is trying to be the same, to offer the same facilities, programs, activities, and services. As I was leaving the University of Michigan, Ann Arbor, four regional universities were opening medical schools. Why? Because I think it’s all about rankings. We’re all chasing the same goal. No one wants to step out and say, "We’re different."
At Dartmouth, our year-round calendar makes us a bit different and gives us an economic advantage. Without this kind of schedule, we would have to build more residence halls, expand our classrooms, and make adjustments on the facilities side. I believe that more colleges and universities can benefit financially by adopting year-round operations.
When we educate students, we provide them with two qualitatively different things. One is knowledge—the facts of the world and the intellectual frameworks so that this information makes sense to us. Second, we develop their skills for success in the world: the ability to communicate effectively, critical thinking skills, a well-developed creative mind, the confidence to innovate and take risks, the ability to work effectively with others, and leadership skills.
New technologies allow us to share knowledge in new, low-cost ways. This means that our key value-added will increasingly be the ability to develop skills to succeed in the world.
Obtaining these skills requires a different kind of instruction. Students don’t develop the confidence to innovate and take risks by participating in a massive open online course (MOOC) or sitting in the lecture hall. They get these skills by failing, by being coached, and by trying again. They learn by doing, rather than listening. It’s absolutely critical that we develop ways to measure growth in experiential learning. But one of the big challenges ahead of us is to find effective means to measure growth in these skills.
How Are We Doing It?
Part of our vision at Dartmouth is to self-invest by prioritizing all of our activities, which frees up resources for excellence and high-priority initiatives. Similar to many successful organizations, we require in the budget process that every department explicitly identify 1 1/2 percent of its spend that it is going to stop, and then describe how it is going to invest that money in innovation or excellence.
Initially, requiring that movement of funds was scary. Who wants to cut their budget? People were grumpy … until they invested in their new activities, which made them feel empowered. Of course, they eventually asked, "We aren’t going to have to do this again next year, are we?"
My answer: "Yes."
Structurally, universities are very stable organizations, partly because many key employees have lifetime contracts. And, our students are here for multiyear gigs, so we can’t say, "I’ve decided to close the physics department until we have more customers."
Because institutions have so much stasis and stability, I believe that modest reallocations, repeated relentlessly over a period of years, are the right way to achieve reprioritization and efficiencies. If units can examine their budgets and ask, "What’s my least effective spend? Can we improve this process so that two staff members accomplish what it takes three to do now?"—that drives efficiency.
Of course, the departments that are able to achieve this are the bigger ones, such as arts and sciences, engineering, and facilities and operations. They have to be big enough to move things around; the classics department with two employees won’t be able to do this. We also have placed restrictions on what classes can be offered; we now require classes to have at least five students enrolled in them.
The whole notion of institutionwide prioritization and reallocation can be alien to faculty members, some of whom have not taken kindly to the approach. We just keep emphasizing the positives that result: "You now have 1 1/2 percent of your budget with which to do great things." We continue to make the same argument over and over—that we’re liberating dollars for important projects.
A few faculty members have told me, "Until you got here, we raised tuition 4 1/2 to 5 percent each year. Why don’t we go back to those good old days? We won’t have to do all this cutting and prioritization." As presidents, we need to continue changing that old mindset: "How much revenue can we get in the door and how should we spend it?"
The new mindset is, "What’s the minimum we need to spend, and how do we get the revenue to do that?" Not surprisingly, the faculty members who best understand that are the ones who have children enrolled in colleges.
A National Obligation
Not too long ago, I had a meeting with The Wall Street Journal editorial board. We talked about higher education issues and what we are doing at Dartmouth to slow down the growth of the sticker price and get it under 3 percent. The board asked, "Why are you doing this? You’ve got more applicants than you can possibly admit. They are willing to pay almost anything to come to Dartmouth."
We’re fortunate, but I understand that not all institutions have the same advantage. The economics are really bad for tuition-dependent small colleges that have to offer a discount just to get students in the door.
While there will always be the highly selective colleges and universities that, at least in the foreseeable future, are going to be highly sought after at any price point, we, as presidents, have a national obligation to control costs. It is the right thing to do.
Devorah Lieberman on Campus Culture
The NACUBO Economic Models Project has the potential to be bold, nimble, and groundbreaking. It is my goal to contribute to this effort by drawing from my experience working with various financial models, establishing and maintaining student learning outcomes, and preserving campus vitality, because it is time—perhaps overdue—for higher education to be bold, nimble, and groundbreaking.
I began my career as a professor at Portland State University, Ore., where I developed a deep commitment to student success, knowledge acquisition, and students’ commitment to community engagement. When I shifted my primary responsibilities from the classroom into administration, Portland State was undergoing a significant transition: creating learning communities and implementing entirely new general education requirements that included interdisciplinary connections and community engagement. I was eager and honored to play a role in helping design the thoughtful models for general education, educational delivery, student learning, interdisciplinary approaches, and community engagement. Essentially, I was interested in helping to transform the campus culture.
A Culture of Joy, Passion
At one point I was asked to participate in a national conversation that was formed to answer the question: "How can higher education create models that reduce institutional cost while maintaining student learning?" I felt that the higher education environment was ripe for this question, but that an element was missing. Rather, I rephrased the original question to ask, "How can higher education create institutional models that reduce the cost of educational delivery; enhance student learning; and concurrently support faculty, staff, and administration vitality?" If our business models only focus on cost and student learning, we may be achieving these goals at the expense of the vitality and joy of the faculty, staff, and administration.
During my presidency at the University of La Verne, I aim to address the whole equation: enhancing student learning and containing cost and encouraging a culture that supports passion and joy. Each month, I ask two faculty members to choose 10 other faculty members and their respective spouses to spend an evening at my home. Throughout the evening, we have casual conversations while enjoying wine, cheese, and each other’s company. We each share the source of what gives us joy, passion, and reasons for entering and staying in the higher education profession. This allows us to reflect on, and talk about, our own campus climate. These face-to-face conversations, in an intimate and comfortable setting, help us focus on the positive and keep us moving forward, together, in the same direction.
Additionally, I try to "walk the talk." When I assumed the presidency, one of the initiatives brought to the forefront included a focus on establishing employee compensation that was competitive with the market. To that end, we formed a compensation task force that would recommend a model to achieve this outcome. The task force has established employee salary ranges based on national data for four-year, private, nonprofit institutions, such as La Verne.
The board of trustees and executive cabinet agreed that everyone, irrespective of their position on campus, should be compensated at the median, plus a regional multiplier. This initiative, with the goal of bringing all employees’ salaries to the median, may take several years to be achieved; however, there is a feeling of confidence on campus that compensation concerns are being addressed fairly and in a timely manner.
A Commitment to Institution Values
Further, there is intentionality in reinforcing the 124-year-old values of the University of La Verne: lifelong learning, ethical reasoning, civic and community engagement, and diversity and inclusivity. These four values are interwoven throughout all curricular and co-curricular programs, in all four colleges, and across all 11 campuses. They are also at the center of the university’s 2020 Strategic Vision and its campus master plan; they are at the core of everything we do.
By focusing on and reinforcing the institution’s values, I firmly believe that when you attend the University of La Verne, you will achieve more than you ever imagined and you will exceed your expectations.
The university enrolls 8,700 students across graduate and undergraduate programs, many of whom never believed that college was an option. Fifty percent of our students are first generation, and more than 40 percent are Latino. Hence, we are federally designated as a Hispanic-serving institution. Because we’re educating this country’s future leaders, we seek to develop in our students skills that future employers are looking for—critical thinking, teamwork, and oral and written communication.
The Critical Need for a Knowledge Model
When I recently delivered my state of the university address, I spoke about what is taking place at the state and national levels in regards to the College Scorecard and what is being measured. Reductions in federal and state financial aid to students attending private independent colleges are being considered, forcing institutions such as the University of La Verne to think about alternative financial models.
This institution—and others like ours—must be more nimble, relevant, and distinctive in order to remain viable and successful in the future. In higher education, we should not be talking about an economic model. We should be talking about a knowledge model; a model focused on efficiently bringing knowledge to the students.
As leaders of a nonprofit independent institution of higher education, it is critical that we ensure financial stability. We must create financially stable models that allow us to provide distinctive, relevant, values-based education for our students, while also supporting the faculty and staff in their research, scholarship, and professional development.
In order to maintain costs without continuing to raise tuition, we must be more strategic with our educational delivery. We must examine our current model of education delivery and its cost, as well as different revenue streams that can help subsidize institutional needs. We cannot continue to believe it is as simple as cutting budgets and raising tuition. Instead, we must adapt our delivery model and evolve our funding sources to be more cost-effective without negatively affecting quality, student learning, and faculty/staff vitality. How we do that is a constant, ongoing discussion.
Horace Mitchell on Entrepreneurial Academics
Before we move to the question of the sustainability of the higher education funding model, we should acknowledge the great diversity that exists among higher education institutions, and the perceived value of a higher education degree. Different sectors of higher education have different missions, funding models, needs, and constituents. In looking at the value of public universities, we must consider what institutions contribute to educational attainment; to the quality of life for individuals, their families, and communities; to workforce development; and to regional economic development.
All Student Debt Is Not Equal
There is always a discussion of whether higher education is a private good or a public good. Many people, particularly those who have not had much experience in higher education, see it as a private good and, therefore, believe that the individual should pay. Others view it as a public good that adds benefits to the entire state, so states should bear part of the costs.
Unfortunately, most people still believe that public universities are entirely funded by states, which is absolutely not the case. The significant investment that California made in public higher education in 1960 under the Master Plan for Higher Education has gone by the wayside. For public universities, it is not so much that the cost of education has gone up. Rather, states have withdrawn large percentages of their funding. We are seeing a cost shift, and students are now bearing a higher percentage of the load.
In the case of California State University (CSU), the state is funding about 50 percent of the cost of instruction. By the time we add in other funding sources, such as contracts and grants for research and student programs, fundraising, and various auxiliary enterprises, the state portion falls well below 38 percent of total revenue. This is very different from what it was in the past. So students must pay more—not because the universities are costing more—but because of the cost shifts from the state to individual students and their families.
Fortunately, student debt is not a significant issue in the CSU System, and, in particular, at CSU Bakersfield (CSUB). According to our data, about 50 percent of the students in our system, whose families have incomes of $70,000 or less, essentially pay nothing to attend CSU after receiving Pell Grants, Cal Grants, State University Grants, and other financial aid. They have no debt. For others, the total debt is approximately $18,000.
Although student debt is not an over-whelming problem here, that fact gets lost in the larger national discussion when the front page of The New York Times, The Wall Street Journal, or The Chronicle of Higher Education proclaims that the average amount of total debt for students is $29,000. For some state universities, that is an exceedingly high number.
Revamping to Meet Future Education Needs
The financial model of heavy dependence on state appropriations and student fees is no longer sustainable. In light of that fact, the California State University, with more than 430,000 students on 23 campuses, is exploring alternatives. CSU Chancellor Timothy White has formed a Task Force on a Sustainable Financial Model, which is charged with "proposing a sustainable plan for the future with respect to budget allocations, revenue generation, enrollment management, and institutional financial aid policies."
The group began its work last October and is expected to have a draft report within a few months. So how are we trying to meet the financial challenges that beset our campuses in the meantime?
When we developed the vision statement for CSU Bakersfield, we put a date on it, which is unusual. Vision statements are supposed to be aspirational. Well, our vision statement reads, "By 2014–15, CSU Bakersfield will be the leading campus in the CSU system in terms of faculty and academic excellence and diversity, quality of the student experience, and community engagement." It goes on to say that we will advance our vision "by hiring, development, and promotion of excellent and diverse staff within an organizational culture committed to excellence in all areas."
- Advance the vision. In January, the Carnegie Foundation for the Advancement of Teaching classified CSU Bakersfield as an "engaged" university, after a very rigorous, evidence-based process. We see this voluntary classification as being a validation of our commitment to strengthening our community engagement, as stated in our vision.
We currently are in the process of changing our academic calendar from quarters to semesters, and, even more importantly, completing curricular transformations in 70 percent of our academic programs. Rather than simply converting courses that have been on the books for two or three decades, faculty members are reconceptualizing their curricula in anticipating future student and community needs. In addition, our academic senate has worked with our faculty to totally revise our general education requirements to make sure that they are in alignment with our set of universitywide student learning outcomes.
- Increasing efficiency. We have taken steps to increase efficiency by collaborating with other campuses. For example, with our campus size, we cannot afford police dispatching all night long, so we worked out an arrangement with CSU San Bernardino, a larger campus, to handle our after-hours dispatch. In another example, we decided to contract with California State University, Fullerton, to borrow one of its project managers to manage our new student housing project, which has 500 beds.
- Offsetting financial obstacles. Enduring fiscal hardship has forced us to be entrepreneurial. For example, we wanted to start academic programs that relate to the two largest industries—oil and agriculture—in our community. Of course, we did not find any state funding.
During a meeting with executives in both areas, I asked how we could be helpful to their respective industries. I learned that the farms in Bakersfield and its surrounding areas are not "mom-and-pop" farms. They’re major agricultural companies with worldwide exports and operations. They have been growing so large that they could not keep the management talent. New hires from other communities would get one or two years of experience and then leave.
To meet that need, we initially developed a concentration in agribusiness within our bachelor of business administration degree. Beginning next year, the concentration is expanding to a full major, so that students will earn a bachelor of science in agribusiness. We have an advisory board made up of agriculture industry executives, and they’re picking up our students as fast as they can be produced—not only the graduates, but also students in internships.
We had a similar discussion with the major oil companies with operations in the Bakersfield area. Nowadays, the oil fields are managed through computer centers. An operator in a control center examines the efficiency of every single well and pinpoints any problems that come up. This technology required computer engineers, electrical engineers, and petroleum engineers. With no state funding, we worked with our faculty in the school of natural science and mathematics to write grants, cobbling together about $10 to $12 million. With that, we started these engineering programs, including the construction of two engineering laboratories.
We have implemented a stand-alone doctoral program in educational leadership to address an identified need for better-prepared K–12 and community college administrators. In 2011, we entered into a collaboration with Fresno State University, Calif., to offer its Doctorate in Educational Leadership, on the CSUB campus. The program is geared to provide advanced education for K–12 and community college leaders, with specific goals of preparing administrators to meet the educational challenges of today and the future, and improving teacher preparation.
The advantage of partnering with Fresno State University is that it allows us to have in Bakersfield a program to meet the needs of the community ahead of the time when we could offer a program independently. Two Bakersfield cohorts of the Fresno State program have now graduated, providing our community with almost 40 additional educational leaders with earned doctorates. The fourth and fifth cohorts will earn joint degrees.
In addition, we are developing public-private partnerships whereby private entities will be constructing buildings on open campus land. The CSU Board of Trustees has given its final approval for an office park, which will benefit the university in two ways. First, there will be annual ground lease income of several hundred thousand dollars per year. Secondly, all tenants in the office park must have programmatic relationships with one or more academic units. Examples include joint research projects, student internships, and collaborative programs to serve students and the community.
As I look around at public universities, I would say that there is no sense of urgency—and I’m not talking about just California—in addressing their financial models. I hear my colleagues around the country say, "I understand that ‘X’ and ‘Y’ colleges are having problems, but my institution is fine—for now."
It’s the "for now" that has me worried.
Eduardo J. Padrón on Containing Costs
A college education is still critical for upward economic mobility. A growing number of the new jobs created in this innovation- and knowledge-based economy require postsecondary education and skills. However, to take advantage of the new economic system, the higher education system must move into the 21st century. We have been lagging behind; to catch up, we need perseverance, patience, and courage. Our primary challenge as an open-access institution is that despite dwindling state support, we must strive to keep tuition low to offer everyone in the community that we serve the opportunity to attend college.
Public institutions, such as Miami Dade College, have become more private than public in terms of funding. Our state funding today is about 13 percent less than what it was in 2007. When you look at our sources of income, more than 50 percent of our revenue now comes from student tuition and fees, the generosity of donors, and grants. Twenty years ago, most of Florida’s state budget was allocated to education, but the portion continues to decrease as health care, Medicaid, transportation, and the justice system become state priorities.
Ironically, while people talk a good game about the need to educate our communities to be competitive in the 21st century economy, the disinvestment in higher education continues across the nation. A large number of college presidents do not seem to be prepared to deal with today’s realities. This is not meant to be a criticism—the requirements of and demands on presidents have become very complex. But, somehow, we need to find it within ourselves to adopt a proactive model and to act on the courage of our convictions.
We, as college presidents, need to defend our decisions and processes based on data, not anecdotes. We need to strengthen our institutional research programs so that we can demonstrate the effectiveness and efficiency of our operations. For example, many institutions have not yet defined the learning outcomes necessary for graduates to possess to not only compete, but also succeed in the workforce and in life. If we cannot assess our expectations, how can we defend our institutions? To gain more support, we need to move from anecdotal- to evidence-based decisions.
To be blunt, we must continue to change. We need to find a way for our institutions to be relevant and more transparent. And we definitely need to make a convincing case for public and state support of our institutions by mobilizing our respective communities and alumni. Miami Dade College has touched every household in Miami. In order to secure the resources we need to serve our growing student body, we need to make maximum use of the positive relationships we have established with our community and translate our community’s support into an ongoing political advocacy campaign that resonates with the state government.
Change Is Difficult
The type of transformation required to take higher education funding to the next level during these challenging economic times is not easy. I know this because about 20 years ago, when I became president, I instituted a number of very difficult changes that created some conflict on campus. I inherited challenges, and I had to make bold moves to get the college above water. The college was in the red; our fund balance was lower than the state-required minimum. Employees did not receive salary increases for three or four years, and our faculty unionized because of the situation. But, today, even faculty leaders recognize that those changes were necessary to bring stability to the institution and to our students.
When speaking about some of the institutional changes I had to make for the betterment of the college, top of mind is related to faculty schedules. Our professors used to teach classes whenever it was convenient for them. I instituted a schedule-by-demand system based on student need. This meant that faculty members could not line up their classes one right after the other in a block, and from 9 a.m. to noon. After all, we needed to serve weekend, evening, and afternoon students, too. That system made us much more efficient and allowed us to grow. But, most importantly, it allowed us to serve more students.
I also revised student participation in athletics, which I learned is a difficult subject for any president to touch. I reduced our 32 sports teams to five because, while we were spending millions of dollars on those teams, most of our students, who are commuters, did not even attend the games. I had to make unpopular decisions so that we could reallocate the funds we were spending on athletics into laboratories, student aid, and new technologies—areas that allowed us to make the greatest difference on behalf of our students.
I instituted a very rigid system of cost containment. Every budget decision and request had to be justified in terms of how it helped students. We also became more efficient by outsourcing services, creating partnerships, and retrofitting electrical systems. During the first two years of my presidency, we carried out an endless list of activities that have helped us better deal with the constant underfunding of the past 10 to 12 years.
Make the Board a Priority
When I was offered the job of college president, I informed the board about all the changes that needed to be made. I also said, "If you’re not willing to stand by me, you need to find somebody else." To its credit, the board stood by me throughout every single plan that I proposed and all of the changes that we made to transform this institution. I have to say that my greatest asset has been my seven-member board.
The board has to be every president’s priority. Sometimes, we forget that. If things go wrong at the institution, but the president has the board’s support, then he or she can fix the issues and advance the institution to the next level. I communicate almost daily with my board members to ensure that they understand what we are trying to accomplish as an institution. Before every board meeting, I hold individual meetings with each board member. We discuss the agenda and the issues, which helps make for effective and efficient meetings. The more we prepare and educate our board members, the better support they are going to provide to our institutions.
One of my goals as college president is to make sure that people—students, staff, faculty, and board members—are well informed, have a sense of belonging, and take ownership of the good and the bad.
When I became president, I tried to decentralize the organization because I believe that if institutions don’t take risks, they will not advance. Given a set of standards, people at all levels can feel empowered and be held accountable. They can have the freedom to experiment and to create and work with new ideas.
Leaders of higher education institutions should constantly innovate, whether this innovation takes place in the classroom or in the business affairs office. Innovation has made the higher education system in America the envy of the world. People from every single country still dream of coming to the United States for an education. We need to keep those dreams alive.
BOB SHEA is senior fellow, finance and campus management, NACUBO.
SECTION I: ECONOMICS IN MOTION
Essay: The Power of a College Degree
Essay: It’s Not Us Versus Them
Essay: Three Trends That Will Challenge Colleges