By Geoffrey L. Brackett
One of my favorite episodes in Homer’s Odyssey is one of the most fearsome. It involves the sailing between the mysterious cave-dwelling monster Scylla and the terrifying, ship-destroying whirlpool known as Charybdis. There is something about having to manage two supernatural threats at once that makes Odysseus’ journey all the more frightening.
Most executive leaders in higher education know pretty well what Odysseus was feeling, in that our institutions are forced to run the gauntlet between forces as large and menacing as Scylla and Charybdis. On the one hand, we see the swelling whirlpool of market dynamics, and on the other, the manifold challenges from regulation to internal operations. Taken together, they seem almost mythic. And as with Odysseus, the gods do not appear to be giving anyone a pass.
Charybdis. September 2016 brought some positive economic news from the Census Bureau that the median household income had risen some 5.2 percent last year to $56,500. This was a leap that, as The New York Times reported, had not happened for decades. For families with students entering in fall 2016 at colleges and universities around the nation, the news was at least modestly good. And yet when one looks a bit deeper, the data reveal a devastating reality. In 2015 dollars, the median income 15 years ago in 1999 was $1,400 higher, at $57,900.
This is significant even in the most affordable, taxpayer-subsidized sector of the market. Pro Publica studied the data from 2000 to 2014 for public institutions, charting the average cost of tuition (80 percent up) against the average household income (7 percent down) and found a negative swing on average of $7,643 per year over that period.
Source: Median Income Is Down, But Public College Tuition Is Way Up. Pro Publica, Aug. 25, 2016.
Relative percentage change over time is a useful measure of the cost/income dynamic, but a more helpful way to think about these figures, I would argue, is to match them to find what percentage of median household income it would take to cover average annual institutional costs, and to do so across the wider market. If one looks at the aggregate market (all two- and four-year public and private schools), the combined four-year, and the private four-year sectors, the macro problem reveals itself.
In the aggregate market, a median household income in 2000 could cover 25 percent of the average institutional costs. That figure is a significant sacrifice for any household, but with savings, scholarships and loans, one could see that a four-year plan could be manageable. Tough, but manageable. Even in 2000, private four-year institutions were 50 percent of that median income. Those are figures that would—and did—concern those of us in higher education, and many institutions began to understand the complex modeling of tuition and discounting critical to make operational budgets work.
Especially for the private four-year college and university community, that 50 percent threshold marked a watershed. Fifteen years later, it is 71 percent and looks more like that Odyssean whirlpool:
Of course, median incomes do not explain all the variations of household income, but it is also true that annual income fluctuations of 25 percent or more are the norm, according to the Pew Charitable Trust’s 2015 report, The Precarious State of Family Balance Sheets. As a macroeconomic marker, these figures help illustrate why increasing pressure on tuition discounting is an everyday reality for so many institutions that shows no sign of ebbing.
Furthermore, while the political focus is generally about the more than $1.3 trillion in outstanding federal student loans and the taxpayer liability associated with relief, the question often unasked outside of financial aid offices is: What about the costs that are unmet by federal student loans? As Richard Garrett of Eduventures points out, “The fact that students and families pay about 50-65 percent of net tuition themselves is not news to anyone with a kid in college, but it tends to go unremarked in policy discussions and media coverage.” Especially for Generation X parents, whose kids are in the college pipeline and many of whom still have their own debt, these expenses are a source of very real concern. Managing household expenses is particularly difficult for American households just now: At my own institution, the Marist Poll published a December 2016 survey of households to find that more than one third of households are having trouble making ends meet.
These numbers illuminate the legitimate concern parents and legislators have about the “return on investment” for higher education. It seems to me they are a major driver in the rise in public sentiment doubting the necessity of higher education. Public Agenda released a poll in September that shows only 42 percent of the public view college education as necessary, and that 57 percent believe it is not a prerequisite for success. College expense is central to their thinking: some 69 percent feel that there are many qualified candidates who do not have the opportunity to study (indicating there is still a perception that college fills a need, but is unattainable), and perhaps more soberly, 59 percent feel that colleges care mainly about the bottom line instead of educational experience (only 34 percent feel that education is the main focus of higher educational institutions).
These are stark warnings.
It is impossible to view the issue of college cost or efficacy outside of the current economic and political environment regarding stagnation of incomes, shifting employment models and income gap disparity often discussed in the national press. These changes have hit the middle class particularly hard, a population that has traditionally depended on the upward-mobility inducing effects of the traditional four-year degree. In addition to median income dropping, there has been a real drop in median net worth. The current level of unrest in the political arena about our uneven and relatively anemic economic recovery, in addition to the forecasts that predict a new reality for sub-4 percent annual growth, indicate that the fearsome tidal pull of that macroeconomic market has the capacity to swallow institutions that are not prepared for the journey.
And yet, the evidence is clear and convincing that the benefits of a college degree are significant, especially on the earning power of individuals and households. The Marist Poll’s December 2016 survey noted: “By two to one, residents without a college degree, 44%, have a more difficult time making ends meet than those who are college graduates, 22%.” Furthermore, a recent (December 2015) National Bureau of Economic Research study showed that the lifetime benefit of a college degree averaged $800,000 after netting out all costs of student debt. The significance of the benefit of a college degree continues after age of 65, as illustrated below from a 2016 study of the Economic Policy Institute:
Source: Economic Policy Institute analysis of U.S. Census Bureau’s Current Population Survey Annual Social and Economic Supplement microdata.
I believe firmly, as we all presumably do, in the power of higher education, and think at a minimum that Churchill’s comments on democracy apply to the traditional model of undergraduate education: it is the worst form of education except for all the alternatives. But even with its long-term benefits understood, the challenges for many households to afford college make it clear that the current model cannot simply continue without strategic innovation. I think there are three things leaders need to keep in mind:
- The strain on households is not going to go away, and any increase in cost is a bet with long odds of success. For most tuition-driven institutions, this will mean carefully considering the internal return on institutional investment. What, we must ask, is the actual value to students and their families for any given enterprise—be it a new academic building, dormitory, or other facility, program, or initiative? These are tough questions, and they will need to be driven by institutional mission, but they need to be framed in the context of the larger economic environment.
- The economics of the model are changing the perception of higher education’s value, and therefore value has to be treated as a central priority for institutional planning. This issue is often at the heart of differentiation: in the larger context of the questions about higher education, what makes your institution distinct and a compelling answer to the question of value? Those schools that answer that convincingly will benefit.
- Innovation needs to be a central operating principle to increase operating efficiency, manage costs, and—hopefully—increase the value proposition. When people ask me about higher education’s costs and value, I often start by reminding them that colleges and universities operate in a tradition that is a thousand years old: the cloistered removal and training of the next generation, which is a method that has spurred on innovation since the Medieval period. As an industry, we have continually innovated from those European models, which is reflected in the abundance and variety of institutions today. But while we need to maintain the long view to appreciate the powerful positive impact higher education has had on the world, individual colleges and universities need to commit to ensuring that complacency does not quash innovation. Doing the right things better by leveraging technology, course redesign, access and support, rethinking approaches to planning and execution, among many other approaches, are all called for today and for the foreseeable future.
Odysseus, as you probably know, made it through the narrows by managing to keep his distance from Charybdis, and with some losses to the monster Scylla (in this context issues from regulation to student preparation, and the intended subject of a future post). Odysseus used ingenuity and sacrifice to continue his journey. Both will be required for the journey awaiting higher educational institutions as well.