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Higher Education Watch
Is the College Business Model Unraveling?

The business model that the American higher education system has relied on to boost revenue and enrollment over the last few decades—steadily rising tuition, moderated by increasingly generous financial aid packages—may finally have run its course. The Wall Street Journal reports:

Private colleges are offering deeper tuition discounts than ever before, hoping to lure more students and boost overall revenue—and it appears the strategy isn’t working.

Tuition-discount rates for first-time, full-time freshmen hit a record 49.1% in the current school year, according to preliminary results from a National Association of College and University Business Officers survey of 411 schools. That 2016-2017 figure compares with 48% in the prior year. At schools with fewer than 4,000 students—those for whom just a small shift in enrollment can have a big impact—the freshman discount rate was 50.9%.

The hefty discounts in sticker prices signal how pricing power is shifting from schools to students and their families as some grow skeptical about the value of a costly college degree.

There is a bubble logic at work here. Marginal institutions are afraid to cut sticker prices, because many parents and students see high tuition as a mark of prestige. So colleges are forced to simply offer an increasing array of credits and scholarships to induce students to enroll, even as they keep jacking up tuition to keep pace with competitors.

But as the WSJ story suggests, it may be that pent up demand for higher education has already peaked. That could mean the whole industry is in for a disruptive adjustment.

What might this look like? Smaller, less-prestigious institutions could close. Others will be forced to roll back the administrative bloat that has accompanied rising tuitions. Vocational training programs might start to get more enrollees. Cost inflation and debt accumulation could slow down. All of this could be good for a higher education industry that costs too much and delivers too little and that seems to have contented itself with stagnation for quite some time. Expect the academic lobby to start pushing even harder for “free tuition” and other government crutches to postpone the reckoning for as long as possible.

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  • ——————————

    Of course the party isn’t going to last forever.

    Anyway, nothing but good news….

  • Angel Martin

    College tuition inflation dwarfs even medical care cost increases.

    (obviously, the BLS is not adjusting for “quality” changes, or the tuition increases would be much bigger!)

    There is no group other than silicon valley/San Francisco that I would be more in favour of seeing “disrupted”.

    • Andrew Allison

      What makes it doubly painful is that the delinquency rate on student is soaring, which means that they really are a gift.

    • seattleoutcast

      But Angel! We all know this is because republicans have cut funding to schools! There is absolutely no other reason that this is happening.

      • Angel Martin

        LOL !

        In the next recession we really are going to see cuts in funding to higher ed – regardless if the politicians are R or D or Trump.

        Higher ed has made itself especially vulnerable by prioritizing PC crap, safe spaces, indoctrination, opinion suppression, mandatory sensitivity training, groupthink, useless “studies” degrees, Humanities degradation etc.

        They are going to get creamed in the next economic downturn. Both by students ceasing to borrow for economically useless degrees. And from collapsing state tax revenues forcing funding cuts.

        • seattleoutcast

          It’s a wonder that many legislatures haven’t yet cut funding for this PC nonsense.

      • Bob Cusack

        Sadly, most missed your sarc.

  • Eurydice

    One way the industry could change is to think about education as a life-long process. People are living longer and long but are still depending for information on the first few decades of their life.

  • Andrew Allison

    Is “many parents and students see high tuition as a mark of prestige” really the case, or is it that prestigeous institutions can get away with exhorbitant fees? The pent-up demand referred to is simply a result of the stupid conceit that everybody needs and deserves, increasingly meaningless, “higher education”.

  • QET

    It is not 4 years at a college that has been conceived lately as a public good, but rather a college diploma. For all non-technical fields, where college is for skills training rather than for education properly considered, our colleges fit the Great Oz’s description: Back where I come from, we have universities, seats of great learning, where men go to become great thinkers. And when they come out, they think deep thoughts and with no more brains than you have. But they have one thing you haven’t got: a diploma.

    So really we should just save ourselves, as taxpayers, the expense of paying hundreds of billions for everyone’s college diploma, and as citizens spare ourselves from the deleterious effects of allowing today’s “students” to spend all their time and that taxpayer money training to become the useful idiots of the vanguard party, by just legislating that each person on his or her 22nd birthday shall automatically receive a Bachelor of Arts Diploma from the college or university of his or her choice. Except for STEM fields, which as I said will be exempted, I see no meaningful educational difference between this proposal and the current regime.

  • Andrew Allison

    Is “many parents and students see high tuition as a mark of prestige” really the case, or is it that prestigeous institutions can get away with exhorbitant fees? The pent-up demand referred to is simply a result of the conceit that everybody needs and deserves, increasingly meaningless, “higher education”.

    • rheddles

      You can say that again!

  • Fat_Man

    A consummation devoutly to be wished. Sadly this will only affect a tier of small uninfluential institutions that were not the source of the poison. I still want to see comprehensive wage and price controls imposed on the colleges.

  • This article is about dead on.

    What it, perhaps intentionally, doesn’t mention is the action of making the education higher valued thus higher quality. But for this they would have to get rid of student evaluations which drive the quality of education downward.

    Always, the best solution is somehow off the table.

    • John Brook

      Student evaluations have always been a tool to force the faculty to give easy A’s.

  • bscook111

    How many institutions rely on government, or consulting companies that bill government directly, as the employing base for their grads? These may be the schools that are zombies.

    • St Reformed

      Imagine, for example, having your offspring graduate from Mizzou or Bethune-Cookman : All that $$$$$ down the drain to train the young in Marxism imposed through fascist methods.

  • brian_in_arizona

    Very few people at institutions of higher learning understand the concept of a “business model”. Most presidents of private or public institutions are simply “fundraisers-in-chief”. They are hired primarily for their ability to coax donations out of rich alumni/ae, or out of State Legislatures. (The Development Office handles all the lesser donations.) Academic Deans try to maintain at least an appearance of control over faculties, which are by-and-large self governing and self replicating, and largely removed from any day-to-day concerns over something as tasteless as money.

    The “business model” of most institutions has been on autopilot for decades: more direct and indirect federal funding, ever larger gifts, higher tuition, more foreign students (who pay full tuition), fancier dorms and student unions to appeal to prospective students, larger administrative staffs to deal with the strings that come with federal money, and sports, especially football. (Maybe I have the order wrong…)

    The article is correct that the business model failures will hit the second and third tier private institutions first.

    • FriendlyGoat

      Your comment might cause us to think that the best “business model” is foreign students——for revenue, for keeping faculty on the cutting edge, for keeping the legislatures from doing any stupid stuff that would turn off high-end international customers, for de-emphasizing reliance on federal money, for de-emphasizing reliance on football or other sports. If the mission becomes that of selling a “has-to-be-quality” product to discerning customers at retail, that part actually does sound like a “business model” to me.

    • Night9Hawk

      Your description sounds spot on to me. For the past 30 years I’ve worked at a major public university and your description fits almost exactly with what has happened except for a new wrinkle. My university has begun to “sell off” non-academic parts of the university by entering into long-term leases with private companies for things like parking, utilities, residence and dining, and eventually IT. I suspect that they’re doing this in part to play a shell game with consumers. The functions are taken off the universities’ books and the money raised can be used to keep the academic costs of education stable. They’ll be able to claim that they’ve stabilized the cost of a college education since what students pay to the universities won’t change while at the same time the ancillary costs for food, housing, and parking will soar as the private companies make their profit. My cost for parking, for example has risen by almost 40% over the past couple of years.

  • Colt

    Hey kids. Do what I did. Join the United States Marine Corps. Best move I ever made.

    • QET

      If they did that the Marines might remain the Proud (might!), but would no longer be the Few. I suspect, however, that Few and Proud are cause and effect, not merely correlates.

      I think a new Aleutian Islands Conservation Corps is just where a great many of today’s college kids belong. We could start by assigning to the AICC every kid who demands a building be renamed or an exam postponed.

  • AWB

    This article is spot on. But not all institutions of higher learned are keeping to this model. For example, Purdue University has frozen tuition for 5 years, and the number of students and their academic quality has gone up. At least to some people, price/performance matters. Secondly, the obvious disintermediation strategy is remote learning, particularly for 100 and 200 level courses that require little hands on effort by professors to teach. Why shouldn’t the “best” math teacher teach 10,000 freshmen Math 101 via teleconference vs. a class of 300? The professor could take in far more income, and the students have a better experience. (And you don’t need as many liberal/progressive faculty members)!

    As for the liberal/progressive disciplines, they are about to die economically. At some point (as in now), the payers of the tuition and room/board for this crap will say enough! What is the point in a quarter million dollar education which prepares you to be a barista earning $25,000 per year? Student load debt is not going to be forgiven, and student loans CAN be deducted from your social security checks some day…. talk about indentured servitude!

    • Gary Green

      Except that they are creating jobs for Title IX compliance and “diversity” for sex and race majors.

    • John Brook

      The president at Purdue, btw, insists on real free speech, ignores snowflake demands, and maintains a high-quality institution at which most students actually become educated. When the university administration sets real standards for behavior, achievement, and political freedom, it makes a huge difference. Too bad the U.S. is not full of such universities instead of the Marxist training grounds we now have.

  • Kurt Ingalls

    LOL…..look you educated beyond your intellectual capacity jack-asses: when everyone has a college degree, THEY BECOME WORTHLESS!!!!!!!…..the law of supply and demand………………………Ummm, ask china……they will tell you……….. 🙂

  • Ken moss

    Hey kids, I was thrown out, asked to leave, Syracuse U 3 times. Went to WallSt. And in 2 years was well off in another 2 I started a company and sold out my interests for millions. Start a company serve a need, be free and rich and proud of yourself. Screw getting an A get the money! Honest!

  • Jarka

    All those censorship officers, diversity officers and sensitivity officers do not work for free. On the contrary. It is them not hard science faculty, who got all the money in last 8 years.

    • John Brook

      You can thank Obama and his pals for these nonsensical additions to university staff . . . and we the middle class pay for these folks to brainwash our youth.

  • FrankD51

    College today is nothing but a left wing seminary, the sooner people realize it is nothing but a ripoff in the soft disciplines the better. They are worthless degrees.

  • LCDR

    If a young person were to ask me today if college was a good idea, I’d tell them no. Universities today are turning out garbage and charging an exorbitant amount for it. Then after graduation, they use the “guilt trip” on alumni to get them to continue to donate money to them. I’d advise a young person to look elsewhere for a better means for obtaining an education and to pick a major degree which has the potential to pay them a good return on their investment.

  • PierrePendre

    Isn’t there a basic contradiction anyway in promoting education as a good which is vital to the health and prosperity of society and then making it so expensive that the great majority of the population can’t afford it? If education beyond the hard sciences were really so essential, it would be provided as cheaply and widely as possible.

    • brian_in_arizona

      You just described health care in America: a vital good which everyone needs and “nobody” can afford.

  • Fat_Man

    As if on cue:

    Mills College Declares Financial Emergency: California school plans layoffs, curriculum overhaul to stabilize $9.1 million deficit by Melissa Korn on May 17, 2017

    “Mills College in Oakland, Calif., has declared a “financial emergency,” with plans to lay off 30 to 35 employees and revamp its curriculum in an effort to close a projected $9.1 million deficit for the coming year. The school … has 821 undergraduate women and 524 women and men in graduate programs …

    “Mills has a fiscal 2017 budget of $81.3 million, but has had a “persistent and growing deficit,” …

    “The new Mills curriculum will put an emphasis on science, technology, the arts, gender and racial justice, and will offer more hands-on, applied learning. The school, which will redraft its mission statement …

    “Going forward, Mills will seek to increase its undergraduate population of women and gender-nonbinary students …

    “More than half of undergraduates now at Mills are students of color, and more than 90% receive financial aid. …”

    • Fat_Man

      It would be funny if it weren’t so pathetic.

      Things to note:

      1. The new curriculum emphasizes … gender and racial justice. This is just what a school in the East Bay needs to do, because there is a definite shortage of social justice warriors out there.

      2. They are going to redraft their mission statement. If there is a modern equivalent to rearranging the deck chairs on the Titanic, this is it.

      3. They want to find more students who are: “gender-nonbinary”. Really. This is the path to solvency? Thousands of children who cannot figure out if they are boys are girls? They would be more likely to fill the place up with Albanian speaking flute players.

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