Causes and Solutions

The following is a transcript of a talk at the Feb. 22 CSUF President's Symposium, “Appraising the Future, Understanding Costs: Envisioning the New Normal in Higher Education,” given by Jane Wellman, executive director of the National Association of System Heads and founding director of the Delta Project on Postsecondary Costs.

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Wellman: I’m going to do this in a couple of pieces, one is to throw numbers up and to give you some pictures of facets of what the college cost problem is. Then I'll finish up with some observations that go beyond the data to what I make of it and what I think about it. I really want to be a tag team with King. I've had the opportunity to share the podium with King on numerous occasions. My experience is that it's a little like that old “Saturday Night Live” sketch with Jane Curtain and Dan Aykroyd. I'll do my thing and I'll have some charts and graphs. Then King will do the, “Jane, you ignorant slut,” part.

One of the challenges of getting a handle on the college cost problem, and I think it's actually part of the problem, is, it is a topic that everyone thinks they understand and everyone understands differently. It's a classic example of that old logic problem of the blind man and the elephant where depending on where you are with the elephant, you can get the tail and think that it's this or the ear and it's a that. The college cost topic is exactly like that. There are so many different pieces of it.

I'm going to run through what I think are the most common frames of the college cost problem and let you make sense of it as we move through it, recognizing the solutions are someplace in the middle of all of this.

This is the most common frame. You've got these slides in your packet just in case you can't see all of the little subtle charts and graphs. The most common frame is tuitions and what's been happening to tuitions and prices in college, which have been increasing at double the rate of CPI for the better part of 30 years. It's higher than almost any other consumer area and way above medium family income.

It used to be that it was the single biggest number on here. We finally have got something above it, health insurance. But there's no question that, no matter how you slice and dice this and put financial aid in and everything, it is a problem.

This next chart is what has been happening between state and local appropriations for higher education. What we've seen in higher education is a percentage of state and location appropriations and is well known to everyone here which has been a glide path down, but a zigzag path down.

Higher ed, more than any other area of state finance, sees this pattern of erraticism. All of other areas in recession, you'll see things tick down. You'll see them go back up. But you don't see the same jumping up and jumping down. We've got two problems here. One is the decline and the other one is the zigzag. Any institution that is trying to manage to that zigzag has got a problem.

The next manifestation is how the public reacts to this and how policy makers see it. I have a couple of slides here with some public opinion data. This is what's been happening;, the percentage of Americans that think higher education is affordable have been going in a bad direction for the better part of the last 20 years.

The majority of Americans now think that higher education is not affordable. There's a growing percentage of Americans that think the value being spent for higher education is not worth it. Only a minority, 40 percent, believe that the value we're spending is either excellent or good.

If you peer into those numbers and look at what people think, you'll also see a growing share of people who believe institutions can be doing more to control spending without compromising quality.

The next frame has to do with what's happening inside the institutions and this is the difference between what's happening in prices and what's happening in actual spending. The reality is that in most of higher education, certainly in public higher education, actual spending per student has been either flat or going up at most about a percent per year. What we've got is a growing gap between what students are having to pay and what is actually being spent on students.

This is for public community colleges nationwide. This is what's happening. You can see the gap here and all of the things that happen in between that gap. Students are paying for more. Yet, even as they are putting more money into higher education, budgets are being cut. It's a small wonder people don't think there's any value for what they're putting in because, in fact, the plug is out of the tub so even as water is flowing in from the top, it's coming out the bottom.

Explaining this gap between price and cost and why it is that spending is actually going down despite increases in prices has been one of the biggest challenges we've had with the Delta Project with media and policy makers who have almost an aphasic reaction to this. They think, "Prices are going up. Where is the money going?" There's this sense of almost conspiracy, "It's got to be someplace." The reality is that it's evaporating.

Here's the same chart nationwide for public comprehensive universities like Cal State University. Cal State's numbers look very similar to these graphs, so you look a lot like the national average. You really don't have big increases in spending over time. You've got that same price/cost gap.

Within the public sector, the research universities have come out the best, big surprise. In that sector, tuition increases have pretty much kept pace with enrollment and have provided the cushion for the majority, not all of budget cuts.

Now these numbers go just to 2009. Since we work with expenditure data, everything is a couple of years out of whack. If you want to mentally adjust for what's happened since then, you can take this line down here, et cetera.

Nonetheless, within the public sector, you see again costs not increasing quite as fast as prices— about five percent per year in real dollars adjusted for FTE and costs. One of the problems in the public research sector is they're competing in national markets with private research universities. One of the other facets of the college cost problem is what's happening between public institutions and private institutions.

What's happened in the last 20 years is that the market advantage and the economic advantage has really opened up between particularly the selective elite and private research universities over public institutions. 20 years ago for every dollar in a public research university, the privates on average had $1.60. It's now $2.25 to one dollar.

What that means is that public research universities competing in that market are watching their faculty being recruited away, and are loosing both students and resources. This is the standard that they're working against, so they feel a lot poorer compared to these guys than they used to.

The next piece of the college cost problem has to do with spending on labor. One of the common theories about what's going on in higher education and why costs go up in higher education is the assumption that it's all going to salaries and in particular it's going to faculty salaries. In reality, the data shows that the proportion of spending on budgets going to faculty is flat or down.

If you look inside of that, what you see is a bimodal pattern in almost all types of institutions with a majority of teaching being done by faculty who are not full‑time, who are not on tenure track, who are not getting benefits and a significant portion of faculty still on tenure not necessarily doing most of the teaching. You see a V shape in the faculty line.

What's been happening around the country is that institutions have been managing faculty costs by shifting to part time and less expensive faculty. You see more evidence of budget cutting inside of universities on the instructional side than in any other single area. That is not to say that everything else has grown. I'm talking about evidence of budget or cost cutting.

You see spending on salary outlays per employee, not just faculty, has been basically flat in most of higher education. If there's a single smoking gun on where money is going in higher ed, and this is particularly the case in public intuitions and is particularly the case in Cal State, is employee benefits. Employee benefits for healthcare have been going up nationwide an average of five to six percent per year per employee.

If those costs are not brought down, every dime in new tuition revenue is going to go out the door to pay for healthcare. It is the place where spending continues to go up inside institutions and it's consuming a bigger and bigger part of budgets.

This shows the benefits share of compensation and what's been going on across higher ed. What you see is this proportion. The purple part is benefits for 2009/2004. It's now nationwide. For public institutions, benefits now constitute 20 percent of compensation. In Cal State, it's 30 percent. In Oregon, just so you have somebody who's worse than you, the benefit share compensation is 48 percent. In that state, as in many states, it is the state that sets those compensation patterns and the university can't unilaterally change it. Oregon has no co‑pay on healthcare. They've got full family benefits for healthcare.

Tuitions in Oregon now are way higher than yours.Meanwhile, we see more and more of compensation going to health benefits. A couple of just very small points here, and then we can talk about it more... Higher ed, particularly in public four-year institutions, has historically suppressed costs at the lower divisions level and used them to subsidize for higher cost programs, particularly graduate programs and upper division programs.

Nationwide, on average, 36 percent of credits are earned at the lower division level, yet 23 percent of spending is on instruction.  And the same thing is happening at the graduate level, where the gap between the cost of tuition and the amount actually spent on students is even greater.

This is what's happening. I don't say this to be pejorative or pernicious. It's just a fact that we have these habits of spending. It used to be that the money was allocated this way to keep costs the lowest because of high class sizes, because of the use of adjuncts, et cetera at the lower division level which is where also 70 percent of student attrition occurs.

When you look at where we're losing students in higher education, it's heavily in the first two years of college and that's also where we have historically kept spending the lowest. Historically research on the relationship between spending and students success is like so much of the rest of this research, a little murky.

You can't say there's a straight line correlation between spending and student's success, but the level of these numbers is too big in my opinion to be ignored. I think if we want to be thinking about a piece of the cost problem and the types of things we need to be doing collectively to increase student success, we've got to be paying attention to it.

This is a chart that shows where attrition is occurring in higher education, the volume of attrition versus spending per student. You can see late attrition really accounts for just 10 percent, but the costs that have accumulated for late attrition is huge. We've got upside down spending habits and we have a problem of attrition and very costly attrition. The biggest cost to attrition is probably the students, but I won't belabor all of that.

Another frame shows how this situation is discussed and perceived by different stake holders within higher education. This is a summary of focus group research that was done by Public Associates as snapshots of conversations with different groups inside higher ed about how they perceive the cost problem and what they think needs to be done about it.

What they see is a classic case of different perceptions. Everyone agrees there is a college cost problem and they all think they know what it is. The public sees a real collision between a growing need for higher education, the importance of education and the decline of affordability. Their solution is to keep tuition from going up, period.

They see the real need for increased college attainment, higher attainment. They don't see any wiggle room in the state budget. They want to see productivity. They want to see increases in productivity and they want to see improvements in retention. Faculty typically, and I think we heard some of this in the last session, see the problem as the deteriorating quality of the students coming into their institutions. Their solution, "Fix K‑12 and stop talking to us a productivity."

Public college presidents see themselves caught in what a lot of people call the iron triangle, the assumption that there's a zero sum relationship between access and quality and spending. If you cut spending, the only way to do that is either to reduce quality or cut back on access. They see themselves caught in that and their solution is to change public policy and get more money back into higher ed. Private college presidents see themselves caught in a competitive arms race and unable to unilaterally get out of that. They see more and more of their money going into things they don't think have value and they don't know what to do about.

I'm almost done and then King can come explain what I meant to say.

One of the things you see looking at higher ed is a very stark picture of economic stratification that has only gotten worse over the last 20 years. Most people have a mental picture in their mind of what higher ed finance looks like. What I've learned in Washington in particular is that most people there have in their heads about what a university looks like is a private college or a research university. That's where most of them went to school.

A lot of people have this frame about what higher spending looking like, where the money comes from and where it goes. The problem is that generalizations other than this one about higher ed finance are wrong. The difference in the financial habits and characteristics of elite private colleges and community colleges are enormous. You really can't generalize that.

What we did in this chart is just a snapshot of how much spending is going on per student, per year on average. Again this is just for education and related average costs. It doesn't have research in. It doesn't have auxiliaries, no hospitals.

You see, in private research initiations nationwide, an average spending of around $35,000 per student per year. The per capita spending for elite schools actually averages closer to $75,000 and it is over $100,000 at Williams. Whereas the average for community college is closer to $10,000 per student per year.

This next chart shows what happened in the last decade in changes in enrollments and new money in higher ed. Over a million plus new students now crowd the nation's community colleges,  which sufferes from flat spending. The budget is down in many states as contrasted in the private research sector where in just this one period, spending went up by $7,000 on average.

When the critiques are down about higher ed spending, and there's an awful lot of them, the climbing walls and the faculty aren't teaching. There's probably some places where that is true and where that is happening. It's not happening at the far end of the continuum.

Two other quick things and then I'll stop. This has to do with how we use data and how we make decisions about finances in our institution. This is a summary of some focus group work which was done with finance officers about how transparent their data is and whether or not they use fiscal data in making decision.

You'll see, when they're asked the question, "Will greater transparency in finance and better use of data in decision making be a good thing or a bad thing?" overwhelmingly, these guys are saying, "We don't do a good job using data. We could do a lot more with our budgets and with our spending if we had better information and we used it better."

A couple more things I want to say before letting King take over which have to do with what I make of this and where the conversation goes.

Obviously, as you can see from my presentation, I think we need to bring in a lot more data  and an evidentiary lens into a very overheated conversation where there is more heat than light.

But as I've spent time with this topic over the last couple of years, one of the things that I see happen in the conversation is people looking for solutions to the college cost problem frequently go to technology, distance based learning and alternative ways of certifying knowledge as the way we're going to get out of this.

I want to say a couple of things about that in closing. Clearly, technology and alternative forms of learning are going to be a really critical part of this. I think it's already happening. I guess I think that the assumption that this is the solution is based on three things that I don't agree with.

One is an assumption in institutions that colleges and universities cannot change and will not change and that, therefore, if we're to get what we need, more attainment in very difficult financing times, we're going to have to break out of the models that we have and go outside of conventional institutions.

Anybody who's been around higher ed that thinks institutions are easy to change is probably delusional. But I don't agree with the premise that institutions can't be changed. In fact, I guess I agree with Adriana Kaiser who did some research in which she argues higher education suffers from too much spasmodic change which isn't sustained and isn't strategic. At the end of the day, nothing happens because everybody is fomenting all the time. I don't buy that the institutions can't change.

I also think there's a big part of this framing at the public and political level, that it's both anti-institutional and is explicitly anti-faculty. We can get into why that's happening. It's something that we have to pay attention to. I don't believe that faculty, as you can see from the spending data, are the college cost problem. But certainly, the tone of faculty discourse about the problem and its solutions is part of the problem.

I don't believe that we need to give up on institutions. I certainly don't want to give up on faculty, but I think it's at the nub of what we have to be paying attention to. I'll finish with that and we can get back into conversations.

March 8, 2012