Wednesday, April 28, 2010

Is the Business Model of Higher Ed Broken?

by Daniel L. Bennett

Is the Business Model of Higher Ed Broken? That was the supposed resolution at last night's the Miller Center for Public Affairs national debate that featured presidents from 4 different sectors. Somewhat surprisingly, Gail O. Mellow, president of LaGuardia Community College, and William E. Kirwan, chancellor of the University System of Maryland, argued in favor of the proposition, while Richard C. Levin, president of Yale University, and Daniel M. Hamburger, president and chief executive of DeVry Inc., argued against it.

After listening to the debate, I realize that the reason I was somewhat surprised about the sides taken was that the debate didn't focus much on the business operations of colleges and universities, but rather the taxpayer subsidization of them. Presidents Kirwan and Mellow decried the current system because it isn't subsidizing their schools to an extent that keeps up with their spending spree. Ms. Mellow appeared particularly upset about the fact that she has to compete with enterprises such as Mr. Hamburger's Devry for students and the federal aid dollars that follow them, making it obvious of her disdain for the sector as a whole by repeatedly stating that it reaps huge profits for its shareholders and implying that her school would plough back into the school for the supposed benefit of students. This concept is exactly what got us into this mess anyhow (see papers from Bob Martin and my colleague, Andrew Gillen).

On the other side of the debate, Presidents Levin and Hamburger seemed content with the current system, espousing enthusiasm for the diversity of and competition among institutions in the US. Mr. Levin, of course, doesn't really have to worry about public subsidization and competition much as he could fill his limited number of seats every year even if he quadrupled tuition at Yale. Mr. Hamburger's schools are focused on controlling costs and creating wealth, and as such, he has the private capitalization to pursue capacity growth and compete with the public sector institutions for students and the student aid subsidies that follow them. Mr. Hamburger correctly noted that his schools have been successful at meeting the needs of the market that have been unmet by a public sector (i.e. community colleges) that doesn't have the resources to expand capacity, citing the long wait lists for nursing programs at public sector institutions as a great example.

In my own opinion, in the context of the debate, yes the business model is broken and college has become increasingly unaffordable for many American families. The problem is not however that we are not subsidizing higher education enough with taxpayer money (despite that being one of the pretexts of the debate), but rather that we are subsidizing it too much. The state subsidy model worked pretty well in keeping costs under control until the federal government came onto the scene with massive outlays for student aid that has been a significant driver of the rapid expansion of campuses and explosion in costs. None of the participants touched on this topic, but rather stuck to the normal rhetoric of college education bestowing great economic returns and other supposed spillover effects, and that the only way to remain globally competitive is by having the highest proportion of college graduates in the world.

The Chronicle has additional coverage of the event.

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